Annual Report 2020
DEAR SHAREHOLDERS,
Fiscal 2020 was a seminal year, as together, we adapted to the
uncertainty of the COVID-19 pandemic.
At OpenText, we have rallied around the principles of resilience to guide us through
this difficult time. Now, more than ever, customers trust and rely on OpenText’s
products and expertise to help them navigate through this time of crisis.
For almost 30 years, OpenText has been delivering mission-critical solutions on a global basis and across
industries. Our leadership position in Information Management has never been stronger and our customers
continue to trust OpenText as they adapt to a changing business climate. The comprehensive OpenText
Information Management platform and services continue to provide secure and scalable solutions for global
companies, small and medium businesses (SMBs), governments, and consumers around the world.
The pandemic has caused uncertainty, but it has also strengthened our purpose to help companies transform.
Our core belief in the transformative power of information to make us more—to reach higher, have bigger
impact, attain knowledge and grow—is fueling our ability to help customers re-configure and re-invent. We
are helping ensure supply chains and retailers are delivering essential goods, pharmaceutical companies are
conducting research, hospitals are managing resources, doctors and patients are connected, airlines are safe,
banks are providing funds, cyber criminals are stopped and transportation systems are moving goods, along
with many other critical functions.
I am very proud of the OpenText team and our many accomplishments in Fiscal 2020, including the launch of
OpenText Cloud Editions, the acquisitions of Carbonite, Inc. and XMedius, the expansion of our Information
Management platform into the small and medium business market and new and valuable partnerships with
Google, Amazon and Microsoft. We remain highly focused on delivering against our Total Growth strategy.
FISCAL 2020 RESULTS
Fiscal 2020 was a significant year for OpenText and I am very pleased with our operational performance amid
these challenging times. The strength of our people, processes and systems were on full display in the second
half of the fiscal year, demonstrating the durability and resilience of our organization. In the fiscal year, we
delivered a record $3.11 billion in total revenues, representing 8.4% year-over-year growth, a record $1.16 billion
in cloud revenues, representing 27.5% year-over-year growth and a record $2.43 billion in Annual Recurring
Revenues (ARR), representing 12.9% year-over-year growth. Our Annual Recurring Revenues represented 78% of
total revenues.
Our relentless focus on operational excellence and efficiency enabled OpenText to deliver $1.15 billion of
adjusted EBITDA and $954.5 million in Operating Cash Flows in the fiscal year. We ended the year with GAAP
EPS of $0.86 and Adjusted EPS of $2.89, representing 4.7% year-over-year growth. We continue to focus on our
key operating metrics to drive shareholder value: ARR, Adjusted EBITDA and cash flow generation.
We also returned $188.7 million to shareholders through our dividend policy and deployed $1.38 billion of
capital to acquire Carbonite, Inc. and XMedius. With approximately $1.7 billion of cash at the end of the year, our
balance sheet and liquidity position remain very strong providing the flexibility for future M&A opportunities.
OUR VISION: THE INFORMATION COMPANY
At OpenText, we believe that information powers great companies. In a cloud-first world, OpenText offers a
strategic cloud platform that empowers customers to do more with their information. The cloud has become 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.
Our recently announced next generation product line, OpenText Cloud Editions (CE) enables customers to
accelerate innovation, be more secure, and support the changing nature of work and the workforce. OpenText
CE is cloud-native software that can deploy anywhere.
The OpenText Information Management platform is cloud based and consists of 5 businesses: Content Services,
Business Network, Cyber Resilience, Digital Experience and Advanced Technologies, each as outlined in detail
within our accompanying Form 10-K.
OpenText Content Services help organizations connect mission critical content to their digital business
to accelerate productivity, improve governance and drive digital transformation. Our solutions manage the
lifecycle, distribution and use of information across the organization, from capture through to archiving and
disposition. OpenText is named the leader in Content Services Platforms by Gartner Group1.
The OpenText Business Network (BN) provides a proven foundation for digital supply chain and secure
e-commerce. Our Trading Grid boasts over a million connected trading partners globally and is used across
a variety of industries, including finance, manufacturing, consumer packaged goods, pharmaceutical,
transportation, and more. Delivered as a cloud service, OpenText Business Network helps companies digitize
their supply chain-related information flows across an increasingly complex network of on-premises and cloud
applications, connected Internet of Things (IoT) devices and business partners or customers. OpenText is
named the leader in Business Network by IDC2.
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
Our Cyber Resilience offering provides a comprehensive solution for proactively defending against cyber
threats and preparing for business continuity and response in the event of a breach. It delivers multiple layers
of defense to detect, protect against, forensically investigate and remediate security threats or data loss to
provide organizations with the ultimate peace of mind. We protect information as it is managed by individuals,
businesses, and governments within applications and at the endpoints, where information is most vulnerable.
Security is fundamentally built-in to all OpenText Information Management software. Our 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 Digital Experience offerings create, manage, track and optimize omnichannel interactions throughout the
customer journey and integrates with systems of record such as Salesforce and SAP. The Digital Experience
platform provides insight into these customer interactions and optimizes them to drive loyalty and improve
customer lifetime value. Our Digital Experience platform offers a set of Customer Experience Management
(CEM) solutions and extensions that focus on delivering highly personalized content and engagements along a
continuous customer journey.
Our Advanced Technologies are applied horizontally across all of our platforms and applications to accelerate
digital transformation for customers. They enrich data and deliver valuable insights at incredible scale with
machine learning and artificial intelligence; optimize processes with insight, automation and data-driven
decision making. And they allow organizations to quickly adopt new technologies or adapt processes with
API-driven products and developer services. OpenText is continuously innovating to ensure our customers are
armed with the technology they need to create Information Advantage.
THE CLOUD: OPENTEXT’S GREATEST OPPORTUNITY
The OpenText Cloud, which we own and operate from 37 data centers in nine countries, is scaling to a
$1 billion run rate business. We control our own service, features, capabilities and certifications on a global
basis. As of 2020, the OpenText Cloud has over 6,000 educated, trained and certified professionals, as well as
74,000 customers.
The OpenText Cloud strategy is unique and diversified, with 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. Finally, we have our public
cloud, OpenText OT2 which competes as a public SaaS offering and against pure-play SaaS providers.
We are committed to continue our investment in the OpenText Cloud, which is purpose-built to be managed,
updated, and migrated quickly and easily to improve agility, reduce costs and stay up-to-date with the latest
features. 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.
TOTAL GROWTH STRATEGY
As an organization, we are committed to delivering Total Growth, meaning we strive towards delivering value
through organic growth, high customer loyalty and retention as well as strategic acquisitions. 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 strong
financial performance, including cash flow to support our acquisition strategy. We believe this Total Growth
strategy is a durable model that will create shareholder value over both the near and long term.
Retain
Over 100 million end users rely on OpenText to digitize and manage their critical information. That customer
trust has created a durable OpenText where in Fiscal 2020 Annual Recurring Revenue (ARR) accounted for 78%
of total revenues. Supported by our commitment to customer care, our renewal rate for off-cloud customer
support was a record 94%, with our enterprise cloud renewal rates coming in even higher in the mid 90% range.
The most trusted companies, trust OpenText.
Grow
We continue to focus on connecting the Global 10,000 companies (G10K) to our information platform and
we believe we are well positioned to expand our penetration in this market. The G10K are the world’s largest
companies, typically those with greater than two billion in revenues, as well as the world’s largest governments
and organizations. The OpenText Digital Zone was introduced in 2020 and is a full digital platform to engage
customers and sell our products. This strategic initiative transforms how we connect to customers, and coupled
with our established global partner program, we are building greater distribution and cross-selling opportunities
which further help us to achieve organic growth.
We are committed to continuous innovation. Our investments in research and development (R&D) push product
innovation, increasing the value of our offerings to our customer base. Over the last three fiscal years, we have
invested a cumulative total of approximately $1.0 billion in R&D or approximately 11.5% of cumulative revenue for
that three-year period. We typically target to spend approximately 11% to 13% of revenues for R&D each fiscal year.
Acquire
With strategic acquisitions, we are better positioned to expand our product portfolio and improve our ability to
innovate. In Fiscal 2020, we further demonstrated the implementation of our strategy by acquiring Carbonite
and XMedius. We remain a value-oriented and disciplined acquirer and consolidator, having efficiently deployed
$6.8 billion on acquisitions over the last 10 fiscal years. Mergers and acquisitions are one of our leading growth
drivers. 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, and to deepen and strengthen our intelligent
information platform for customers.
Acquisitions in Fiscal 2020
In January 2020 we acquired Carbonite, a provider of cloud-based subscription data protection, backup,
disaster recovery and end-point security to small and medium-sized businesses and consumers. Carbonite
and Webroot solutions expand OpenText’s security leadership for Enterprise, SMB and professional consumers.
Furthermore, the acquisition of Carbonite presents an opportunity to take advantage of their world-class
channel partner organization and partners, to bring our Information Management solutions to all size customers.
The integration of Carbonite remains on track to be on our operating model by the end of Fiscal 2021.
In Fiscal 2020 we also acquired XMedius, a provider of secure information exchange and unified communication
solutions, that brings decades of experience and patented technologies to enable organizations to move
more workloads to the cloud. This acquisition further strengthens OpenText’s leadership in secure information
exchange, unified communications and digital fax.
Nine Cloud Acquisitions since 2012
NEW PARTNERSHIPS TO ENHANCE VALUE
OpenText is committed culturally 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 examples of how we are working together with our partners to create next-
generation Information Management solutions and deliver them to market. We are building and expanding
relationships with the best resellers, technology and service providers to ensure customer success.
OpenText has a number of strategic partnerships with some of the most prominent organizations in
enterprise software, and the cloud, with whom we work to enhance the value of customer investments. These
partnerships include:
SAP SE (SAP): OpenText is SAP’s partner for content services serving over 5000+ customers in 130+ countries
in nearly every vertical and line of business. The OpenText Suite for SAP solutions provides key business
content seamlessly within the context of SAP business processes providing better efficiencies, reduced risk and
better experiences for customers, employees and partners—accessible anywhere and anytime and available on
and off cloud.
Google Cloud: We work together with Google Cloud to deploy our Information Management solutions on the
Google Cloud Platform as fully managed services. 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.
Amazon Web Services (AWS): Our collaboration offers businesses the opportunity to consume our Information
Management solutions as fully managed services on AWS for cost savings, increased performance, scalability
and security.
Microsoft Corporation (Microsoft): OpenText is expanding the portfolio of co-sell ready OpenText solutions that
are available for customers through the MSFT Azure Marketplace and AppSource. Together with our partner
Microsoft we enable customers to get the most out of their MSFT investments in Azure, M365 and D365 by
connecting all aspects of their content infrastructure, integrating these into business processes and enable
collaboration, management and governance.
The Carbonite Partner Program enables Managed Service Providers (MSPs), resellers, distributors, and network
and security vendors to grow with predictable and recurring revenue through cloud-based cybersecurity, threat
intelligence, and backup and recovery solutions. Aimed at the SMB and Consumer markets, we provide the
industry-specific tools, services, training, integrations, certifications, and platforms our partners need to
ensure trust and reliability with their customer base. In total, there are over 16,000 partners in the Carbonite
partner program.
OUR CUSTOMERS
OpenText is committed to supporting our customers as they manage the realities of dealing with the COVID-19
pandemic. Our customer base consists of enterprise companies, public sector agencies, mid-market companies
and with the acquisition of Carbonite, a significant number of SMB and direct consumers as well. Being
responsible for critical information infrastructure, it has been our job to ensure our customers’ systems and
processes can handle the changing reality of today, while continuing to develop solutions to address the
problems of tomorrow. Our customers enjoy choice and flexibility in their path to digital transformation with
solutions that can be run on-premises, hybrid, cloud, or as a managed service. With a focus on world-class
Information Management technologies and services, OpenText continues to innovate and provide customers
with the capabilities they need to build resilient businesses and become tomorrow’s disruptors.
As a major global integrated logistics provider, Agility Logistics needed an enterprise-wide system to streamline
global operations, including freight and shipping via land, air and sea for more than 60,000 customers in 100
countries. To secure end-to-end information resiliency and efficiency, the company implemented OpenText
Information Management technologies to provide an integrated, centralized repository for capturing, sharing
and managing documents. Leveraging innovative offerings from OpenText, Agility has increased customer
satisfaction and cost savings while expediting processing and payments. Now, more than ever, we depend on
companies like Agility to efficiently and safely move, manage and distribute time-sensitive goods across
the world.
