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DEAR SHAREHOLDERS,
Fiscal 2019 was a great year for OpenText, full of amazing milestones and
achievements that shaped the company for tremendous opportunity ahead.
We delivered a compelling Enterprise Information Management (EIM) platform that included powerful new
products and expanded cloud capabilities to enter Fiscal 2020 with the strongest EIM offering in the industry. By
focusing relentlessly on Total Growth and our disciplined value-creation strategy, OpenText empowers enterprise
companies to unlock the value of their information to gain the Information Advantage and win in industry 4.0.
In Fiscal 2019, OpenText demonstrated why we are the best choice to help customers gain the Information Advantage to become Intelligent
and Connected Enterprises. Our products, market recognition and brand image have never been stronger. This year, we were named:
• #1 in Content Services Platforms by Gartner1
• #1 in Business Networks by IDC2
• An industry leader in the Software for Digital Process Automation for Deep Deployments, Q2 2019 Forrester Wave3
• An industry leader in ECM Content Platforms, Q3 2019 Forrester Wave4
OpenText EIM solutions enable enterprises to leverage information to its full potential, driving productivity, growth, and lasting
competitive advantage. This is what matters to our customers and why they place so much trust in OpenText. The most trusted
companies, trust OpenText.
OUR VISION: INFORMATION ADVANTAGE
Today’s market-disrupting technologies are driving new and exciting opportunities to transform the way we live our personal lives, the way
we do business, and the way we run our governments. The capacity for organizations to generate and collect information is greater than
ever. Harnessing it to its full potential creates an Information Advantage that reveals insights and drives better results.
Over the last 20 years in enterprise software, Enterprise Resource Planning (ERP) software has provided a process advantage. As we look
forward, it is EIM software that will provide an Information Advantage, and it is information that is driving our new world and industry 4.0. Our
information platform supports the best run content services and business networks, that connect humans and machines, that is secure,
and open to analytics, AI and machine learning.
Those who create an Information Advantage today will ride the next wave of transformation in productivity and growth. OpenText
innovations in EIM make that possible.
1. Gartner Magic Quadrant for Content Services Platforms. Karen Hobert, Michael Woodbridge, Monica Basso, Oct. 25, 2018
2. IDC MarketScape: Worldwide Multi-Enterprise Supply Chain Commerce Network 2018 Vendor Assessment, Simon Ellis, December 2018
3. Forrester Wave™: Software For Digital Process Automation For Deep Deployments, Q2 2019, Rob Koplowitz, June 19, 2019
4. Forrester Wave™: ECM Content Platforms, Q3 2019, Cheryl McKinnon, July 24, 2019
CONTINUING OUR PROVEN GROWTH STRATEGY
Over the last five years, OpenText has achieved a Total Revenue Growth CAGR of 12%. Our Total Growth strategy is a powerful trifecta of
three components: retain, grow and acquire. These are proven components within our OpenText Business System.
Retain
The most trusted companies, trust OpenText. We have over 100,000 customers that trust OpenText every day, and that customer trust has
created a durable OpenText where 75% of our revenues are recurring. Our Annual Recurring Revenue (ARR) renewal rates are over 90% and
our Net Promoter Scores are among the best in enterprise software and continue to improve.
Grow
We have an amazing opportunity within our install-base to expand product adoption and migrate customers to the OpenText Cloud. It
is now a Cloud-First world, and OpenText is in a marquee position to be a strategic provider of a cloud platform focused on enabling the
Information Advantage. Over the next few years, we plan to further invest in software and cloud R&D and operations.
Acquire
Over the last five years, we deployed approximately $4.8 billion for acquisitions. Over the coming years, Mergers and Acquisitions (M&A)
will continue to be our leading growth contributor. We run a value-oriented M&A playbook, and with a strong balance sheet and our liquidity
position, we will remain patient and prudent. As a strategic buyer of assets, Return on Invested Capital (ROIC) is a key financial metric, and in
Fiscal 2019 we expanded our ROIC to 18.7%.
In Fiscal 2019, we acquired Liaison Technologies, Inc. and Catalyst Repository Systems, Inc., putting $381 million of capital to work, all from
cash on hand. Both Liaison and Catalyst further enhance our cloud opportunity and recurring cloud revenue business. Liaison’s strong
innovation in multi-enterprise application integration extends OpenText Business Network leadership and the Catalyst acquisition expands
OpenText’s eDiscovery solutions in the legal market.
THE CLOUD: OPENTEXT’S GREATEST OPPORTUNITY
It is now a Cloud-First world, and OpenText is in a marquee position to be a strategic provider of a cloud platform that provides an
Information Advantage. Our Cloud is scaling to a $1 billion run-rate business and we own and operate the OpenText Cloud from 37 data
centers in 9 countries. Thus, we control our own service, our own features, our own capabilities, and our own certifications on a global basis.
We have over 6,000 professionals educated, trained and certified on the OpenText Cloud and we now have 74,000 customers running in the
OpenText Cloud.
OpenText is in the best possible position to run, operate and secure OpenText software in the OpenText Cloud so customers don’t have to.
Our partnerships with Google Cloud platform, Amazon AWS and Microsoft Azure extend the options for our customers and we believe are
untapped go-to-market opportunities for us.
The OpenText Cloud strategy is unique and diversified and has three core offerings. The first is our Business Network, connecting business-
to-business, application-to-application. The second is our private cloud, via managed services. We now have 2,000 global customers
running in our private cloud. Opentext OT2 is the third part and is the public cloud. OT2 is deeply integrated into our off-cloud EIM solutions,
will compete standalone as a public SaaS offering and will compete against pure-play SaaS providers.
Our recently announced next generation product line, OpenText Cloud Edition to be released in CY2020, will enable customers to
accelerate innovation, be more secure, and support the changing nature of work and the workforce. OpenText Cloud Edition will help
revolutionize the way businesses capture, govern, exchange and use information to their full potential, unlocking the Information Advantage
for our customers.
GROWING OUR GLOBAL 10,000 CUSTOMER BASE
The world’s largest organizations trust OpenText to help scale and differentiate their business. We are planning on both broadening and
deepening our coverage within the Global 10,000 and we have a tremendous opportunity to grow our business within our existing customer
base and product set.
ii
NEW PARTNERSHIPS TO ENHANCE VALUE
OpenText is committed to working together with our partners to create next-generation EIM solutions and deliver them to market. Our
expanded partnerships and product integrations with Google, SAP and Mastercard will provide greater content services options in the
cloud for our customers. Customers can leverage the performance, scalability and security of Google Cloud, while deploying cutting-
edge enterprise information management applications from OpenText. Our recently announced partnership with Mastercard will help
automotive enterprises increase financial efficiencies across global supply chains. As part of our Total Growth strategy, OpenText will
continue to look for ways to create even more value from our expanded partnerships.
OPENTEXT EMPLOYEES: OUR MOST VALUABLE RESOURCE
Our people are what truly makes OpenText successful. With the dedication of our 13,000 employees worldwide, our vision is stronger, our
decision making faster, and our value to customers accelerated. Fiscal 2019 is a great reflection of the high performance of the OpenText
team to drive operational excellence while running the OpenText Business System playbook to deepen and strengthen our intelligent
information platform.
“Doing good while doing well” has always been central to OpenText and its employees. In Fiscal 2020, we will also increase our focus
on Technology for Good initiatives, managing our environmental footprint, sustainability, volunteerism, community giving, and diversity
and inclusion.
FISCAL 2019 FINANCIAL PERFORMANCE: A RECORD YEAR
In Fiscal 2019, OpenText delivered a record $2.87 billion in total revenues and our Annual Recurring Revenues business surpassed $2 billion.
Our Cloud business surpassed $900 million in revenues and is scaling into a $1 billion business. Our adjusted EBITDA Margin of 38.4%
surpassed our Fiscal 2019 target range and OpenText delivered record Operating Cash Flows of $876.3 million. These robust results reflect
OpenText’s commitment to drive shareholder value through disciplined execution and operational excellence.
KEY METRICS
ARR(1)
($US M)
$2,156
100%
$1,080
Adj. EBITDA & Margin(2),(3)
($US M)
Operating Cash Flows(3)
($US M)
$1,100
38.4%
104%
$538
33.1%
$876
110%
$417
FY’14
FY’19
FY’14
FY’19
FY’14
FY’19
Renewal Rates:
Cloud: mid-90’s
Customer Support: >90%
Adj. EBITDA Margin(2)
+530 bps since FY’14
Record Annual Operating
Cash Flow
1. ARR – Annual recurring revenue is defined as the sum of cloud services and subscriptions revenue and customer support revenue.
2. Please see reconciliation of GAAP to Non-GAAP measures in our historical filings on Forms 10-Q and 10-K.
3. Refer to Note 1 of our Fiscal 2019 10-K for details on the impact of recently adopted accounting standards on prior period results..
iii
DRIVING SHAREHOLDER VALUE
Our confidence in enhancing operational excellence and expanding cash flows is reflective in our disciplined shareholder value-creation
strategy: increasing business value driven by consistent high-ROIC returns and a dividend program. Our total returns strategy continues
to grow the value of the business and targets returning 20% of our trailing 12-month operating cash flows to shareholders via our dividend
program. We have raised our dividend every year since 2014 and in Fiscal 2019, returned $169 million of cash to shareholders.
LOOKING AHEAD
OpenText’s strong Fiscal 2019 results and the continued trust from our customers places us in a great position for the years ahead. Around
the world, enterprise companies continue to make incredible investments in their digital transformation, and they look to OpenText to
leverage information to their full potential to become Intelligent and Connected Enterprises. In Fiscal 2020 and beyond, we will help our
customers harness the power of information in ways they are just beginning to imagine. This is our time.
As we step into Fiscal 2020, OpenText has never been stronger operationally. We have the flexibility to continue our investments in product
innovation, go-to-market and strategic M&A. We remain focused on improving efficiency and margin expansion to meet our Fiscal 2022
aspirational targets and maximize shareholder value. As we look forward to the coming years, our priorities remain consistent: Total
Growth, cash flow expansion and disciplined value creation.
We have the power to connect humans and machines with market leading content services and business networks. Industry 4.0 will create
unlimited potential for us through new business models and new technologies such as 5G, IoT and machine learning. OpenText will be a
trusted leader, helping our customers achieve the Information Advantage in this wave of innovation and new technologies to come.
On behalf of the Board of Directors, the OpenText Executive Leadership Team, and all our employees worldwide, thank you for your
continued support and confidence.
Sincerely,
Mark J. Barrenechea
OpenText CEO & CTO
iv
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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, 2019 (Fiscal 2019) on growth in earnings and cash flows, anticipated benefits of our
partnerships and next generation product lines, the strength of our operating framework and balance sheet flexibility, continued
investments in product innovation, go-to-market and strategic acquisitions, M&A continuing to be our leading growth
contributor, our capital allocation strategy, creating value through investments in broader Enterprise Information Management
(EIM) capabilities, 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, the focus on recurring revenues, improving operational 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, declaration of quarterly dividends, future tax rates, new platform and product offerings,
scaling OpenText to new levels in Fiscal 2020 and beyond, 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 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.
Notes
(1)
(2)
All dollar amounts in this letter are in U.S. Dollars unless otherwise indicated.
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 consistently 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 income from operations, excluding the amortization of acquired intangible assets, Special charges
(recoveries), and share-based compensation expense.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently 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, primarily due to acquisitions, 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-U.S. GAAP-based financial measures
for the following periods presented. Results for reporting periods commencing July 1, 2018 are presented under the new Topic 606 revenue
standard, while prior period results continue to be reported under the previous standard. For more details relating to our adoption of Topic
606 please see Note 1 "Basis of Presentation" and Note 3 "Revenues" to our Consolidated Financial Statements on Form 10-K.
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, 2019.
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
Trading Symbol(s)
OTEX
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 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
Emerging growth company
Non-accelerated filer
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
No
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
NASDAQ Global Select Market (“NASDAQ”) on December 31, 2018, the end of the registrant's most recently completed second fiscal quarter, was
approximately $8.6 billion. At July 30, 2019, there were 270,011,817 outstanding Common Shares of the registrant.
None.
DOCUMENTS INCORPORATED BY REFERENCE
1
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 Operations
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
65
66
66
67
69
75
98
100
101
102
165
166
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, 2019, 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.
Throughout this Annual Report on Form 10-K: (i) the term "Fiscal 2020" means our fiscal year beginning on July 1, 2019
and ending June 30, 2020; (ii) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30,
2019; (iii) the term “Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ended June 30, 2018; (iv) the term
“Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30, 2017; and (v) the term “Fiscal 2016” means
our fiscal year beginning on July 1, 2015 and ended June 30, 2016. 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. References herein to the “Company”, “OpenText”, “we” or “us” refer to Open Text Corporation and, unless context
requires otherwise, its subsidiaries.
Item 1.
Business
Incorporated in 1991, OpenText has grown to be a leader in providing Enterprise Information Management (EIM)
solutions. We offer a comprehensive line of products and services that aim to enable businesses to grow faster, obtain lower
operational costs and reduce information governance and security risks by improving business insight, impact and process
speed.
Our software is offered through traditional on-premises solutions, on the OpenText Cloud 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.
Business Overview and Strategy
About OpenText
For more than 25 years, we have developed enterprise software to help customers create a sustainable information
advantage in the digital economy. We have a vision of the "Intelligent and Connected Enterprise" enabling businesses and
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governments to accelerate their digital transformation. The comprehensive OpenText 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 enriched with analytics, 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. Our EIM solutions are designed to enable organizations to
secure their information so that they can collaborate with confidence, validate endpoints with all machines and the Internet of
Things (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 analytics, artificial intelligence (AI) and automation.
At OpenText, we follow the big workloads and 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 information technology (IT) and
innovation platforms.
Our Products and Services
We combine digital applications with an information platform, bringing together Content Services, Business Networks
(BN), Analytics and AI, Security and the Developer for optimized customer experience, employee engagement, asset
utilization, and supply chain efficiency. Our software capabilities bring together information from both humans and machines,
where it can be securely managed, stored, accessed and mined with analytics for actionable and relevant insights.
*Off-cloud is a term we use to describe license transactions
Below is a listing of our EIM solutions. In all of this, the developer is critical to the development of "secure-from-day-1"
applications. This is why our EIM platform expands our low-code development capabilities with additional out-of-the-box
integrations designed to support the developer with a unified application development environment. In addition, 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 machine, or an automotive or medical device.
Content Services
Content Services, such as Extended Enterprise Content Management (ECM) and records management, integrate with
platforms, such as SAP, to manage the entire lifecycle of information, in its many formats, from creation through to disposition.
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Our Content Services help organizations connect content to their digital business to accelerate productivity, improve
governance and drive digital transformation. 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 solutions range from intelligent capture to records management and archiving and
are available on-premises, as a subscription in the OpenText Cloud or as a managed service.
Business Network
The OpenText Business Network (BN) supports intelligent connections at a global scale providing a proven foundation
for digital business and secure e-commerce.
Our BN is a cloud-based platform that facilitates efficient, secure and compliant collaboration and exchange of
information inside and outside of organizations. The platform comprises solutions that simplify the inherent complexities of
business-to-business (B2B) data exchange and offer insights that help drive operational efficiencies, accelerate time to
transaction and improve customer satisfaction. Our BN enables businesses to accelerate and control how information is
delivered which we believe increases the security and reliability of sensitive or complex communications.
Artificial Intelligence and Analytics
The OpenText Artificial Intelligence platform 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 focused on managing data
and content archives, we are now able to turn these archives of data into active “data lakes” and incorporate AI to transform this
digital information into useful knowledge and insight for our customers.
Our analytics and AI suite helps organizations improve decision-making, gain operational efficiency and increase
visibility by enabling IT to place interactive dashboards, reports and data visualizations quickly into the hands of business
users. Our AI leverages a comprehensive set of data analytics software to identify patterns, relationships and trends. Our
analytics and AI suite can leverage structured or unstructured data to help organizations increase their opportunities for growth.
Security
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. Our EIM platform supports single sign-on for system protection and encryption at rest for document-level
security.
OpenText security also helps organizations address information security and digital investigation needs with leading
digital forensic tools for endpoint detection and response. EncaseTM provides 360-degree visibility across all endpoints, devices
and networks, for proactive discovery of sensitive data, identification and remediation of threats and discreet, forensically-
sound data collection and investigation.
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.
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Our Strategy
Growth
As an organization, our management believes in delivering “Total Growth”, meaning we strive towards delivering value
through organic initiatives, innovations and acquisitions, 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 deepen our account coverage and identify and execute
strategic acquisitions. With strategic acquisitions, we are better positioned to expand our product portfolio and improve our
ability to innovate and grow organically, which then further helps us to meet our long-term growth targets. We believe this
“Total Growth” strategy is a durable model that will create shareholder value over both the near and long-term.
We are committed to continuous innovation. Our investments in research and development (R&D) drive product
innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies. The
Global 10,000 are the worlds largest companies, typically those with greater than $2billion in revenues, as well as the world's
largest governments and organizations. More valuable products, coupled with our established global partner program, lead to
greater distribution and cross-selling opportunities which further help us to achieve organic growth. Over the last three fiscal
years, we have invested a cumulative total of approximately $926 million in R&D or approximately 11.6% 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 remain a value oriented and disciplined acquirer and consolidator, having efficiently deployed $6.2 billion on
acquisitions over the last 10 years. Mergers and acquisitions are one of our leading growth drivers. We believe in creating value
by focusing on acquiring strategic businesses, integrating them into our business model and using our acquired assets to
innovate. 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. We expect to continue to acquire strategically, to integrate and innovate, to
deepen and strengthen our intelligent information platform for customers.
In Fiscal 2019, we further demonstrated the implementation of our strategy by acquiring Liaison Technologies, Inc.
(Liaison) and Catalyst Repository Systems Inc. (Catalyst). 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.
Our OpenText Release 16 platform (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 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 also introduced OpenText OT2, the next generation EIM as a service platform. With OT2, organizations can leverage
existing investments in their on-premises platforms and extend solutions where cloud can quickly improve time to value, such
as customer, supplier and partner collaboration. Delivering SaaS applications that extend existing solutions prevents new
information silos and simplifies technology investment decisions by providing compelling enterprise applications for business
users.
We continue to make significant investments to our cloud infrastructure, and with products like Release 16 and OT2,
virtually all of our products are available in the "OpenText Cloud".
Looking Towards the Future
In Fiscal 2020 we intend to continue to implement strategies that are designed to:
Broaden Our Reach into EIM through the Global 10,000. As technologies and customers become more sophisticated, we
intend to be a leader in expanding the definition of traditional market sectors. This is the marquee target for EIM and organic
growth. We continue to focus on connecting the G10K to our information platform and we believe we are well positioned to
expand our penetration in this market.
Invest in the Cloud. The cloud is quickly becoming a business imperative. What used to be discussed as a potential option
for managing budgets, is now a strategic direction that drives competitive positioning, product innovation, business agility, and
cost management. We are committed to continue our investment in The OpenText Cloud, which is a purpose-built cloud
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environment for enterprise solutions spanning Information Management, Compliance, and B2B Integration. Supported by a
global, scalable, and secure infrastructure, OpenText Cloud includes a foundational platform of technology services, and
packaged business applications for industry and business processes. The OpenText Cloud enables organizations to protect and
manage information in public, private or hybrid deployments.
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
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 be a partner-
embracing company. Our partnerships with companies such as SAP SE, Google Cloud, Microsoft Corporation, Oracle
Corporation, Salesforce.com Corporation 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 to strengthen our service offerings
in the EIM market. 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.
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 2019, Fiscal 2018
and Fiscal 2017, 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) hosted services and (iii) managed service
arrangements. 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.
We offer B2B integration solutions such as messaging 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. Our cloud-based
Business Network enables customers to effectively manage the flow of electronic transaction information with their trading
partners and reduces the complexity of disparate standards and communication protocols.
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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
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 Global 10,000 organizations, enterprise companies, mid-market companies and public
sector agencies. Historically, including in Fiscal 2019, no single customer has accounted for 10% or more of our total revenues.
Partners and Alliances
We are also committed to establishing relationships with the best resellers and technology and service providers to ensure
customer success. Together as partners, we fulfill key market objectives to drive new business, establish a competitive
advantage, and create demonstrable business value.
Our Global Partner Program enables us to focus on the core roots of our partnerships. The framework offers five distinct
programs: Referral, Reseller, Services, Technology, and Support. This creates an extended organization to develop
technologies, repeatable service offerings, and solutions that enhance the way our customers maximize their investment in our
products and services. Through the Global Partner Program, we are extending market coverage, building stronger relationships,
and providing customers with a more complete local ecosystem of partners to meet their needs. Each distinct program is
focused to provide valuable business benefits to the joint relationship. A complete listing of our partners can be found on our
website.
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.
• Google Cloud: We work together with Google Cloud to deploy our EIM solutions on the Google Cloud Platform. This
includes a containerized application architecture for flexible cloud or hybrid deployment models. Deploying our
solutions on the Google Cloud Platform allows our customers to scale their deployments as their businesses demand.
We also work with the Google Cloud engineering team to explore integrations with Google Analytics, G-Suite and
other functions.
• 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.
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•
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.
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 us. Our primary competitor is International Business
Machines Corporation (IBM), with numerous other software vendors competing with us in the EIM sector, such as Veeva
Systems Inc., j2 Global Inc., Pegasystems Inc., Hyland Software Inc., SPS Commerce Inc., Box 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 $321.8 million for Fiscal 2019, $322.9
million for Fiscal 2018, and $281.2 million for Fiscal 2017. 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.
Below is a summary of the more material acquisitions we have made over the last five fiscal years.
In Fiscal 2019, we completed the following acquisitions:
•
•
On January 31, 2019, we acquired Catalyst for approximately $70.8 million.
On December 17, 2018, we acquired Liaison for approximately $310.6 million.
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Prior to Fiscal 2019, we completed the following acquisitions:
•
•
•
•
•
•
•
•
•
•
•
On February 14, 2018, we acquired Hightail, a leading cloud service for file sharing and creative collaboration, for
approximately $20.5 million.
On September 14, 2017, we acquired Guidance, a leading provider of forensic security solutions, for approximately
$240.5 million.
On July 26, 2017, we acquired Covisint, a leading cloud platform for building Identity, Automotive,and IoT
applications, for approximately $102.8 million.
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.
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 in part on our ability to develop, protect 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 corporate and 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. From time to time, we may
enforce our intellectual property rights through litigation in line with our strategic and business objectives. 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.
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Employees
As of June 30, 2019, we employed a total of approximately 13,100 individuals. The approximate composition of our
employee base is as follows: (i) 2,100 employees in sales and marketing, (ii) 3,700 employees in product development, (iii)
3,100 employees in cloud services, (iv) 1,500 employees in professional services, (v) 1,100 employees in customer support, and
(vi) 1,600 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
OpenText Corporation was incorporated on June 26, 1991. 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.
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. 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. Except for the documents specifically incorporated by reference into this Annual Report,
information contained on the SEC or CSA websites is not incorporated by reference in the Annual Report on Form 10-K and
should not be considered to be a part of the Annual Report. 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.
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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. 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. In addition, our
financial results could be materially adversely affected if the financial condition of our distributors or third party service
providers were to weaken. Some of our distributors and third party service providers may have insufficient financial resources
and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and
market trends.
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, 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.
12
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, which could materially
adversely affect our operating results
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
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, and these measures can be costly and/or subject us to
counterclaims. 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 Canadian and U.S. 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
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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.
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 (including misappropriation and/or other intellectual property violation) 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
14
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. Moreover, our competitors may affect our business by entering into exclusive arrangements with
our existing or potential customers, distributors or third party service providers. 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
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 or
the market price of our common shares. 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.
15
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;
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.
16
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,
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 plans (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.
17
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.
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 2019, Fiscal 2018 and Fiscal 2017 were $(4.3) million, $4.8 million, and $3.1 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, including those resulting from trade and tariff
disputes. 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 and the Foreign Corrupt Practices Act, including potential violations by acts of agents or other intermediaries),
costs related to localizing products for foreign markets, costs related to translating and distributing software products in a
timely manner, costs related to increased financial accounting and reporting burdens and complexities, longer sales and
collection cycles for accounts receivables, failure of laws to protect our intellectual property rights adequately, local
competition, and economic or political instability and uncertainties, including inflation, recession, interest rate fluctuations and
actual or anticipated military or geopolitical conflicts. 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
18
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. 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. 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 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 European Union (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 (or a so called "no deal" 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. Continued
uncertainty as to the terms of Brexit may result in heightened near term economic volatility. While we have not experienced
any material financial impact from Brexit on our business to date, we cannot predict its future implications. Any impact from
Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade,
regulatory, and other negotiations the United Kingdom conducts (as well as the possibility of a "no deal" Brexit), and 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,
defects and/or other failures may be found in new software products or services or improvements to existing products or
services after delivery to our customers. If these defects, errors and/or other failures are discovered, we may not be able to
successfully correct them 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,
defects and/or other 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, defects and/or other 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, defects and/or other
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,
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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
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, telecommunications 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. Global climate change may furthermore aggravate
natural disasters that effect our business operations, thereby compelling us to build additional resiliency in order to mitigate
impact. 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 and/or
on litigation, regulatory investigations, regulatory proceedings, increased insurance premiums, lost revenues, penalties, fines
and/or other potential liabilities, 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, regulatory investigations, increase insurance premiums,
remediation efforts, indemnification expenditures, lost revenues and/or 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
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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 circumstances could also result in adverse impact on the market price of our
Common Shares. 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;
• 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, London Inter-Bank Offered Rate (LIBOR) and other applicable interest
rates (including the anticipated replacement of LIBOR as a benchmark rate);
Investor perception of our Company;
• 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, including data privacy and cybersecurity laws and regulations;
• Changes in general economic and business conditions; and
• Changes in general political developments, such as the impact of Brexit, changes to international trade policies and
policies taken to stimulate or to preserve national economies.
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.
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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.
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, 2019, our credit facilities consisted of a $1.0 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, 2019, 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.