The National Institute of Allergy and Infectious Diseases (NIAID) is leading research to understand, treat, and
prevent infectious, immunologic, and allergic diseases. NIAID is expanding its partnership with OpenText, and
selected OpenText Content Suite and OpenText AppWorks to support enterprise-wide business operations
in partnership with NIH’s Office of the Director, Office of Management to advance the NIH mission of Turning
Discovery Into Health.
Rapid Radiology, one of the largest teleradiology providers in the U.S., selected OpenText’s Business Network
solution to streamline the delivery of radiology test results to electronic medical records at healthcare
facilities including senior and long-term care facilities with more vulnerable patients, where rapidly sharing
diagnostic results improves decision-making for timely treatment and reduces avoidable hospital readmissions.
The OpenText Business Network solution delivers the industry’s only cloud integration service to provide
interoperability between all electronic medical records systems in the long-term care market, ensuring seamless
delivery of clinical results between providers and improving patient care. This is particularly important with the
move to increased remote work, as physicians and nurses are able to review lab results online, and support
personnel can review orders remotely.
Philips Healthcare, a leading health technology company leverages OpenText to transform oncology treatment
with a high performance, remote access solution. Philips Radiation Oncology provides end-to-end solutions
combining diagnostic equipment with imaging and treatment planning software to hospitals and clinics around
the world. Philips relies on OpenText software to provide security, performance and easy access to Philips
software applications, enabling physicians to improve the quality and speed of patient treatment.
CORPORATE CITIZENSHIP
At OpenText, being a good corporate citizen and investing in the communities we serve is an important part
of the way we do business. In an age of information disruption, we see opportunity to use technology for the
greater good—and we aspire to unlock its potential to advance societal goals and accelerate positive change.
Our company has established high standards of ethics, integrity and corporate citizenship, and I encourage
investors to read our inaugural 2020 Corporate Citizenship Report on our website, where we discuss how
OpenText is helping to build a better world.
The COVID-19 pandemic, the economic instability it has caused, and the Black Lives Matter movement have
highlighted how much work we have to do as a society. At the same time, over the past few months we have
also seen humanity coming together—to share life-saving information, to attempt to produce vaccines in record
time, and to begin to acknowledge and confront systemic racism. OpenText is committed to being a part of the
solution—and this year we organized our largest charitable giving campaign, created a relief fund for employees
affected by COVID-19, and launched an action plan to improve diversity within OpenText.
Ultimately, we want to amplify our contribution to creating a better future for all—and we will do it through
technology, inclusion and innovation. There has never been a more important time for purpose and impact, and
we are eager to rise to the challenge. Humanity is our greatest enterprise. Together we can achieve great things.
LOOKING AHEAD
Digital transformation has changed the world, spurring the rise of new technologies, new cultural paradigms
and new business models—and placing a new premium on the way information is managed and leveraged. In
this information age, data is constantly flowing into and out of the enterprise from every imaginable source.
Endpoints are multiplying. Employees are working on-site, at home and in the coffee shop. Supply chains are
global. Everything is connected. The pandemic is accelerating discussions on digitalization, cloud, the edge,
and we’re helping customers accelerate their transformation through our platform.
This year, companies around the world have had to navigate the uncertainty of COVID-19. At OpenText, we
moved our employees to remote work to ensure the safety of our employees, customers and partners. The
resiliency of OpenText’s 14,400 employees and innovation of our unique information management platform has
positioned us to weather the short-term challenges, and we will come out of this pandemic stronger than we
went into it, continuing to grow our proven, durable business model.
On behalf of OpenText, we commend the brave women and men serving on the front lines of the pandemic,
keeping us healthy and safe. I would like to thank our shareholders, loyal customers, partners and employees
for all contributing to our success in Fiscal 2020. I am so proud of the resilience that OpenText employees have
shown. This is our finest moment.
Mark J. Barrenechea
OpenText CEO and CTO
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report may contain forward-looking statements. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and created
under the Securities Act of 1933, as amended (the Securities Act), and the Securities Exchange Act of 1934, as
amended, the Securities Act (Ontario) and Canadian securities legislation in each of the provinces of Canada.
All statements other than statements of historical facts are statements that could be deemed forward-looking
statements. When we use words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “may,” “could,” “would”, “will” and variations of these words or similar expressions, we do so 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 and involve known and unknown risks as well as uncertainties, which include actual and potential
risks and uncertainties relating to the ultimate geographic spread of COVID-19, the severity of the disease
and the duration of the COVID-19 pandemic. 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. For additional information with respect to risks and other factors
which could occur, see our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities
filings with the Securities and Exchange Commission and other securities regulators. Any one of these factors
may cause our actual results to differ materially from recent results or from our anticipated future results.
Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only
as of the date made.
NOTES
(1)
All dollar amounts in this letter are in U.S. Dollars unless otherwise indicated.
(2) Use of Non-GAAP Financial Measures: In addition to reporting financial results in accordance with U.S. GAAP, the
Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-
GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the
Company’s definition may be different from similar Non-GAAP financial measures used by other companies and/
or analysts and may differ from period to period. Thus, it may be more difficult to compare the Company’s financial
performance to that of other companies. However, the Company’s management compensates for these limitations by
providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in
its reconciliation to the U.S. GAAP financial measures and its Consolidated Financial Statements, all of which should be
considered when evaluating the Company’s results.
The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated
Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial
measures is 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, excluding the effects
of 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 nonoperational 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.
See historical filings, including the Company’s Annual Reports on Form 10-K, for reconciliations of certain Non-GAAP
measures to U.S. GAAP-based financial measures.
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, 2020.
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 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
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
Smaller reporting company
Emerging growth company
Non-accelerated filer
Accelerated filer
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Aggregate market value of the Registrant's Common Shares held by non-affiliates, based on the closing price of the Common Shares as reported by the
No
NASDAQ Global Select Market (“NASDAQ”) on December 31, 2019, the end of the registrant's most recently completed second fiscal quarter, was
approximately $11.7 billion. At August 4, 2020, there were 271,876,105 outstanding Common Shares of the registrant.
None.
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DOCUMENTS INCORPORATED BY REFERENCE
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Item 16
Signatures
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
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
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
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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; (vi) our continued ability to avoid infringing third party intellectual property rights; and (vii) our
ability to successfully implement our restructuring plans. These forward-looking statements involve known and unknown risks
as well as uncertainties, which include (i) actual and potential risks and uncertainties relating to the ultimate geographic spread
of COVID-19, the severity of the disease and the duration of the COVID-19 pandemic and issues relating to its resurgence,
including potential material adverse effects on our business, operations and financial performance; (ii) actions that have been
and may be taken by governmental authorities to contain COVID-19 or to treat its impact on our business; (iii) the actual and
potential negative impacts of COVID-19 on the global economy and financial markets; (iv) the actual and potential risk and
uncertainties relating to the impact of our COVID-19 Restructuring Plan (as defined herein) and (v) those discussed herein and
in the Notes to Consolidated Financial Statements for the year ended June 30, 2020, 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 forward-looking statements set forth in Part II, Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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 2021" means our fiscal year beginning on July 1, 2020
and ending June 30, 2021; (ii) the term “Fiscal 2020” means our fiscal year beginning on July 1, 2019 and ended June 30,
2020; (iii) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30, 2019; (iv) the term
“Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ended June 30, 2018; and (v) the term “Fiscal 2017” means
our fiscal year beginning on July 1, 2016 and ended June 30, 2017. 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
thousands of 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 Information Management software solutions. We
offer a comprehensive line of Information Management products and services that 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 products are offered as software as a service (SAAS), through traditional on-premise solutions, on the OpenText
Cloud or as a combination. Our customers operate in hybrid on-premise 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.
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Business Overview and Strategy
About OpenText
OpenText is an Information Management company that provides software and services to maximize the strategic benefits
of data and content for increased productivity, growth and competitive advantage. With a focus on Information Management
technologies and services, we continue to innovate and provide customers with the capabilities they need to build resilient
businesses and become tomorrow's disruptors.
We provide our customers with choice and flexibility in their path to digital transformation with solutions that can be run
on-premise (off-cloud), hybrid, cloud, or as a managed service. We also accelerate and simplify our customers’ path to
information modernization with intelligent tools and services for moving off paper, automating classification, and building
clean data lakes for artificial intelligence (AI), analytics and automation.
We believe our acquisition of Carbonite Inc. (Carbonite) enters us into the next phase of our Total Growth strategy, as
discussed below, where we have an opportunity to take advantage of Carbonite's world-class channel organization and partners,
to bring our Information Management solutions to all size of customers, including small and medium businesses (SMB) and
consumers. The comprehensive OpenText Information Management platform and services provide secure and scalable
solutions for global companies, SMBs, governments and consumers around the world.
We are fundamentally integrated into the parts of our customers' businesses that matter, so they can securely manage the
complexity of information flow end to end. Furthermore, with automation and AI, we connect, synthesize and deliver
information where it is needed to drive new efficiencies, experiences and insights. We make information more valuable by
connecting it to digital business processes, enriching it with capture and analytics, protecting and securing it throughout its
entire lifecycle, and leveraging it to captivate customers. Our solutions also connect large digital supply chains in
manufacturing, retail and financial services.
Our solutions enable organizations and consumers to secure their information so that they can collaborate with
confidence, stay ahead of the regulatory technology curve, identify threats on any endpoint or across their networks, leverage
eDiscovery and digital forensics to defensibly investigate and collect evidence, and ensure business continuity in the event of a
security incident.
Our Products and Services
We have a complete and integrated portfolio of Information Management solutions, combining robust Information
Management platforms with purpose built digital applications and a developer experience for building and customizing
applications. We bring together Business Network (BN), Content Services, Cyber Resilience and Digital Experience with
advanced technologies such as AI, Analytics and Automation for business insight, optimized customer experiences, employee
engagement, asset utilization, and improved collaboration, supply chain efficiency and simplified risk management. Our
software capabilities unite information from people, systems and Internet of Thing (IoT) devices where it can be securely
managed, stored, accessed and mined with analytics for actionable and relevant insights. Below is a listing of our Information
Management solutions.
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Business Network
The OpenText BN manages and connects all data within the organization and outside the firewall, between people,
systems and IoT devices at a global scale. Our BN provides a foundation for digital supply chain and secure e-commerce.
Our Trading Grid connects trading partners globally and is used across a variety of industries. Delivered as a cloud
service, we enable data integration, data management, messaging, communications, and secure data exchange across an
increasingly complex network of on-premise and cloud applications, connected devices and business partners or customers.
The platform comprises solutions such as digital fax, identity and access management, digital business integration, supply
chain optimization, data management and security, omnichannel communications, industrial IoT and more. These solutions
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, manage the identity of everything on the network, and optimize experiences using data
from IoT, which we believe increases the security and reliability of sensitive or complex communications.
Content Services
Content Services help organizations connect content to their digital business in a common meta-data model to accelerate
productivity, improve governance and drive digital transformation. Our solutions manage the lifecycle, distribution and use of
information across the organization, from capture through to archiving and disposition.
Our Content Services solutions range from content collaboration and intelligent capture to records management and
archiving, and are available on-premise, on a cloud provider of the customer’s choice, as a subscription in the OpenText Cloud,
in a hybrid environment, or as a managed service. Our Content Services solutions enable customers to capture documents and
data from paper, electronic files, and other sources and transform it into digital content delivered directly into enterprise content
management solutions and business processes. Our customers can protect critical historical information within a secure,
centralized archiving solution.
With platforms such as Extended Enterprise Content Management (ECM), our Content Services integrate with the
applications that manage critical business processes, such as SAP S/4HANA®, SAP® SuccessFactors®, Salesforce®,
Microsoft® Office 365® and other enterprise software, establishing the foundation for intelligent business process and content
workflow automation. By connecting unstructured content with structured data workflows, our Content Services allow users to
have the content they need, when they need it, reducing errors and saving valuable time.
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.
Cyber Resilience
Our Cyber Resilience offering provides a comprehensive solution for proactively defending against cyber threats and
preparing for business continuity and response in the event of a breach. It delivers multiple layers of defense to detect, protect
against, forensically investigate and remediate security threats or data loss. We protect information managed by individuals,
businesses, and governments within applications and at the endpoints.
OpenText security solutions address information security and digital investigation needs with leading digital forensic tools
and endpoint detection and response. We provide 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.
With the acquisition of Carbonite, we have expanded our security capabilities further for Enterprise, SMB and consumers,
delivering continuous threat monitoring, remote endpoint protection, and automated cloud backup and recovery to protect
employees and customer data while allowing organizations to prepare for, respond to, and recover quickly from cyberattacks.
Our Discovery platform provides leading forensics and unstructured data analytics for searching and investigating
organizational data to manage legal obligations and risk. It 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.
Security is fundamentally built-in to all OpenText Information Management software. Our platform offers multi-level,
multi-role, multi-context security. Information is secured at the database level, by user enrolled security, context rights, and
time-based security. We also provide encryption at rest for document-level security.
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Digital Experience
Our Digital Experience offerings drive revenue growth by improving customer engagement. Digital Experience solutions
create, manage, track and optimize omnichannel interactions throughout the customer journey and integrate with systems of
record such as Salesforce® and SAP®. The OpenText Digital Experience platform enables businesses to gain insight into their
customer interactions and optimize them to improve customer lifetime value. Our Digital Experience platform offers a set of
Customer Experience Management (CEM) solutions and extensions that focus on delivering highly personalized content and
engagements along a continuous customer journey. We believe integrations with Digital Experience ensures each user gets the
best experience at every point of interaction, whether physical or digital, on any device, and provides a foundation for
executing a successful customer experience strategy.
Solutions range from customer communications, web content management, call center optimization, digital asset
management, and intelligent forms automation to analytics for voice of the customer, customer journey, testing and
segmentation.
Advanced Technologies
Our Advanced Technologies are applied horizontally across all of our platforms and applications to accelerate digital
transformation for customers. They enrich data and deliver valuable insights at scale with machine learning and artificial
intelligence, optimize processes with insight, automation and data-driven decision making, and allow organizations to quickly
adopt new technologies or adapt processes with API-driven products and developer services. OpenText is regularly innovating
to ensure our customers are armed with the technology they need to create Information Advantage.
AI and Analytics
Our AI and Analytics platform leverages structured or unstructured data to help organizations improve decision-making,
gain operational efficiencies and increase visibility through interactive dashboards, reports and data visualizations. It leverages
a comprehensive set of data analytics software to identify patterns, relationships, and trends that are used for predictive process
automation and accelerated decision making.
Our AI platform incorporates Apache Spark, a 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 information into clean and integrated “data lakes” that can be mined by AI to extract useful knowledge
and insight for our customers.
Digital Process Automation (DPA)
Our automation solutions enable organizations to transform into digital, data-driven businesses. DPA delivers and
supports a variety of process-driven applications that address complex business needs, while simultaneously providing a
flexible platform for rapidly building and deploying customer-centric applications. Through DPA, we are helping customers re-
engineer processes and quickly adapt to customer needs to deliver seamless customer and employee experiences. We speed the
development of case- and process-driven applications with low-code, drag-and-drop components, reusable building blocks and
pre-built accelerators to build and deploy solutions more easily.
Our customers are transforming knowledge-driven work involving complex interactions among people, content,
transactions and workflows across multiple systems of record to support a diverse range of use cases. Additionally, we are
combining automation and AI to predict future states and trigger processes based on data. On or off the cloud, our DPA
solutions simplify and streamline processes from front to back office.
Developer Experience
The developer is critical to the creation of integrated and "secure-from-day-one" applications. Our Information
Management platform can be expanded with our low-code development tools, product APIs and SDKs, functions as a service,
and out-of-the-box integrations designed to support the developer with a unified application development environment.
In Fiscal 2020, we introduced Core Services to support application development and deployment on OT2, our next-
generation Information Management as a Service platform. With the OT2 platform, organizations can extend their existing
platforms with new capabilities, and quickly extend solutions to the cloud where it can improve time to value, such as for
customer, supplier and partner collaboration. Combined with our cloud based IoT platform, organizations can dynamically
integrate multi-tiered supply chain communities and build IoT solutions for greater efficiency, agility, and new value-added
services.
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Managed Services
Managed Services in the cloud helps keep customers current on the latest technology, reduces the burden on information
technology staff and ensures optimal application management by trusted experts. OpenText provides a range of Managed
Services, whether on-premise, in the OpenText Cloud, in hybrid scenarios or even in other clouds, including our partners:
Google Cloud Platform, Amazon Web Services (AWS) and Microsoft Azure. Our team provides full managed services for
Information Management solutions to meet the needs of our customers. We can also help by managing the relationship with
third-party cloud providers, so customers have a single point of contact and a single Service Level Agreement (SLA) for their
solutions. With OpenText Managed Services, organizations can focus resources on their core business priorities and rest
assured that their infrastructure, applications, integrations, and upgrades are all managed, monitored and optimized for security,
performance and compliance.
Our Strategy
Growth
As an organization, we are committed to Total Growth, meaning we strive towards delivering value through organic
initiatives, innovations and acquisitions, as well as financial performance. 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 our ability to deepen our customer base 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 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) push product
innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies
(G10K), SMBs and consumers. The G10K are the world's largest companies, typically those with greater than two billion 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 $1.0 billion in R&D or 11.5% of cumulative
revenue for that three year period. We typically target to spend 11% to 13% of revenues for R&D each fiscal year.
The cloud has become 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 environment for solutions
spanning Information Management, Compliance, Cyber Resilience and B2B Integration. Supported by a global, scalable, and
secure infrastructure, the OpenText Cloud includes a foundational platform of technology services, and packaged business
applications for industry and business processes. The OpenText Cloud enables organizations to protect and manage information
in public, private or hybrid deployments.
We remain a value oriented and disciplined acquirer, having efficiently deployed $6.8 billion on acquisitions over the last
10 fiscal 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 further innovate. We
have developed a philosophy, 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, and to deepen and strengthen our
intelligent information platform for customers.
In Fiscal 2020, we continued the implementation of our strategy by acquiring Carbonite and XMedius. We regularly
evaluate acquisition opportunities 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.
In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19
has significantly impacted the global economy and has adversely impacted and is expected to further adversely impact our
operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets
will continue to depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on
the size and effectiveness of the compensating measures taken by governments and on actual and potential resurgences. We are
closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity
and capital usage, though the extent is difficult to fully predict at this time due to the rapid and continuing evolution of this
uncertain situation.
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We are conducting business with substantial modifications to employee travel and work locations and also virtualization
or cancellation of all sales and marketing events, which we expect to continue throughout Fiscal 2021, along with substantially
modified interactions with customers and suppliers, among other modifications. In March 2020, we also drew down $600
million from the Revolver, as defined below, as a preemptive measure in order to increase our cash position and preserve
financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. We continue to
actively monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies, including customer
purchasing decisions, and may take further actions that alter our business operations as may be required by governments, or
that we determine are in the best interest of our employees, customers, partners, suppliers, and shareholders. It is uncertain and
difficult to predict what the potential effects any such alterations or modifications may have on our business including the
effects on our customers and prospects, or our financial results and our ability to successfully execute our business strategies
and initiatives. As a precaution, we have temporarily and significantly reduced hiring and discretionary spending, while taking
note of some savings to be achieved through travel restrictions and the cancellation of certain events.
In addition, in order to further mitigate the operational impacts of COVID-19, our Compensation Committee and Board
approved the following measures effective for the period May 15, 2020 through June 30, 2021, subject to review and
modification as the situation warrants. Please also see "Special Fiscal 2020 Performance Bonus" in Part III, Item 11, elsewhere
in this Annual Report on Form 10-K.
•
•
•
•
•
•
15% base salary reduction and forbearance of any annual variable cash compensation effective May 15, 2020 for the
remainder of Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction in targeted cash
compensation, for our Chief Executive Officer (CEO) & Chief Technology Officer (CTO);
15% base salary reduction and 15% reduction in target annual variable cash compensation for our other Named
Executive Officers and members of the executive leadership team (ELT);
10% base salary reduction and 10% reduction in target annual variable cash compensation, as applicable, for Vice-
President- director-, and manager-level employees;
5% base salary reduction for all other employees subject to exception for certain of our employees, such as our
employees in Asia who are earning less than the equivalent of $20,000 per year;
15% reduction in cash retainer compensation fees payable to the Board of Directors; and
Suspension of employer paid contributions to retirement benefits in the United States and Canada for the remainder of
Fiscal 2020 and Fiscal 2021.
These cost reduction measures are in addition to other previously disclosed facilities and workforce related actions as part
of our COVID-19 Restructuring Plan. For more information, please see note 18 "Special Charges" in the Notes to Consolidated
Financial Statements included in Item 8 to this Annual Report on Form 10-K.
The ongoing and ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on
many factors that are not within our control. For more information, please see Part I, Item 1A "Risk Factors" included
elsewhere within this Annual Report on Form 10-K.
Looking Towards the Future
In Fiscal 2021 we intend to continue to implement strategies that are designed to:
Broaden Our Reach into Information Management through the G10K. 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
Information Management 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. Today, the destination for innovation is indisputably the cloud. Businesses of all sizes rely on a
combination of public and private clouds, managed services and off-cloud solutions. As a result, we are committed to continue
to modernize technology infrastructure and leverage our existing investments in the OpenText Cloud. The combination of
OpenText cloud-native applications and managed services, together with the scalability and performance of our partner public
cloud providers, offer more secure, reliable and compliant solutions to customers wanting to deploy cloud-based Information
Management applications. The OpenText Cloud is designed to build additional flexibility for our customers: becoming cloud-
native, connecting anything, and extending capabilities quickly with multi-tenant SaaS applications and services.
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
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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, Amazon AWS, Microsoft Corporation,
Oracle Corporation, Salesforce.com Corporation and others serve as examples of how we are working together with our
partners to create next-generation Information Management 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 Information Management, 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 Information Management market. In light of the continually evolving marketplace in which we operate, we regularly
evaluate acquisition opportunities within the Information Management 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 2020, Fiscal 2019
and Fiscal 2018, see note 20 “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.
Customer Support
The first year of our customer support offering is usually purchased by customers together with the license of our
Information Management 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.
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Professional Service and Other
We provide consulting and learning services to customers. 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 G10K organizations, enterprise companies, public sector agencies, mid-market companies
and with the acquisition of Carbonite, SMB's and direct consumers. Historically, including in Fiscal 2020, no single customer
has accounted for 10% or more of our total revenues.
Partners and Alliances
We are 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.
We have a number of strategic partnerships that are essential to our success. These include the most prominent
organizations in enterprise software, hardware and public cloud, with whom we work to enhance the value of customer
investments. They include:
•
SAP SE (SAP): We are SAP’s partner for content services. The OpenText Suite for SAP solutions provides key
business content within the context of SAP business processes providing better efficiencies, reduced risk and better
experiences for customers, employees and partners - accessible anywhere and anytime and available on and off-cloud.
• Google Cloud: We work together with Google Cloud to deploy our Information Management solutions on the Google
Cloud Platform as fully managed services. 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 AI/ML, Analytics, G-Suite and other functions.
• Amazon Web Services (AWS): Our collaboration offers businesses the opportunity to consume our Information
Management solutions as fully managed services on AWS for cost savings, increased performance, scalability and
security.
• Microsoft Corporation (Microsoft): Together with Microsoft, we enable customers to connect all aspects of their
content infrastructure, integrating these into business processes and enable collaboration, management and governance
on the most valuable asset - information.
• Oracle Corporation (Oracle): We develop innovative solutions for Oracle applications that enhance the experience
and productivity of users working with these tools.
•
Salesforce.com Corporation (Salesforce): The company-to-company partnership between OpenText and Salesforce is
focused on growing a full portfolio of Information Management solutions to complement the Salesforce ecosystem by
uniting the structured and unstructured information experience.
Our Global Partner Program 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.