Our Term Loan B and Revolver have variable rates of interest, some of which use LIBOR as a benchmark. There is
currently uncertainty regarding the continued use and reliability of LIBOR. As a result, any financial instruments or agreements
using LIBOR as a benchmark interest rate may be adversely affected. This uncertainty about the future of LIBOR and the
potential discontinuance of LIBOR may exacerbate the risk to us of increased interest rates, and our business, prospects,
financial condition and results of operations could be materially adversely affected.
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 and the market
price of our common shares.
For more details see note 10 "Long-Term Debt" to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.
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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, 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. Furthermore, new accounting
pronouncements or new interpretations of existing accounting pronouncements, 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.
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.
For more details of tax audits to which we are subject, 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.
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, that, as revised by the IRS on July 11, 2018 proposes a one-time approximately
$335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 (the 2010 NOPA), plus penalties
equal to 20% of the additional proposed taxes for Fiscal 2010, and interest at the applicable statutory rate published by the IRS.
On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA proposing a one-time
approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA). arising from the integration of
Global 360 Holding Corp. into the structure that resulted from the internal reorganization in Fiscal 2010, plus penalties equal to
40% of the additional proposed taxes for Fiscal 2012, and interest.
On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for
Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation
was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with
the exception of an additional proposed penalty as part of the 2012 NOPA.
A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’
positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any
proposed penalties and interest.
As of our receipt of the final 2010 NOPA and 2012 NOPA, our estimated potential aggregate liability, as proposed by the
IRS, including additional state income taxes plus penalties and interest that may be due, to be approximately $770 million,
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comprised of approximately $455 million in U.S. federal and state taxes, approximately $130 million of penalties, and
approximately $185 million of interest. Interest will continue to accrue at the applicable statutory rates until the matter is
resolved and may be substantial.
As previously disclosed and noted above, we strongly disagree with the IRS’ position and we are vigorously contesting
the proposed adjustments to our taxable income, along with the proposed penalties and interest. We are examining various
alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S. Federal court.
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
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 or tariffs. 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 trade
and tariff disputes, 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
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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.
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. 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.
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 and/or
processing 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.
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.
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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. There is currently uncertainty regarding the continued use and reliability of LIBOR. As a result, any financial
instruments or agreements using LIBOR as a benchmark interest rate may be adversely affected. This uncertainty about the
future of LIBOR and the potential discontinuance of LIBOR may exacerbate the risk to us of increased interest rates, and our
business, prospects, financial condition and results of operations could be materially and adversely affected. 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.
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 2.4 million 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
The following table sets forth the location and approximate square footage of our leased facilities:
Americas (1)
EMEA (2)
Asia Pacific (3)
Total
Square Footage
1,143,000
582,000
705,000
2,430,000
(1)
(2)
(3)
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.
26
Included in the total approximate square footage of leased facilities is approximately 279,000 square feet of vacated space
which has either been sublet or is being actively marketed for sublease or disposition.
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”.
On June 30, 2019, the closing price of our Common Shares on the NASDAQ was $41.20 per share, and on the TSX was
Canadian $54.04 per share.
As at June 30, 2019, we had 346 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.
Stock Purchases
No shares were repurchased during the three months ended June 30, 2019.
Stock Performance Graph and Cumulative Total Return
The following graph compares for each of the five fiscal years ended June 30, 2019, 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, 2014, 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.
28
The chart below provides information with respect to the value of $100 invested on June 30, 2014 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,
2014
$100.00
$100.00
$100.00
$100.00
June 30,
2015
$85.71
$116.33
$114.44
$84.45
June 30,
2016
$127.21
$124.89
$112.51
$81.05
June 30,
2017
$137.67
$163.28
$144.35
$89.92
June 30,
2018
$156.12
$218.94
$178.42
$98.10
June 30,
2019
$185.85
$264.11
$192.30
$102.28
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.
29
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.
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
30
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 2018 or 2019 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 2020 taxable year.
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.
31
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 Catalyst, Liaison, Hightail, Guidance, Covisint, ECD Business,
CCM Business, Recommind, ANX, CEM Business, Daegis, and Actuate. 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.
(In thousands, except per share data)
2019
2018
2017
2016
2015
Fiscal Year Ended June 30,
$
$
285,501 $
242,224 $
1,824,228 $
2,868,755 $
2,815,241 $
2,291,057 $
Statement of Income Data:
Revenues(1)
Net income, attributable to
OpenText(2)
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) Effective July 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606) using the
cumulative effect approach. We applied the standard to contracts that were not completed as of the date of the initial adoption. Results for reporting periods
commencing on July 1, 2018 are presented under the new revenue standard, while prior period results continue to be reported under the previous standard.
(2) Fiscal 2017 included a significant one-time tax benefit of $876.1 million recorded in the first quarter of Fiscal 2017.
1,025,659 $
284,477 $
242,926
244,076
268,784
266,085
253,879
267,492
255,805
269,908
1.17 $
1.17 $
4.04 $
4.01 $
0.91 $
0.91 $
1.06 $
1.06 $
$
$
244,184
245,914
0.96
0.95
1,851,917
234,327
2019
2018
2017
2016
2015
As of June 30,
Balance Sheet Data:
Total assets
Total Long-term liabilities
Cash dividends per Common Share
$
$
$
7,933,975 $
3,034,588 $
7,765,029 $
3,053,172 $
7,480,562 $
2,820,200 $
5,154,144 $
2,503,918 $
4,353,330
1,899,086
0.6300 $
0.5478 $
0.4770 $
0.4150 $
0.3588
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, 2019
and ending June 30, 2020 (Fiscal 2020) 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 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; (xxiii) statements about acquisitions and their expected impact; and (xxiv) 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 trade and tariff
disputes); (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
any transition from the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) 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
33
otherwise, of the Company; (ii) the ability of the Company to bring new 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 refer to the year ended June 30, 2019 (Fiscal 2019) compared
with the year ended June 30, 2018 (Fiscal 2018). Please refer to Part II, Item 7 of our Annual Report on Form 10-K for Fiscal
2018 for a comparative discussion of our Fiscal 2018 financial results as compared to Fiscal 2017.
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 comprehensive OpenText 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 enriched with analytics, 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. Our EIM solutions are designed to enable organizations to secure their
information so that they can collaborate with confidence, validate endpoints with all machines and the Internet of Things (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 analytics, artificial intelligence (AI) and automation.
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, 2019, employed approximately 13,100 people worldwide.
Our ticker symbol on both the NASDAQ and the TSX is "OTEX".
Fiscal 2019 Summary:
During the first quarter of Fiscal 2019, we adopted Accounting Standards Codification (ASC) Topic 606 "Revenue from
Contracts with Customers" (Topic 606) using the cumulative effect approach and recorded a net increase of approximately $30
million to retained earnings as of July 1, 2018. Results for reporting periods commencing on July 1, 2018 are presented under
Topic 606, while prior periods, unless specifically referred to in this MD&A, continue to be reported under the previous
34
standard. Please refer to Note 1 "Basis of Presentation" and Note 3 "Revenues" to our Consolidated Financial Statements for
additional details.
During Fiscal 2019 we saw the following activity:
• Total revenue was $2,868.8 million, up 1.9% compared to the prior fiscal year; up 3.8% after factoring the impact of
$53.2 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 $2,155.7 million, up 4.6% compared to the prior fiscal year; up 6.2% after factoring
the impact of $34.0 million of foreign exchange rate changes.
• Cloud services and subscriptions revenue was $907.8 million, up 9.5% compared to the prior fiscal year; up 10.8%
after factoring the impact of $10.8 million of foreign exchange rate changes.
• License revenue was $428.1 million, down 2.2% compared to the prior fiscal year; up 0.4% after factoring the
impact of $11.2 million of foreign exchange rate changes.
• GAAP-based EPS, diluted, was $1.06 compared to $0.91 in the prior fiscal year.
• Non-GAAP-based EPS, diluted, was $2.76 compared to $2.56 in the prior fiscal year.
• GAAP-based gross margin was 67.6% compared to 66.2% in the prior fiscal year.
• Non-GAAP-based gross margin was 74.1% compared to 73.0% in the prior fiscal year.
• GAAP-based net income attributable to OpenText was $285.5 million compared to $242.2 million in the prior fiscal
year.
• Non-GAAP-based net income attributable to OpenText was $744.7 million compared to $683.6 million in the prior
fiscal year.
• Adjusted EBITDA was $1,100.3 million compared to $1,020.4 million in the prior fiscal year.
• Operating cash flow was $876.3 million for the year ended June 30, 2019, up 23.8% from the prior fiscal year.
• Cash and cash equivalents was $941.0 million as of June 30, 2019, compared to $682.9 million as of June 30, 2018.
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.
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.
Catalyst Repository Systems Inc. (Catalyst)
On January 31, 2019, we acquired all of the equity interest in Catalyst, a leading provider of eDiscovery that designs,
develops and supports market-leading cloud eDiscovery software, for approximately $70.8 million in an all cash transaction.
This acquisition complements and extends our EIM portfolio. The results of operations of this acquisition have been
consolidated with those of OpenText beginning January 31, 2019.
Liaison Technologies, Inc. (Liaison)
On December 17, 2018, we acquired all of the equity interest in Liaison, a leading provider of cloud-based business to
business integration, for approximately $310.6 million in an all cash transaction. This acquisition complements and extends our
EIM portfolio. The results of operations of this acquisition have been consolidated with those of OpenText beginning
December 17, 2018.
Outlook for Fiscal 2020
As an organization, our management believes in delivering “Total Growth”, meaning we strive towards delivering value
through organic initiatives, innovations and acquisitions, as well as financial performance. This growth is further enhanced
35
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 deepen our account coverage and identify and execute
strategic acquisitions. With strategic acquisitions, we are better positioned to expand our product portfolio and improve our
ability to innovate and grow organically, which then further helps us to meet our long-term growth targets. We believe this
“Total Growth” strategy is a durable model that will create shareholder value over both the near and long-term.
We are committed to continuous innovation. Our investments in research and development (R&D) drive product
innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies. More
valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling
opportunities which further help us to achieve organic growth. This fiscal year we invested approximately $322 million or
approximately 11% of revenue in R&D, in line with our target to spend approximately 11% to 13% of revenues for R&D each
fiscal year.
We remain a value oriented and disciplined acquirer and consolidator, having efficiently deployed $6.2 billion on
acquisitions over the last 10 years. Mergers and acquisitions are one of our leading growth drivers. We believe in creating value
by focusing on acquiring strategic businesses, integrating them into our business model and using our acquired assets to
innovate. 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. We expect to continue to acquire strategically, to integrate and innovate, to
deepen and strengthen our intelligent information platform for customers.
In Fiscal 2019, we further demonstrated the implementation of our strategy by acquiring Liaison Technologies, Inc.
(Liaison) and Catalyst Repository Systems Inc. (Catalyst). 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.
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. Actual results may differ materially from those estimates. Note 2
“Accounting Policies and Recent Accounting Pronouncements” to the Consolidated Financial Statements contains a summary
of the policies that involve assumptions, judgments and estimates and have the greatest impact on our Consolidated Financial
Statements. The policies listed below are areas that may contain key components of our results of operations and are based on
complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting
policies. Some of these accounting policies involve complex situations and require a higher 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 critical accounting policies which we believe are the most important to aid in fully understanding and
evaluating our reported financial results include the following:
(i)
(ii)
(iii)
(iv)
Revenue recognition,
Goodwill,
Acquired intangibles, and
Income taxes.
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
In accordance with Topic 606, we account for a customer contract when we obtain written approval, the contract is
committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is
transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our
products and services (at its transaction price). Estimates of variable consideration and the determination of whether to include
estimated amounts in the transaction price are based on readily available information, which may include historical, current and
forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and
circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities
that are imposed on and concurrent with specific revenue producing transactions.
36
We have four revenue streams: license, cloud services and subscriptions, customer support, and professional service and
other.
License revenue
Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which
are deployed on the customer’s premises (on-premise).
Perpetual licenses: We sell perpetual licenses which provide customers the right to use software for an indefinite period
of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses
provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality.
Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been
transferred to the customer, which normally occurs once software activation keys have been made available for download.
Term licenses and Subscription licenses: We sell both term and subscription licenses which provide customers the right
to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in
installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are
functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue
is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once
software activation keys have been made available for download at the commencement of the term.
Cloud services and subscriptions revenue
Cloud services and subscriptions revenue are from hosting arrangements where, in connection with the licensing of
software, the end user doesn’t take possession of the software, as well as from end-to-end fully outsourced business-to-business
(B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides
on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis. Our cloud
arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions
and managed services.
PaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions): We offer cloud-based
solutions that provide customers the right to access our software through the internet. Our cloud-based solutions represent
a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. These
services are made available to the customer continuously throughout the contractual period, however, the extent to which
the customer uses the services may vary at the customer’s discretion. The payment for cloud-based solutions may be
received either at inception of the arrangement, or over the term of the arrangement.
These cloud-based solutions are considered to have a single performance obligation where the customer simultaneously
receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the
term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage
basis, such as the number of users, is recognized based on a customer’s utilization of the services in a given period.
Additionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met:
(i) The customer has the contractual right to take possession of the software at any time without significant penalty; and
(ii) It is feasible for the customer to host the software independent of us.
In these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is
distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be
recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the
hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence
suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the
arrangement.
Managed services: We provide comprehensive B2B process outsourcing services for all day-to-day operations of a
customers’ B2B integration program. Customers using these managed services are not permitted to take possession of our
software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance
obligation is satisfied as we provide services of operating and managing a customer's electronic data interchange (EDI)
environment. Revenue relating to these services is recognized using an output method based on the expected level of
service we will provide over the term of the contract.
37
In connection with cloud subscription and managed service contracts, we often agree to perform a variety of services
before the customer goes live, such as, converting and migrating customer data, building interfaces and providing training.
These services are considered an outsourced suite of professional services which can involve certain project-based activities.
These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as part of the
customer life cycle. These services can be charged separately on a fixed fee or time and materials basis, or the costs associated
may be recovered as part of the ongoing cloud subscription or managed services fee. These outsourced professional services are
considered to be distinct from the ongoing hosting services and represent a separate performance obligation within our cloud
subscription or managed services arrangements. The obligation to provide outsourced professional services is satisfied over
time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance obligations. For
outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our performance
obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion
of total estimated hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the
value to the customer of our performance to date, we recognize revenue at that amount.
Customer support revenue
Customer support revenue is associated with perpetual, term license and on-premise subscription arrangements. As
customer support is not critical to the customer's ability to derive benefit from its right to use our software, customer support is
considered as a distinct performance obligation when sold together in a bundled arrangement along with the software.
Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a
when-and-if-available basis. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option
of the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same
duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over
the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to
the customer during the contract term. As the elements of customer support are delivered concurrently and have the same
pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly
throughout the contract period from the guarantee that the customer support resources and personnel will be available to them,
and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for
customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line
with how we believe services are provided.
Professional service and other revenue
Our professional services, when offered along with software licenses, consist primarily of technical services and training
services. Technical services may include installation, customization, implementation or consulting services. Training services
may include access to online modules or delivering a training package customized to the customer’s needs. At the customer’s
discretion, we may offer one, all, or a mix of these services. Payment for professional services is generally a fixed fee or is a fee
based on time and materials.
Professional services can be arranged in the same contract as the software license or in a separate contract.
As our professional services do not significantly change the functionality of the license and our customers can benefit
from our professional services on their own or together with other readily available resources, we consider professional
services as distinct within the context of the contract.
Professional service revenue is recognized over time so long as: (i) the customer simultaneously receives and consumes
the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and
(iii) our performance does not create an asset with alternative use and we have enforceable right to payment.
If all of the above criteria are met, we use an input-based measure of progress for recognizing professional service
revenue. For example, we may consider total labor hours incurred compared to total expected labor hours. As a practical
expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our
performance to date, we will recognize revenue at that amount.
38
Material rights
To the extent that we grant our customer an option to acquire additional products or services in one of our arrangements,
we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to
the customer that the customer would not receive without entering into the contract. For example, if we give the customer an
option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would
be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services.
If a material right exists in one of our contracts then revenue allocated to the option is deferred and we would recognize that
deferred revenue only when those future products or services are transferred or when the option expires.
Based on history, our contracts do not typically contain material rights and when they do, the material right is not
significant to our consolidated financial statements.
Arrangements with multiple performance obligations
Our contracts generally contain more than one of the products and services listed above. Determining whether goods and
services are considered distinct performance obligations that should be accounted for separately or as a single performance
obligation may require judgment, specifically when assessing whether both of the following two criteria are met:
•
the customer can benefit from the product or service either on its own or together with other resources that are
readily available to the customer; and
• our promise to transfer the product or service to the customer is separately identifiable from other promises in
the contract.
If these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise
for the single performance obligation.
If these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the
total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.
Standalone selling price
The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar
circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data. We
typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when
material changes in facts and circumstances warrant a review.
If the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual
approach. Estimating SSP requires judgment that could impact the amount and timing of revenue recognized. SSP is a
formal process whereby management considers multiple factors including, but not limited to, geographic or regional
specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.
Transaction Price Allocation
In bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction
price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may
not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate
the transaction price between the license and customer support performance obligations using the residual approach
because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual
approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our
established SSP range, then an adjustment is required and we will allocate the transaction price between license and
customer support at a constant ratio reflecting the mid-point of the established SSP range.
When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and
circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will
account for them as a single arrangement and allocate the consideration for the combined contracts among the
performance obligations accordingly.
In accordance with Topic 606, we believe there are significant assumptions, judgments and estimates involved in the
accounting for revenue recognition discussed above and these assumptions, judgment and estimates could impact the timing of
when revenue is recognized and could have a material impact on our Consolidated Financial Statements.
39
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, 2019. 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 2019 (no impairments were recorded for Fiscal 2018 and Fiscal 2017).
Acquired intangibles
In accordance with business combinations accounting, we allocate the purchase price of acquired companies to the
tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Such valuations may require
management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible
assets typically consist of acquired technology and customer relationships associated with various acquisitions.
In valuing our acquired intangible assets, we may make assumptions and estimates based in part on information obtained
from the management of the acquired company, which may make our assumptions and estimates inherently uncertain.
Examples of critical estimates we may make in valuing certain of the intangible assets that we acquire include, but are not
limited to:
•
•
•
•
future expected cash flows of our individual revenue streams;
historical and expected customer attrition rates and anticipated growth in revenue from acquired customers;
the expected use of the acquired assets; and
discount rates.
As a result of the judgments that need to be made, we obtain the assistance of independent valuation firms. We complete
these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of
the identifiable net assets acquired is recorded as goodwill.
Although we believe the assumptions and estimates of fair value we have made in the past have been reasonable and
appropriate, they are based in part on historical experience and information obtained from the management of the acquired
companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may
affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period,
which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed
with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition.
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, based on events that occurred subsequent to the acquisition date, are
recorded in our consolidated statements of income.
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.
40
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
The Company’s tax positions are subject to audit by local taxing authorities across multiple global subsidiaries and the
resolution of such audits may span multiple years. Since tax law is complex and often subject to varied interpretations, it is
uncertain whether some of the Company’s tax positions will be sustained upon audit. Our assumptions, judgments and
estimates relative to the current provision for income taxes considers current tax laws, our interpretations of current tax laws
and possible outcomes of current and future audits conducted by domestic and foreign tax authorities. While we believe the
assumptions and estimates that we have made are reasonable, such assumptions and estimates could have a material impact to
our Consolidated Financial Statements upon ultimate resolution of the tax positions. For additional details, please see note 14
"Income Taxes" elsewhere in this Annual Report on Form 10-K.
41
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 type, revenues by major geography, cost of revenues by product
type, total gross margin, total operating margin, gross margin by product type, 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.
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,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
$
428,092
$
(9,420)
$
437,512
$
68,368
$
907,812
1,247,915
284,936
2,868,755
930,703
1,938,052
67.6%
78,844
15,411
(31,321)
53,514
(20,296)
73,810
828,968
1,232,504
316,257
2,815,241
950,999
1,864,242
123,473
251,402
80,941
524,184
189,442
334,742
2017
369,144
705,495
981,102
235,316
2,291,057
761,557
1,529,500
66.2%
66.8%
Total GAAP-based Operating Expenses
1,371,042
13,493
1,357,549
182,749
1,174,800
Total GAAP-based Income from Operations
$
567,010
$
60,317
$
506,693
$
151,993
$
354,700
% 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
14.9%
31.7%
43.5%
9.9%
15.6%
29.4%
43.8%
11.2%
$
14,347
$
654
$
13,693
$
61
$
383,993
124,343
224,635
183,385
19,833
(9,546)
(28,754)
(2,483)
364,160
133,889
253,389
185,868
64,310
11,324
58,435
55,312
Total cost of revenues
$
930,703
$
(20,296)
$
950,999
$
189,442
$
% GAAP-based Gross Margin by Product Type:
16.1%
30.8%
42.8%
10.3%
13,632
299,850
122,565
194,954
130,556
761,557
96.3%
57.5%
87.5%
17.2%
96.6%
57.7%
90.0%
21.2%
96.9%
56.1%
89.1%
19.9%
$
1,683,282
$
63,648
$
1,619,634
$
262,215
$
1,357,419
920,422
265,051
2,655
(12,789)
917,767
277,840
197,207
64,762
720,560
213,078
$
2,868,755
$
53,514
$
2,815,241
$
524,184
$
2,291,057
58.7%
32.1%
9.2%
42
57.5%
32.6%
9.9%
59.2%
31.5%
9.3%
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)
GAAP-based gross margin
GAAP-based EPS, diluted
Net income, attributable to OpenText
Non-GAAP-based gross margin (5)
Non-GAAP-based EPS, diluted (5)
Adjusted EBITDA (5)
2019
67.6%
1.06
285,501
74.1%
2.76
1,100,291
$
$
$
$
Year Ended June 30,
2018
66.2%
0.91
242,224
73.0%
2.56
1,020,351
$
$
$
$
2017
66.8%
4.01
1,025,659
72.6%
2.02
794,285
$
$
$
$
(1)
(2)
(3)
(4)
(5)
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.
Revenues, Cost of Revenues and Gross Margin by Product Type
1) License:
Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which
are deployed on the customer’s premises (on-premise). 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
GAAP-based License Gross Profit
GAAP-based License Gross Margin %
% License Revenues by Geography:
Americas
EMEA
Asia Pacific
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
$
215,871
$
8,216
$
207,655
$
29,257
$
178,398
163,622
48,599
428,092
14,347
(7,009)
(10,627)
(9,420)
654
170,631
59,226
437,512
13,693
23,788
15,323
68,368
61
146,843
43,903
369,144
13,632
$
413,745
$
(10,074)
$
423,819
$
68,307
$
355,512
96.6%
50.4%
38.2%
11.4%
96.9%
47.5%
39.0%
13.5%
96.3%
48.3%
39.8%
11.9%
License revenues decreased by $9.4 million or 2.2% during the year ended June 30, 2019 as compared to the prior fiscal
year; up 0.4% after factoring the impact of $11.2 million of foreign exchange rate changes. Geographically, the overall change
was attributable to an increase in Americas of $8.2 million, offset by a decrease in Asia Pacific of $10.6 million and a decrease
in EMEA of $7.0 million.
During Fiscal 2019, we closed 153 license deals greater than $0.5 million, of which 49 deals were greater than $1.0
million, contributing approximately $144.1 million of license revenues. This was compared to 140 deals greater than $0.5
million during Fiscal 2018, of which 58 deals were greater than $1.0 million, contributing $152.2 million of license revenues.
Cost of license revenues increased by $0.7 million during the year ended June 30, 2019 as compared to the prior fiscal
year. The gross margin percentage on license revenues remained at approximately 97%.
43
For illustrative purposes only, had we accounted for revenues under proforma Topic 605, license revenues would have
been $390.4 million for the year ended June 30, 2019, which would have been lower by approximately $47.1 million or 10.8%
as compared to the prior fiscal year; and would have been lower by 8.4% after factoring the impact of $10.4 million of foreign
exchange rate changes. Geographically, the overall change would have been attributable to a decrease in Americas of $17.7
million, a decrease in EMEA of $15.7 million and a decrease in Asia Pacific of $13.7 million.
The $37.7 million difference between license revenues recognized under Topic 606 and those proforma Topic 605 license
revenues described above is the result of timing differences, where under Topic 605, revenues would have been deferred and
recognized over time, but under Topic 606 these revenues are recognized up front. For more details, see note 3 "Revenues" to
our Consolidated Financial Statements.
2) Cloud Services and Subscriptions:
Cloud services and subscriptions revenues are from hosting arrangements where in connection with the licensing of
software, the end user doesn’t take possession of the software, as well as from end-to-end fully outsourced business-to-business
(B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides
on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis via an identified
line. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS),
cloud subscriptions and managed services.
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, and some third party royalty costs.
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
$
616,776
$
61,553
$
555,223
$
70,216
$
(In thousands)
Cloud Services and Subscriptions:
Americas
EMEA
Asia Pacific
Total Cloud Services and Subscriptions Revenues
Cost of Cloud Services and Subscriptions Revenues
206,227
84,809
907,812
383,993
GAAP-based Cloud Services and Subscriptions Gross Profit
$
523,819
$
GAAP-based Cloud Services and Subscriptions Gross
Margin %
% Cloud Services and Subscriptions Revenues by
Geography:
Americas
EMEA
Asia Pacific
57.7%
67.9%
22.7%
9.4%
14,707
2,584
78,844
19,833
59,011
191,520
82,225
828,968
364,160
40,673
12,584
123,473
64,310
$
464,808
$
59,163
$
56.1%
67.0%
23.1%
9.9%
2017
485,007
150,847
69,641
705,495
299,850
405,645
57.5%
68.7%
21.4%
9.9%
Cloud services and subscriptions revenues increased by $78.8 million or 9.5% during the year ended June 30, 2019 as
compared to the prior fiscal year; up 10.8% after factoring the impact of $10.8 million of foreign exchange rate changes.
Geographically, the overall change was attributable to an increase in Americas of $61.6 million, an increase in EMEA of $14.7
million, and an increase in Asia Pacific of $2.6 million.
The number of Cloud services deals greater than $1.0 million that closed during Fiscal 2019 was 46 deals, consistent with
that in Fiscal 2018.