Global Systems Integrators (GSI) provide customers with digital transformational services around OpenText
technologies. They are trained and certified on OpenText solutions and enhance the value of our offerings by providing
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technical credibility and complementary services to customers. Our GSIs include, Accenture plc, ATOS International S.A.S.,
Capgemini Technology Services SAS, Cognizant Technology Solutions U.S. Corp., Deloitte Consulting LLP, and Tata
Consultancy Services (TCS).
With the acquisition of Carbonite, our partner programs also enable managed service providers (MSPs), resellers,
distributors, and network and security vendors to grow through cloud-based cybersecurity, threat intelligence, and backup and
recovery solutions aimed at the SMB and consumer markets. We provide the industry-specific tools, services, training,
integrations, certifications, and platforms our partners need to ensure trust and reliability with their customer base.
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 Information Management sector,
such as Veeva Systems Inc., Quadient 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 $370.4 million for Fiscal 2020, $321.8
million for Fiscal 2019, and $322.9 million for Fiscal 2018. 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
We regularly evaluate acquisition opportunities within the Information Management 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 2020, we completed the following acquisitions:
•
•
•
On March 9, 2020, we acquired XMedius, a provider of secure information exchange and unified
communication solutions, for $73.3 million.
On December 24, 2019, we acquired Carbonite, a leading provider of cloud-based subscription backup,
disaster recovery and endpoint security to SMB, consumers, and a wide variety of partners, for $1.4 billion.
On December 2, 2019, we acquired certain assets and certain liabilities of Dynamic Solutions Group (The
Fax Guys) for $5.1 million.
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Prior to Fiscal 2020, we completed the following acquisitions:
•
•
•
•
•
•
•
•
•
•
•
On January 31, 2019, we acquired Catalyst, a leading provider of eDiscovery that designs, develops and
supports market-leading cloud eDiscovery software, for $71.4 million.
On December 17, 2018, we acquired Liaison, a leading provider of cloud-based business to business
integration, for $310.6 million.
On February 14, 2018, we acquired Hightail, a leading cloud service for file sharing and creative
collaboration, for $20.5 million.
On September 14, 2017, we acquired Guidance, a leading provider of forensic security solutions, for
$240.5 million.
On July 26, 2017, we acquired Covisint, a leading cloud platform for building Identity, Automotive, and
IoT applications, for $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 $1.62 billion.
On July 31, 2016, we acquired certain customer communications management software services assets and
liabilities from HP Inc. (CCM Business) for $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 $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 $104.6 million.
On April 30, 2016, we acquired certain customer experience software and services assets and liabilities
from HP Inc. (CEM Business) for $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 $23.3 million.
We believe our acquisitions support our long-term strategy for growth, strengthen our competitive position, expand our
customer base and provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We
expect to continue to strategically acquire companies, products, services and technologies to augment our existing business.
Intellectual Property Rights
Our success and ability to compete depends 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.
Employees
As of June 30, 2020, we employed a total of approximately 14,400 individuals. The approximate composition of our
employee base is as follows: (i) 2,500 employees in sales and marketing, (ii) 4,100 employees in product development, (iii)
3,300 employees in cloud services, (iv) 1,500 employees in professional services, (v) 1,100 employees in customer support, and
(vi) 1,900 employees in general and administrative roles. We believe that relations with our employees are strong. None of our
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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. The SEC and SEDAR websites are included in this Annual Report on Form 10-K as inactive
textual references only. 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 this Annual Report on Form 10-K and should not be
considered to be a part of this 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 COVID-19 pandemic has and is expected to further negatively affect our business, operations and financial
performance
In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization. Since December 2019,
COVID-19 has spread globally, with a high concentration of cases in certain regions in which we sell our products and services
and conduct our business operations, including the United States, Canada, Europe and Asia.
The spread of COVID-19 and resulting tight government controls and travel bans implemented around the world, such as
declarations of states of emergency, business closures, manufacturing restrictions and a prolonged period of travel, commercial
and/or other similar restrictions and limitations, have caused disruption to global supply chains and economic activity, and the
market has entered a period of significantly increased volatility. The spread of COVID-19 is currently having an adverse impact
on the global economy, the severity and duration of which is difficult to predict, and has adversely affected and is expected to
further adversely affect our financial performance, as well as our ability to successfully execute our business strategies and
initiatives, including by negatively impacting the demand for our products and services, restricting our sales operations and
marketing efforts, disrupting the supply chain of hardware needed to operate our SaaS offerings or run our business and
disrupting our ability to conduct product development and other important business activities. While the restrictions and
limitations noted above may be relaxed or rolled back if and when COVID-19 abates, the actions may be reinstated as the
pandemic continues to evolve and in response to actual or potential resurgences. The scope and timing of any such
reinstatements are difficult to predict and may materially affect our operations in the future. We are continuing to focus on the
safety and protection of our workforce and our customers by conducting business with substantial modifications to employee
travel, employee work locations and virtualization or cancellation of all sales and marketing events, which we expect to
continue throughout Fiscal 2021, among other modifications. In March 2020, we also drew down $600 million from the
Revolver as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current
uncertainty in the global markets resulting from the COVID-19 pandemic. To mitigate anticipated negative financial and
operational impacts of COVID-19, we have approved cost cutting measures effective through June 30, 2021, subject to review
and modification as the situation warrants, and approved our COVID-19 restructuring plan which includes a move towards a
significant work from home model.
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We will continue to actively monitor the situation and may take further actions that alter our business operations as may
be required by governments, or that we determine are in the best interest of our employees, customers, partners, suppliers and
shareholders. The extent of the adverse impact of the pandemic on the global economy and markets will depend, in part, on the
length and severity of the measures taken to limit the spread of the virus and, in part, on the size and effectiveness of the
compensating measures taken by governments. To the extent the COVID-19 pandemic continues to adversely affect the global
economy, and/or adversely affects our business, operations or financial performance, it may also have the effect of increasing
the likelihood and/or magnitude of other risks described herein, including those risks related to market, credit, geopolitical and
business operations and cyber, or risks described in our other filings with the SEC. In addition, the COVID-19 pandemic may
also affect our business, operations or financial performance in a manner that is not presently known to us. We are closely
monitoring the potential adverse effects and impact on our operations, businesses and financial performance, including liquidity
and capital usage, though the extent of the impact is difficult to fully predict at this time due to the rapid and continuing
evolution of this uncertain situation.
The impact of the COVID-19 pandemic continues to create significant uncertainty in the global economy and for our
business, operations, and financial performance.
The COVID-19 pandemic has significantly impacted health and economic conditions throughout the United States and
globally. The global spread of COVID-19 has been, and continues to be, complex and rapidly evolving, with governments,
public institutions and other organizations imposing or recommending, and businesses and individuals implementing,
restrictions on various activities or other actions to combat its spread, such as travel restrictions and bans, social distancing,
quarantine or shelter-in-place directives, limitations on the size of gatherings, and closures of non-essential businesses. These
restrictions have disrupted and may continue to disrupt economic activity, resulting in reduced commercial and consumer
confidence and spending, increased unemployment, closure or restricted operating conditions for businesses, volatility in the
global economy, instability in the credit and financial markets, labor shortages, regulatory recommendations to provide relief
for impacted consumers, and disruption in supply chains.
The extent to which the COVID-19 pandemic impacts our business, operations, and financial performance is highly
uncertain and will depend on numerous evolving factors that we may not be able to accurately predict or assess, including, but
not limited to, the severity, extent and duration of the pandemic or any resurgences in the future, including any economic
recession resulting from the pandemic, the development of effective vaccines and treatments, and the continued governmental,
business and individual actions taken in response to the pandemic. Impacts related to the COVID-19 pandemic are expected to
continue to pose risks to our business for the foreseeable future, may heighten many of the risks and uncertainties identified
herein, and could have a material adverse impact on our business, operations or financial performance in a manner that is
difficult to predict.
The restructuring of our operations, including steps taken to mitigate the anticipated negative impact of the COVID-19
pandemic, may be ineffective and 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,
and most recently in response to the COVID-19 pandemic. 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.
In particular, in order to mitigate anticipated negative financial and operational impacts of COVID-19, we have approved
cost cutting measures effective through June 30, 2021, subject to review and modification as the situation warrants. This
includes our COVID-19 Restructuring Plan, which involves a move towards a significant work from home model and a
reduction in our real estate footprint around the world. Such steps to reduce costs, and further changes we may make in the
future, may negatively impact our business, operations and financial performance in a manner that is difficult to predict.
For example, employing a remote work environment could affect employee productivity, including due to a lower level
of employee oversight, distractions caused by the pandemic and its impact on daily life, health conditions or illnesses,
disruptions due to caregiving or child care obligations or slower or unreliable Internet access. OpenText systems, client, vendor
and/or borrower data may be subject to additional risks presented by increased phishing activities targeting employees, vendors
and counterparties in transactions, the possibility of attacks on OpenText systems or systems of employees working remotely as
well as by decreased physical supervision.While our pre-existing controls were not specifically designed to operate in our
current work from home environment, we believe that established internal controls over financial reporting continue to address
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all identified risk areas. If our productivity is impacted as a result of the transition, we may incur additional costs to address
such issues and our financial condition and results may be adversely impacted.
For more information regarding the impact of COVID-19 on our cybersecurity, see "-Business disruptions, including
those related to data security breaches, may adversely affect our operations." For more information on our COVID-19
Restructuring Plan, see note 18 “Special Charges (Recoveries)” to our Consolidated Financial Statements.
The length of our sales cycle can fluctuate significantly which could result in significant fluctuations in revenues being
recognized from quarter to quarter
The decision by a customer to license our software products or purchase our services often involves a comprehensive
implementation process across the customer's network or networks. As a result, the licensing and implementation of our
software products and any related services may entail a significant commitment of resources by prospective customers,
accompanied by the attendant risks and delays frequently associated with significant technology implementation projects.
Given the significant investment and commitment of resources required by an organization to implement our software products,
our sales cycle may be longer compared to other companies within our own industry, as well as companies in other industries.
Also, because of changes in customer spending habits, it may be difficult for us to budget, forecast and allocate our resources
properly. In weak economic environments, it is not uncommon to see reduced information technology spending. It may take
several months, or even several quarters, for marketing opportunities to materialize. If a customer's decision to license our
software or purchase our services is delayed or if the implementation of these software products takes longer than originally
anticipated, the date on which we may recognize revenues from these licenses or sales would be delayed. Such delays and
fluctuations could cause our revenues to be lower than expected in a particular period and we may not be able to adjust our
costs quickly enough to offset such lower revenues, potentially negatively impacting our business, operating results and
financial condition.
Our success depends on our relationships with strategic partners, distributors and third party service providers and any
reduction in the sales efforts by distributors, cooperative efforts from our partners or service from third party providers
could materially impact our revenues
We rely on close cooperation with strategic partners for sales and software product development as well as for the
optimization of opportunities that arise in our competitive environment. A portion of our license revenues is derived from the
licensing of our software products through third parties. Also, a portion of our service revenues may be impacted by the level of
service provided by third party service providers relating to Internet, telecommunications and power services. Our success will
depend, in part, upon our ability to maintain access to existing channels of distribution and to gain access to new channels if
and when they develop. We may not be able to retain a sufficient number of our existing distributors or develop a sufficient
number of future distributors. Distributors may also give higher priority to the licensing or sale of software products and
services other than ours (which could include competitors' products and services) or may not devote sufficient resources to
marketing our software products and services. 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.
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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 Information Management
solutions, and growing the capabilities of our Information Management 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 Information Management 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.
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.
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Our investment in our current research and development efforts may not provide a sufficient, timely return
The development of Information Management software products is a costly, complex and time-consuming process, and
the investment in Information Management 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
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 permit others to create derivative works of our proprietary software. 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 that negatively affects our proprietary software, 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 material third-party intellectual
property that is integrated into our products in a manner that requires a license, third parties have and may continue to assert
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infringement claims against us in the future, including the sometimes aggressive and opportunistic actions of non-practicing
entities whose business model is to obtain patent-licensing revenues from operating companies such as us. Any such assertion,
regardless of merit, may result in litigation or may require us to obtain a license for the intellectual property rights of third
parties. Such licenses may not be available, or they may not be available on commercially reasonable terms. In addition, as we
continue to develop software products and expand our portfolio using new technology and innovation, our exposure to threats
of infringement may increase. Any infringement claims and related litigation could be time-consuming, disruptive to our ability
to generate revenues or enter into new market opportunities and may result in significantly increased costs as a result of our
defense against those claims or our attempt to license the intellectual property rights or rework our products to avoid
infringement of third party rights. Typically, our agreements with our partners and customers contain provisions which require
us to indemnify them for damages sustained by them as a result of any infringement claims involving our products. Any of the
foregoing infringement claims and related litigation could have a significant adverse impact on our business and operating
results as well as our ability to generate future revenues and profits.