Cost of Cloud services and subscriptions revenues increased by $19.8 million during the year ended June 30, 2019 as
compared to the prior fiscal year, due to an increase in labour-related costs of approximately $19.1 million and an increase in
third party network usage fees of $1.3 million. These were partially offset by a decrease in other miscellaneous costs of $0.6
million. The increase in labour-related costs was primarily due to increased headcount from recent acquisitions.
Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to approximately 58% from
approximately 56%.
For illustrative purposes only, had we accounted for revenues under proforma Topic 605, Cloud services and
subscriptions revenues would have been $901.5 million for the year ended June 30, 2019, which would have been higher by
approximately $72.5 million or 8.7% as compared to the prior fiscal year; and would have been up 10.1% after factoring the
impact of $11.0 million of foreign exchange rate changes. Geographically, the overall change would have been attributable to
44
an increase in Americas of $56.4 million, and an increase in EMEA of $12.4 million and an increase in Asia Pacific of $3.7
million.
The $6.4 million difference between cloud service and subscription revenues recognized under Topic 606 and those
proforma Topic 605 cloud services and subscriptions revenues described above is primarily the result of timing differences on
professional services related to cloud contracts, where under Topic 605, revenues would have been deferred over the estimated
life of the contract, but under Topic 606 these revenues are recognized as services are performed. For more details, see note 3
"Revenues" to our Consolidated Financial Statements.
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, and are renewable, generally
on an annual basis, at the option of the customer. 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, 2019,
our Customer support renewal rate was approximately 91%, stable compared with the Customer support renewal rate during
the quarter ended June 30, 2018.
Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as
third party royalty costs.
(In thousands)
Customer Support Revenues:
Americas
EMEA
Asia Pacific
Total Customer Support Revenues
Cost of Customer Support Revenues
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
$
718,209
$
12,924
$
705,285
$
122,870
$
582,415
427,712
101,994
1,247,915
124,343
3,939
(1,452)
15,411
(9,546)
423,773
103,446
1,232,504
133,889
103,145
25,387
251,402
11,324
GAAP-based Customer Support Gross Profit
$
1,123,572
$
24,957
$
1,098,615
$
240,078
$
GAAP-based Customer Support Gross Margin %
90.0%
% Customer Support Revenues by Geography:
Americas
EMEA
Asia Pacific
57.6%
34.3%
8.1%
89.1%
57.2%
34.4%
8.4%
Customer support revenues increased by $15.4 million or 1.3% during the year ended June 30, 2019 as compared to the
prior fiscal year; up 3.1% after factoring the impact of $23.2 million of foreign exchange rate changes. Geographically, the
overall change was attributable to an increase in Americas of $12.9 million, an increase in EMEA of $3.9 million, partially
offset by a decrease in Asia Pacific of $1.5 million.
Cost of Customer support revenues decreased by $9.5 million during the year ended June 30, 2019 as compared to the
prior fiscal year, due to a decrease in labour-related costs of approximately $9.9 million, partially offset by an increase in other
miscellaneous costs of $0.4 million. Overall, the gross margin percentage on Customer support revenues increased to
approximately 90% from approximately 89%.
For illustrative purposes only, had we accounted for revenues under proforma Topic 605, customer support revenues
would have been $1,246.3 million for the year ended June 30, 2019, which would have been higher by approximately $13.8
million or 1.1% as compared to the prior fiscal year; and would have been up 3.0% after factoring the impact of $23.3 million
of foreign exchange rate changes. Geographically, the overall change would have been attributable to an increase in Americas
of $13.0 million and an increase in EMEA of $2.7 million, partially offset by a decrease in Asia Pacific of $1.9 million.
45
320,628
78,059
981,102
122,565
858,537
87.5%
59.4%
32.7%
7.9%
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, which
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. Professional service and other
revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed
by our partner network.
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.
(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
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
$
132,426
$
(19,045)
$
151,471
$
39,872
$
122,861
29,649
284,936
224,635
(8,982)
(3,294)
(31,321)
(28,754)
131,843
32,943
316,257
253,389
29,601
11,468
80,941
58,435
2017
111,599
102,242
21,475
235,316
194,954
$
60,301
$
(2,567)
$
62,868
$
22,506
$
40,362
21.2%
19.9%
17.2%
46.5%
43.1%
10.4%
47.9%
41.7%
10.4%
47.4%
43.4%
9.2%
Professional service and other revenues decreased by $31.3 million or 9.9% during the year ended June 30, 2019 as
compared to the prior fiscal year; down 7.4% after factoring the impact of $8.1 million of foreign exchange rate changes.
Geographically, the overall change was attributable to a decrease in Americas of $19.0 million, a decrease in EMEA of $9.0
million and a decrease in Asia Pacific of $3.3 million.
Cost of Professional service and other revenues decreased by $28.8 million during the year ended June 30, 2019 as
compared to the prior fiscal year as a result of a decrease in labour-related costs of approximately $29.0 million resulting
primarily from a reduction in the use of external labour resources, partially offset by an increase in other miscellaneous costs of
$0.2 million.
Overall, the gross margin percentage on Professional service and other revenues increased to approximately 21% from
approximately 20%. This is the result of effectively executing our strategy of optimizing margins by being selective about the
professional service engagements we accept.
Professional service and other revenues under proforma Topic 605 were not materially different from those under Topic
606 as discussed above.
Amortization of Acquired Technology-based Intangible Assets
(In thousands)
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
Amortization of acquired technology-based intangible assets
$
183,385
$
(2,483) $
185,868
$
55,312
$
130,556
Amortization of acquired technology-based intangible assets decreased during the year ended June 30, 2019 by $2.5
million, as compared to the same period in the prior fiscal year. This was due to a reduction of $20.6 million, relating to
intangible assets from certain previous acquisitions becoming fully amortized, partially offset by an increase in amortization of
$18.1 million, relating to newly acquired technology-based intangible assets from our recent acquisitions of Catalyst and
46
Liaison in Fiscal 2019, as well as Hightail, Guidance Software Inc. (Guidance), and Covisint Corporation (Covisint), which
were acquired during Fiscal 2018.
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,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
$
321,836
$
(1,073) $
322,909
$
41,694
$
518,035
207,909
97,716
189,827
35,719
(11,106)
2,682
10,773
5,709
6,508
529,141
205,227
86,943
184,118
29,211
84,687
34,874
22,625
33,276
(34,407)
2017
281,215
444,454
170,353
64,318
150,842
63,618
$
1,371,042
$
13,493
$
1,357,549
$
182,749
$
1,174,800
11.2%
18.1%
7.2%
3.4%
6.6%
1.2%
11.5%
18.8%
7.3%
3.1%
6.5%
1.0%
12.3%
19.4%
7.4%
2.8%
6.6%
2.8%
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 change in research and development expenses
Change between Fiscal
increase (decrease)
2019 and 2018
2018 and 2017
12,629
$
(6,791)
(385)
(588)
(4,775)
(1,163)
(1,073) $
39,119
(3,899)
(1,490)
(343)
7,834
473
41,694
$
$
Research and development expenses decreased by $1.1 million during the year ended June 30, 2019 as compared to the
prior fiscal year. This was primarily due to a reduction in contract labour and consulting of $6.8 million and a reduction in the
use of facility and related expenses of $4.8 million, partially offset by an increase in payroll and payroll-related benefits of
$12.6 million. The increase in payroll and payroll-related benefits was driven primarily by increased headcount from recent
acquisitions. Overall, our research and development expenses, as a percentage of total revenues, remained stable at
approximately 11% compared to prior fiscal year.
Our research and development labour resources increased by 336 employees, from 3,331 employees at June 30, 2018 to
3,667 employees at June 30, 2019.
47
Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing
events 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 change in sales and marketing expenses
Change between Fiscal
increase (decrease)
2019 and 2018
2018 and 2017
$
$
(48) $
(6,588)
(871)
(752)
(1,113)
(5,742)
808
3,519
(319)
(11,106) $
48,717
16,993
609
(454)
271
3,880
8,373
4,013
2,285
84,687
Sales and marketing expenses decreased by $11.1 million during the year ended June 30, 2019 as compared to the prior
fiscal year. This was primarily due to (i) a decrease in commissions expense of $6.6 million, of which approximately $8.9
million is the net result of the Company capitalizing more commission expense under Topic 606, whereas previously, under
Topic 605, such costs would have been expensed as incurred, (ii) a decrease in marketing expenses of $5.7 million and (iii) a
decrease in travel and communication expenses of $1.1 million. These were partially offset by (i) an increase in bad debt
expense of $3.5 million as certain low dollar receivables were provided for entirely as they became aged greater than one year.
Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to approximately 18% from
approximately 19% in the prior fiscal year.
Our sales and marketing labour resources increased by 103 employees, from 1,948 employees at June 30, 2018 to 2,051
employees at June 30, 2019.
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.
(In thousands)
Payroll and payroll-related benefits
Contract labour and consulting
Share-based compensation
Travel and communication
Facilities
Other miscellaneous
Total change in general and administrative expenses
Change between Fiscal
increase (decrease)
2019 and 2018
2018 and 2017
$
$
4,089
$
(618)
768
794
(4,537)
2,186
2,682
$
22,908
(1,054)
(1,709)
80
5,777
8,872
34,874
General and administrative expenses increased by $2.7 million during the year ended June 30, 2019 as compared to the
prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $4.1 million and an increase in
other miscellaneous expenses of $2.2 million, which includes professional fees such as legal, audit and tax related expenses.
These were partially offset by a reduction in the use of facility and related expenses of $4.5 million. The remainder of the
change was attributable to other activities associated with normal growth in our business operations. Overall, general and
administrative expenses, as a percentage of total revenue, remained at approximately 7%.
Our general and administrative labour resources increased by 119 employees, from 1,501 employees at June 30, 2018 to
1,620 employees at June 30, 2019.
48
Depreciation expenses:
(In thousands)
Depreciation
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
$
97,716
$
10,773
$
86,943
$
22,625
$
64,318
Depreciation expenses increased during the year ended June 30, 2019 by $10.8 million as compared to the prior fiscal
year. Depreciation expense, as a percentage of total revenue, remained at approximately 3%.
Amortization of acquired customer-based intangible assets:
(In thousands)
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
Amortization of acquired customer-based intangible assets
$
189,827
$
5,709
$
184,118
$
33,276
$
150,842
Amortization of acquired customer-based intangible assets increased during the year ended June 30, 2019 by $5.7 million
as compared to the prior fiscal year. This was due to an increase in amortization of $12.6 million, relating to newly acquired
customer-based intangible assets from our recent acquisitions of Catalyst and Liaison in Fiscal 2019, as well as of Hightail,
Guidance and Covisint, which were acquired during Fiscal 2018. The increase in amortization was partially offset by a
reduction of $6.9 million, relating to intangible assets from certain 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)
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
$
35,719
$
6,508
$
29,211
$
(34,407) $
63,618
Special charges increased by $6.5 million during the year ended June 30, 2019 as compared to the prior fiscal year. This
was primarily due to (i) an increase in restructuring activities of $11.5 million and (ii) an increase of $2.8 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
cases, becoming statute barred. These increases were partially offset by a reduction in expense of $5.3 million relating to one-
time system implementation costs. The remainder of the change is due to other 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,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
Foreign exchange gains (losses)
$
(4,330) $
(9,175) $
4,845
$
1,776
$
OpenText share in net income (loss) of equity investees
(note 8)
Income from long-term other receivable
Gain on shares held in Guidance (1)
Gain from contractual settlement (2)
Other miscellaneous income (expense)
13,668
—
—
—
818
7,703
(1,327)
(841)
(5,000)
823
5,965
1,327
841
5,000
(5)
13
(5,099)
841
5,000
(301)
3,069
5,952
6,426
—
—
296
Total other income (expense), net
$
10,156
$
(7,817) $
17,973
$
2,230
$
15,743
(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)
Interest expense related to total outstanding debt (1)
Interest income
Other miscellaneous expense
Year Ended June 30,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
$
$
137,487
$
5,106
$
132,381
$
16,202
$
116,179
(8,014)
7,119
(6,342)
(712)
(1,672)
7,831
1,443
3
(3,115)
7,828
136,592
$
(1,948) $
138,540
$
17,648
$
120,892
(1) 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,
2019
Change
increase
(decrease)
2018
Change
increase
(decrease)
2017
Provision for (recovery of) income taxes
$
154,937
$
11,111
$
143,826
$
920,190
$
(776,364)
The effective tax rate decreased to a provision of 35.2% for the year ended June 30, 2019, compared to 37.2% for the year
ended June 30, 2018. The increase in tax expense of $11.1 million was primarily due to the increase in net income taxed at
foreign rates of $10.7 million, an increase of $26.4 million in reserves for unrecognized tax benefits, an increase of $16.1
million arising on the introduction of BEAT in Fiscal 2019, and an increase of $16.3 million relating to the tax impact of
internal reorganizations of subsidiaries, partially offset by a the reversal of accruals for undistributed United States earnings of
$14.8 million, the Fiscal 2018 impact of United States tax reform of $19.0 million which did not recur in Fiscal 2019, an
increase in tax credits for research and development of $9.7 million, an increase of $6.8 million in the release of valuation
allowance, a decrease of $5.8 million in the impact of withholding taxes in Fiscal 2019. 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 one-time tax expense of $19.0 million in the year ended June 30, 2018,
50
primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets
and liabilities. During the year ended June 30, 2019, there was a reduction of $0.9 million to this amount, mainly attributable to
evaluating the portion of our existing Alternative Minimum Tax (AMT) credit carryforwards expected to be refundable as a
result of the repeal of corporate AMT. The portion of the tax expense attributable to the transition tax is payable over a period
of up to eight years.
In accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs
Act” (SAB 118), the Company completed its analysis of the impact of the Tax Cuts and Jobs Act by December 22, 2018. The
Company's final determination of the total one-time tax expense as a result of the enactment of the Tax Cuts and Jobs Act is
$18.1 million.
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, is consistently 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.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently
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,
primarily due to acquisitions, 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. Results for reporting periods commencing July 1, 2018 are presented
52
under the new Topic 606 revenue standard, while prior period results continue to be reported under the previous standard. For
more details relating to our adoption of Topic 606 please see Note 1 "Basis of Presentation" and Note 3 "Revenues" to our
Consolidated Financial Statements.
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2019
(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 / Non-GAAP-based income from
operations
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, 2019
GAAP-
based
Measures
% of Total
Revenue
GAAP-based
Measures
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
Adjustments Note
$
383,993
$
124,343
224,635
183,385
(948)
(1,242)
(1,764)
(183,385)
(1)
(1)
(1)
(2)
$
383,045
123,101
222,871
—
1,938,052
67.6%
187,339
(3)
2,125,391
74.1%
321,836
518,035
207,909
189,827
35,719
567,010
10,156
154,937
285,501
(4,991)
(7,880)
(9,945)
(189,827)
(35,719)
(1)
(1)
(1)
(2)
(4)
316,845
510,155
197,964
—
—
435,701
(5)
1,002,711
(10,156)
(6)
—
(33,680)
(7)
121,257
459,225
(8)
744,726
$
1.06
$
1.70
(8)
$
2.76
(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 Condensed
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.
(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 35% 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 that occurred in Fiscal 2017 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.
53
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
GAAP-based net income, attributable to OpenText
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
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, 2019
Per share diluted
$
$
285,501 $
373,212
26,770
35,719
(10,156)
154,937
(121,257)
744,726 $
1.06
1.38
0.10
0.13
(0.04)
0.57
(0.44)
2.76
Year Ended June 30, 2019
$
285,501
154,937
136,592
183,385
189,827
97,716
26,770
35,719
(10,156)
1,100,291
$
54
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 / Non-GAAP-based income from
operations
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
GAAP-based
Measures
% of Total
Revenue
Adjustments Note
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
$
364,160
$
(1,429)
(1)
$
362,731
133,889
253,389
185,868
(1,233)
(1)
(1,838)
(1)
(185,868)
(2)
132,656
251,551
—
1,864,242
66.2%
190,368
(3)
2,054,610
73.0%
322,909
529,141
205,227
184,118
29,211
506,693
17,973
143,826
242,224
(5,659)
(1)
(9,231)
(1)
(8,204)
(1)
(184,118)
(2)
(29,211)
(4)
317,250
519,910
197,023
—
—
426,791
(5)
933,484
(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 Condensed
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.
(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 that occurred in Fiscal 2017 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.
55
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
GAAP-based net income, attributable to OpenText
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
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
Per share diluted
$
$
242,224 $
369,986
27,594
29,211
(17,973)
143,826
(111,292)
683,576 $
0.91
1.38
0.10
0.11
(0.07)
0.54
(0.41)
2.56
Year Ended June 30, 2018
$
$
242,224
143,826
138,540
185,868
184,118
86,943
27,594
29,211
(17,973)
1,020,351
56
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 / Non-GAAP-based income from
operations
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
$
299,850
$
(1,229)
(1)
$
298,621
122,565
194,954
130,556
(1,079)
(1)
(1,451)
(1)
(130,556)
(2)
121,486
193,503
—
1,529,500
66.8%
134,315
(3)
1,663,815
72.6%
281,215
444,454
170,353
150,842
63,618
354,700
15,743
(776,364)
(7,149)
(1)
(9,680)
(1)
(9,919)
(1)
(150,842)
(2)
(63,618)
(4)
274,066
434,774
160,434
—
—
375,523
(5)
730,223
(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 Condensed
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars.
(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.
57
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
GAAP-based net income, attributable to OpenText
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
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
Per share diluted
$
$
1,025,659 $
281,398
30,507
63,618
(15,743)
(776,364)
(91,400)
517,675 $
4.01
1.10
0.12
0.25
(0.06)
(3.03)
(0.37)
2.02
Year Ended June 30, 2017
$
1,025,659
(776,364)
120,892
130,556
150,842
64,318
30,507
63,618
(15,743)
794,285
$
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
Restricted cash included in Other assets
Total Cash, cash equivalents and restricted cash
(In thousands)
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Cash and cash equivalents
$
$
$
$
As of June 30,
2019
941,009
$
2,534
943,543
Change
increase
(decrease)
$
$
258,067
1,485
259,552
As of June 30,
2018
682,942
$
1,049
683,991
$
Change
increase
(decrease)
$
$
239,585
(1,804)
237,781
As of June 30,
2017
443,357
$
2,853
446,210
$
Year Ended June 30,
2019
$
876,278
(464,526) $
(148,374) $
Change
$
168,197
(20,085) $
(124,701) $
Change
2018
267,728
$
708,081
(444,441) $ 1,746,523
(23,673) $
(933,217) $
2017
440,353
$
$ (2,190,964)
909,544
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, 2019, we recognized a provision of $17.4 million (June 30, 2018—$28.5 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
Cash flows from operating activities increased by $168.2 million due to an increase in changes from working capital of
$157.5 million and an increase in net income before the impact of non-cash items of $10.7 million. The increase in operating
cash flow from changes in working capital was primarily due to the net impact of the following increases: (i) $98.1 million
relating to a decrease in accounts receivable, (ii) $69.9 million relating to an increase in accounts payable and accrued
liabilities, (iii) $58.6 million relating to income taxes payable and (iv) $6.5 million relating to a decrease in prepaid expenses
and other current assets. These increases in operating cash flows were partially offset by decreases of (i) $37.6 million relating
to higher contract assets, (ii) $37.5 million relating to lower deferred revenues, and (iii) $0.5 million relating to higher balances
of other assets.
During the fourth quarter of Fiscal 2019 our days sales outstanding (DSO) was 56 days, compared to a DSO of 58 days
during the fourth quarter of Fiscal 2018. The per day impact of our DSO in the fourth quarters of Fiscal 2019 and Fiscal 2018
on our cash flows was $8.3 million and $8.4 million, respectively. In arriving at DSO, we exclude contract assets as these assets
do not provide an unconditional right to the related consideration from the customer.
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.
Cash flows used in investing activities increased by $20.1 million, primarily due to an increase of $63.2 million in
consideration paid for acquisitions during Fiscal 2019, as compared to Fiscal 2018. This was partially offset by a decrease of
$41.5 million in purchases of property and equipment. The remainder of the change was due to miscellaneous items.
59
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.
Cash flows used in financing activities increased by $124.7 million. This was primarily due to (i) a net increase of $56.3
million on long-term debt repayments, (ii) $23.2 million relating to higher dividend payments to our shareholders, (iii) $26.5
million relating to funds we provide to an independent agent to facilitate the repurchase of Common Shares on the open market,
for potential reissuance under our long-term incentive and other plans and (iv) $18.2 million relating to less cash collected from
the issuance of Common Shares for the exercise of options and the OpenText Employee Share Purchase Plan (ESPP).
Cash Dividends
During the year ended June 30, 2019, we declared and paid cash dividends of $0.6300 per Common Share in the
aggregated amount of $168.9 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.
During the year ended June 30, 2018, we declared and paid cash dividends of $0.5478 per Common Share in the
aggregate amount of $145.6 million.
During the year ended June 30, 2017, we declared and paid cash dividends of $0.4770 per Common Share in the
aggregate amount of $120.6 million.
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. We may also, 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.
60
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 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 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 as lead arranger and joint
bookrunner (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, maturing in May 2025.
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
61
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, 2019, the outstanding balance on the Term Loan B bears an interest rate of approximately 4.19%.
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, 2019, our consolidated
net leverage ratio was 1.5:1.
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%.
As of June 30, 2019, we have no outstanding balance on the Revolver. There was no activity during the year ended
June 30, 2019 and we recorded no interest expense.
During the year ended June 30, 2018, we drew down $200 million from the Revolver, partially to finance acquisitions
(June 30, 2017—$225 million). Additionally, during the year ended June 30, 2018, we repaid $375 million and recorded
interest expense of $9.0 million relating to amounts drawn on the Revolver (June 30, 2017—$50 million and $2.6 million,
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, 2019, our total unfunded pension plan obligations were $77.5 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.
62
Our anticipated payments under our most significant plans for the fiscal years indicated below are as follows:
2020
2021
2022
2023
2024
2025 to 2028
Total
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
675
758
832
933
1,041
6,009
10,248
$
$
1,012
1,011
1,044
1,043
1,050
5,308
10,468
$
$
161
153
352
208
272
2,389
3,535
For a detailed discussion on pensions, see note 11 "Pension Plans and Other Post Retirement Benefits" to our
Consolidated Financial Statements.
Commitments and Contractual Obligations
As of June 30, 2019, we have entered into the following contractual obligations with minimum payments for the indicated
fiscal periods as follows:
Payments due between
Long-term debt obligations (1)
Operating lease obligations (2)
Purchase obligations
$
Total
3,408,565
318,851
11,280
July 1, 2019—
June 30, 2020
July 1, 2020—
June 30, 2022
July 1, 2022—
June 30, 2024
July 1, 2024
and beyond
$
147,059
$
292,156
$
1,045,567
$
1,923,783
72,853
8,364
106,394
2,747
59,441
169
80,163
—
$
3,738,696
$
228,276
$
401,297
$
1,105,177
$
2,003,946
(1) Includes interest up to maturity and principal payments. Please see note 10 "Long-Term Debt" for more details.
(2) Net of $30.7 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 results 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.
63
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, that, as revised by the IRS on July 11, 2018 proposes a one-time approximately
$335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 (the 2010 NOPA), plus penalties
equal to 20% of the additional proposed taxes for Fiscal 2010, and interest at the applicable statutory rate published by the IRS.
On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA proposing a one time
approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of
Global 360 Holding Corp. into the structure that resulted from the internal reorganization in Fiscal 2010, plus penalties equal to
40% of the additional proposed taxes for Fiscal 2012, and interest.
On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for
Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation
was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with
the exception of an additional proposed penalty as part of the 2012 NOPA.
A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’
positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any
proposed penalties and interest.
As of our receipt of the final 2010 NOPA and 2012 NOPA, our estimated potential aggregate liability, as proposed by the
IRS, including additional state income taxes plus penalties and interest that may be due, was approximately $770 million,
comprised of approximately $455 million in U.S. federal and state taxes, approximately $130 million of penalties, and
approximately $185 million of interest. Interest will continue to accrue at the applicable statutory rates until the matter is
resolved and may be substantial.
As previously disclosed and noted above, we strongly disagree with the IRS’ positions and we are vigorously contesting
the proposed adjustments to our taxable income, along with the proposed penalties and interest. We are examining various
alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S. Federal court.
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 additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in
our Annual Report on Form 10-K for Fiscal 2018.
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, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further
described below), we estimate our potential aggregate liability, as of June 30, 2019, in connection with the CRA's
reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of
approximately $25 million.
The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 would, as drafted, increase our taxable income
by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed
adjustment to income.
We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014
(including any penalties) are without merit. We have filed notices of objection for Fiscal 2012 and Fiscal 2013, and we are
currently seeking competent authority consideration under applicable international treaties in respect of these
reassessments. We intend to file the notice of objection for Fiscal 2014 shortly.
64
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012,
Fiscal 2013 and Fiscal 2014, 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 2015, Fiscal 2016 and Fiscal
2017 and have proposed to reassess Fiscal 2015 in a manner consistent with Fiscal 2012, Fiscal 2013 and Fiscal 2014. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
GXS Brazil Matter
As previously disclosed and in connection with the intercompany charges between GXS Group, Inc. and its subsidiary,
GXS Tecnologia da Informação (Brasil) Ltda., based on the historical transfer pricing studies, approximately $1.5 million
accrued in relation to this matter became statute barred during the year ended June 30, 2019 and accordingly was released as a
recovery under "Special charges".
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, if drawn, the Revolver.
As of June 30, 2019, we had an outstanding balance of $987.5 million on Term Loan B. Term Loan B bears a floating
interest rate of 1.75% plus LIBOR. As of June 30, 2019, 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 $9.9 million, assuming that the loan balance
as of June 30, 2019 is outstanding for the entire period (June 30, 2018—$10.0 million). No amounts were drawn on the
Revolver during Fiscal 2019.
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
65
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, 2019, a one cent change in the Canadian
dollar to U.S. dollar exchange rate would have caused a change of approximately $0.6 million in the mark to market on our
existing foreign exchange forward contracts (June 30, 2018—$0.5 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,
2019 (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, 2019
U.S. Dollar
Equivalent at
June 30, 2018
$
120,417
$
33,703
12,635
56,776
105,273
328,804
612,205
$
941,009
$
120,346
31,211
24,590
52,652
117,459
346,258
336,684
682,942
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 $32.9 million (June 30,
2018—$34.6 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.