The loss of licenses to use third-party software or the lack of support or enhancement of such software could adversely
affect our business
We currently depend upon a limited number of third-party software products. If such software products were not
available, we might experience delays or increased costs in the development of our own software products. For a limited
number of our product modules, we rely on software products that we license from third parties, including software that is
integrated with internally developed software and which is used in our products to perform key functions. These third-party
software licenses may not continue to be available to us on commercially reasonable terms and the related software may not
continue to be appropriately supported, maintained, or enhanced by the licensors. The loss by us of the license to use, or the
inability by licensors to support, maintain, or enhance any of such software, could result in increased costs, lost revenues or
delays until equivalent software is internally developed or licensed from another third party and integrated with our software.
Such increased costs, lost revenues or delays could adversely affect our business.
Current and future competitors could have a significant impact on our ability to generate future revenues and profits
The markets for our software products and services are intensely competitive and are subject to rapid technological
change and other pressures created by changes in our industry. The convergence of many technologies has resulted in
unforeseen competitors arising from companies that were traditionally not viewed as threats to our marketplace. We expect
competition to increase and intensify in the future as the pace of technological change and adaptation quickens and as
additional companies enter our markets, including those competitors who offer solutions similar to ours, but offer it through a
different form of delivery. Numerous releases of competitive products have occurred in recent history and are expected to
continue in the future. We may not be able to compete effectively with current competitors and potential entrants into our
marketplace. We could lose market share if our current or prospective competitors: (i) develop technologies that are perceived
to be substantially equivalent or superior to our technologies, (ii) introduce new competitive products or services, (iii) add new
functionality to existing products and services, (iv) acquire competitive products and services, (v) reduce prices, or (vi) form
strategic alliances or cooperative relationships with other companies. If other businesses were to engage in aggressive pricing
policies with respect to competing products, or if the dynamics in our marketplace resulted in increasing bargaining power by
the consumers of our software products and services, we would need to lower the prices we charge for the products and
services we offer. This could result in lower revenues or reduced margins, either of which may materially adversely affect our
business and operating results. 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 Information Management 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. As a result of the continually evolving marketplace in which we operate, we regularly
evaluate acquisition opportunities 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
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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 and we may
continue to engage in such acquisitions. 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 or contractual protections intended to protect against any such deficiencies may not fully eliminate all related risks.
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. Refer to Item 9A "Controls and Procedures", included elsewhere in
this Annual Report on Form 10-K, for details on our internal controls over financial reporting for recent acquisitions.
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.
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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 12 "Pension Plans and Other Post Retirement Benefits" to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Consolidation in the industry, particularly by large, well-capitalized companies, could place pressure on our operating
margins which could, in turn, have a material adverse effect on our business
Acquisitions by large, well-capitalized technology companies have changed the marketplace for our software products
and services by replacing competitors which are comparable in size to our Company with companies that have more resources
at their disposal to compete with us in the marketplace. In addition, other large corporations with considerable financial
resources either have products and/or services that compete with our software products and services or have the ability to
encroach on our competitive position within our marketplace. These companies have considerable financial resources, channel
influence, and broad geographic reach; thus, they can engage in competition with our software products and services on the
basis of price, marketing, services or support. They also have the ability to introduce items that compete with our maturing
software products and services. The threat posed by larger competitors and their ability to use their better economies of scale to
sell competing products and services at a lower cost may materially reduce the profit margins we earn on the software products
and services we provide to the marketplace. Any material reduction in our profit margin may have a material adverse effect on
the operations or finances of our business, which could hinder our ability to raise capital in the public markets at opportune
times for strategic acquisitions or general operational purposes, which may then prevent effective strategic growth, improved
economies of scale or put us at a disadvantage to our better capitalized competitors.
We must continue to manage our internal resources during periods of company growth or our operating results could be
adversely affected
The Information Management market in which we compete continues to evolve at a rapid pace. However, there is
significant uncertainty on growth from the impact of the COVID-19 pandemic. 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 and there is
a risk that we could lose their services due to the illness of executive officers and key employees from COVID-19. 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.
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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.
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. Sales forecasts may be particularly inaccurate or unpredictable given the
extraordinary nature of the COVID-19 pandemic. 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 information
technology 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.
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
21
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 2020, Fiscal 2019 and Fiscal 2018 were $(4.2) million, $(4.3) million, and $4.8 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 the ongoing COVID-19 pandemic, Brexit, as defined below, and any policy
changes, including those resulting from trade and tariff disputes. See "-The COVID-19 pandemic is expected to negatively
affect our business, operations and financial performance" and “-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 or courts 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
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 the ongoing COVID-19 pandemic and Brexit, as defined below. See "-The COVID-19 pandemic is expected to
negatively affect our business, operations and financial performance" and “-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). While the United Kingdom left the European Union as of January 31, 2020, it has until
December 31, 2020, to negotiate a new trade agreement addressing customs and trade matters. 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. 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
22
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,
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
23
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 particular, in connection with COVID-19, there has been a spike in cybersecurity attacks as shelter in place orders and
work from home measures have led businesses to increase reliance on virtual environments and communications systems,
which have been subjected to increasing third-party vulnerabilities and security risks. Malicious hackers may attempt to gain
access to our network or data centers; steal proprietary information related to our business, products, employees, and
customers; or interrupt our systems and services or those of our customers or others. Although we monitor our networks and
continue to enhance our security protections, hackers are increasingly more sophisticated and aggressive, and our efforts may
be inadequate to prevent all incidents of data breach or theft.
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. Our efforts to protect against cyber-attacks and data breaches may not be sufficient to prevent such incidents.
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, including all U.S. states and
the European Union, have enacted laws requiring companies to notify individuals of data security breaches involving certain
types of personal data, and in some cases our agreements with certain customers require us to notify them in the event of a data
security incident. Such mandatory disclosures could lead to negative publicity and may cause our current and prospective
customers to lose confidence in the effectiveness of our data security measures. These 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:
•
Impact of the ongoing COVID-19 pandemic and actual or potential resurgences on our business and on general
economic and business conditions;
• 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;
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• 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, including the impact of the COVID-19 pandemic; 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.
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; (v) impacts of the COVID-19 pandemic and related economic conditions, or (vi) 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.
25
As of June 30, 2020, our credit facilities consisted of a $1.0 billion term loan facility (Term Loan B) and a $750 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. In March 2020, we drew down $600 million from the Revolver
as a preemptive measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty
in the global markets resulting from the COVID-19 pandemic. 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, 2020, we also have $850 million in aggregate principal amount of our 5.875% senior unsecured notes due
2026 (Senior Notes 2026), $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028)
and $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 (Senior Notes 2030 and together with the
Senior Notes 2028 and Senior Notes 2026, the Senior Notes) outstanding, 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
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 11 "Long-Term Debt" to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.
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.
26
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 14 "Guarantees and Contingencies" and 15 "Income
Taxes" 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,
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 pursuing various
alternatives available to taxpayers to contest the proposed adjustments, including currently through IRS Appeals and potentially
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 14 "Guarantees and Contingencies" and 15
"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
27
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, COVID-19, 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. For more information regarding the impact of
COVID-19 on our business and global economic conditions, see "-The outbreak of COVID-19 is expected to negatively affect
our business, operations and financial performance" and "-The impact of the COVID-19 pandemic continues to create
significant uncertainty in the global economy and for our business, operations, and financial performance".
Risks associated with data privacy issues, including evolving laws and regulations and associated compliance efforts, may
adversely impact our business
Our business depends on the processing of personal data, including data transfer between our affiliated entities, to and
from our business partners and customers, and with third-party service providers. The laws and regulations relating to personal
data constantly evolve, as federal, state and foreign governments continue to adopt new measures addressing data privacy and
processing (including collection, storage, transfer, disposal and use) of personal data. Moreover, the interpretation and
application of many existing or recently enacted privacy and data protection laws and regulations in the European Union, the
U.S. and elsewhere are uncertain and fluid, and it is possible that such laws and regulations may be interpreted or applied in a
manner that is inconsistent with our existing data management practices or the features of our products and services. Any such
new laws or regulations, any changes to existing laws and regulations and any such interpretation or application may affect
demand for our products and services, impact our ability to effectively transfer data across borders in support of our business
operations, or increase the cost of providing our products and services. Additionally, any actual or perceived breach of such
laws or regulations may subject us to claims and may lead to administrative, civil, or criminal liability, as well as reputational
harm to our Company and its employees. We could also be required to fundamentally change our business activities and
practices, or modify our products and services, which could have an adverse effect on our business.
In the U.S., various laws and regulations apply to the collection, processing, transfer, disposal, unauthorized disclosure
and security of personal data. For example, data protection laws passed by all 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. For example, the California Consumer Privacy Act of 2018 (CCPA) came into effect on January 1, 2020. The
CCPA requires companies that process information of California residents to make new disclosures to consumers about their
data collection, use and sharing practices, allows consumers to access and have deleted their data and opt out of certain data
sharing with third parties and provides a new private right of action for data breaches. Violations of the CCPA are enforced by
the California Attorney General with sizeable civil penalties, particularly for violations that impact large numbers of
28
consumers. 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.
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 such as our Term Loan B and the Revolver that have variable rates of interest, some of which used 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. Furthermore, we may need to
amend our variable rate debt agreements to replace LIBOR with a new reference rate. The U.S. Federal Reserve, in conjunction
with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is
considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by
Treasury securities called the Secured Overnight Financing Rate (SOFR). At this time, it is not possible to predict whether
SOFR will attain market traction as a LIBOR replacement. This uncertainty about the future of LIBOR and the discontinuance
of LIBOR or other reforms or the establishment of alternative reference rates 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
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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.
We may fail to realize all the anticipated benefits of the acquisition of Carbonite or those benefits may take longer to realize
than expected
We may be required to devote significant management attention and resources to integrating the business practices and
operations of OpenText and Carbonite. As we continue to integrate, we may experience disruptions to our business and, if
implemented ineffectively, it could restrict the realization of the full expected benefits. The failure to meet the challenges
involved in the integration process and to realize the anticipated benefits of the acquisition of Carbonite could cause an
interruption of, or loss of momentum in, our operations and could adversely affect our business, financial condition and results
of operations.
Furthermore, as we continue the integration of Carbonite, it may result in material unanticipated problems, expenses,
charges, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s
attention. Additional integration challenges may include:
• Difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the
acquisition;
• Difficulties in the integration of operations and systems, including pricing and marketing strategies, which may hurt
the sale of hybrid backup solutions which are sensitive to price; and
• Difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures and
compensation structures.
Many of these factors will be outside of our control and any one of them could result in increased costs, including
restructuring charges, decreases in the amount of expected revenues and diversion of management’s time and energy, which
could adversely affect our business, financial condition and results of operations.
We may be unable to maintain or expand our base of SMB and professional consumer customers, which could adversely
affect our anticipated future growth and operating results
With the acquisition of Carbonite, we have expanded our presence in the SMB market as well as the consumer market.
Expanding in this market may require substantial resources and increased marketing efforts, different to what we are
accustomed to. If we are unable to market and sell our solutions to the SMB market and consumers with competitive pricing
and in a cost-effective manner, it may harm our ability to grow our revenues and adversely affect our results of operations. In
addition, SMBs frequently have limited budgets and are more likely to be significantly affected by economic downturns, such
as those caused by the ongoing COVID-19 pandemic, than larger, more established companies. As such, SMBs may choose to
spend funds on items other than our solutions, particularly during difficult economic times, which may hurt our projected
revenues, business financial condition and results of operations.
Item 1B.
Unresolved Staff Comments
None.
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Item 2.