66
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, 2019, 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, 2019, 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.
Our management has excluded the ICFR of Liaison Technologies Inc. (Liaison), which we acquired on December 17,
2018, as discussed in note 18 "Acquisitions" to the Consolidated Financial Statements included elsewhere in this Annual Report
on Form 10-K. Total revenues subject to Liaison's ICFR represented approximately 1.9% of our consolidated total revenues for
the fiscal year ended June 30, 2019. Total assets subject to Liaison's ICFR represented approximately 4.7% of our consolidated
total assets as of June 30, 2019 (of which approximately $321.1 million represents goodwill and net intangible assets subject to
our internal control over financial reporting as of June 30, 2019).
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, 2019.
The results of our management’s assessment were reviewed with our Audit Committee and the conclusion that our ICFR
was effective as of June 30, 2019 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.
67
(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.
(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, 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Other Matters
As of June 30, 2019, in anticipation of our adoption of ASU No. 2016-02 “Leases (Topic 842)”, 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 implemented in July 2019.
68
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, 2019.
Name
Age Office and Position Currently Held With Company
Mark J. Barrenechea
Madhu Ranganathan
Savinay Berry
Gordon A. Davies
Prentiss Donohue
Paul Duggan
Simon Harrison
David Jamieson
Aditya Maheshwari
Muhi Majzoub
James McGourlay
Patricia E. Nagle
Brian Sweeney
P. Thomas Jenkins
Randy Fowlie (2)(3)
Major General David Fraser (3)
Gail E. Hamilton (1)
Stephen J. Sadler
Harmit Singh (2)
Michael Slaunwhite (1)(3)
Katharine B. Stevenson (2)
Carl Jürgen Tinggren (2)
Deborah Weinstein (1)(3)
54 Vice Chair, Chief Executive Officer and Chief Technology Officer, Director
55
43
57
49
44
49
54
45
59
50
54
55
59
Executive Vice President, Chief Financial Officer
Senior Vice President, Cloud Service Delivery
Executive Vice President, Chief Legal Officer and Corporate Development
Senior Vice President, Portfolio Group
Senior Vice President, Revenue Operations
Executive Vice President, Worldwide Sales
Senior Vice President, Chief Information Officer
Senior Vice President and Chief Accounting Officer
Executive Vice President, Engineering
Executive Vice President, Customer Operations
Senior Vice President, Chief Marketing Officer
Senior Vice President, Chief Human Resources Officer
Chairman of the Board
59 Director
62 Director
69 Director
68 Director
56 Director
58 Director
57 Director
61 Director
59 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 took on 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
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serving as a member of the executive management team. From 1994 to 1997, Mr. 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 CRM and 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 Avery Dennison Corporation. In the past five years, Mr. Barrenechea also served as a director 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 Intelligent and Connected Enterprise, The Golden Age of Innovation,
Digital Manufacturing, Digital Financial Services, 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 for Akamai Technologies. In the past five years she served as a Board Member of ServiceSource and
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).
Savinay Berry
Mr. Berry has served as the Company's Senior Vice President, Cloud Service Delivery since January 2019. He is
responsible for all OpenText Cloud Services, including infrastructure, Service Delivery, Managed Services, eDiscovery,
Security Cloud Services and Professional Services in the Philippines. Prior to this role, Mr. Berry served as Vice President,
Engineering and Products from 2017 to 2019. Prior to joining OpenText, Mr. Berry was Vice President, Product Management at
Dell EMC from 2015 to 2017 and Director, Advanced Product and Technology at Intuit from 2013 to 2014. He also served as
Vice President of Product Management at Empowered Inc (acquired by Qualcomm) from 2011 to 2012 and from 2008 to 2011,
Mr. Berry served as Principal, Granite Ventures. Mr. Berry holds both a Bachelor and Master’s Degree in Electrical and
Computer Engineering and an MBA from Kellogg School of Management at Northwestern University.
Gordon A. Davies
Mr. Davies joined OpenText as Chief Legal Officer in September 2009. Mr. Davies also serves as the Company's Chief
Compliance Officer, and has responsibility for Corporate Development and the Corporate Secretary Group. 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 has served as Senior Vice President, Portfolio group since January 2019. Prior to this role, Mr. Donohue
served as Senior Vice President of Professional Services from April 2016 to January 2019. 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.
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Paul Duggan
Mr. Duggan joined OpenText as Senior Vice President of Revenue 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.
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 Telecommunications 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 Telecommunications 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, Customer Operations 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
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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
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.
Brian Sweeney
Mr. Sweeney joined OpenText as Chief Human Resources Officer in October 2018. He has over 25 years of experience as
a Human Resource (HR) leader in high growth, global technology businesses, and professional services consulting. He has led
organizational growth and transformation initiatives, including international expansion, M&A, global talent management,
compensation and benefits, employee engagement, communication and cultural transformation. Prior to joining OpenText, Mr.
Sweeney worked at Amgen Inc. from 2003 to 2008, where he served in various HR leadership roles, including Global VP of
HR, Head of HR for Global R&D, and VP of International Human Resources. Prior to this, Mr. Sweeney worked at Dell, where
he served as Director of Worldwide Compensation and Benefits from 1999 to 1997 and HR Director from 1997 to 2001. From
1989 to 1992, Mr. Sweeney was a Human Resources consultant at AON Hewitt Associates, working across multiple client
industry sectors in the practice areas of employee benefits and executive compensation. Earlier in his professional career, Mr.
Sweeney worked in corporate sales and sales management for Steelcase, Inc. Mr. Sweeney holds an MBA from the University
of Michigan and a Bachelor’s degree in Sociology from Vanderbilt University.
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 is Chair of the World Wide
Web Foundation, a Commissioner of the Tri-Lateral Commission, founding Chair of the Ontario Global 100 (OG100) and
Canadian Co-Chair of the Atlantik Bruecke. 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 was the
tenth Chancellor of the University of Waterloo and was the Chair of the National Research Council of Canada (NRC). 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
member of the Waterloo Region Entrepreneur Hall of Fame, 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, and Dye & Durham Corporation. In the last five years, Mr. Fowlie also served as a director of
RDM Corporation.
Major General David Fraser
Major-General (Ret.) David Fraser has served as a director of OpenText since September 2018. Mr. Fraser is the President
of Aegis Six Corporation of Toronto. Mr. Fraser was commissioned as an Infantry Officer following graduation from Carleton
University with a Bachelor of Arts in 1980. He served in various command and staff positions in the Princess Patricia’s
72
Canadian Light Infantry from platoon to Division throughout his 30 year career. Most notable, he commanded the NATO
coalition in southern Afghanistan in 2006. He is a graduate of the Canadian Forces Command and Staff College in Toronto,
holds a Master’s of Management and Policy and is a graduate of the United States Capstone Program (Executive School for
generals). His honors and awards including the Commander of Military Merit, the Canadian Meritorious Service Cross, the
Meritorious Service Medal, the United States Legion of Honor and Bronze Star (for service in Afghanistan), and awards from
the Netherlands, Poland, and NATO. He is the recipient of the Vimy award for contributions to leadership and international
affairs and the Atlantic Council Award for international leadership. Upon his departure from the military, Mr. Fraser joined the
private sector and, along with his partners, created Blue Goose Pure Foods. Mr. Fraser joined INKAS® Armored Vehicle
Manufacturing as their Chief Operating Officer in 2015 until 2017. In 2016, he founded Aegis Six Corporation, which aims at
addressing the needs of capacity building abroad and for the private sector within Canada. Mr. Fraser currently works with the
Bank of Montreal on their Canadian Defence Community Banking Program, serves as a director of Route1, Inc and the
Canadian Forces College Foundation, is a member of The Prince’s Charities Advisory Council as well as the Conference of
Defence Association board. Mr. Fraser is also a mentor at the Ivey Business School and is the co-author of Operation Medusa,
The Furious Battle that Saved Afghanistan from the Taliban.
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. While leading
Symantec's $2B enterprise and consumer business, 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 Arrow Electronics. In the past five years Ms. Hamilton also served as a director of Ixia and
Westmoreland Coal Company. She was recently named as one of WomenInc.'s 2018 Most Influential Corporate Board
Directors.
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.
Harmit Singh
Mr. Singh has served as a director of OpenText since September 2018. He is the Executive Vice President and Chief
Financial Officer of Levi Strauss & Co., where he is responsible for managing the company’s finance, information technology,
strategic sourcing and global business services functions globally. This includes: financial planning and analysis; strategic
planning and corporate development; accounting and controls; tax; enterprise risk management; treasury; internal audit; and
investor relations. Mr. Singh is a seasoned financial executive with almost 30 years of experience in driving growth for global
consumer brands. Prior to joining Levi Strauss & Co. in January 2013, Mr. Singh has served as Chief Financial Officer of Hyatt
Hotels Corporation, where he played an instrumental role in successfully establishing a global financial structure, taking the
company public, building a strong balance sheet, and driving growth by supporting capital deployment for acquisition and
investments. Before Hyatt Hotels Corporation, Mr. Singh held various global leadership roles at Yum! Brands Inc., one of the
world’s largest restaurant companies, (including acting as Chief Financial Officer of Pizza Hut and Chief Financial Officer of
Yum International). Early in his career, Mr. Singh also worked at American Express India and PriceWaterhouse in India. Mr.
Singh holds a Bachelor of Commerce from Shri Ram College of Commerce, Delhi University, and is a Chartered Accountant
from India. He is also a member of the CNBC Global CFO Council and Wall Street Journal CFO Network. In October 2016,
Mr. Singh was named to the board of directors of Buffalo Wild Wings Inc., the owner, operator and franchisor of Buffalo
Wings® restaurants, where he served as a director and Chair of the Audit Committee until February 2018.
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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 (Audit Committee Chair). 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. 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). Ms. Stevenson was
named one of the 2018 Top 100 Most Powerful Women in Canada. In the last five years, Ms. Stevenson also served as a
director of Valeant Pharmaceuticals International Inc., currently Bausch Health Companies 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 the Chairman of the board of Bekaert SA and a member of the board of directors of Johnson Controls International,
where he also serves as lead director and as chair of the audit committee. Previously, Mr. Tinggren also served as a director of
Schindler Group, the Conference Board 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 on a number of not-for-profit boards. Ms. Weinstein holds an LL.B. from Osgoode Hall Law School
of York University.
Involvement in Certain Legal Proceedings
Ms. Stevenson served as a director of Valeant Pharmaceuticals International, Inc. (Valeant), currently Bausch Health
Companies Inc., from 2010 until her voluntary resignation in 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.
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Audit Committee
The Audit Committee currently consists of four directors, Mr. Fowlie (Chair), Mr. Tinggren, Mr. Singh and Ms.
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 27% of the current Board and of the director nominees, and 33% 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
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 two women (17%) on the executive
leadership team (ELT), while approximately 21% 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.
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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 2019.
This report is provided by the following independent directors, who comprise our Compensation Committee:
Michael Slaunwhite (Chair), Gail E. Hamilton, 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, 2019 (Fiscal 2019), should be read together with the compensation tables and related disclosures set
forth below: (i) our principal executive officer, (ii) our principal financial officer, and (iii) our three most highly compensated
executive officers, other than our principal executive officer and principal financial officer (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 included herein, unless otherwise specified, are converted to U.S. dollars using an average
annual exchange rate of 0.756489.
Overview of Compensation Program
Determining 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)
• Muhi Majzoub - Executive Vice President, Engineering
• Gordon A. Davies - Executive Vice President, Chief Legal Officer and Corporate Development
• Simon Harrison - Executive Vice President, Worldwide Sales
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, executive benefits, 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.
76
The Compensation Committee considers previous compensation awards, competitive market practice, the impact of tax,
accounting treatments and applicable regulatory requirements when approving compensation programs.
During Fiscal 2019, 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, short-term incentives and long-term incentives.
• 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”).
Although the Compensation Committee has responsibility for decisions on executive compensation, it may consider input
from management, analysis provided from the compensation consultant, as well as other factors that the Committee considers
appropriate.
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 compensation 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 2019, the Compensation Committee retained Hugessen Consulting Inc. (Hugessen), an independent consulting
firm specializing in executive compensation consulting. During Fiscal 2019 representatives of Hugessen were consulted from
time to time by members of the Compensation Committee. Hugessen reviewed relevant information and industry benchmarks
and independently advised members of the Compensation Committee on matters relating to CEO and executive officer
compensation. Hugessen did not provide any other services to the Company during Fiscal 2019, outside of its capacity as
compensation consultants.
The Compensation Committee met five times during Fiscal 2019. 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 and Objectives
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.
The objectives of our compensation program are to:
Attract and retain highly qualified executive officers
who have a history of proven success
77
Pay for performance - We aim to reward sustained
company performance 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.
Align the interests of executive officers with our
shareholders' interests and with the execution of our
business strategy by evaluating executive performance
on the basis of key financial metrics which we believe
closely correlate to long-term shareholder value
Motivate and reward our high caliber executive team
through competitive pay practices and an appropriate
mix of short and long-term incentives
Tie compensation awards directly to key financial
metrics with evaluations based on achieving and
overachieving predetermined objectives
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.
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 July 2018 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 16 companies that include 15 US-based companies and one Israel-based
company. No additional comparable companies were added to our peer group in Fiscal 2019.
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.
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 July 2018, further efforts were made to align our Named
Executive Officers' compensation packages more closely with our stated compensation objectives. Accordingly, Messrs.
Majzoub and Davies received an adjustment to their respective total cash compensation and Mr. Harrison received an
adjustment to his short-term incentive compensation during Fiscal 2019.
78
Aligning Officers' Interests with Shareholders' Interests
We believe that transparent, objective and easily verifiable 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 2019, 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.
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 2019:
Fixed Pay Percentage
Percentage (at 100% target)
Percentage (at 100% target)
Short-Term Incentive
Long-Term Incentive
(“Not At Risk”)
12%
25%
21%
21%
32%
(“At Risk”)
18%
25%
22%
22%
34%
(“At Risk”)
70%
50%
57%
57%
34%
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
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.
79
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, tax preparation or 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.
Short-Term Incentives
In Fiscal 2019, 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 responsibilities relating to sales, Mr. Harrison's objectives consist of
worldwide license and cloud revenues and minimum contract value (MCV) 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.
MCV is the total projected commissionable incremental revenue defined in a signed and written agreement between the
Company and its customer. It represents the minimum amount of revenue that we expect to receive from a contract. For the
purposes of calculating the achievement of this performance objective, we only consider MCV that is derived from new
business.
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.
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For Fiscal 2019, 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
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Total Target
Award
$
$
$
$
$
1,425,000
500,000
425,000
389,592
437,500
Worldwide
Revenues
50%
50%
50%
50%
N/A
Worldwide
Adjusted
Operating
Income
50%
Worldwide
License and
Cloud Revenues
and MCV
N/A
50%
50%
50%
40%
N/A
N/A
N/A
60%
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 2019” below.
For each performance measure noted above, the Compensation Committee approves the total target award eligible to be
earned by a Named Executive Officer, 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 2019. 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 2019 awards.
Objectives (in millions)
Worldwide Revenues
$
$
Worldwide Adjusted Operating Income
Worldwide License and Cloud Revenues and MCV $
Threshold
Target
Target
Fiscal 2019
Actual (1)
% Target
Actually
Achieved
% of Payment
per Fiscal 2019
Payout Table
2,639 $
873 $
1,498 $
2,932 $
970 $
1,664 $
2,898
1,012
1,600
99%
104%
96%
85%
200%
70%
(1) Adjusted to remove the impact of foreign exchange and, in some cases, reflect certain adjustments relating to the aging of accounts receivable.
The table below illustrates the percentage of the target awards paid to our Named Executives Officers, with the exception
of Mr. Harrison, in accordance with our actual results achieved during Fiscal 2019.
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 101.0% results in a payment of
150%
In Fiscal 2019, we achieved 99% of our worldwide revenue target and 104% 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 104% of target for the worldwide adjusted operating
income performance criterion results in an award payment of 200% of the target award amount.
81
The table below illustrates the percentage of the target awards paid to Mr. Harrison, as a result of more direct
responsibilities relating to sales, in accordance with our actual results achieved during Fiscal 2019.
Worldwide License and Cloud Revenues and MCV 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
125%
In Fiscal 2019, Mr. Harrison achieved 96% of his worldwide license and cloud revenue and MCV target and 104% of his
worldwide adjusted operating income target. The “Worldwide License and Cloud Revenue and MCV and Worldwide Adjusted
Operating Income Calculation” table above illustrates under the “% Attainment” column that an achievement of 96% of target
for the worldwide license and cloud revenue and MCV performance criteria results in an award payment of 70% of the target
award amount and an achievement of 104% of target for the worldwide adjusted operating income performance criterion results
in an award payment of 200% of the target award amount.
The actual short-term incentive award earned by each Named Executive Officer for Fiscal 2019 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 2019, and the percentage of target award amount represented by the actual award paid broken out by
performance measure as follows:
Mark J. Barrenechea
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Madhu Ranganathan
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Muhi Majzoub
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Payable at
Target
Payable at
Threshold
712,500 $
106,875 $
Actual
Payable
($)
605,625
712,500 $
106,875 $
1,425,000
1,425,000 $
213,750 $
2,030,625
Actual
Payable
(% of Target)
85%
200%
143%
Payable at
Target
Payable at
Threshold
250,000 $
250,000 $
500,000 $
37,500 $
37,500 $
75,000 $
Actual
Payable
($)
212,500
500,000
712,500
Actual
Payable
(% of Target)
85%
200%
143%
Payable at
Target
Payable at
Threshold
212,500 $
212,500 $
425,000 $
31,875 $
31,875 $
63,750 $
Actual
Payable
($)
180,625
425,000
605,625
Actual
Payable
(% of Target)
85%
200%
143%
$
$
$
$
$
$
$
$
$
82
Gordon A. Davies
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Simon Harrison
Performance Measure:
Worldwide License and Cloud Revenues and MCV
Worldwide Adjusted Operating Income
Total
Long-Term Incentives
Payable at
Target
Payable at
Threshold
194,796 $
194,796 $
389,592 $
29,219 $
29,219 $
58,438 $
Actual
Payable
($)
165,577
389,592
555,169
Actual
Payable
(% of Target)
85%
200%
143%
Payable at
Target
Payable at
Threshold
262,500 $
175,000 $
437,500 $
39,375 $
26,250 $
65,625 $
Actual
Payable
($)
183,750
350,000
533,750
Actual
Payable
(% of Target)
70%
200%
122%
$
$
$
$
$
$
As with many North American technology companies, we have a general practice of granting variable long-term
incentives to executive officers, including our Named Executive Officers. Our long-term incentives represent a significant
proportion of our Named 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 Named 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, including our Named 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.
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. Grants are generally made annually and are comprised of the
components outlined in the table below. No dividends are paid or accrued on PSUs or RSUs.
83
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.
Payouts under LTIP grants
• may also be subject to certain limitations in the event of early termination of employment or change in control of the
•
Company; and
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.
Fiscal 2021 LTIP
Grants made in Fiscal 2019 under the Fiscal 2021 LTIP took effect on August 6, 2018 with the goal of measuring
performance over the three year period starting July 1, 2018. The table below illustrates the target value of each element under
the Fiscal 2021 LTIP for each Named Executive Officer.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Performance Share Units
$
$
$
$
$
2,815,000 $
500,000 $
550,000 $
500,000 $
218,750 $
Restricted Share Units
Stock Options
Total
1,407,500 $
250,000 $
275,000 $
250,000 $
109,375 $
1,407,500 $
250,000 $
275,000 $
250,000 $
109,375 $
5,630,000
1,000,000
1,100,000
1,000,000
437,500
Awards granted in Fiscal 2019 under the Fiscal 2021 LTIP were in addition to the awards granted in Fiscal 2018, Fiscal
2017, and prior years. For details of our previous LTIPs, see Item 11 of our Annual Report on Form 10-K for the appropriate
year.
Fiscal 2021 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
84
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 2021 LTIP with respect to PSUs.
If the Company's relative cumulative TSR, compared to the
cumulative TSR of the Index is:
Then the percentage of the PSU target award that will be paid
out will be:
Negative
1st percentile
66th percentile
100th percentile
—%
1.5%
100%
150%
Any target percentile achieved between 1 and 100th percentile will be interpolated to determine a payout that can range
from 1.5% to 150% of the target award.
The amounts that may be realized for PSU awards under the Fiscal 2021 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2019, and applied to the number of PSUs to be issued to
the Named Executive Officers based on the levels of achievement disclosed above.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Fiscal 2021 LTIP - RSUs
Fiscal 2021 LTIP PSUs
1.5% Payout
at June 30, 2021
$
$
$
$
$
46,128 $
8,195 $
9,010 $
8,195 $
3,584 $
100% Payout
at June 30, 2021
150% Payout
at June 30, 2021
3,075,168 $
4,612,752
546,312 $
600,696 $
546,312 $
238,960 $
819,468
901,044
819,468
358,440
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
2021 LTIP period.
The amounts that may be realized for RSU awards under the Fiscal 2021 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2019, and applied to the number of equivalent RSUs to be
issued to the Named Executive Officers.
Fiscal 2021 LTIP RSUs
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Value upon Payout at
June 30, 2021
$
$
$
$
$
1,537,584
273,156
300,348
273,156
119,480
Fiscal 2021 LTIP - Stock Options
The stock options granted in connection with the Fiscal 2021 LTIP vest over four years, do not have any specific
performance-based vesting criteria and, if not exercised, expire after seven years. Our Named Executive Officers will only
realize value on these stock options with future OpenText share price appreciation from the date of grant. For a discussion of
the assumptions used in the valuation of stock options, 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.
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 2019, we granted stock options to two of our Named Executive Officers, namely, Mr. Majzoub and Mr.
85
Davies in recognition of their service. 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:
•
•
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.
86
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 2019, 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. For further details, see
the table below titled “Director Compensation for Fiscal 2019”.
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.
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. The Tax Cuts and Jobs Act
amended Section 162(m) to expand the corporations and executives to which it applies. Beginning in Fiscal 2019, we are no
longer able to deduct under Section 162(m) compensation paid in excess of $1,000,000 to any person who served as CEO or
CFO during the taxable year and any other Named Executive Officer serving as an executive at the end of the taxable year
(each, a “covered employee”) as well any person who was a covered employee in a preceding taxable year, subject to limited
transition relief.
87
Summary Compensation Table
The following table sets forth summary information concerning the annual compensation of our Named Executive
Officers. All numbers are rounded to the nearest dollar or whole share. Changes in exchange rates will impact payments
illustrated below that are made in currencies other than the U.S. dollar. Any Canadian dollar payments included herein have
been converted to U.S. dollars at an annual average rate of 0.756489, 0.786589, and 0.754836, for Fiscal 2019, Fiscal 2018,
and Fiscal 2017, respectively. Any British pounds sterling payments included herein have been converted to U.S. dollars at an
annual average rate of 1.342283 for Fiscal 2018.
Fiscal
Year
Salary
($)
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
2019
$ 950,000
— $ 3,693,934 $ 1,407,800 $
2,030,625
N/A
$ 17,315
Vice Chair, Chief
Executive Officer and
Chief Technology Officer
2018
$ 950,000
— $ 3,538,963 $ 1,407,556 $
1,211,250
N/A
$ 37,161
2017
$ 945,000
— $ 3,233,360 $ 5,821,023 $
1,925,625
N/A
$ 13,926
Madhu Ranganathan
2019
$ 500,000
— $
656,237 $
250,019 $
712,500
EVP, Chief Financial
Officer
2018
$ 125,000
— $
315,057 $ 2,275,143 $
106,250
2017
N/A
N/A
N/A
N/A
N/A
Muhi Majzoub
2019
$ 412,500
— $
721,564 $
938,260 $
605,625
Executive Vice President,
Engineering
2018
$ 400,000
— $
691,379 $
274,993 $
340,000
2017
$ 356,000
— $
535,825 $
212,651 $
527,313
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
$
—
—
N/A
—
—
—
Gordon A. Davies
2019
$ 371,310
— $
656,237 $
913,258 $
555,169
N/A
$ 14,730
Executive Vice President,
Chief Legal Officer and
Corporate Development
2018
$ 367,077
— $
628,627 $
249,994 $
312,015
N/A
$ 15,969
2017
$ 314,012
— $
630,050 $
250,270 $
464,681
N/A
$
—
(5)
(6)
(6)
(6)
(8)
(7)
(6)
(6)
(9)
(6)
(6)
Simon Harrison
2019
$ 400,000
— $
287,042 $
109,361 $
533,750
Executive Vice President,
Worldwide Sales
2018
$ 388,916
— $
221,328 $
868,563 $
288,972
2017
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$655,329
$ 11,470
N/A
(10)
(6)
(8)
Total ($)
$ 8,099,674
$ 7,144,930
$ 11,938,934
$ 2,118,756
$ 2,821,450
N/A
$ 2,677,949
$ 1,706,372
$ 1,631,789
$ 2,510,704
$ 1,573,682
$ 1,659,013
$ 1,985,482
$ 1,779,249
N/A
(1) PSUs and RSUs were granted pursuant to the Fiscal 2021 LTIP. 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 2021 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 granted in Fiscal 2019 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 2019” 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.
(3) The amounts set forth in this column for Fiscal 2019 represent payments under the short-term incentive plan.
(4) Except as otherwise indicated the amounts in “All Other Compensation” primarily include (i) car allowance; (ii) medical examinations; (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, 2018 and June 30, 2017.
88
(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. Club membership fees ($3,505)
b.
Taxable benefit on annual sales event ($11,225)
(10) Represents amounts we paid or reimbursed for:
a.
Tax equalization in respect of taxes incurred in 2015-2017 in connection with Mr. Harrison's transition from the UK to the United States
($549,403).
b. Housing allowance ($101,368)
c.
Taxable benefit on annual sales event ($4,558)
Grants of Plan-Based Awards in Fiscal 2019
The following table sets forth certain information concerning grants of awards made to each Named Executive Officer
during Fiscal 2019.
Name
Grant Date
Threshold
($)
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)
($/share)
Awards ($)
Mark J. Barrenechea
August 6, 2018
$ 213,750 $ 1,425,000 $ 2,850,000
161,040 $
39.27 $ 1,407,800
Madhu Ranganathan
August 6, 2018
Muhi Majzoub
Gordon A. Davies
Simon Harrison
August 6, 2018
May 7, 2019
August 6, 2018
May 7, 2019
August 6, 2018
$
$
$
$
75,000 $ 500,000 $ 1,000,000
28,600 $
39.27 $
250,019
63,750 $ 425,000 $
850,000
31,460 $
39.27 $
275,021
58,438 $ 389,592 $
779,184
75,000 $
40.20 $
663,239
28,600 $
75,000 $
39.27 $
40.20 $
250,019
663,239
65,625 $ 437,500 $ 1,312,500
12,510 $
39.27 $
109,361
Name
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Grant Date
August 6, 2018
August 6, 2018
August 6, 2018
August 6, 2018
August 6, 2018
Estimated Future Payouts
Under Equity
Incentive Plan Awards (4)
Target
(#)
74,640
Threshold
(#)
1,120
Maximum
(#)
111,960
199
219
199
87
13,260
14,580
13,260
5,800
19,890
21,870
19,890
8,700
All Other Stock
Awards: Number
of Securities
Underlying (5)
Stock
(#)
37,320
6,630
7,290
6,630
2,900
Grant
Date Fair
Value of
Stock (3)
Awards ($)
$
$
$
$
$
3,693,934
656,237
721,564
656,237
287,042
(1) Represents the threshold, target and maximum estimated payouts under our short-term incentive plan for Fiscal 2019. 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) Represents the threshold, target and maximum estimated payouts under our Fiscal 2021 LTIP PSUs. For further information, see “Compensation
Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2021 LTIP” above.
(5) Represents the estimated payouts under our Fiscal 2021 LTIP RSUs granted in Fiscal 2019. For further information, see “Compensation Discussion and
Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2021 LTIP” above.
89
Outstanding Equity Awards at End of Fiscal 2019
The following table sets forth certain information regarding outstanding equity awards held by each Named Executive Officer
as of June 30, 2019.
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)
41,600 $ 1,713,920
41,730 $ 1,719,276
37,320 $ 1,537,584
83,200 $
3,427,840
83,470 $
3,438,964
74,640 $
3,075,168
3,980 $
163,976
6,630 $
273,156
7,960 $
327,952
13,260 $
546,312
6,900 $
284,280
8,150 $
335,780
7,290 $
300,348
13,780 $
567,736
16,310 $
671,972
14,580 $
600,696
Option Awards (1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Non-
exercisable
Option
Exercise
Price ($)
Option
Expiration
Date
127,740
300,000
—
171,300
98,280
—
47,295
— $
27.83 August 1, 2021
100,000 $
800,000 $
27.09 January 29, 2022
27.09 January 29, 2022
57,100 $
98,280 $
22.87 July 31, 2022
29.75 July 29, 2023
600,000 $
141,885 $
32.63 June 1, 2024
34.49 August 7, 2024
—
161,040 $
39.27 August 6, 2025
73,378
220,132 $
34.71 May 11, 2025
—
28,600 $
39.27 August 6, 2025
18,788
20,996
23,140
28,380
16,280
9,240
—
—
— $
— $
— $
13.19 November 2, 2019
16.58 August 2, 2020
27.83 August 1, 2021
9,460 $
22.87 July 31, 2022
16,280 $
29.75 July 29, 2023
27,720 $
34.49 August 7, 2024
31,460 $
39.27 August 6, 2025
75,000 $
40.20 May 7, 2026
7,154
11,130
9,580
8,400
—
— $
27.83 August 1, 2021
11,130 $
22.87 July 31, 2022
19,160 $
29.75 July 29, 2023
25,200 $
34.49 August 7, 2024
28,600 $
39.27 August 6, 2025
90
Name
Mark J.
Barrenechea
Grant Date
August 1, 2014
January 29, 2015
January 29, 2015
July 31, 2015
July 29, 2016
June 1, 2017
August 7, 2017
August 6, 2018
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
Madhu
Ranganathan May 11, 2018
August 6, 2018
May 11, 2018
May 11, 2018
August 6, 2018
August 6, 2018
Muhi Majzoub November 2, 2012
August 2, 2013
August 1, 2014
July 31, 2015
July 29, 2016
August 7, 2017
August 6, 2018
May 7, 2019
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
August 1, 2014
July 31, 2015
July 29, 2016
August 7, 2017
August 6, 2018
Gordon A.
Davies
Simon
Harrison
May 7, 2019
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
August 2, 2013
August 7, 2017
November 6, 2017
August 6, 2018
August 14, 2016
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
—
75,000 $
40.20 May 7, 2026
7,266
2,960
20,000
—
— $
16.58 August 2, 2020
8,880 $
34.49 August 7, 2024
80,000 $
34.48 November 6, 2024
12,510 $
39.27 August 6, 2025
8,100 $
333,720
7,410 $
305,292
6,630 $
273,156
16,220 $
668,264
14,830 $
610,996
13,260 $
546,312
5,680 $
234,016
2,610 $
107,532
2,900 $
119,480
5,220 $
215,064
5,800 $
238,960
(1) Options in the table above vest annually over a period of 4 years starting from the date of grant, with the exception of (i) 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 and (ii) options granted to certain of our executive officers on May 7, 2019 in recognition of their
service. These options vest annually over a 5 year period, with the first vesting date being two years from the date of grant.
(2) Represents each Named Executive Officer's target number of RSUs granted pursuant to the Fiscal 2019, Fiscal 2020, and Fiscal 2021 LTIPs, 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, 2019 based upon the closing price for the Company's Common Shares as traded on
the NASDAQ on such date of $41.20.
(3) Represents each Named Executive Officer's target number of PSUs granted pursuant to the Fiscal 2019, Fiscal 2020, and Fiscal 2021 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, 2019 based upon the closing price for the Company's Common Shares as traded on the NASDAQ on
such date of $41.20.
As of June 30, 2019, options to purchase an aggregate of 7,102,753 Common Shares had been previously granted and
are outstanding under our stock option plans, of which 2,176,002 Common Shares were vested. Options to purchase an
additional 9,397,479 Common Shares remain available for issuance pursuant to our stock option plans. Our outstanding options
pool represents 2.6% of the Common Shares issued and outstanding as of June 30, 2019.
During Fiscal 2019, the Company granted options to purchase 1,870,340 Common Shares or 0.7% of the Common
Shares issued and outstanding as of June 30, 2019.
Option Exercises and Stock Vested in Fiscal 2019
The following table sets forth certain details with respect to each of the Named Executive Officers concerning the exercise of
stock options and vesting of stock in Fiscal 2019:
Name
Mark J. Barrenechea
Madhu Ranganathan
Muhi Majzoub
Gordon A. Davies
Simon Harrison
Option Awards
Stock Awards (3)
Number of Shares
Acquired on Exercise
(#)
Value Realized on
Exercise(1)
($)
Number of Shares
Acquired on Vesting
(#)
Value Realized on
Vesting(2)
($)
135,208 $
— $
100,000 $
— $
26,504 $
2,801,023
—
2,592,411
—
714,495
65,820 $
— $
10,900 $
12,840 $
8,980 $
7,625,905
—
1,263,646
1,486,870
346,808
(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 the vesting of PSUs and RSUs under our Fiscal 2018 LTIP.
91
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;
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
92
• 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
Pursuant to our employment agreements with our Named Executive Officers and the terms of our LTIP, 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
Muhi Majzoub
Termination without cause or
Change in relationship
Gordon A.
Davies
Termination without cause or
Change in relationship
Simon Harrison 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
(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
93
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.
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
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
Simon Harrison
Termination without cause or
Change in relationship
24 months
24 months
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
(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, 2019. 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 $41.20 per share as reported on the
94
NASDAQ on June 30, 2019, the last trading day of our fiscal year. The other material assumptions made with respect to the
numbers reported in the table below are:
• Payments in Canadian dollars included herein are converted to U.S. dollars using an exchange rate, as of June 30,
2019, of 0.756489;
• The salary and incentive payments are calculated based on the amounts of salary, incentive and benefit payments
which were payable to each Named Executive Officer as of June 30, 2019; and
• Payments under the LTIPs are calculated as though 100% of Fiscal 2021 LTIP (granted in Fiscal 2019), Fiscal 2020
LTIP (granted in Fiscal 2018), and Fiscal 2019 LTIP (granted in Fiscal 2017) have vested with respect to a termination
without cause or change in relationship following a change in control event, and as though a pro-rated amount have
vested with respect to no change in control event.
Actual payments made at any future date may vary, including the amount the Named Executive Officer would have
accrued under the applicable benefit or compensation plan as well as the price of our Common Shares.
Named Executive Officer
Short-term
Incentive
Payment
($)
Gain on Vesting
of LTIP and
Non-LTIP
RSUs
($)
Gain on
Vesting of
Stock Options
($)
Salary
($)
Employee
Benefits
($)
Total
($)
Mark J.
Barrenechea
Madhu
Ranganathan
Muhi
Majzoub
Gordon A.
Davies
Simon
Harrison
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
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
$ 1,900,000 $ 2,850,000 $ 8,128,977 $
— $
45,008 (1) $ 12,923,985
$ 1,900,000 $ 2,850,000 $ 14,912,752 $ 21,281,081 $
45,008
$ 40,988,841
$
500,000 $
500,000 $
310,691 $
— $
3,581
$
1,314,272
$ 1,000,000 $ 1,000,000 $ 1,311,396 $ 1,483,855 $
7,162
$
4,802,413
$
412,500 $
425,000 $ 1,443,648 $
— $
10,515
$
2,291,663
$
825,000 $
850,000 $ 2,760,812 $
681,656 $
21,029
$
5,138,497
$
371,310 $
389,592 $ 1,527,956 $
— $
16,208
$
2,305,066
$
742,620 $
779,183 $ 2,737,740 $
722,836 $
32,417
$
5,014,796
$
400,000 $
437,500 $
425,444 $
— $
107,088
$
1,370,032
$
800,000 $
875,000 $
915,052 $
621,329 $
214,176
$
3,425,557
(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.
95
Director Compensation for Fiscal 2019
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, 2019.
Fees Earned
or Paid in
Cash
($) (1)
Stock
Awards
($) (2)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
P. Thomas Jenkins (3)
Randy Fowlie (4)
David Fraser (5)
Gail E. Hamilton (6)
Stephen J. Sadler (7)
Harmit Singh (8)
Michael Slaunwhite (9)
Katharine B. Stevenson (10)
Carl Jurgen Tinggren (11)
Deborah Weinstein (12)
Brain Jackman (14)
$
$
$
$
$
— $ 559,776 $ — $
57,500 $ 336,309 $ — $
75,000 $ 253,999 $ — $
91,000 $ 267,520 $ — $
— $ 345,754 $ — $
$ 104,083 $ 247,241 $ — $
$
$
$
$
$
3,500 $ 386,414 $ — $
— $ 369,904 $ — $
95,000 $ 234,915 $ — $
— $ 382,796 $ — $
— $
15,609 $ — $
—
—
—
—
—
—
—
—
—
—
—
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
N/A
N/A
$
$
$
$
$
$
$
$
$
$
$
All Other
Compensation
($)
Total
($)
$ 559,776
$ 393,809
$ 328,999
—
—
—
—
$ 358,520
638,401 (13) $ 984,155
$ 351,324
—
—
—
—
—
—
$ 389,914
$ 369,904
$ 329,915
$ 382,796
$
15,609
(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,
originally effective February 2, 2010, and amended and restated in October 2018, 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 2019, Messrs. Jenkins, Fowlie, Fraser, Sadler, Singh, Slaunwhite and Tinggren
and Mses. Hamilton, Stevenson and Weinstein received 16,559, 9,844, 7,588, 10,192, 7,398, 11,303, 7,007, 7,875, 10,859, and 11,206 DSUs,
respectively.
(3) As of June 30, 2019, Mr. Jenkins holds 107,560 DSUs. Mr. Jenkins serves as Chairman of the Board.
(4) As of June 30, 2019, Mr. Fowlie holds 88,141 DSUs.
(5) As of June 30, 2019, Mr. Fraser holds 7,588 DSUs.
(6) As of June 30, 2019, Ms. Hamilton holds 69,792 DSUs.
(7) As of June 30, 2019, Mr. Sadler holds 83,405 DSUs.
(8) As of June 30, 2019, Mr. Singh holds 7,398 DSUs.
(9) As of June 30, 2019, Mr. Slaunwhite holds 101,417 DSUs.
(10) As of June 30, 2019, Ms. Stevenson holds 82,330 DSUs.
(11) As of June 30, 2019, Mr. Tinggren holds 17,499 DSUs.
(12) As of June 30, 2019, Ms. Weinstein holds 96,712 DSUs.
(13) During Fiscal 2019, Mr. Sadler received $638,401 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.
(14) Mr. Jackman retired from the board of directors effective September 5, 2019, being the date of our annual general meeting.
96
Directors who are salaried officers or employees receive no compensation for serving as directors. Mr. Barrenechea was the
only employee director in Fiscal 2019. 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
$70,000 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 2019,
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 2019, the annual DSU grant was approximately $225,000 for each non-management director and
approximately $295,000 for the Chairman of the Board. As newly elected members of our board, Mr. Singh and Mr. Fraser
each also received a pro rata portion of the annual DSU grant to compensate for their initial month of service of approximately
$18,750. 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
and since Fiscal 2013 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. 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 Mr. Slaunwhite (Chair) and Mses. Hamilton and 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
97
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.
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, 2019 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, 2019.
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.
98
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)
Gordon A. Davies (9)
Deborah Weinstein (10)
Madhu Ranganathan (11)
Gail E. Hamilton (12)
Simon Harrison (13)
Carl Jürgen Tinggren (14)
David Fraser (15)
Harmit Singh (16)
All executive officers and directors as a group (17)
Amount and Nature of
Beneficial Ownership
Percent of Common
Shares Outstanding
15,956,800
5.91%
15,808,651
3,204,859
1,666,571
562,874
292,398
222,124
211,662
128,202
119,746
109,969
81,615
77,049
53,076
10,756
284
94
5.86%
1.18%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
6,957,189
2.56%
*
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
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, 2019.
Includes 3,106,139 Common Shares owned and 98,720 deferred stock units (DSUs) which are exercisable.
Includes 728,161 Common Shares owned, 744,615 options which are exercisable and 193,795 options which will become
exercisable within 60 days of June 30, 2019.
Includes 468,200 Common Shares owned and 94,674 DSUs which are exercisable.
Includes 211,000 Common Shares owned and 81,398 DSUs which are exercisable.
Includes 70,595 Common Shares owned, 116,824 options which are exercisable and 34,705 options which will become
exercisable within 60 days of June 30, 2019.
Includes 135,000 Common Shares owned and 76,662 DSUs which are exercisable.
Includes 52,615 Common Shares owned and 75,587 DSUs which are exercisable.
Includes 47,222 Common Shares owned, 36,264 options which are exercisable and 36,260 options which will become
exercisable within 60 days of June 30, 2019.
(10) Includes 20,000 Common Shares owned and 89,969 DSUs which are exercisable.
(11) Includes 1,087 Common Shares owned, 73,378 options which are exercisable and 7,150 options which will become
exercisable within 60 days of June 30, 2019.
(12) Includes 14,000 Common Shares owned and 63,049 DSUs which are exercisable.
(13) Includes 16,762 Common Shares owned, 30,226 options which are exercisable and 6,088 options which will become
exercisable within 60 days of June 30, 2019.
(14) Includes 10,756 DSUs which are exercisable.
(15) Includes 284 DSUs which are exercisable.
(16) Includes 94 DSUs which are exercisable.
(17) Includes 4,892,004 Common Shares owned, 1,139,091 options which are exercisable, 334,901 options which will
become exercisable within 60 days of June 30, 2019, and 591,193 DSUs which are exercisable.
99
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, 2019:
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)
7,102,753
661,842
420,323
615,966
8,800,884
(b)
$31.82
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)
9,397,479
—
—
—
9,397,479
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 Chair, 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.
100
During Fiscal 2019, Mr. Sadler received approximately CAD $0.9 million in consulting fees from OpenText (equivalent
to $0.6 million USD), inclusive of CAD $0.8 million 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 2019 and Fiscal 2018 were:
(In thousands)
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
Year ended June 30,
2019
2018
4,598
$
—
108
40
4,746
$
4,701
—
116
101
4,918
$
$
(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 2019 and Fiscal 2018 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.
101
Item 15.
Exhibits and Financial Statements Schedules
(a) Financial Statements and Schedules
Part IV
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, 2019 and 2018
Consolidated Statements of Income for the years ended June 30, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income for the years ended June 30, 2019, 2018, and 2017
Consolidated Statements of Shareholders' Equity for the years ended June 30, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the years ended June 30, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
107
110
112
113
114
115
116
118
(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 4 "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)
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934
102
4.2
4.3
4.4
4.5
4.6
4.7
4.8
10.1*
10.2*
10.3*
10.4*
10.5
10.6*
10.7*
10.8*
10.9*
Form of Common Share Certificate. (1)
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)
OpenText Corporation Directors' Deferred Share Unit Plan, as amended and restated October 30, 2018 (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*
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)
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)
10.18*
10.19*
Employment Agreement, dated October 13, 2014, between David Jamieson and the Company. (28)
Amended and Restated Employee Stock Purchase Plan (29)
103
10.20
10.21
10.22*
10.23*
10.24
10.25*
10.26
10.27
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)
10.28*
Employment Agreement, dated October 1, 2017, between Simon (Ted) Harrison and the Company (40)
18.1
21.1
23.1
31.1
31.2
32.1
32.2
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.
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.
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*
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.
104
(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 January 31, 2019 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.
105
(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.
(40) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 2, 2018 and
incorporated herein by reference.
106
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of 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, 2019
and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-
year period ended June 30, 2019, 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, 2019, 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 July 31, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over
financial reporting.
Changes in Accounting Principles
As discussed in Note 1 to the consolidated financial statements, Open Text Corporation adopted two new accounting standards,
“Revenues from Contracts with Customers” and "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory" on a
modified retrospective basis through a cumulative-effect adjustment to opening retained earnings, in the year ended June 30,
2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s 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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
107
Allocation of the contract’s transaction price to identified performance obligations
As discussed in Note 3 to the consolidated financial statements, the Company generally sells or licenses its software in
combination with other products and services such as customer support and professional services. The accounting for contracts
with multiple performance obligations (units of accounting) which include a software license requires an allocation of the
contract’s transaction price to the identified performance obligations based on whether the product or service is distinct from
some or all of the other products or services in the contract.
The Company generally does not sell or license its products on a standalone basis and as such is required to estimate standalone
selling price (SSP) for each performance obligation within these customer contracts with the residual of the contract’s
transaction price allocated to the software license performance obligation. This allocation affects the amount and timing of
revenue recognized for each performance obligation. SSP for a performance obligation in a contract is an estimate of the price
that would be charged for the specific product or service if it was sold separately in similar circumstances and to similar
customers.
Considering the nature and volume of contracts with multiple performance obligations including a license product, we
identified the evaluation of the allocation of the contract price to the identified performance obligations within these contracts
as a critical audit matter because a higher degree of auditor judgment was required in evaluating the methodology and
frequency used to establish SSP (observable data, or cost plus margin approach) for the non-license performance obligations of
a contract. In addition there was auditor subjectivity in evaluating the assumptions that were used in determining the SSP for
each non-license performance obligation. The sensitivity of reasonably possible changes to those assumptions could have a
significant impact on the determination of SSP thereby impacting the contract’s transaction price allocation conclusion and the
amount and timing of revenues recognized for both the license and non-license performance obligations. Typical assumptions
include the basis for stratification of the underlying population for purposes of the SSP evaluation and the impact of geographic
or regional specific factors, competitive positioning, internal costs, profit objectives and pricing practices for different
performance obligations.
The primary procedures we performed to address the critical audit matter included the following: We tested certain internal
controls over the Company’s process to (1) identify the appropriateness of the methodology used to determine SSP over
identified non-license performance obligations in contracts that include software licenses (2) compile a complete listing of
historical standalone transactions included in the SSP evaluation (3) stratify the complete population of historical standalone
transactions based on factors such as geography and level of employee for professional services and (4) capture the relevant
information for purposes of establishing a range of observable pricing for the underlying SSP evaluation.
We evaluated the appropriateness of the methodology used to determine SSP by comparing to historical analysis completed by
the Company and practices observed in the industry. We evaluated whether there was management bias in the selection of the
assumptions used to perform the SSP evaluation. We assessed the stratification of the population used in the SSP evaluation
based on our knowledge of factors such as historical period, geography, product category and level of employee for
professional services. We inspected a sample of contracts from the population to assess whether attributes such as price and
employee consultant level were properly evaluated. For software license contracts with multiple performance obligations, we
tested the allocation of the transaction price to each performance obligation.
Assessment of recognition of uncertain tax positions
As discussed in Note 14 to the consolidated financial statements, as of June 30, 2019 the Company has recognized uncertain
tax positions including associated interest and penalties. The Company’s tax positions are subject to audit by local taxing
authorities across multiple global subsidiaries and the resolution of such audits may span multiple years. Tax law is complex
and often subject to varied interpretations, accordingly, the ultimate outcome with respect to taxes the Company may owe may
differ from the amounts recognized.
We identified the evaluation of uncertain tax positions as a critical audit matter because a higher degree of auditor judgment
was required in evaluating the Company’s interpretation of, and compliance with tax law globally across its multiple
subsidiaries. In addition, a higher degree of auditor judgment was required in evaluating the Company’s estimate of the
ultimate resolution of its tax positions.
The primary procedures we performed to address this critical audit matter included the following: We tested certain internal
controls over the Company’s process to assess uncertain tax positions to (1) interpret tax law and identify uncertain tax
108
positions (2) evaluate which of the Company’s tax positions may not be sustained upon audit and (3) estimate the uncertain tax
positions.
We involved domestic and international tax professionals with specialized skills and knowledge who assisted in obtaining an
understanding and assessing tax filed positions, transfer pricing studies and the Company’s compliance with applicable laws
and regulations. We evaluated the Company’s interpretation of tax laws by developing an independent assessment based on our
understanding and interpretation of tax laws. We inspected settlement documents with applicable taxing authorities, and
assessed the expiration of statutes of limitations.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company’s auditor since 2001.
Toronto, Canada
July 31, 2019
109
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of 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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019 and related notes (collectively, the consolidated financial statements), and our report dated July 31, 2019
expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Liaison Technologies, Inc. on December 17, 2018, and management excluded from its assessment of
the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019, Liaison Technology, Inc.’s
internal control over financial reporting associated with total assets of $376.8 million (of which approximately $321.1 million
represents goodwill and net intangible assets included within the scope of the assessment) and total revenues of $53.4 million
included in the consolidated financial statements of the Company as of and for the year ended June 30, 2019. Our audit of
internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial
reporting of Liaison Technologies, Inc.
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.
110
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
July 31, 2019
111
OPEN TEXT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
ASSETS
Cash and cash equivalents
Accounts receivable trade, net of allowance for doubtful accounts of $17,011 as of June 30,
2019 and $9,741 as of June 30, 2018 (note 4)
Contract assets (note 3)
Income taxes recoverable (note 14)
Prepaid expenses and other current assets
Total current assets
Property and equipment (note 5)
Long-term contract assets (note 3)
Goodwill (note 6)
Acquired intangible assets (note 7)
Deferred tax assets (note 14)
Other assets (note 8)
Deferred charges
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
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)
269,834,442 and 267,651,084 Common Shares issued and outstanding at June 30, 2019
and June 30, 2018, respectively; authorized Common Shares: unlimited
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost (802,871 shares at June 30, 2019 and 690,336 shares at June 30, 2018,
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 event (note 23)
June 30, 2019
June 30, 2018
$
941,009
$
682,942
463,785
20,956
38,340
97,238
1,561,328
249,453
15,386
3,769,908
1,146,504
1,004,450
148,977
—
37,969
7,933,975
329,903
10,000
641,656
33,158
1,014,717
49,441
—
75,239
2,604,878
46,974
202,184
55,872
3,034,588
$
$
1,774,214
24,124
2,113,883
(28,766)
3,883,455
1,215
3,884,670
7,933,975
$
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
$
$
$
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,
2019
2018
2017
$
$
428,092
907,812
$
437,512
828,968
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 7)
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 7)
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)
$
$
$
$
1,247,915
284,936
2,868,755
14,347
383,993
124,343
224,635
183,385
930,703
1,938,052
321,836
518,035
207,909
97,716
189,827
35,719
1,371,042
567,010
10,156
(136,592)
440,574
154,937
285,637
(136)
285,501
1.06
1.06
$
$
$
$
1,232,504
316,257
2,815,241
13,693
364,160
133,889
253,389
185,868
950,999
1,864,242
322,909
529,141
205,227
86,943
184,118
29,211
1,357,549
506,693
17,973
(138,540)
386,126
143,826
242,300
(76)
242,224
0.91
0.91
$
$
$
$
369,144
705,495
981,102
235,316
2,291,057
13,632
299,850
122,565
194,954
130,556
761,557
1,529,500
281,215
444,454
170,353
64,318
150,842
63,618
1,174,800
354,700
15,743
(120,892)
249,551
(776,364)
1,025,915
(256)
1,025,659
4.04
4.01
268,784
266,085
253,879
269,908
267,492
255,805
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
$
285,637
$
242,300
$
1,025,915
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments
(3,882)
(9,582)
(4,756)
Year Ended June 30,
2019
2018
2017
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect
of $6, ($171) and $34 for the year ended June 30, 2019,
2018 and 2017, respectively
(Gain) loss reclassified into net income - net of tax
(expense) recovery effect of $539, ($489) and $67 for the
year ended June 30, 2019, 2018 and 2017, respectively
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect
of ($2,004), ($1,846) and $840 for the year ended June 30,
2019, 2018 and 2017, respectively
Amortization of actuarial (gain) loss into net income - net
of tax (expense) recovery effect of $292, $183 and $241 for
the year ended June 30, 2019, 2018 and 2017, respectively
Unrealized net gain (loss) on marketable securities - net of tax
effect of nil for the year ended June 30, 2019, 2018 and 2017
respectively
Release of unrealized gain on marketable securities - net of tax
effect of nil for the year ended June 30, 2019, 2018 and 2017
respectively
16
(476)
1,494
(1,357)
95
186
(7,421)
(3,383)
6,216
272
—
—
260
—
(617)
565
184
—
Total other comprehensive income (loss) net, for the period
(9,521)
(15,155)
2,490
Total comprehensive income
276,116
227,145
1,028,405
Comprehensive (income) loss attributable to non-controlling
interests
(136)
(76)
(256)
Total comprehensive income attributable to OpenText
$
275,980
$
227,069
$
1,028,149
See accompanying Notes to Consolidated Financial Statements
114
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
Balance as of June 30, 2016
Issuance of Common Shares
Common Shares and
Additional Paid in Capital
Treasury Stock
Shares
Amount
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
242,810
$
965,068
(1,268) $ (25,268) $ 992,546
$
46,310
$
541
$ 1,979,197
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
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 declared
($0.4770 per Common Share)
Other comprehensive income - net
Non-controlling interest
Net income for the year
Balance as of June 30, 2017
Issuance of Common Shares
Share-based compensation
Issuance of treasury stock
Dividends declared
($0.5478 per Common Share)
Other comprehensive income - net
Net income for the year
Balance as of June 30, 2018
Issuance of Common Shares
Under employee stock option plans
Under employee stock purchase plans
2,870
721
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(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
$
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
267,651
$ 1,707,073
(691) $ (18,732) $ 1,994,235
$
33,645
$
1,037
$ 3,717,258
Under employee stock option plans
Under employee stock purchase plans
1,472
711
Share-based compensation
Purchase of treasury stock
Issuance of treasury stock
Dividends declared
($0.6300 per Common Share)
Cumulative effect of ASU 2016-16
Cumulative effect of Topic 606
Other comprehensive income - net
Non-controlling interest
Net income for the year
—
—
—
—
—
—
—
—
—
35,626
21,835
26,770
—
(16,465)
—
—
—
—
(625)
—
—
—
—
—
—
—
(726)
614
(26,499)
16,465
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(168,859)
(26,780)
29,786
—
—
285,501
—
—
—
—
—
—
—
—
(9,521)
—
—
—
—
—
—
—
—
—
—
—
42
35,626
21,835
26,770
(26,499)
—
(168,859)
(26,780)
29,786
(9,521)
(583)
136
285,637
Balance as of June 30, 2019
269,834
$ 1,774,214
(803) $ (28,766) $ 2,113,883
$
24,124
$
1,215
$ 3,884,670
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
Deferred taxes
Share in net (income) loss of equity investees
Write off of unamortized debt issuance costs
Other non-cash charges
Changes in operating assets and liabilities:
Accounts receivable
Contract assets
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 Catalyst Repository Systems Inc.