Properties
Our properties consist of owned and leased office facilities for sales, support, research and development, consulting and
administrative personnel, totaling approximately 0.3 million square feet of owned facilities and approximately 2.8 million
square feet of leased facilities. During the fourth quarter of Fiscal 2020, in response to the COVID-19 pandemic, we made a
strategic decision to move towards a significant work from home model. Our intent, over time, is to make a significant
reduction in the number of offices, anticipated to be over 50% of our global offices, impacting approximately 15% of our
employees. Based upon our COVID-19 Restructuring Plan, we estimate that this transition can be executed within six to twelve
months from implementation.
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
1,413,000
621,000
776,000
2,810,000
(1)
(2)
(3)
Americas consists of countries in North, Central and South America.
EMEA consists of countries in Europe, the Middle East and Africa.
Asia Pacific primarily consists of Japan, Australia, China, Korea, Philippines, Singapore and India.
Included in the total approximate square footage of leased facilities is approximately 2.2 million square feet of operational
space and approximately 0.6 million square feet of vacated space which has either been sublet or is being actively marketed for
sublease or disposition, of which 0.4 million square feet were vacated as part of the COVID-19 Restructuring Plan. For more
information on our COVID-19 Restructuring Plan, see note 18 “Special Charges (Recoveries)” to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
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 14 “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.
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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, 2020, the closing price of our Common Shares on the NASDAQ was $42.48 per share, and on the TSX was
Canadian $57.65 per share.
As at June 30, 2020, we had 348 shareholders of record holding our Common Shares of which 298 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 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, 2020.
Stock Performance Graph and Cumulative Total Return
The following graph compares for each of the five fiscal years ended June 30, 2020, 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, 2015, 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.
32
The chart below provides information with respect to the value of $100 invested on June 30, 2015 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 $
June 30,
2015
100.00 $
100.00 $
June 30,
2016
148.43 $
107.36 $
June 30,
2017
160.63 $
140.36 $
June 30,
2018
182.16 $
188.21 $
June 30,
2019
216.85 $
227.04 $
June 30,
2020
227.39
294.83
NASDAQ Composite
S&P/TSX Composite
$
$
100.00 $
98.32 $
126.14 $
155.91 $
168.04 $
213.32
100.00 $
95.98 $
106.48 $
116.17 $
121.12 $
113.93
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 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.
33
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
34
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 2019 or 2020 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 2021 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.
35
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 Carbonite, Liaison, Guidance, ECD Business, CCM Business and
CEM Business. The results of these companies and all of our other 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.
2020
2019
2018
2017
2016
Fiscal Year Ended June 30,
(In thousands, except per share data)
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
$
$
$
$
3,109,736 $
2,868,755 $
2,815,241 $
2,291,057 $
1,824,228
234,225 $
285,501 $
242,224 $
1,025,659 $
284,477
0.86 $
1.06 $
0.91 $
4.04 $
0.86 $
1.06 $
0.91 $
4.01 $
1.17
1.17
270,847
268,784
266,085
253,879
242,926
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.
269,908
267,492
271,817
255,805
244,076
2020
2019
2018
2017
2016
As of June 30,
Balance Sheet Data:
Total Assets(1)
Total Long-term liabilities(2)
Cash dividends per Common Share
$
$
$
10,234,822 $
7,933,975 $
7,765,029 $
7,480,562 $
5,154,144
4,323,880 $
0.6984 $
3,034,588 $
0.6300 $
3,053,172 $
0.5478 $
2,820,200 $
0.4770 $
2,503,918
0.4150
(1) Effective July 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02 “Leases (Topic 842)” (Topic 842) using the modified retrospective
transition approach. In accordance with this adoption method, results for reporting periods as of July 1, 2019 are presented under the new standard, while prior
period results continue to be reported under the previous standard.
(2) Excludes $600 million currently drawn on the Revolver, which we expect to repay within one year. Please see note 11 "Long-Term Debt" to the Consolidated
Financial Statements included in this Annual Report on Form 10-K for more details.
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, 2020
and ending June 30, 2021 (Fiscal 2021) on growth in earnings and cash flows; (ii) creating value through investments in broader
Information Management capabilities; (iii) our future business plans and business planning process; (iv) statements relating to
36
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; (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) existing and 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 acquisitions and
their expected impact; and (xxiii) other matters.
In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or
other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based
on our current expectations, forecasts and projections about the operating environment, economies and markets in which we
operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s
perception of historic trends, current conditions and expected future developments, as well as other factors it believes are
appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions
including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations
relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable
business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates; (iv)
equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify, source and finance
attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual
property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give
no assurance that such estimates, beliefs and assumptions will prove to be correct.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or
implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but
are not limited to: (i) actual and potential risks and uncertainties relating to the ultimate geographic spread of COVID-19, the
severity of the disease and the duration of the COVID-19 pandemic and issues relating to its resurgence, including potential
material adverse effects on our business, operations and financial performance; (ii) actions that may be taken by governmental
authorities to contain the COVID-19 pandemic or to treat its impact on our business; (iii) the actual and potential negative impacts
of COVID-19 on the global economy and financial markets; and (iv) the actual and potential risk and uncertainties relating to
the implementation of our COVID-19 Restructuring Plan, including the possibility that the actual cash or non-cash cost of
restructuring might exceed the estimated amounts; (v) integration of acquisitions and related restructuring efforts, including the
quantum of restructuring charges and the timing thereof; (vi) 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; (vii) 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; (viii) the risks associated with bringing new products and services to
market; (ix) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting
from trade and tariff disputes); (x) delays in the purchasing decisions of the Company’s customers; (xi) competition the Company
faces in its industry and/or marketplace; (xii) the final determination of litigation, tax audits (including tax examinations in the
United States, Canada or elsewhere) and other legal proceedings; (xii) potential exposure to greater than anticipated tax liabilities
or expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (xiv) the possibility of technical,
logistical or planning issues in connection with the deployment of the Company’s products or services; (xv) the continuous
commitment of the Company’s customers; (xvi) demand for the Company’s products and services; (xvii) increase in exposure to
international business risks (including as a result of the impact of Brexit and any policy changes resulting from the transition from
the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) as we continue to increase our
international operations; (xviii) inability to raise capital at all or on not unfavorable terms in the future; (xix) downward pressure
on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future
acquisitions); and (xx) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors
that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of
the Company; (ii) the ability of the Company to bring new 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 Information Management market; (ix) the Company’s competitive position in the Information Management market
and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products and services to
37
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 Information Management 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. 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.
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, 2020 (Fiscal 2020) compared
with the year ended June 30, 2019 (Fiscal 2019), unless otherwise noted. Please refer to Part II, Item 7 of our Annual Report
on Form 10-K for Fiscal 2019 for a comparative discussion of our Fiscal 2019 financial results as compared to Fiscal 2018.
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
OpenText is an Information Management company that provides software and services to maximize the strategic benefits
of data and content for increased productivity, growth and competitive advantage. With a focus on Information Management
technologies and services, we continue to innovate and provide customers with the capabilities they need to build resilient
businesses and become tomorrow's disruptors.
We provide our customers with choice and flexibility in their path to digital transformation with solutions that can be run
on-premise, cloud, hybrid, or as a managed service. We also accelerate and simplify our customers’ path to information
modernization with intelligent tools and services for moving off paper, automating classification, and building clean data lakes
for artificial intelligence (AI), analytics and automation.
We are fundamentally integrated into the parts of our customers' businesses that matter so they can securely manage the
complexity of information flow end to end. Furthermore, with automation and AI, we connect, synthesize and deliver
information where it is needed to drive new efficiencies, experiences and insights. We make information more valuable by
connecting it to digital business processes, enriching it with capture and analytics, protecting and securing it throughout its
entire lifecycle, and leveraging it to captivate customers. Our solutions also connect large digital supply chains in
manufacturing, retail and financial services.
Our solutions enable organizations and consumers to secure their information so that they can collaborate with
confidence, stay ahead of the regulatory technology curve, identify threats on any endpoint or across their networks, leverage
eDiscovery and digital forensics to defensibly investigate and collect evidence, and ensure business continuity in the event of a
security incident.
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, 2020, employed approximately 14,400 people worldwide.
Our ticker symbol on both the NASDAQ and the TSX is "OTEX".
Fiscal 2020 Summary:
During Fiscal 2020 we saw the following activity:
• Total revenue was $3,109.7 million, up 8.4% compared to the prior fiscal year; up 9.7% after factoring in the impact
of $37.1 million of foreign exchange rate changes.
38
• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and
customer support revenue, was $2,433.3 million, up 12.9% compared to the prior fiscal year; up 14.1% after
factoring in the impact of $26.3 million of foreign exchange rate changes.
• Cloud services and subscriptions revenue was $1,157.7 million, up 27.5% compared to the prior fiscal year; up
28.4% after factoring in the impact of $8.1 million of foreign exchange rate changes.
• License revenue was $402.9 million, down 5.9% compared to the prior fiscal year; down 4.5% after factoring in the
impact of $5.9 million of foreign exchange rate changes.
• GAAP-based EPS, diluted, was $0.86 compared to $1.06 in the prior fiscal year.
• Non-GAAP-based EPS, diluted, was $2.89 compared to $2.76 in the prior fiscal year.
• GAAP-based gross margin was 67.7% compared to 67.6% in the prior fiscal year.
• Non-GAAP-based gross margin was 74.5% compared to 74.1% in the prior fiscal year.
• GAAP-based net income attributable to OpenText was $234.2 million compared to $285.5 million in the prior fiscal
year.
• Non-GAAP-based net income attributable to OpenText was $784.5 million compared to $744.7 million in the prior
fiscal year.
• Adjusted EBITDA was $1,148.1 million compared to $1,100.3 million in the prior fiscal year.
• Operating cash flow was $954.5 million for the year ended June 30, 2020, up 8.9% from the prior fiscal year.
• Cash and cash equivalents were $1,692.9 million as of June 30, 2020, compared to $941.0 million as of June 30,
2019. As of June 30, 2020, our cash and cash equivalents and the current portion of our long-term debt include a
$600 million draw down on the Revolver, defined below, in order to increase our cash position and preserve financial
flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.
Issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 and $900 million in aggregate
principal amount of 4.125% Senior Notes due 2030.
•
See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-
GAAP-based measures.
Acquisitions
Our competitive position in the marketplace requires us to maintain an evolving array of technologies, products, services
and capabilities. As a result of the continually evolving marketplace in which we operate, we regularly evaluate acquisition
opportunities within our market and at any time may be in various stages of discussions with respect to such opportunities.
Acquisition of XMedius
On March 9, 2020, we acquired all the equity interest in XMedius for $73.3 million in an all cash transaction. XMedius is
a provider of secure information exchange and unified communication solutions. We believe the acquisition complements our
Customer Experience Management (CEM) and Business Network (BN) platforms. The results of operations of XMedius have
been consolidated with those of OpenText beginning March 9, 2020.
Acquisition of Carbonite
On December 24, 2019, we acquired all the equity interest in Carbonite, a leading provider of cloud-based subscription
backup, disaster recovery and endpoint security to SMBs, consumers, and a wide variety of partners. Total consideration for
Carbonite was $1.4 billion, paid in cash (inclusive of cash acquired). We believe the acquisition increases our position in the
data protection and endpoint security space, further strengthens our cloud capabilities and opens a new route to connect with
customers through Carbonite's marquee SMB and consumer channels and products. The results of operations of Carbonite have
been consolidated with those of OpenText beginning December 24, 2019.
Acquisition of Dynamic Solutions Group Inc. (The Fax Guys)
On December 2, 2019, we acquired certain assets and certain liabilities of The Fax Guys, for $5.1 million, of which $1.0
million is currently held back and unpaid in accordance with the terms of the purchase agreement. The results of operations of
The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019.
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 19
"Acquisitions" to our Consolidated Financial Statements for more details.
39
Outlook for Fiscal 2021
As an organization, we are committed to Total Growth, meaning we strive towards delivering value through organic
initiatives, innovations and acquisitions, as well as financial performance. 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 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 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) push product
innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies
(G10K), SMBs and consumers. The G10K are the world's largest companies, typically those with greater than two billion 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 $1.0 billion in R&D or 11.5% of cumulative
revenue for that three year period. We typically target to spend approximately 11% to 13% of revenues for R&D each fiscal
year.
The cloud has become 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 environment for solutions
spanning Information Management, Compliance, Cyber Resilience and B2B Integration. Supported by a global, scalable, and
secure infrastructure, the OpenText Cloud includes a foundational platform of technology services, and packaged business
applications for industry and business processes. The OpenText Cloud enables organizations to protect and manage information
in public, private or hybrid deployments.
In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19
has significantly impacted the global economy and has adversely impacted and is expected to further adversely impact our
operational and financial performance. The extent of the adverse impact of the pandemic on the global economy and markets
will continue to depend, in part, on the length and severity of the measures taken to limit the spread of the virus and, in part, on
the size and effectiveness of the compensating measures taken by governments and on actual and potential resurgences. We are
closely monitoring the potential effects and impact on our operations, businesses and financial performance, including liquidity
and capital usage, though the extent is difficult to fully predict at this time due to the rapid evolution of this uncertain situation.
We are conducting business with substantial modifications to employee travel and work locations and also virtualization
or cancellations of all sales and marketing events, which we expect to remain in place throughout Fiscal 2021, along with
substantially modified interactions with customers and suppliers, among other modifications. In March 2020, we also drew
down $600 million from the Revolver, defined below, as a preemptive measure in order to increase our cash position and
preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. We
will continue to actively monitor the impact of the COVID-19 pandemic on all aspects of our business and geographies,
including customer purchasing decisions, and may take further actions that alter our business operations as may be required by
governments, or that we determine are in the best interest of our employees, customers, partners, suppliers, and shareholders. It
is uncertain and difficult to predict what the potential effects any such alterations or modifications may have on our business
including the effects on our customers and prospects, or our financial results and our ability to successfully execute our
business strategies and initiatives. As a precaution, we have temporarily and significantly reduced all hiring and discretionary
spending, while taking note of some savings to be achieved through travel restrictions and the cancellation of certain events.
In addition, in order to further mitigate the operational impacts of COVID-19, our Compensation Committee and Board
approved the following measures effective for the period May 15, 2020 through June 30, 2021, subject to review and
modification as the situation warrants. Please also see "Special Fiscal 2020 Performance Bonus" in Part III, Item 11, elsewhere
in this Annual Report on Form 10-K.
•
•
•
15% base salary reduction and forbearance of any annual variable cash compensation effective May 15, 2020 for the
remainder of Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction in targeted cash
compensation, for our CEO & CTO;
15% base salary reduction and 15% reduction in target annual variable cash compensation for our other Named
Executive Officers and members of the executive leadership team (ELT);
10% base salary reduction and 10% reduction in target annual variable cash compensation, as applicable, for Vice-
President- director-, and manager-level employees;
40
•
•
•
5% base salary reduction for all other employees subject to exception for certain of our employees, such as our
employees in Asia who are earning less than the equivalent of $20,000 per year;
15% reduction in cash retainer compensation fees payable to the Board of Directors; and
Suspension of employer paid contributions to retirement benefits in the United States and Canada for the remainder of
Fiscal 2020 and Fiscal 2021.
These cost reduction measures are in addition to other previously disclosed facilities and workforce related actions as part
of our COVID-19 Restructuring Plan. Please see note 18 "Special Charges" to the Consolidated Financial Statements included
in this Annual Report on Form 10-K for more information.
The ongoing and ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on
many factors that are not within our control. For more information, please see Part I, Item 1A "Risk Factors" included
elsewhere within this Annual Report on Form 10-K.
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 the Consolidated Financial Statements included in this Annual Report on Form 10-K.
We will continue to monitor the potential impact of COVID-19 on our financial statements and related disclosures,
including the need for additional estimates going forward, which could include costs related to items such as special charges,
restructurings, asset impairments and other non-recurring costs. As of June 30, 2020, we have recorded certain estimates
resulting from the pandemic, particularly with respect to the COVID-19 Restructuring Plan and allowance for doubtful
accounts, based on management's estimates and assumptions utilizing the most currently available information in our
Consolidated Financial Statements. Such estimates may be subject to change particularly given the unprecedented nature of the
COVID-19 pandemic. Please also see "Risk Factors" included within Part I, Item 1A of this Annual Report on Form 10-K.
Revenue recognition
In accordance with Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with
Customers" (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.
We have four revenue streams: license, cloud services and subscriptions, customer support, and professional service and
other.
41
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 premise (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 does not 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.
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
42
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, a 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 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 customers' ability to derive benefit from their right to use our software, customer
support is considered 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 and training
services. Technical services may include installation, customization, implementation or consulting services. Training
services may include access to online modules or the delivery of 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 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 distinct within the context of the contract.
Professional service revenue is recognized over time as 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 an alternative use and we have the enforceable right to
payment.
If all 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.
43
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 were 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
region 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.
We believe there are significant assumptions, judgments and estimates involved in the accounting for revenue
recognition as 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.
44
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 Information Management 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 quantitative assessment of the impairment test is performed. In the quantitative
assessment, 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, 2020. 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 2020 (no impairments were recorded for Fiscal 2019 and Fiscal 2018).
Acquired intangibles
In accordance with business combinations accounting, we allocate the purchase price of acquired companies to the
tangible and intangible assets acquired and the 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.
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).
We account for our uncertain tax provisions by using a two-step approach. The first step is to evaluate the tax position for
recognition by determining if the weight of the available evidence indicates it is more likely than not, based solely on the
technical merits, that the position will be sustained on audit, including the 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
45
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.
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.
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 15 "Income Taxes" to the Consolidated Financial Statements included in this
Annual Report on Form 10-K.
46
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
Year Ended June 30,
$
$
2020
402,851
1,157,686
1,275,586
273,613
3,109,736
1,003,775
2,105,961
Change
increase
(decrease)
$
(25,241)
249,874
27,671
(11,323)
240,981
73,072
167,909
$
2019
428,092
907,812
1,247,915
284,936
2,868,755
930,703
1,938,052
Change
increase
(decrease)
$
(9,420)
78,844
15,411
(31,321)
53,514
(20,296)
73,810
2018
437,512
828,968
1,232,504
316,257
2,815,241
950,999
1,864,242
Total GAAP-based Gross Margin %
Total GAAP-based Operating Expenses
Total GAAP-based Income from Operations
67.7%
67.6%
66.2%
1,602,432
231,390
1,371,042
$
503,529
$
(63,481)
$
567,010
$
13,493
60,317
1,357,549
$
506,693
% Revenues by Product Type:
License
Cloud services and subscriptions
Customer support
Professional service and other
13.0%
37.2%
41.0%
8.8%
14.9%
31.7%
43.5%
9.9%
15.6%
29.4%
43.8%
11.2%
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
$
$
11,321
449,940
123,894
212,903
205,717
Total cost of revenues
$
1,003,775
$
(3,026)
65,947
(449)
(11,732)
22,332
73,072
$
$
14,347
383,993
124,343
224,635
183,385
$
654
19,833
(9,546)
(28,754)
(2,483)
$
930,703
$
(20,296)
$
13,693
364,160
133,889
253,389
185,868
950,999
% GAAP-based Gross Margin by Product Type:
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)
97.2%
61.1%
90.3%
22.2%
96.6%
57.7%
90.0%
21.2%
96.9%
56.1%
89.1%
19.9%
$
1,903,650
$
220,368
$
1,683,282
$
63,648
$
1,619,634
942,281
263,805
21,859
(1,246)
920,422
265,051
2,655
(12,789)
917,767
277,840
$
3,109,736
$
240,981
$
2,868,755
$
53,514
$
2,815,241
61.2%
30.3%
8.5%
47
58.7%
32.1%
9.2%
57.5%
32.6%
9.9%
(In thousands)
Other Metrics:
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)
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
67.7%
0.86
234,225
74.5%
2.89
1,148,080
$
$
$
$
67.6%
1.06
285,501
74.1%
2.76
1,100,291
$
$
$
$
66.2%
0.91
242,224
73.0%
2.56
1,020,351
$
$
$
$
(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 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. Our license
revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software
products, and our acquisitions. Cost of license revenues consists primarily of royalties payable to third parties.
(In thousands)
License Revenues:
Americas
EMEA
Asia Pacific
Total License Revenues
Cost of License Revenues
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
199,646
$
(16,225)
$
215,871
$
8,216
$
207,655
155,207
47,998
402,851
11,321
(8,415)
(601)
(25,241)
(3,026)
163,622
48,599
428,092
14,347
(7,009)
(10,627)
(9,420)
654
170,631
59,226
437,512
13,693
GAAP-based License Gross Profit
$
391,530
$
(22,215)
$
413,745
$
(10,074)
$
423,819
GAAP-based License Gross Margin %
% License Revenues by Geography:
Americas
EMEA
Asia Pacific
97.2%
49.6%
38.5%
11.9%
96.6%
50.4%
38.2%
11.4%
96.9%
47.5%
39.0%
13.5%
License revenues decreased by $25.2 million or 5.9% during the year ended June 30, 2020 as compared to the prior fiscal
year; down 4.5% after factoring in the impact of $5.9 million of foreign exchange rate changes. Geographically, the overall
change was attributable to a decrease in Americas of $16.2 million, a decrease in EMEA of $8.4 million, and a decrease in Asia
Pacific of $0.6 million.
During Fiscal 2020, we closed 120 license deals greater than $0.5 million, of which 48 deals were greater than $1.0
million, contributing $137.8 million of license revenues. This was compared to 153 license deals greater than $0.5 million
during Fiscal 2019, of which 49 deals were greater than $1.0 million, contributing $171.6 million of license revenues.
Cost of license revenues decreased by $3.0 million during the year ended June 30, 2020 as compared to the prior fiscal
year, primarily as a result of lower third party technology costs. Overall, the gross margin percentage on license revenues
remained stable at approximately 97%.
48
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 does not take possession of the software, as well as from end-to-end fully outsourced 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 PaaS, 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.
(In thousands)
Cloud Services and Subscriptions:
Americas
EMEA
Asia Pacific
Total Cloud Services and Subscriptions Revenues
Cost of Cloud Services and Subscriptions Revenues
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
$
839,443
$
222,667
$
616,776
$
232,856
85,387
1,157,686
449,940
26,629
578
249,874
65,947
206,227
84,809
907,812
383,993
61,553
14,707
2,584
78,844
19,833
59,011
GAAP-based Cloud Services and Subscriptions Gross Profit
$
707,746
$
183,927
$
523,819
$
GAAP-based Cloud Services and Subscriptions Gross Margin %
61.1%
% Cloud Services and Subscriptions Revenues by Geography:
Americas
EMEA
Asia Pacific
72.5%
20.1%
7.4%
57.7%
67.9%
22.7%
9.4%
2018
$
555,223
191,520
82,225
828,968
364,160
$
464,808
56.1%
67.0%
23.1%
9.9%
Cloud services and subscriptions revenues increased by $249.9 million or 27.5% during the year ended June 30, 2020 as
compared to the prior fiscal year; up 28.4% after factoring in the impact of $8.1 million of foreign exchange rate changes.
Geographically, the overall change was attributable to an increase in Americas of $222.7 million, an increase in EMEA of $26.6
million and an increase in Asia Pacific of $0.6 million.
There were 44 Cloud services deals greater than $1.0 million that closed during Fiscal 2020, compared to 46 deals during
Fiscal 2019.
Cost of Cloud services and subscriptions revenues increased by $65.9 million during the year ended June 30, 2020 as
compared to the prior fiscal year. This was due to an increase in labour-related costs of $54.2 million, primarily due to
increased headcount from recent acquisitions, an increase in third party network usage fees of $9.9 million and an increase in
other miscellaneous costs of $1.8 million.
Overall, the gross margin percentage on Cloud services and subscriptions revenues increased to 61% from 58%.
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 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 year ended June 30, 2020,
our Customer support renewal rate was approximately 94%, compared with the Customer support renewal rate of
approximately 91% for the year ended June 30, 2019.
Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as
third party royalty costs.