Purchase of Liaison Technologies, Inc.
Purchase of Hightail, Inc., net of cash acquired
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
Purchase of Treasury Stock
Purchase of non-controlling interests
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, cash equivalents and restricted cash during the period
Cash, cash equivalents and restricted cash at beginning of the period
Cash, cash equivalents and restricted cash at end of the period
$
116
Year Ended June 30,
2018
2019
2017
$
285,637
$
242,300
$
1,025,915
470,928
26,770
—
4,624
4,330
—
9,438
—
47,425
(13,668)
—
—
75,508
(37,623)
(819)
27,291
(21,732)
(1,827)
(4)
876,278
(63,837)
—
(70,800)
(310,644)
—
(2,279)
—
—
—
—
—
(16,966)
(464,526)
—
—
57,889
—
(10,000)
(322)
—
(26,499)
(583)
(168,859)
(148,374)
(3,826)
259,552
683,991
943,543
456,929
27,594
—
3,738
4,646
4,242
2,234
(841)
89,736
(5,965)
155
—
(22,566)
—
(7,274)
(31,323)
(91,650)
35,629
497
708,081
(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)
237,781
446,210
683,991
$
$
345,715
30,507
(1,534)
3,893
5,014
6,298
784
—
(871,195)
(5,952)
833
1,033
(126,784)
—
(7,766)
(1,683)
53,490
3,484
(21,699)
440,353
(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
(839,300)
1,285,510
446,210
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
Reconciliation of cash, cash equivalents and restricted cash:
June 30, 2019
June 30, 2018
June 30, 2017
Cash and cash equivalents
Restricted cash included in Other assets
Total cash, cash equivalents and restricted cash
Supplemental cash flow disclosures (note 20)
$
$
941,009
2,534
943,543
$
$
682,942
1,049
683,991
$
$
443,357
2,853
446,210
See accompanying Notes to Consolidated Financial Statements
117
OPEN TEXT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended June 30, 2019
(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) and EC1 Pte. Ltd. (GXS Singapore), which as of
June 30, 2019, were 70% and 81% owned, respectively, by OpenText. All inter-company balances and transactions have been
eliminated.
Previously, our ownership in GXS Inc. (GXS Korea) was 85%. During the first quarter of Fiscal 2019, we acquired all of
the outstanding non-controlling interests in GXS Korea for $0.6 million in cash.
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 Liaison Technologies, Inc. (Liaison),
with effect from December 17, 2018, and Catalyst Repository Systems Inc. (Catalyst), with effect from January 31, 2019 (see
note 18 "Acquisitions").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make certain 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, key estimates, judgments and assumptions include those related to: (i) revenue recognition,
(ii) accounting for income taxes, (iii) testing of goodwill for impairment, (iv) the valuation of acquired intangible assets, (v) the
valuation of long-lived assets, (vi) the recognition of contingencies, (vii) restructuring accruals, (viii) acquisition accruals and
pre-acquisition contingencies, (ix) the realization of investment tax credits, (x) the valuation of stock options granted and
obligations related to share-based payments, including the valuation of our long-term incentive plans, and (xi) the valuation of
pension obligations.
Impact of Recently Adopted Accounting Pronouncements
Revenue Recognition
Effective July 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with
Customers" (Topic 606) using the cumulative effect approach. We applied the accounting standard to contracts that were not
completed as of the date of the initial adoption. Results for reporting periods commencing on July 1, 2018 are presented under
the new revenue standard, while prior period results continue to be reported under the previous revenue standard. As a result of
this adoption, we recorded a net increase of approximately $30 million to retained earnings as of July 1, 2018 on the
Consolidated Balance Sheets, with the following corresponding impacts:
• A decrease to deferred revenues of approximately $31 million;
• A decrease to other assets of approximately $22 million in connection with deferred implementation costs;
• An increase to other assets of approximately $14 million in connection with the capitalization of sales
commission costs;
• An increase in contract assets of approximately $18 million representing future billings in excess of revenues;
and
• An increase in net deferred tax liabilities of approximately $11 million.
118
Please refer to Note 3 "Revenues" for additional information relating to Topic 606, including our updated revenue
recognition policies.
Additionally, certain prior period balances have been reclassified within other assets on the Consolidated Balance Sheets,
to conform to the current period presentation as a result of this adoption. Please refer to Note 8 "Other Assets" for details.
Income Taxes
Effective July 1, 2018, we adopted Accounting Standards Update (ASU) No. 2016-16, "Income Taxes (Topic 740): Intra-
Entity Transfers of Assets Other Than Inventory" (ASU 2016-16) which requires entities to recognize the income tax
consequence of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. We adopted ASU 2016-16 on
a modified retrospective basis through a cumulative-effect adjustment to opening retained earnings. Results for reporting
periods effective as of July 1, 2018 are presented under the new standard, while prior period results continue to be reported
under the previous standard. As a result of this adoption, we recorded a net decrease of approximately $27 million to retained
earnings as of July 1, 2018 on the Consolidated Balance Sheets, with the following corresponding impacts:
• A decrease to deferred charges of approximately $38 million;
• An increase to deferred tax assets of approximately $8 million; and
• A decrease to deferred credits of approximately $3 million.
There was no impact to the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income or
Consolidated Statements of Cash Flows as a result of this adoption.
Restricted Cash
Effective July 1, 2018, we adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (ASU
2016-18), which requires amounts described as restricted cash and cash equivalents to be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts in the statement of cash flows. We
adopted ASU 2016-18 using the retrospective method. As a result, certain prior period comparative figures in the Consolidated
Statements of Cash Flows have been adjusted to conform to current period presentation as follows:
Year Ended June 30, 2018
Year Ended June 30, 2017
As
Previously
Reported
Adjustments As Adjusted
As
Previously
Reported
Adjustments As Adjusted
Net cash provided by operating activities
$ 709,885
$
(1,804) $ 708,081
$ 439,253
$
1,100
$ 440,353
Cash, cash equivalents and restricted cash at
beginning of period
Increase (decrease) in cash, cash equivalents
and restricted cash during the period
Cash, cash equivalents and restricted cash at
end of period
443,357
2,853
446,210
1,283,757
1,753
1,285,510
239,585
(1,804)
237,781
(840,400)
1,100
(839,300)
$ 682,942
$
1,049
$ 683,991
$ 443,357
$
2,853
$ 446,210
There was no impact to the Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements
of Shareholders' Equity or Consolidated Statements of Comprehensive Income as a result of this adoption.
Pension Expense
Effective July 1, 2018, we adopted ASU No. 2017-07, “Retirement Benefits - Presentation of Net Period Pension Costs
(Topic 715)” (ASU 2017-07), which provides guidance on the capitalization, presentation and disclosure of net benefit costs
related to postretirement benefit plans. Upon adoption, only service-related net periodic pension costs will be recorded within
operating expense. All other non-service related net periodic pension costs will be classified under "Interest and other related
expense" on our Condensed Consolidated Statements of Income. We adopted ASU 2017-07 on a retrospective basis. As a
result, certain prior period comparative figures in the Consolidated Statements of Income have been adjusted to conform to
current period presentation as follows:
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Year Ended June 30, 2018
Year Ended June 30, 2017
Cost of revenues - Cloud services
Cost of revenues - Customer Support
Cost of revenues - Professional service
and other
Total cost of revenues
Gross profit
Research and Development
Sales and Marketing
General and administrative
Total operating expense
As Previously
Reported
$
$
$
364,091
134,089
253,670
$
951,411
$ 1,863,830
$
$
323,461
529,381
$
205,313
$ 1,358,427
$
$
$
$
$
$
$
Income from operations
Interest and other related expense, net
$
$
505,403
$ (137,250) $
As Adjusted
Adjustments
364,160
$
69
$
(200) $
133,889
$
Adjustments
$
As Adjusted
299,850
122,565
(405) $
(188) $
As Previously
Reported
$
$
$
300,255
122,753
195,195
$
$
(281) $
253,389
$
$
322,909
529,141
950,999
$ 1,864,242
$
762,391
$ 1,528,666
(412) $
412
(552) $
(240) $
(86) $
205,227
(878) $ 1,357,549
1,290
$
506,693
(1,290) $ (138,540) $ (119,124) $
$
170,438
$ 1,175,734
281,680
444,838
352,932
$
$
$
$
$
$
$
$
(241) $
194,954
281,215
444,454
761,557
$ 1,529,500
(834) $
834
(465) $
(384) $
(85) $
170,353
(934) $ 1,174,800
1,768
354,700
(1,768) $ (120,892)
$
There was no change to net income or net earnings per share in any of the periods presented as a result of this adoption.
Additionally, there was no impact to the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income,
Consolidated Statements of Shareholders' Equity or Consolidated Statements of Cash Flows as a result of this adoption.
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.
Accounts Receivable and Allowance for doubtful accounts
From time to time, we may sell certain accounts receivable to a financial institution on a non-recourse basis for cash, less
a discount. Proceeds from the sale of receivables approximate their discounted book value are included in operating cash flows
on the Consolidated Statement of Cash Flows.
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
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, 2019 and 2018.
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 2019, Fiscal 2018, or Fiscal 2017. The following represents the estimated useful lives of property and equipment as of
June 30, 2019:
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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, 2019 and 2018 our capitalized software development costs were $95.7 million and $81.1 million,
respectively. Our additions, relating to capitalized software development costs, incurred during Fiscal 2019 and Fiscal 2018
were $14.3 million and $14.6 million, respectively.
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.
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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 2019, Fiscal 2018 and Fiscal
2017.
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.
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.
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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, 2019. 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
2019 (no impairments were recorded for Fiscal 2018 and Fiscal 2017).
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
In accordance with Topic 606, we account for a customer contract when we obtain written approval, the contract is
committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is
transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our products
and services (at its transaction price). Estimates of variable consideration and the determination of whether to include estimated
amounts in the transaction price are based on readily available information, which may include historical, current and
forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and
circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities
that are imposed on and concurrent with specific revenue producing transactions. Refer to note 3 "Revenues" for our full
revenue recognition policy.
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
123
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.
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 2019, Fiscal 2018 and Fiscal
2017 were $(4.3) million, $4.8 million and $3.1 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
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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).
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, 2019, we do not believe that the outcomes of any of these matters not already disclosed,
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).
Accounting Pronouncements Adopted in Fiscal 2019
During Fiscal 2019, we adopted the following ASU's, in addition to those discussed in note 1 "Basis of Presentation".
These ASU's did not have a material impact to our reported financial position, results of operations or cash flows:
• ASU 2016-15 "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments".
When classifying distributions received from equity method investees, the Company uses the cumulative earnings
approach.
• ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business"
• ASU 2018-05 "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 118"
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Accounting Pronouncements Not Yet Adopted
Retirement Benefits
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-14 “Compensation-Retirement
Benefits-Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for
Defined Benefit Plans” (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other
post retirement plans. ASU 2018-14 is effective for us in the first quarter of our fiscal year ending June 30, 2021. We are
currently evaluating the impact of our pending adoption of ASU 2018-14 on our consolidated financial statements.
Implementation Costs in a Cloud Computing Arrangement
In August 2018, the FASB issued ASU No. 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service
Contract” (ASU 2018-15). ASU 2018-15 clarifies the accounting treatment for implementation costs incurred as a customer in
cloud computing arrangements. We will adopt ASU 2018-15 in the first quarter of our fiscal year ending June 30, 2020. We do
not expect the adoption of ASU 2018-15 will have a material impact to our consolidated financial statements.
Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued
subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively Topic 326).
Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This
replaces the existing incurred loss model with an expected loss model and requires the use of forward looking information to
calculate credit loss estimates. Topic 326 is effective for us in our first quarter of our fiscal year ending June 30, 2021 with
earlier adoption permitted beginning in the first quarter of our fiscal year ending June 30, 2020. Topic 326 must be adopted by
applying a cumulative effect adjustment to retained earnings. We are currently evaluating Topic 326, including its potential
impact to our process and controls. We believe the effect on our consolidated financial statements will largely depend on the
composition and credit quality of our financial assets and the economic conditions at the time of adoption.
Leases
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” and issued subsequent amendments to the
initial guidance under ASU 2017-13, ASU 2018-10, ASU 2018-11 and ASU 2018-20 (collectively, Topic 842). Topic 842
supersedes the guidance in former ASC Topic 840 “Leases”. Topic 842 requires companies to generally recognize on the
balance sheet operating and financing lease liabilities and corresponding right-of-use (ROU) assets. For OpenText, 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. Upon
adoption, we expect to recognize ROU assets ranging from approximately $218 million to $228 million and lease liabilities
ranging from approximately $255 million to $265 million. The new guidance will also require significant additional disclosures
about the amount, timing and uncertainty of cash flows related to leases. We will adopt Topic 842 in the first quarter of our
fiscal year ending June 30, 2020 using the modified retrospective transition and by applying the new standard to all leases
existing at the date of initial adoption and not restating comparative periods, as allowed for under Topic 842. Upon adoption,
we will also elect the transition provisions of permitted practical expedients, which among other things, allows the carryforward
of the historical lease classification. Furthermore, upon adoption, we will make an accounting policy election that will keep
leases with an initial term of 12 months or less off our Consolidated Balance Sheets and we will recognize these short-term
lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term.
NOTE 3—REVENUES
In accordance with Topic 606, we account for a customer contract when we obtain written approval, the contract is
committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and
consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is
transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our
products and services (at its transaction price). Estimates of variable consideration and the determination of whether to include
estimated amounts in the transaction price are based on readily available information, which may include historical, current and
forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and
circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities
that are imposed on and concurrent with specific revenue producing transactions.
126
We have four revenue streams: license, cloud services and subscriptions, customer support, and professional service and
other.
License revenue
Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which
are deployed on the customer’s premises (on-premise).
Perpetual licenses: We sell perpetual licenses which provide customers the right to use software for an indefinite period
of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses
provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality.
Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been
transferred to the customer, which normally occurs once software activation keys have been made available for download.
Term licenses and Subscription licenses: We sell both term and subscription licenses which provide customers the right
to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in
installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are
functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue
is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once
software activation keys have been made available for download at the commencement of the term.
Cloud services and subscriptions revenue
Cloud services and subscriptions revenue are from hosting arrangements where in connection with the licensing of
software, the end user doesn’t take possession of the software, as well as from end-to-end fully outsourced business-to-business
(B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides
on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis. Our cloud
arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions
and managed services.
PaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions): We offer cloud-based
solutions that provide customers the right to access our software through the internet. Our cloud-based solutions represent
a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. These
services are made available to the customer continuously throughout the contractual period, however, the extent to which
the customer uses the services may vary at the customer’s discretion. The payment for cloud-based solutions may be
received either at inception of the arrangement, or over the term of the arrangement.
These cloud-based solutions are considered to have a single performance obligation where the customer simultaneously
receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the
term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage
basis, such as the number of users, is recognized based on a customer’s utilization of the services in a given period.
Additionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met:
(i) The customer has the contractual right to take possession of the software at any time without significant penalty; and
(ii) It is feasible for the customer to host the software independent of us.
In these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is
distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be
recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the
hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence
suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the
arrangement.
Managed services: We provide comprehensive B2B process outsourcing services for all day-to-day operations of a
customers’ B2B integration program. Customers using these managed services are not permitted to take possession of our
software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance
obligation is satisfied as we provide services of operating and managing a customer's electronic data interchange (EDI)
environment. Revenue relating to these services is recognized using an output method based on the expected level of
service we will provide over the term of the contract.
127
In connection with cloud subscription and managed service contracts, we often agree to perform a variety of services
before the customer goes live, such as for example, converting and migrating customer data, building interfaces and providing
training. These services are considered an outsourced suite of professional services which can involve certain project-based
activities. These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as
part of the customer life cycle. These services can be charged separately on a fixed fee or time and materials basis, or the costs
associated may be recovered as part of the ongoing cloud subscription or managed services fee. These outsourced professional
services are considered to be distinct from the ongoing hosting services and represent a separate performance obligation within
our cloud subscription or managed services arrangements. The obligation to provide outsourced professional services is
satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance
obligations. For outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our
performance obligation. Progress for services that are contracted for a fixed price is generally measured based on hours
incurred as a portion of total estimated hours. As a practical expedient, when we invoice a customer at an amount that
corresponds directly with the value to the customer of our performance to date, we recognize revenue at that amount.
Customer support revenue
Customer support revenue is associated with perpetual, term license and on-premise subscription arrangements. As
customer support is not critical to the customer's ability to derive benefit from its right to use our software, customer support is
considered as a distinct performance obligation when sold together in a bundled arrangement along with the software.
Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a
when-and-if-available basis. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option of
the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same
duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over
the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to
the customer during the contract term. As the elements of customer support are delivered concurrently and have the same
pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly
throughout the contract period from the guarantee that the customer support resources and personnel will be available to them,
and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for customer
support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how
we believe services are provided.
Professional service and other revenue
Our professional services, when offered along with software licenses, consists primarily of technical services and training
services. Technical services may include installation, customization, implementation or consulting services. Training services
may include access to online modules or delivering a training package customized to the customer’s needs. At the customer’s
discretion, we may offer one, all, or a mix of these services. Payment for professional services is generally a fixed fee or is a fee
based on time and materials.
Professional services can be arranged in the same contract as the software license or in a separate contract.
As our professional services do not significantly change the functionality of the license and our customers can benefit
from our professional services on their own or together with other readily available resources, we consider professional services
as distinct within the context of the contract.
Professional service revenue is recognized over time so long as: (i) the customer simultaneously receives and consumes
the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and
(iii) our performance does not create an asset with alternative use and we have enforceable right to payment.
If all of the above criteria are met, we use an input-based measure of progress for recognizing professional service
revenue. For example we may consider total labor hours incurred compared to total expected labor hours. As a practical
expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our
performance to date, we will recognize revenue at that amount.
128
Material rights
To the extent that we grant our customer an option to acquire additional products or services in one of our arrangements,
we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to
the customer that the customer would not receive without entering into the contract. For example if we give the customer an
option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would
be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services.
If a material right exists in one of our contracts then revenue allocated to the option is deferred and we would recognize
revenue only when those future products or services are transferred or when the option expires.
Based on history, our contracts do not typically contain material rights and when they do, the material right is not
significant to our consolidated financial statements.
Arrangements with multiple performance obligations
Our contracts generally contain more than one of the products and services listed above. Determining whether goods and
services are considered distinct performance obligations that should be accounted for separately or as a single performance
obligation may require judgment, specifically when assessing whether both of the following two criteria are met:
•
the customer can benefit from the product or service either on its own or together with other resources that are
readily available to the customer; and
• our promise to transfer the product or service to the customer is separately identifiable from other promises in the
contract.
If these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise
for the single performance obligation.
If these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the
total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.
Standalone selling price
The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar
circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data. We
typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when
material changes in facts and circumstances warrant a review.
If the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual
approach. Estimating SSP requires judgment that could impact the amount and timing of revenue recognized. SSP is a
formal process whereby management considers multiple factors including, but not limited to, geographic or regional
specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.
Transaction Price Allocation
In bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction
price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may
not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate
the transaction price between the license and customer support performance obligations using the residual approach
because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual
approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our
established SSP range, then an adjustment is required and we will allocate the transaction price between license and
customer support at a constant ratio reflecting the mid-point of the established SSP range.
When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and
circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will
account for them as a single arrangement and allocate the consideration for the combined contracts among the
performance obligations accordingly.
Sales to resellers
We execute certain sales contracts through resellers, distributors and channel partners (collectively referred to as
resellers). For these type of agreements, we assess whether we are considered the principal or the agent in the arrangement. We
consider factors such as, but not limited to, whether or not the reseller has the ability to set the price for which they sell our
software products to end users and whether or not resellers distribution rights are limited such that any potential sales are
subject to OpenText’s review and approval before delivery of the software product can be made. If we determine that we are the
129
principal in the arrangement, then revenue is recognized based on the transaction price for the sale of the software product to
the end user at the gross amount. If that is not known, then the net amount received from the reseller is the transaction price. If
we determine that we are the agent in the agreement, then revenue is recognized based on the transaction price for the sale of
the software product to the reseller, less any applicable commissions paid or discounts or rebates, if offered. Costs or
commissions paid to the reseller would be recognized as a reduction of revenue unless we received a distinct good or service in
return. Similarly, any discounts or rebates offered by the reseller would be recognized as a reduction of revenue.
Typically, we conclude that we are the principal in our reseller agreements, as we have control over the service and
products prior to being transferred to the end customer.
We also assess the creditworthiness of each reseller and if they are newly formed, undercapitalized or in financial
difficulty, we defer any revenues expected to emanate from such reseller and recognize revenue only when cash is received, and
all other revenue recognition criteria under Topic 606 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. In some contracts,
however, discounts may be offered to the customer for future software purchases and other additional products or services.
Such arrangements grant the customer an option to acquire additional goods or services in the future at a discount and therefore
are evaluated under guidance related to “material rights” as discussed above.
Other policies
Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within
30 to 60 days of the invoice date. In certain arrangements, we will receive payment from a customer either before or after the
performance obligation to which the invoice relates has been satisfied. As a practical expedient, we do not account for
significant financing components if the period between when we transfer the promised good or service to the customer and
when the customer pays for the product or service will be one year or less. On that basis, our contracts for license and
maintenance typically do not contain a significant financing component, however in determining the transaction price we
consider whether we need to adjust the promised consideration for the effects of the time value of money if the timing of
payments provides either the customer or OpenText with a significant benefit of financing. Our managed services contracts may
not include an upfront charge for outsourced professional services performed as part of an implementation and are recovered
through an ongoing fee. Therefore, these contracts may be expected to have a financing component associated with revenue
being recognized in advance of billings.
We may modify contracts to offer customers additional products or services. The additional products and services will be
considered distinct from those products or services transferred to the customer before the modification and will be accounted
for as a separate contract. We evaluate whether the price for the additional products and services reflects the SSP adjusted as
appropriate for facts and circumstances applicable to that contract. In determining whether an adjustment is appropriate, we
evaluate whether the incremental consideration is consistent with the prices previously paid by the customer or similar
customers.
Performance Obligations
A summary of our typical performance obligations and when the obligations are satisfied are as follows:
Performance Obligation
License revenue:
When Performance Obligation is Typically Satisfied
Software licenses (Perpetual,Term, Subscription)
When software activation keys have been made available for
download (point in time)
Cloud services and subscriptions revenue:
Outsourced Professional Services
Managed Services / Ongoing Hosting
Customer support revenue:
When and if available updates and upgrades and
technical support
Professional service and other revenue:
As the services are provided (over time)
Over the contract term, beginning on the date that service is made
available (i.e. "Go live") to the customer (over time)
Ratable over the course of the service term (over time)
Professional services
As the services are provided (over time)
130
Disaggregation of Revenue
The following table disaggregates our revenue by significant geographic area, based on the location of our end customer,
and by type of performance obligation and timing of revenue recognition for the periods indicated:
Year Ended June 30, 2019
Total Revenues by Geography:
Americas (1)
EMEA (2)
Asia Pacific (3)
Total Revenues
Total Revenues by Type of Performance Obligation:
Recurring revenue (4)
Cloud services and subscriptions revenue
Customer support revenue
Total recurring revenues
License revenue (perpetual, term and subscriptions)
Professional service and other revenue
Total revenues
Total Revenues by Timing of Revenue Recognition
Point in time
Over time (including professional service and other revenue)
$
$
$
$
$
Total revenues
(1) Americas consists of countries in North, Central and South America.
(2) EMEA primarily consists of countries in Europe, the Middle East and Africa.
(3) Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.
(4) Recurring revenue is defined as the sum of cloud services and subscriptions revenue and customer support revenue.
$
1,683,282
920,422
265,051
2,868,755
907,812
1,247,915
2,155,727
428,092
284,936
2,868,755
428,092
2,440,663
2,868,755
Contract Balances
A contract asset will be recorded if we have recognized revenue but do not have an unconditional right to the related
consideration from the customer. For example, this will be the case if implementation services offered in a cloud arrangement
are identified as a separate performance obligation and are provided to a customer prior to us being able to bill the customer. In
addition, a contract asset may arise in relation to subscription licenses if the license revenue that is recognized upfront exceeds
the amount that we are able to invoice the customer at that time. Contract assets are reclassified to accounts receivable when the
rights become unconditional.
The balance for our contract assets and contract liabilities (i.e. deferred revenues) for the periods indicated below were as
follows:
Short-term contract assets
Long-term contract assets
Short-term deferred revenue
Long-term deferred revenue
As of June 30, 2019
As of July 1, 2018
$
$
$
$
20,956
15,386
641,656
46,974
$
$
$
$
5,474
12,382
618,197
64,743
The difference in the opening and closing balances of our contract assets and deferred revenues primarily results from the
timing difference between our performance and the customer’s payments. We fulfill our obligations under a contract with a
customer by transferring products and services in exchange for consideration from the customer. During the year ended
June 30, 2019, we reclassified $19.2 million of contract assets to receivables as a result of the right to the transaction
consideration becoming unconditional. During the year ended June 30, 2019, there was no significant impairment loss
recognized related to contract assets.
131
We recognize deferred revenue when we have received consideration or an amount of consideration is due from the
customer for future obligations to transfer products or services. Our deferred revenues primarily relate to customer support
agreements which have been paid for by customers prior to the performance of those services. The amount of revenue that was
recognized during the year ended June 30, 2019 that was included in the deferred revenue balances at July 1, 2018 was
approximately $617 million.
Incremental Costs of Obtaining a Contract with a Customer
Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not
have incurred if the contract had not been obtained, such as sales commissions. We have determined that certain of our
commission programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as
the commission expense is paid and recognized as the related revenue is recognized. In assessing costs to obtain a contract, we
apply a practical expedient that allows us to assess our incremental costs on a portfolio of contracts with similar characteristics
instead of assessing the incremental costs on each individual contract. We do not expect the financial statement effects of
applying this practical expedient to the portfolio of contracts to be materially different than if we were to apply the new
standard to each individual contract.
We pay commissions on the sale of new customer contracts as well as for renewals of existing contracts to the extent the
renewals generate incremental revenue. Commissions paid on renewal contracts are limited to the incremental new revenue and
therefore these payments are not commensurate with the commission paid on the original sale. We allocate commission costs to
the performance obligations in an arrangement consistent with the allocation of the transaction price. Commissions allocated to
the license performance obligation are expensed at the time the license revenue is recognized. Commissions allocated to
professional service performance obligations are expensed as incurred, as these contracts are generally for one year or less and
we apply a practical expedient to expense costs as incurred if the amortization period would have been one year or less.
Commissions allocated to maintenance, managed services, on-going hosting arrangements or other recurring services, are
capitalized and amortized consistent with the pattern of transfer to the customer of the services over the period expected to
benefit from the commission payment. As commissions paid on renewals are not commensurate with the original sale, the
period of benefit considers anticipated renewals. The benefit period is estimated to be approximately six years which is based
on our customer contracts and the estimated life of our technology.
Expenses for incremental costs associated with obtaining a contract are recorded within sales and marketing expense in
the Consolidated Statements of Income.
Our short term capitalized costs to obtain a contract are included in "Prepaid expenses and other assets", while our long-
term capitalized costs to obtain a contract are included in "Other assets" on our Consolidated Balance Sheets.
The following table summarizes the changes since July 1, 2018:
Capitalized costs to obtain a contract as of July 1, 2018
New capitalized costs incurred
Amortization of capitalized costs
Adjustments on account of foreign exchange
Capitalized costs to obtain a contract as of June 30, 2019
$
$
35,151
24,347
(11,003)
(211)
48,284
During the year ended June 30, 2019 there was no significant impairment loss recognized in relation to costs capitalized.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2019, approximately $1.1 billion of revenue is expected to be recognized from remaining performance
obligations on existing contracts. We expect to recognize approximately 40% over the next 12 months and the remaining
balance thereafter. We apply the practical expedient and do not disclose performance obligations that have original expected
durations of one year or less.
Impact on financial statements
The following tables summarize the impacts of adopting Topic 606 on our consolidated balance sheets, statements of
income and cash flows, all as compared to proforma balances illustrating if ASC Topic 605 "Revenue Recognition" (Topic 605)
had still been in effect. Financial statement line items that were not impacted by the adoption of Topic 606 have been excluded
from the tables below.
132
Consolidated Balance Sheet
ASSETS
Contract assets
Prepaid expenses and other current assets
Total current assets
Long-term contract assets
Deferred tax assets
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities
Deferred revenues
Total current liabilities
Long-term liabilities:
Deferred revenues
Deferred tax liabilities
Total long-term liabilities
Shareholders’ equity:
Accumulated other comprehensive income
Retained earnings
Total OpenText shareholders' equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
As reported under
Topic 606
As of June 30, 2019
Adjustments
Proforma as if Topic
605 was in effect
$
$
$
$
$
20,956
97,238
1,561,328
15,386
1,004,450
148,977
7,933,975
$
(20,956) $
4,428
(16,528)
(15,386)
16,631
(5,614)
(20,897) $
329,903
$
(55) $
641,656
1,014,717
46,974
55,872
3,034,588
24,124
2,113,883
3,883,455
1,215
3,884,670
7,933,975
$
24,635
24,580
32,170
(8,178)
23,992
1,260
(70,729)
(69,469)
—
(69,469)
(20,897) $
—
101,666
1,544,800
—
1,021,081
143,363
7,913,078
329,848
666,291
1,039,297
79,144
47,694
3,058,580
25,384
2,043,154
3,813,986
1,215
3,815,201
7,913,078
133
Consolidated Statements of Income
Revenues:
License
Cloud services and subscriptions
Customer support
Professional service and other
Total revenues
Cost of revenues:
Cloud services and subscriptions
Professional service and other
Total cost of revenues
Gross profit
Operating expenses:
Sales and marketing
Total operating expenses
Income from operations
Interest and other related expense, net
Income before income taxes
Provision for (recovery of) income taxes
Net income for the period
Year Ended June 30, 2019
As reported under
Topic 606
Adjustments
Proforma as if
Topic 605 was in
effect
$
$
$
428,092
907,812
1,247,915
284,936
2,868,755
383,993
224,635
930,703
1,938,052
518,035
1,371,042
567,010
(136,592)
440,574
154,937
285,637
$
(37,709) $
(6,361)
(1,605)
24
(45,651)
(338)
5
(333)
(45,318)
8,945
8,945
(54,263)
(801)
(55,064)
(14,121)
(40,943) $
390,383
901,451
1,246,310
284,960
2,823,104
383,655
224,640
930,370
1,892,734
526,980
1,379,987
512,747
(137,393)
385,510
140,816
244,694
The adjustment on license revenue for the year ended June 30, 2019 of $37.7 million is primarily due to new contracts
entered into during Fiscal 2019 for which a timing difference of revenue recognition exists between Topic 606 and Topic 605.
See above for an explanation of how license revenues are recognized under Topic 606. The Fiscal 2019 contracts pertaining to
the respective adjustments are recognized up front under Topic 606, whereas such revenues would have been recognized over
time under Topic 605.
Consolidated Statement of Cash Flows
Cash flows from operating activities:
Net income for the period
Adjustments to reconcile net income to net cash provided by
operating activities:
Deferred taxes
Changes in operating assets and liabilities:
Accounts receivable
Contract assets
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
$
134
Year Ended June 30, 2019
As reported under
Topic 606
Adjustments
Proforma as if Topic
605 was in effect
$
285,637
$
(40,943) $
244,694
47,425
(14,165)
33,260
75,508
(37,623)
(819)
27,291
(21,732)
(1,827)
(4)
876,278
(18,883)
37,623
3,319
101
173
26,841
5,934
$
— $
56,625
—
2,500
27,392
(21,559)
25,014
5,930
876,278
NOTE 4—ALLOWANCE FOR DOUBTFUL ACCOUNTS
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
Bad debt expense
Write-off /adjustments
Balance as of June 30, 2019
$
$
6,740
5,929
(6,350)
6,319
9,942
(6,520)
9,741
13,461
(6,191)
17,011
Included in accounts receivable are unbilled receivables in the amount of $56.1 million as of June 30, 2019 (June 30,
2018—$55.5 million).
NOTE 5—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
As of June 30, 2019
Accumulated
Depreciation
Net
Cost
40,260
1,993
258,802
119,018
95,729
113,510
49,557
678,869
$
$
(26,492) $
(1,576)
(177,402)
(87,240)
(56,205)
(66,520)
(13,981)
(429,416) $
13,768
417
81,400
31,778
39,524
46,990
35,576
249,453
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
$
$
$
$
135
NOTE 6—GOODWILL
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, 2017:
Balance as at 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
Acquisition of Catalyst Repository Systems Inc. (note 18)
Acquisition of Liaison Technologies, Inc. (note 18)
Adjustments on account of foreign exchange
Balance as of June 30, 2019
NOTE 7—ACQUIRED INTANGIBLE ASSETS
$
$
Technology assets
Customer assets
Total
Technology assets
Customer assets
Total
Cost
835,498
1,397,937
2,233,435
Cost
985,226
1,348,510
2,333,736
$
$
$
$
As of June 30, 2019
Accumulated
Amortization
(349,259) $
(737,672)
(1,086,931) $
As of June 30, 2018
Accumulated
Amortization
(439,774) $
(597,325)
(1,037,099) $
$
$
$
$
3,416,749
7,293
129,800
26,905
(1,458)
840
3,580,129
30,973
163,592
(4,786)
3,769,908
Net
486,239
660,265
1,146,504
Net
545,452
751,185
1,296,637
Where applicable, the above balances as of June 30, 2019 have been reduced to reflect the impact of intangible assets
where the gross cost has become fully amortized during the year ended June 30, 2019. The impact of this resulted in a reduction
of $49.5 million related to Customer assets and $273.9 million related to Technology 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:
Fiscal years ending June 30,
2020
2021
2022
2023
2024
2025 and beyond
Total
$
$
322,009
230,648
211,093
144,128
95,876
142,750
1,146,504
136
NOTE 8—OTHER ASSETS
Deposits and restricted cash
Deferred implementation costs
Capitalized costs to obtain a contract
Investments
Long-term prepaid expenses and other long-term assets
Total
As of June 30, 2019
As of June 30, 2018
$
$
13,671
—
35,593
67,002
32,711
148,977
$
$
9,479
13,740
13,027
49,635
25,386
111,267
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 direct and relevant costs on implementation of long-term contracts, to the extent
such costs can be recovered through guaranteed contract revenues. As a result of the adoption of Topic 606, deferred
implementation costs are no longer capitalized, but rather expensed as incurred as these costs do not relate to future
performance obligations. Accordingly, these costs were adjusted through opening retained earnings as of July 1, 2018 (see note
3 "Revenues").
Capitalized costs to obtain a contract relate to incremental costs of obtaining a contract, such as sales commissions, which
are eligible for capitalization on contracts to the extent that such costs are expected to be recovered (see note 3 "Revenues").
Investments relate to certain non-marketable equity securities in which we are a limited partner. Our interests 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, 2019, our share of income (loss) from these investments
was $13.7 million (year ended June 30, 2018 and 2017 — $6.0 million and $6.0 million, respectively).
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 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, 2019
As of June 30, 2018
46,323
$
131,430
117,551
24,786
8,153
1,660
329,903
$
41,722
118,024
108,903
24,786
5,622
3,097
302,154
As of June 30, 2019
As of June 30, 2018
4,804
30,338
14,299
49,441
$
$
4,362
35,874
12,591
52,827
$
$
$
$
* Other accrued liabilities consist primarily of tenant allowances, deferred rent and lease fair value adjustments relating to
certain facilities acquired through business acquisitions.
137
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, 2019, the present value of this obligation was $16.0 million (June 30, 2018—$15.7 million), with an undiscounted
value of $17.6 million (June 30, 2018—$17.7 million).
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
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
Total current portion of long-term debt
As of June 30, 2019
As of June 30, 2018
$
850,000
$
800,000
987,500
2,637,500
5,405
(28,027)
2,614,878
850,000
800,000
997,500
2,647,500
6,018
(32,995)
2,620,523
10,000
10,000
10,000
10,000
Non-current portion of long-term debt
$
2,604,878
$
2,610,523
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, 2019, we recorded interest expense of $49.9 million relating to Senior Notes 2026 (year
ended June 30, 2018 and 2017—$49.9 million and $43.1 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) 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.
138
For the year ended June 30, 2019, we recorded interest expense of $45.0 million relating to Senior Notes 2023 (year
ended June 30, 2018 and 2017—$45.0 million, respectively).
Term Loan B
On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $1 billion term loan facility (Term
Loan B), whereby we borrowed $1 billion on that day and repaid in full the loans under our prior $800 million term loan
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, maturing in May 2025, 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, 2019, the
outstanding balance on the Term Loan B bears an interest rate of approximately 4.19%.
For the year ended June 30, 2019, we recorded interest expense of $41.1 million, respectively, relating to Term Loan B
(year ended June 30, 2018 and 2017—$27.9 million and $24.8 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%.
As of June 30, 2019, we have no outstanding balance on the Revolver. There was no activity during the year ended
June 30, 2019 and we recorded no interest expense.
During the year ended June 30, 2018, we drew down $200 million from the Revolver, partially to finance acquisitions
(year ended June 30, 2017—$225 million). Additionally, during the year ended June 30, 2018, we repaid $375 million and
recorded interest expense of $9.0 million relating to amounts drawn on the Revolver (year ended June 30, 2017—$50 million
and $2.6 million, 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 2023 and Senior Notes 2026 (collectively referred to as the Senior Notes) and are being amortized over the
respective terms of the Senior Notes and Term Loan B and the Revolver using the effective interest method.
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, 2019 and June 30, 2018:
CDT defined benefit plan
GXS GER defined benefit plan
GXS PHP defined benefit plan
Other plans
Total
As of June 30, 2019
Total benefit
obligation
Current portion of
benefit obligation*
Non-current portion of
benefit obligation
35,836
26,739
6,904
8,052
77,531
$
$
675
1,012
124
481
2,292
$
$
35,161
25,727
6,780
7,571
75,239
$
$
139
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
* 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 plan) which
provides for old age, disability and survivors’ benefits. Benefits under the CDT 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, 2019, there is approximately $0.9 million in
accumulated other comprehensive income related to the CDT 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, 2019, there is
approximately $0.3 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 $0.03 million as of June 30, 2019, 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, 2019, there is approximately $0.3 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.
140
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, 2019
As of June 30, 2018
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
$ 32,651
550
642
(626)
3,365
(746)
35,836
(675)
$ 25,382
566
489
(996)
1,872
(574)
26,739
(1,012)
$ 3,853
771
300
(140)
1,957
163
6,904
(124)
$ 61,886
1,887
1,431
(1,762)
7,194
(1,157)
69,479
(1,811)
$ 28,881
501
607
(580)
2,442
800
32,651
(655)
$ 23,730
472
489
(974)
997
668
25,382
(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)
$ 35,161
$ 25,727
$ 6,780
$ 67,668
$ 31,996
$ 24,355
$ 3,715
$ 60,066
The following are details of net pension expense relating to the following pension plans:
Pension expense:
Service cost
Interest cost
Amortization of actuarial
(gains) and losses
Year Ended June 30,
2019
2018
CDT
GXS GER
GXS PHP
Total
CDT
GXS GER
GXS PHP
Total
$
$
550
642
696
$
566
489
130
$
1,887
$
1,431
264
$
501
607
541
472
489
72
771
300
(562)
509
$
832
241
$
1,805
1,337
(241)
832
372
$
3,514
Net pension expense
$
1,888
$
1,185
$
$
3,582
$
1,649
$
1,033
$
In determining the fair value of the pension plan benefit obligations as of June 30, 2019 and June 30, 2018, respectively,
we used the following weighted-average key assumptions:
As of June 30, 2019
As of June 30, 2018
CDT
GXS GER
GXS PHP
CDT
GXS GER
GXS PHP
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
6.50%
N/A
5.00%
60
12.19%
16.58%
13.97%
10.77%
7.39%
3.28%
—%
—%
3.50%
2.00%
2.00%
65-67
—%
—%
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%
—%
—%
2.50%
2.00%
1.32%
65-67
—%
—%
1.00%
0.50%
—%
0.50%
0.50%
1.00%
2.50%
2.00%
1.32%
65-67
—%
—%
—%
—%
—%
—%
—%
—%
141
Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:
2020
2021
2022
2023
2024
2025 to 2028
Total
Other Plans
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
675
758
832
933
1,041
6,009
10,248
$
$
1,012
1,011
1,044
1,043
1,050
5,308
10,468
$
$
161
153
352
208
272
2,389
3,535
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, 2019, pursuant to the Company’s dividend policy, we declared total non-cumulative
dividends of $0.6300 per Common Share in the aggregate amount of $168.9 million, which we paid during the same period.
For the year ended June 30, 2018, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of
$0.5478 per Common Share in the aggregate amount of $145.6 million.
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.
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 Long-Term Incentive Plans (LTIP) or other plans.
During the year ended June 30, 2019, we repurchased 726,059 of our Common Shares in the open market, at a cost of
approximately $26.5 million for potential reissuance under our LTIP or other plans (year ended June 30, 2018 and 2017—nil
and 244,240, respectively, at a cost of nil and $8.2 million, respectively). See below for more details on our various plans.
Reissuance
During the year ended June 30, 2019, we reissued and 613,524 Common Shares from treasury stock (year ended June 30,
2018 and 2017—411,276 and 409,922 Common Shares, respectively), in connection with the settlement of awards.
142
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
Termination grace periods
Vesting schedule
Exercise price range
Expiration dates
2004 Stock Option Plan
Oct-04
Eligible employees, as determined by the Board of Directors
32,398,418
(17,663,048)
(7,632,617)
7,102,753
Immediately “for cause”; 90 days for any other reason; 180 days due to death
25% per year, unless otherwise specified
$13.19 - $40.20
11/2/2019 to 5/7/2026
The following table summarizes information regarding stock options outstanding at June 30, 2019:
Options Outstanding
Options Exercisable
Range of Exercise
Prices
Number of options
Outstanding as of
June 30, 2019
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Number of options
Exercisable as of
June 30, 2019
Weighted
Average
Exercise
Price
$
$
13.19 - $
24.79 -
26.54 -
27.47 -
30.07 -
32.76 -
34.49 -
35.62 -
38.27 -
39.52 -
13.19 - $
24.78
26.53
27.46
30.06
32.75
34.48
35.61
38.26
39.51
40.20
40.20
Share-Based Payments
516,429
562,200
1,230,000
768,566
680,000
760,620
849,118
380,000
730,820
625,000
7,102,753
2.72 $
1.76
1.39
3.52
3.73
5.11
5.51
6.54
6.10
6.85
4.10 $
21.81
25.18
27.09
28.96
32.36
33.79
34.61
37.19
39.27
40.10
31.82
354,551 $
562,200
330,000
466,254
27,500
224,875
204,372
6,250
—
—
2,176,002 $
Total share-based compensation expense for the periods indicated below is detailed as follows:
Year Ended June 30,
2019
2018
2017
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
$
$
$
10,232
3,461
5,917
175
3,133
3,852
$
9,828
3,553
6,602
936
2,921
3,754
26,770
$
27,594
$
21.33
25.18
27.09
28.61
30.37
33.66
34.61
36.50
—
—
27.44
12,196
3,624
6,452
2,804
2,849
2,582
30,507
143
Summary of Outstanding Stock Options
As of June 30, 2019, an aggregate of 7,102,753 options to purchase Common Shares were outstanding and an additional
9,397,479 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 year ended June 30, 2019 is as follows:
Outstanding at June 30, 2018
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2019
Exercisable at June 30, 2019
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)
28.41
38.81
24.20
32.33
31.82
27.44
4.10 $
3.03 $
66,656
29,950
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
7,078,435
$
1,870,340
(1,472,031)
(373,991)
7,102,753
2,176,002
$
$
Options
8,977,830
$
1,322,340
(2,869,569)
(352,166)
7,078,435
2,482,288
$
$
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.
144
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,
2019
2018
2017
8.39
$
7.58
$
7.06
25.72%
2.57%
1.54%
4.44
6%
38.81
$
N/A
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
As of June 30, 2019, the total compensation cost related to the unvested stock option awards not yet recognized was
approximately $24.1 million, which will be recognized over a weighted-average period of approximately 3.0 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, 2019, cash in the amount of $35.6 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, 2019
from the exercise of options eligible for a tax deduction was $2.9 million.
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.
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.
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, 2019, the total expected compensation cost related to the unvested LTIP awards not yet recognized was
$13.3 million, which is expected to be recognized over a weighted average period of 1.8 years.
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 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. We settled the Fiscal 2018 LTIP by issuing 539,103 Common Shares
from treasury stock during the three months ended December 31, 2018, with a cost of $13.8 million.
145
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.
Fiscal 2021 LTIP
Grants made in Fiscal 2019 under the LTIP (collectively referred to as Fiscal 2021 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2019 starting on August 6, 2018. 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 2021 LTIP. We
expect to settle the Fiscal 2021 LTIP awards in stock.
Restricted Share Units (RSUs)
During the year ended June 30, 2019, we did not grant any RSUs to employees in accordance with employment and other
agreements (year ended June 30, 2018 and 2017—4,464 and 19,300 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, 2019, we issued 22,627 Common Shares from treasury stock, with a cost of $0.7 million
in connection with the settlement of these vested RSUs (year ended June 30, 2018 and 2017—98,625 and 70,000 Common
Shares, respectively, with a cost of $2.1 million and $1.5 million, respectively).
Deferred Stock Units (DSUs)
During the year ended June 30, 2019, we granted 100,271 DSUs to certain non-employee directors (year ended June 30,
2018 and 2017—87,501 and 91,680 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.
During the year ended June 30, 2019, we issued 51,794 Common Shares from treasury stock, with a cost of $2.0 million
in connection with the settlement of vested DSUs (year ended June 30, 2018 and 2017—nil DSUs, respectively).
Employee Share Purchase Plan (ESPP)
Our ESPP offers employees a purchase price discount of 15%.
During the year ended June 30, 2019, 696,091 Common Shares were eligible for issuance to employees enrolled in the
ESPP (year ended June 30, 2018 and 2017—729,521 and 530,170 Common Shares, respectively).
During the year ended June 30, 2019, cash in the amount of approximately $22.2 million was received from employees
relating to the ESPP (year ended June 30, 2018 and 2017—$21.5 million and $14.8 million, respectively).
146
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
$
Total
3,408,565
318,851
11,280
3,738,696
$
$
Payments due between
July 1, 2019—
June 30, 2020
July 1, 2020—
June 30, 2022
July 1, 2022—
June 30, 2024
July 1, 2024
and beyond
147,059
72,853
8,364
228,276
$
$
292,156
106,394
2,747
401,297
$
$
1,045,567
59,441
169
1,105,177
$
$
1,923,783
80,163
—
2,003,946
(1) Includes interest up to maturity and principal payments. Please see note 10 "Long-Term Debt" for more details.
(2) Net of $30.7 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 results 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, that, as revised by the IRS on July 11, 2018 proposes a one-time approximately
$335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 (the 2010 NOPA), plus penalties
equal to 20% of the additional proposed taxes for Fiscal 2010, and interest at the applicable statutory rate published by the IRS.
147
On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA proposing a one time
approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of
Global 360 Holding Corp. into the structure that resulted from the internal reorganization in Fiscal 2010, plus penalties equal to
40% of the additional proposed taxes for Fiscal 2012, and interest.
On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for
Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation
was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with
the exception of an additional proposed penalty as part of the 2012 NOPA.
A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’
positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any
proposed penalties and interest.
As of our receipt of the final 2010 NOPA and 2012 NOPA, our estimated potential aggregate liability, as proposed by the
IRS, including additional state income taxes plus penalties and interest that may be due, was approximately $770 million,
comprised of approximately $455 million in U.S. federal and state taxes, approximately $130 million of penalties, and
approximately $185 million of interest. Interest will continue to accrue at the applicable statutory rates until the matter is
resolved and may be substantial.
As previously disclosed and noted above, we strongly disagree with the IRS’ positions and we are vigorously contesting
the proposed adjustments to our taxable income, along with the proposed penalties and interest. We are examining various
alternatives available to taxpayers to contest the proposed adjustments, including through IRS Appeals and U.S. Federal court.
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 additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in
our Annual Report on Form 10-K for Fiscal 2018.
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, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further described
below), we estimate our potential aggregate liability, as of June 30, 2019, in connection with the CRA's reassessments for Fiscal
2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million.
The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 would, as drafted, increase our taxable income
by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed
adjustment to income.
We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014
(including any penalties) are without merit. We have filed notices of objection for Fiscal 2012 and Fiscal 2013, and we are
currently seeking competent authority consideration under applicable international treaties in respect of these reassessments. We
intend to file the notice of objection for Fiscal 2014 shortly.
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal
2013 and Fiscal 2014, 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 2015, Fiscal 2016 and Fiscal
2017 and have proposed to reassess Fiscal 2015 in a manner consistent with Fiscal 2012, Fiscal 2013 and Fiscal 2014. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
GXS Brazil Matter
As previously disclosed and in connection with the intercompany charges between GXS Group, Inc. and its subsidiary,
GXS Tecnologia da Informação (Brasil) Ltda., based on the historical transfer pricing studies, approximately $1.5 million
148
accrued in relation to this matter became statute barred during the year ended June 30, 2019 and accordingly was released as a
recovery under "Special charges".
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:
Year Ended June 30,
2019
2018
2017
$
$
$
$
110,562
138,989
249,551
2017
12,238
82,593
94,831
(851,683)
(19,512)
(871,195)
(776,364)
Domestic income (loss)
Foreign income
Income before income taxes
$
$
269,331
171,243
440,574
$
$
238,405
147,721
386,126
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,
2019
2018
7,862
99,650
107,512
52,889
(5,464)
47,425
154,937
$
$
5,313
48,777
54,090
61,678
28,058
89,736
143,826
$
$
149
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
Effect of tax credits for research and development
Effect of accrual for undistributed earnings
Effect of Base Erosion and Anti-Abuse Tax (BEAT)
Other Items
Impact of internal reorganization of subsidiaries
Year Ended June 30,
2019
2018
2017
26.5%
26.5%
26.5%
$
$
116,752
(1,344)
(5,045)
—
(577)
31,992
2,097
(250)
—
(13,550)
(13,112)
16,030
5,473
16,471
$
102,323
2,352
1,779
4,242
4,332
5,543
7,927
1,321
19,037
(3,875)
(1,154)
—
(1)
—
$
154,937
$
143,826
$
66,131
8,647
520
6,298
3,673
14,427
3,845
(7,836)
—
(2,643)
5,613
—
1,075
(876,114)
(776,364)
In Fiscal 2019, 2018 and 2017, respectively, substantially all the tax rate differential for international jurisdictions was
driven by earnings in the United States.
The effective tax rate decreased to a provision of 35.2% for the year ended June 30, 2019, compared to 37.2% for the year
ended June 30, 2018. The increase in tax expense of $11.1 million was primarily due to the increase in net income taxed at
foreign rates of $10.7 million, an increase of $26.4 million in reserves for unrecognized tax benefits, an increase of $16.1
million arising on the introduction of BEAT in Fiscal 2019, and an increase of $16.3 million relating to the tax impact of
internal reorganizations of subsidiaries, partially offset by a the reversal of accruals for undistributed United States earnings of
$14.8 million, the Fiscal 2018 impact of United States tax reform of $19.0 million which did not recur in Fiscal 2019, an
increase in tax credits for research and development of $9.7 million, an increase of $6.8 million in the release of valuation
allowance, a decrease of $5.8 million in the impact of withholding taxes in Fiscal 2019. 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, 2019, we have approximately $242.3 million of domestic non-capital loss carryforwards. In addition, we
have $387.6 million of foreign non-capital loss carryforwards of which $53.8 million have no expiry date. The remainder of the
domestic and foreign losses expires between 2020 and 2039. In addition, investment tax credits of $58.6 million will expire
between 2020 and 2039.
150
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
Other
Deferred tax liabilities
Net deferred tax asset
Comprised of:
Long-term assets
Long-term liabilities
June 30,
2019
2018
$
161,119
$
129,436
155
137,253
683,777
17,845
53,254
59,584
417
123,114
829,369
17,202
62,726
57,461
$
$
$
$
$
$
1,112,987
$
(77,328) $
1,219,725
(80,924)
(14,482) $
(72,599)
(87,081) $
(13,342)
(82,668)
(96,010)
948,578
$
1,042,791
1,004,450
(55,872)
1,122,729
(79,938)
948,578
$
1,042,791
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, 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
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, 2019
$
$
$
174,530
6,483
17,794
—
(20,995)
177,812
25,642
15,024
—
(9,236)
209,242
Included in the above tabular reconciliation are unrecognized tax benefits of $11.2 million relating to deferred tax assets
in jurisdictions in which these deferred tax assets are offset with valuation allowances. The net unrecognized tax benefit
excluding these deferred tax assets is approximately $198.1 million as of June 30, 2019 (June 30, 2018—$167.2 million).
We recognize interest expense and penalties related to income tax matters in income tax expense. For the year ended
June 30, 2019, 2018 and 2017, we recognized the following amounts as income tax-related interest expense and penalties:
151
Interest expense
Penalties expense (recoveries)
Total
Year Ended June 30,
2019
2018
2017
$
$
10,512
945
11,457
$
$
6,233
(191)
6,042
$
$
13,028
438
13,466
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, 2019
As of June 30, 2018
$
$
64,530
2,525
$
$
54,058
2,438
* 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, 2019, could decrease tax
expense in the next 12 months by $17.5 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, the United Kingdom and Belgium. 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, 2019, we have recognized a provision of $17.4 million (June 30, 2018—$28.5 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 German subsidiaries, that will be subject
to withholding taxes upon distribution. During the year ended June 30, 2019, we reversed previous accruals related to the
undistributed earnings of our United States subsidiaries in the amount of $14.8 million. These earnings are now considered to
be permanently reinvested in the United States, as there is no expectation of future distributions of earnings in the foreseeable
future. 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 one-time tax expense of $19.0 million in 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. During the year ended June 30, 2019, there was a reduction of $0.9 million to this amount, mainly attributable to
evaluating the portion of our existing Alternative Minimum Tax (AMT) credit carryforwards expected to be refundable as a
result of the repeal of corporate AMT. The portion of the tax expense attributable to the transition tax is payable over a period of
up to eight years.
In accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs
Act” (SAB 118), the Company completed its analysis of the impact of the Tax Cuts and Jobs Act by December 22, 2018. The
Company's final determination of the total one-time tax expense as a result of the enactment of the Tax Cuts and Jobs Act is
$18.1 million.
152
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.
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, 2019 and June 30, 2018:
June 30, 2019
June 30, 2018
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,
2018
Quoted prices
in active
markets for
identical
assets/
(liabilities)
Significant
other
observable
inputs
Significant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
June 30,
2019
Financial Assets:
Derivative financial
instrument asset
(note 16)
$
$
736
736
N/A $
N/A $
736
736
N/A $
N/A $
—
—
N/A $
N/A $
—
—
N/A
N/A
Financial Liabilities:
Foreign currency
forward contracts
designated as cash
flow hedges (note 16) $
$
—
—
N/A $
N/A $
—
—
N/A $ (1,319)
N/A $ (1,319)
N/A $ (1,319)
N/A $ (1,319)
N/A
N/A
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.
153
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, 2019 and 2018, 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, 2019 and 2018, no
indications of impairment were identified and therefore no fair value measurements were required.
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 foreign currency forward contracts
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, 2019, is recorded within "Prepaid expenses and other current assets”.
As of June 30, 2019, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian
dollars was $62.0 million (June 30, 2018—$47.1 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, 2019
As of June 30, 2018
Fair Value
Asset (Liability)
Fair Value
Asset (Liability)
736
$
(1,319)
154
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)
$
22
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, 2019
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)
$
(2,033)
N/A
$
—
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
$
—
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 2019 Restructuring Plan
Fiscal 2018 Restructuring Plan
Fiscal 2017 Restructuring Plan
Restructuring Plans prior to Fiscal 2017 Restructuring Plan
Acquisition-related costs
Other charges (recoveries)
Total
Fiscal 2019 Restructuring Plan
Year Ended June 30,
2019
2018
2017
28,318
$
— $
515
898
(620)
5,625
983
10,154
7,207
279
4,805
6,766
35,719
$
29,211
$
—
—
33,827
(340)
15,938
14,193
63,618
$
$
During Fiscal 2019, we began to implement restructuring activities to streamline our operations (Fiscal 2019
Restructuring Plan), including in connection with our recent acquisitions of Catalyst and Liaison, to take further steps to
improve our operational efficiency. The Fiscal 2019 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, 2019, we expect total costs to be incurred in conjunction with the Fiscal 2019 Restructuring Plan to be
approximately $30.0 million, of which $28.3 million has already been recorded within "Special charges (recoveries)" to date.
We do not expect to incur any further significant charges relating to this plan.
155
A reconciliation of the beginning and ending liability for the year ended June 30, 2019 is shown below.
Fiscal 2019 Restructuring Plan
Balance payable as at June 30, 2018
Accruals and adjustments
Cash payments
Non-cash adjustments
Foreign exchange
Balance payable as at June 30, 2019
Workforce
reduction
Facility costs
Total
$
$
— $
— $
12,460
(10,420)
—
(221)
1,819
$
15,858
(4,739)
(3,393)
(2,438)
5,288
$
—
28,318
(15,159)
(3,393)
(2,659)
7,107
*non-cash adjustments primarily relate to the write-off of fixed assets associated with a restructured facility.
Fiscal 2018 Restructuring Plan
During Fiscal 2018 and in the context of our acquisitions of Covisint, Guidance and 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.
Since the inception of the plan, approximately $10.7 million has been recorded within "Special charges (recoveries)" to
date. We do not expect to incur any further significant charges relating to this plan.
A reconciliation of the beginning and ending liability for the year ended June 30, 2019 and 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
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2019
Fiscal 2017 Restructuring Plan
$
$
$
Workforce
reduction
Facility costs
Total
— $
— $
8,511
(8,845)
892
558
(20)
(337)
(51)
150
$
$
1,643
(489)
11
1,165
535
(928)
(286)
486
$
$
—
10,154
(9,334)
903
1,723
515
(1,265)
(337)
636
During Fiscal 2017 and in the context of acquisitions made in Fiscal 2017, 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.
Since the inception of the plan, $41.9 million has been recorded within "Special charges (recoveries)". We do not expect
to incur any further significant charges relating to this plan.
156
A reconciliation of the beginning and ending liability for the year ended June 30, 2019 and 2018 is shown below.
Fiscal 2017 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
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2019
Acquisition-related costs
Workforce
reduction
Facility costs
Total
$
$
$
10,045
3,432
(12,342)
455
1,590
(254)
(213)
(77)
1,046
$
$
$
1,369
3,775
(1,627)
(86)
3,431
1,152
(1,290)
(344)
2,949
$
$
$
11,414
7,207
(13,969)
369
5,021
898
(1,503)
(421)
3,995
Included within "Special charges (recoveries)" for the year ended June 30, 2019 are costs incurred directly in relation to
acquisitions in the amount of $5.6 million (year ended June 30, 2018 and 2017—$4.8 million and $15.9 million, respectively).
Other charges (recoveries)
For the year ended June 30, 2019, "Other charges" include (i) $1.1 million relating to one-time system implementation
costs and (ii) $1.4 million relating to miscellaneous other charges. These charges were partially offset by a recovery of $1.5
million relating to certain pre-acquisition sales and use tax liabilities becoming statute barred.
For the year ended June 30, 2018, "Other charges" primarily include (i) $6.4 million relating to the set up of a broad ERP
system and other system implementation costs and (ii) $4.9 million relating to miscellaneous other 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) $11.0 million relating to the set up of a broad
ERP system, (ii) a net charge of $6.5 million relating to commitment fees, (iii) $1.4 million relating to post-acquisition
integration costs necessary to streamline an acquired company into our operations and (iv) $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.
NOTE 18—ACQUISITIONS
Fiscal 2019 Acquisitions
Catalyst Repository Systems Inc.
On January 31, 2019, we acquired all of the equity interest in Catalyst for approximately $70.8 million in an all cash
transaction. Catalyst is a leading provider of eDiscovery that designs, develops and supports market-leading cloud eDiscovery
software. In accordance with ASC Topic 805 "Business Combinations" (Topic 805), this acquisition was accounted for as a
business combination. We believe this acquisition complements and extends our Enterprise Information Management (EIM)
portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning January 31, 2019.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of January 31, 2019, are set forth below:
157
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
9,699
5,754
30,607
11,658
(17,891)
39,827
30,973
70,800
The goodwill of approximately $31.0 million is primarily attributable to the synergies expected to arise after the
acquisition. Of this goodwill, approximately $3.1 million is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $0.8 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 an insignificant amount.
The fair value of current assets acquired includes accounts receivable with a fair value of $10.8 million. The gross amount
receivable was $11.8 million, of which $1.0 million is expected to be uncollectible.
Acquisition-related costs for Catalyst included in "Special charges (recoveries)" in the Consolidated Financial Statements
for the year ended June 30, 2019 were $1 million.
The acquisition had no significant impact on revenues or net earnings for the year ended June 30, 2019 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 the assets
acquired and liabilities assumed, including tax balances. We expect to finalize this determination on or before our quarter
ending December 31, 2019.
Liaison Technologies, Inc.
On December 17, 2018, we acquired all of the equity interest in Liaison, a leading provider of cloud-based business to
business integration, for approximately $310.6 million in an all cash transaction. 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 December 17,
2018.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of December 17, 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
$
$
23,006
5,168
68,300
107,000
(56,423)
147,051
163,592
310,643
The goodwill of approximately $163.6 million is primarily attributable to the synergies expected to arise after the
acquisition. Of this goodwill, approximately $2.2 million is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $7.6 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 an insignificant amount.
158
The fair value of current assets acquired includes accounts receivable with a fair value of $20.5 million. The gross amount
receivable was $22.2 million, of which $1.7 million is expected to be uncollectible.
Acquisition-related costs for Liaison included in "Special charges (recoveries)" in the Consolidated Financial Statements
for the year ended June 30, 2019 were $3.7 million.
The acquisition had no significant impact on revenues or net earnings for the year ended June 30, 2019 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 the assets
acquired and liabilities assumed, including tax balances. We expect to finalize this determination on or before our quarter
ending December 31, 2019.
Fiscal 2018 Acquisitions
Acquisition of Hightail, Inc. (Hightail)
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 an all cash transaction. 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 February 14, 2018.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their 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 approximately $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. 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.
The finalization of the purchase price allocation during the year ended June 30, 2019 did not result in any significant
changes to the preliminary amounts previously disclosed.
Acquisition of Guidance Software, Inc. (Guidance)
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 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:
159
Cash consideration*
Guidance shares already owned by OpenText through open market purchases (at fair value)
Purchase consideration
$
$
237,291
3,247
240,538
* Inclusive of $2.3 million previously accrued, but since paid as of September 30, 2018. See "Appraisal Proceedings" below for
more information.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
September 14, 2017, are set forth below:
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 approximately $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. 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.
The finalization of the purchase price allocation during the year ended June 30, 2019 did not result in any significant
changes to the preliminary amounts previously disclosed.
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 previously accrued.
During the three months ended September 30, 2018, these amounts were settled and released. On August 27, 2018, the
appraisal petition was dismissed with prejudice.
Acquisition of Covisint Corporation (Covisint)
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 an all cash transaction. 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.
160
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 approximately $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. 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.
The finalization of the purchase price allocation was completed during Fiscal 2018 and did not result in any significant
changes to the preliminary amounts previously disclosed.
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.
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.
161
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
$
$
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.
162
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.
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
2019
2018
2017
Year Ended June 30,
$
$
153,890
1,490,863
182,815
203,403
534,204
303,580
2,868,755
$
$
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
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, 2019
As of June 30, 2018
$
$
799,928
502,844
10,068
6,310
31,455
45,352
1,395,957
$
$
1,027,858
441,940
13,253
8,282
17,104
52,405
1,560,842
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
Year Ended June 30,
2019
2018
2017
$
$
$
138,631
8,014
80,583
$
$
$
132,799
1,672
73,437
$
$
$
115,117
3,115
83,086
163
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 (in 000's)
Basic
Effect of dilutive securities
Diluted
Excluded as anti-dilutive(2)
$
$
$
$
Year Ended June 30,
2019
2018
2017
$
$
$
$
285,501
1.06
285,501
1.06
268,784
1,124
269,908
2,759
242,224
0.91
242,224
0.91
266,085
1,407
267,492
2,770
$
$
$
$
(1)
(1)
1,025,659
4.04
1,025,659
4.01
253,879
1,926
255,805
1,371
(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, 2019, Mr. Stephen Sadler, a director, earned approximately $0.6 million (year ended
June 30, 2018 and 2017—$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.
NOTE 23—SUBSEQUENT EVENT
Cash Dividends
As part of our quarterly, non-cumulative cash dividend program, we declared, on July 31, 2019, a dividend of $0.1746 per
Common Share. The record date for this dividend is August 30, 2019 and the payment date is September 20, 2019. Future
declarations of dividends and the establishment of future record and payment dates are subject to the final determination and
discretion of our Board.
164
Item 16.
Form 10-K Summary
None.
165
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 1, 2019
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chair, 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)
166
DIRECTORS
Signature
Title
Date
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
/S/ P. THOMAS JENKINS
P. Thomas Jenkins
/S/ RANDY FOWLIE
Randy Fowlie
/S/ DAVID FRASER
David Fraser
/S/ GAIL E. HAMILTON
Gail E. Hamilton
/S/ STEPHEN J. SADLER
Stephen J. Sadler
/S/ HARMIT SINGH
Harmit Singh
/S/ MICHAEL SLAUNWHITE
Michael Slaunwhite
/S/ KATHARINE B. STEVENSON
Katharine B. Stevenson
/S/ CARL JÜRGEN TINGGREN
Carl Jürgen Tinggren
/S/ DEBORAH WEINSTEIN
Deborah Weinstein
Vice Chair, Chief Executive Officer and
Chief Technology Officer
(Principal Executive Officer)
August 1, 2019
Chairman of the Board
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
Director
August 1, 2019
167
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.1
As of June 30, 2019, Open Text Corporation (“OpenText”, the “Company”, “we”, “us” and “our”) had one
class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”): our common shares.
DESCRIPTION OF COMMON SHARES
The description below summarizes the general terms of our common shares. This section is a summary,
and it does not describe every aspect of our common shares. This summary is subject to and qualified in
its entirety by reference to our articles and our by-laws, each of which is incorporated by reference into an
exhibit to our most recent Annual Report on Form 10-K. We encourage you to read our articles and by-
laws for additional information.
Authorized Shares
The Company is authorized to issue an unlimited number of common shares without par value. As of
July 30, 2019, there were 270,011,817 common shares outstanding. All outstanding common shares are
fully paid and non-assessable.
Voting Rights
Holders of common shares are entitled to receive notice of and to attend all shareholder meetings and are
entitled to cast one vote for each common share held of record on all matters acted upon at any
shareholder meeting. Holders of the common shares are not entitled to cumulate votes in connection with
the election of directors.
Dividends and Other Distributions
Holders of the common shares are entitled to dividends if, as and when declared by the board of directors
of the Company, subject to the rights of shares having priority over the common shares, if any, including
the preference shares. As of June 30, 2019, we had authorized an unlimited number of preference shares,
with no preference shares issued as of such date.
Our board of directors have adopted a policy to pay non-cumulative quarterly dividends. 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 the Company and 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.
Liquidation Rights
Upon our liquidation, dissolution or winding up, the holders of common shares are entitled to share
ratably in all assets remaining after payment of debts and liabilities, subject to the rights of shares having
priority over the common shares, if any, including the preference shares.
Other Provisions
Holders of common shares have no pre-emptive, subscription, redemption or conversion rights.
Amended Shareholder Rights Plan
On September 23, 2016, at our annual and special meeting of shareholders, our shareholders approved the
continuation, amendment and restatement of the shareholder rights plan (the “Amended Rights Plan”) that
the Company and Computershare Investor Services Inc. originally entered into as of November 1, 2004,
and as previously amended and restated on December 6, 2007, December 2, 2010 and September 26,
2013. Upon such shareholder approval, the Amended Rights Plan was entered into as of September 23,
2016.
The Amended Rights Plan continues to provide a right (which may only be exercised if a person acquires
control of 20% or more of our common shares) for each shareholder, other than the person that acquires
20% or more of our common shares, to acquire additional common shares at one-half of the market price
at the time of exercise. The primary objectives of the Amended Rights Plan are to ensure that, in the
context of a bid for control of the Company through an acquisition of our common shares, our board of
directors has sufficient time to assess alternatives for maximizing shareholder value as it considers in its
judgment to be in the best interests of the Company, including: continued implementation of our long-
term strategic plans, as these may be modified by us from time to time; to provide adequate time for
competing bids to emerge; to ensure that shareholders have an equal opportunity to participate in such a
bid and to give them adequate time to properly assess the bid; and to lessen the pressure to tender
typically encountered by a shareholder of an issuer that is subject to a bid.
The Amended Rights Plan will remain in force until the earlier of the Termination Time (the time at which
the right to exercise rights shall terminate, as defined in the Amended Rights Plan) and the termination of
the annual meeting of our shareholders in the year 2019, unless at or prior to such meeting, our
shareholders ratify the continued existence of the Amended Rights Plan, in which case the Amended
Rights Plan would expire at the earlier of the Termination Time and the termination of the annual meeting
of our shareholders in the year that is three years after the year in which such approval occurs. This
section is a summary, and it does not describe every aspect of the Amended Rights Plan. The Amended
Rights Plan is incorporated by reference into an exhibit to our most recent Annual Report on Form 10-K.
We encourage you to read the Amended Rights Plan for additional information.
A new amended shareholder rights plan will be presented to a vote of shareholders at our annual general
meeting on September 4, 2019. The proposed new amended shareholder rights plan, if adopted, would
expire at the earlier of the Termination Time (as defined in the proposed new plan) and the termination of
the annual meeting of our shareholders in the year that is three years after the year in which such adoption
occurs.
Subsidiaries of Open Text Corporation as of June 30, 2019
Exhibit 21.1
Corporation Name
GXS (ANZ) Pty Limited
Open Text Pty Limited
Xpedite Systems Pty Limited
Open Text Software Austria GmbH
GXS S.A.
Open Text Technologia Da Informacao (Brasil) Ltda.
8493642 Canada Inc.
GXS Canada Inc.
Open Text Canada Ltd.
Cordys (Beijing) Co., Ltd.
Covisint Software Services (Shanghai) Co., Ltd.
GXS (Shanghai) Software Development Limited
Open Text Software Technology (Shanghai) Co., Ltd
Open Text s.r.o.
Catalyst Repository Systems, Inc.
GXS International, Inc.
GXS, Inc.
Liaison Technologies, Inc.
Open Text Inc.
Open Text Holdings Inc.
Vignette Partnership, LP
Open Text A/S
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
Liaison Technologies UK
Metastorm Limited
Metastorm UK Limited
Open Text UK Limited
Resonate KT Limited
Sysgenics Limited
Xpedite Systems (UK) Limited
Liaison Technologies Oy
Open Text OY
Open Text SARL
Cordys Deutschland Service GmbH
Open Text Document Technologies GmbH
Open Text Software GmbH
Jurisdiction
Australia
Australia
Australia
Austria
Belgium
Brazil
Canada
Canada
Canada
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
Denmark
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
Finland
France
Germany
Germany
Germany
Recommind GmbH
Global 360 China Limited
Open Text (Hong Kong) Limited
EasyLink Services Corporation India Private Limited
GXS India Technology Centre Private Limited
Open Text Corporation India Private Limited
Open Text Technologies India Private Limited
Vignette India Private Limited
Open Text Ireland Limited
Open Text S.r.l.
Catalyst Japan LLC
Open Text K.K.
Open Text Software Technology (Malaysia) Sdn Bhd
Habinger de Mexico, S. de R.L. de C.V.
Open Text, S. de R.L. de C.V.
Liaison Technologies B.V.
Open Text Coöperatief U.A.
Open Text New Zealand Limited
3304709 Nova Scotia Limited
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.
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
Liaison Technologies Pte Ltd
Open Text (Asia) Pte Limited
Open Text South Africa (Pty) Limited
Global 360 Spain S.L.
Open Text Software S.L.U.
Liaison Technologies AB
Open Text AB
Open Text AG
GXS Ltd
Open Text Public Sector Solutions, Inc.
Hubspan, Inc.
TotalDiscovery, LLC
Germany
Hong Kong
Hong Kong
India
India
India
India
India
Ireland
Italy
Japan
Japan
Malaysia
Mexico
Mexico
Netherlands
Netherlands
New Zealand
Nova Scotia, Canada
Nova Scotia, Canada
Nova Scotia, Canada
Ontario, Canada
Philippines
Poland
Quebec, Canada
Republic of Korea
Republic of Korea
Russian Federation
Russian Federation
Saudi Arabia
Singapore
Singapore
Singapore
South Africa
Spain
Spain
Sweden
Sweden
Switzerland
Thailand
Virginia, United States
Washington, United States
Washington, United States
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors of Open Text Corporation
We consent to the use of:
•
•
our report dated July 31, 2019, on the consolidated financial statements of Open Text Corporation (the “Company”), which
comprise the consolidated balance sheets as at June 30, 2019 and June 30, 2018, 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, 2019, and the related notes (collectively the “consolidated financial statements”), and
our report dated July 31, 2019 on the effectiveness of the Company’s internal control over financial reporting as of June
30, 2019
each of which is included in this annual report on Form 10-K of the Company for the fiscal year ended June 30, 2019.
Our report on the consolidated financial statements refers to changes in accounting policies for revenue recognition and income
taxes due to the adoption of new accounting standards for “Revenues from Contracts with Customers” and "Income Taxes:
Intra Entity Transfers of Assets Other Than Inventory" .
We also consent to the incorporation by reference of such reports in Registration Statement 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 the Company,
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
August 1, 2019
Toronto, Canada
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 1, 2019
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chair, 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 1, 2019
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, 2019 as filed with the Securities and Exchange Commission (the “Report”), I, Mark J. Barrenechea, Vice Chair, 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.
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chair, Chief Executive Officer and Chief Technology Officer
Date: August 1, 2019
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, 2019 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 1, 2019
By:
/s/ MADHU RANGANATHAN
Madhu Ranganathan
Executive Vice President and Chief Financial Officer
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Executive Leadership Team
Mark J. Barrenechea
Vice Chair, Chief Executive Officer & Chief Technology Officer
Madhu Ranganathan
Executive Vice President, Chief Financial Officer
Muhi Majzoub
Executive Vice President, Engineering
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, Customer Operations
Savinay Berry
Senior Vice President, Cloud Service Delivery
Prentiss Donohue
Senior Vice President, Portfolio Group
Paul Duggan
Senior Vice President, Revenue Operations
David Jamieson
Senior Vice President, Chief Information Officer
Patricia E. Nagle
Senior Vice President, Chief Marketing Officer
Brian Sweeney
Senior Vice President, Chief Human Resources Officer
Board of Directors
P. Thomas Jenkins, Chair
Mark J. Barrenechea, Vice Chair
Randy Fowlie
Major General David Fraser
Gail E. Hamilton
Stephen J. Sadler
Harmit Singh
Michael Slaunwhite
Katharine B. Stevenson
C. Jürgen Tinggren
Deborah Weinstein
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