49
(In thousands)
Customer Support Revenues:
Americas
EMEA
Asia Pacific
Total Customer Support Revenues
Cost of Customer Support Revenues
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
734,578
$
16,369
$
718,209
$
12,924
$
705,285
438,447
102,561
1,275,586
123,894
10,735
567
27,671
(449)
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
GAAP-based Customer Support Gross Profit
$
1,151,692
$
28,120
$
1,123,572
$
24,957
$
1,098,615
GAAP-based Customer Support Gross Margin %
90.3%
% Customer Support Revenues by Geography:
Americas
EMEA
Asia Pacific
57.6%
34.4%
8.0%
90.0%
57.6%
34.3%
8.1%
89.1%
57.2%
34.4%
8.4%
Customer support revenues increased by $27.7 million or 2.2% during the year ended June 30, 2020 as compared to the
prior fiscal year; up 3.7% after factoring in the impact of $18.1 million of foreign exchange rate changes. Geographically, the
overall change was attributable to an increase in Americas of $16.4 million, an increase in EMEA of $10.7 million, and an
increase in Asia Pacific of $0.6 million.
Cost of Customer support revenues decreased by $0.4 million during the year ended June 30, 2020 as compared to the
prior fiscal year, due to a decrease in other miscellaneous expenses. Overall, the gross margin percentage on Customer support
revenues remained stable at approximately 90%.
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
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
129,983
$
(2,443)
$
132,426
$
(19,045)
$
151,471
115,771
27,859
273,613
212,903
(7,090)
(1,790)
(11,323)
(11,732)
122,861
29,649
284,936
224,635
(8,982)
(3,294)
(31,321)
(28,754)
131,843
32,943
316,257
253,389
GAAP-based Professional Service and Other Gross Profit
$
60,710
$
409
$
60,301
$
(2,567)
$
62,868
GAAP-based Professional Service and Other Gross Margin %
22.2%
% Professional Service and Other Revenues by Geography:
Americas
EMEA
Asia Pacific
47.5%
42.3%
10.2%
50
21.2%
46.5%
43.1%
10.4%
19.9%
47.9%
41.7%
10.4%
Professional service and other revenues decreased by $11.3 million or 4.0% during the year ended June 30, 2020 as
compared to the prior fiscal year; down 2.2% after factoring in the impact of $5.0 million of foreign exchange rate changes.
Geographically, the overall change was attributable to a decrease in EMEA of $7.1 million, a decrease in Americas of $2.4
million and a decrease in Asia Pacific of $1.8 million.
Cost of Professional service and other revenues decreased by $11.7 million during the year ended June 30, 2020 as
compared to the prior fiscal year. This was primarily due to a decrease in labour-related costs of $11.7 million, relating to a
reduction in the use of external labour and in travel related expenses.
Overall, the gross margin percentage on Professional service and other revenues increased to 22% from 21%.
Amortization of Acquired Technology-based Intangible Assets
(In thousands)
Amortization of acquired technology-based
intangible assets
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
205,717
$
22,332
$
183,385
$
(2,483) $
185,868
Amortization of acquired technology-based intangible assets increased during the year ended June 30, 2020 by $22.3
million as compared to the prior fiscal year due to an increase of $59.6 million relating to amortization of newly acquired
technology-based intangible assets from recent acquisitions, partially offset by a reduction of $37.3 million relating to
intangible assets from certain previous acquisitions becoming fully amortized.
Operating Expenses
(In thousands)
Research and development
Sales and marketing
General and administrative
Depreciation
Amortization of acquired customer-based intangible assets
Special charges (recoveries)
Total operating expenses
% of Total Revenues:
Research and development
Sales and marketing
General and administrative
Depreciation
Amortization of acquired customer-based intangible assets
Special charges (recoveries)
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
$
370,411
$
48,575
$
321,836
$
(1,073)
$
585,044
237,532
89,458
219,559
100,428
67,009
29,623
(8,258)
29,732
64,709
518,035
207,909
97,716
189,827
35,719
(11,106)
2,682
10,773
5,709
6,508
2018
322,909
529,141
205,227
86,943
184,118
29,211
$
1,602,432
$
231,390
$
1,371,042
$
13,493
$
1,357,549
11.9%
18.8%
7.6%
2.9%
7.1%
3.2%
11.2%
18.1%
7.2%
3.4%
6.6%
1.2%
11.5%
18.8%
7.3%
3.1%
6.5%
1.0%
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 drivers are typically budgeted software upgrades and software development.
51
(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)
2020 and 2019
2019 and 2018
37,612
$
2,305
35
72
8,684
(133)
48,575
$
12,629
(6,791)
(385)
(588)
(4,775)
(1,163)
(1,073)
$
$
Research and development expenses increased by $48.6 million during the year ended June 30, 2020 as compared to the
prior fiscal year, partially as a result of recent acquisitions. Payroll and payroll-related benefits increased $37.6 million, facility
related expenses increased by $8.7 million and contract labour and consulting expense increased by $2.3 million. Overall, our
research and development expenses, as a percentage of total revenues, increased to 12% from 11% in the prior fiscal year.
Our research and development labour resources increased by 405 employees, from 3,667 employees at June 30, 2019 to
4,072 employees at June 30, 2020.
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)
2020 and 2019
2019 and 2018
40,637
$
4,306
773
856
(2,541)
15,926
7,228
(2,000)
1,824
67,009
$
(48)
(6,588)
(871)
(752)
(1,113)
(5,742)
808
3,519
(319)
(11,106)
$
$
Sales and marketing expenses increased by $67.0 million during the year ended June 30, 2020 as compared to the prior
fiscal year. Payroll and payroll-related benefits increased by $40.6 million, marketing expenses increased by $15.9 million, and
facility related expenses increased by $7.2 million, all primarily as result of recent acquisitions. Additionally, commission
expense increased by $4.3 million and other miscellaneous expenses increased by $1.8 million. These were partially offset by a
reduction in travel and communication of $2.5 million, which was primarily due to the travel limitations triggered by the
COVID-19 pandemic, and a reduction in bad debt expense of $2.0 million. Overall, our sales and marketing expenses, as a
percentage of total revenues, increased to 19% from 18% in the prior fiscal year.
Our sales and marketing labour resources increased by 406 employees, from 2,051 employees at June 30, 2019 to 2,457
employees at June 30, 2020.
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)
2020 and 2019
2019 and 2018
20,264
$
232
1,766
(480)
4,127
3,714
29,623
$
4,089
(618)
768
794
(4,537)
2,186
2,682
$
$
52
General and administrative expenses increased by $29.6 million during the year ended June 30, 2020 as compared to the
prior fiscal year. Payroll and payroll-related benefits increased by $20.3 million and facilities related costs increased by $4.1
million, primarily as a result of recent acquisitions. Additionally, share-based compensation increased by $1.8 million and other
miscellaneous expenses increased by $3.7 million, primarily due to higher professional fees such as legal, audit and tax related
expenses from our recent acquisitions. Overall, general and administrative expenses, as a percentage of total revenues,
increased to 8% from 7% in the prior fiscal year.
Our general and administrative labour resources increased by 294 employees, from 1,620 employees at June 30, 2019 to
1,914 employees at June 30, 2020.
Depreciation expenses:
(In thousands)
Depreciation
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
89,458
$
(8,258) $
97,716
$
10,773
$
86,943
Depreciation expenses decreased during the year ended June 30, 2020 by $8.3 million, as compared to the prior fiscal
year. Depreciation expenses, as a percentage of total revenue, remained at approximately 3% for each such period.
Amortization of acquired customer-based intangible assets:
(In thousands)
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
Amortization of acquired customer-based intangible assets
$
219,559
$
29,732
$
189,827
$
5,709
$
184,118
Amortization of acquired customer-based intangible assets increased during the year ended June 30, 2020 by $29.7
million as compared to the prior fiscal year due to an increase of $63.9 million relating to amortization of newly acquired
customer-based intangible assets from recent acquisitions, partially offset by a reduction of $34.2 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, 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,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
100,428
$
64,709
$
35,719
$
6,508
$
29,211
Special charges increased by $64.7 million during the year ended June 30, 2020 as compared to the prior fiscal year. This
was primarily due to (i) an increase of $52.6 million in restructuring activities, inclusive of $36.9 million from the accelerated
amortization associated with the abandonment of certain right-of-use assets and $9.7 million from the disposal of fixed assets,
(ii) an increase of $8.1 million in acquisition related costs, (iii) an increase of $1.5 million relating to the impact of certain pre-
acquisition sales and use tax liabilities becoming statute barred during Fiscal 2019 and (iv) an increase of $2.5 million relating
to other miscellaneous charges.
For more details on Special charges (recoveries), see note 18 "Special Charges (Recoveries)" to our Consolidated Financial
Statements.
53
Other Income (Expense), Net
The components of other income (expense), net were as follows:
(In thousands)
Foreign exchange gains (losses)
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
(4,184) $
146
$
(4,330) $
(9,175) $
OpenText share in net income (loss) of equity investees
(note 9)
8,700
(4,968)
13,668
Income from long-term other receivable
Gain on shares held in Guidance (1)
Gain from contractual settlement (2)
Loss debt extinguishment (3)
Other miscellaneous income (expense)
—
—
—
—
—
—
(17,854)
1,392
(17,854)
574
—
—
—
—
818
7,703
(1,327)
(841)
(5,000)
—
823
4,845
5,965
1,327
841
5,000
—
(5)
Total other income (expense), net
$
(11,946) $
(22,102) $
10,156
$
(7,817) $
17,973
(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 fiscal 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.
(3) On March 5, 2020 we redeemed Senior Notes 2023 (defined below) in full, which resulted in a loss on extinguishment of
debt of $17.9 million. Of this, $6.7 million is related to unamortized debt issuance costs and the remaining $11.2 million is
related to the early termination call premium. See note 11 "Long-Term Debt" to our Consolidated Financial Statements.
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
Total interest and other related expense, net
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
$
$
149,204
$
11,717
$
137,487
$
5,106
$
132,381
(11,768)
8,942
(3,754)
1,823
(8,014)
7,119
(6,342)
(712)
(1,672)
7,831
146,378
$
9,786
$
136,592
$
(1,948) $
138,540
(1) For more details see note 11 "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.
(In thousands)
Year Ended June 30,
2020
Change
increase
(decrease)
2019
Change
increase
(decrease)
2018
Provision for (recovery of) income taxes
$
110,837
$
(44,100) $
154,937
$
11,111
$
143,826
The effective tax rate decreased to a provision of 32.1% for the year ended June 30, 2020, compared to a provision of
35.2% for the year ended June 30, 2019. The decrease in tax expense of $44.1 million was primarily due to (i) a decrease of
$23.7 million relating to lower net income including the impact of foreign rates, (ii) a decrease of $51.3 million for changes in
unrecognized tax benefits, (iii) a decrease of $7.0 million from tax rate differential in tax years applicable to United States loss
carryforwards that became eligible for carryback under the Coronavirus Aid, Relief, and Economic Security (CARES) Act
enacted in the third quarter of Fiscal 2020, and (iv) a decrease of $16.0 million related to tax costs of internal reorganizations
that did not recur in Fiscal 2020. These were partially offset by (i) an increase of $25.2 million related to the US Base Erosion
Anti-avoidance Tax (US BEAT), (ii) an increase in accruals for repatriations from foreign subsidiaries of $17.3 million, (iii) an
54
increase in the effect of withholding taxes of $5.9 million, and (iv) an increase in the change in the valuation allowance of $4.8
million. The remainder of the difference was due to normal course movements and non-material items.
For information with regards to certain potential tax contingencies, see note 14 "Guarantees and Contingencies" to our
Consolidated Financial Statements. Please also see Part I, Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-
K.
55
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
is 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, excluding the effects of 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.
56
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures
for the year ended June 30, 2020
(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, 2020
GAAP-
based
Measures
% of Total
Revenue
GAAP-based
Measures
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
Adjustments Note
$
449,940
$
123,894
212,903
205,717
(1,642)
(1,207)
(1,294)
(205,717)
(1)
(1)
(1)
(2)
$
448,298
122,687
211,609
—
2,105,961
67.7%
209,860
(3)
2,315,821
74.5%
370,411
585,044
237,532
219,559
100,428
503,529
(11,946)
110,837
234,225
0.86
(5,309)
(9,335)
(10,745)
(219,559)
(100,428)
555,236
11,946
16,897
(1)
(1)
(1)
(2)
(4)
(5)
(6)
(7)
365,102
575,709
226,787
—
—
1,058,765
—
127,734
550,285
(8)
784,510
2.03
(8)
2.89
(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 18 "Special Charges (Recoveries)" to our
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 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 32% 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.
57
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2020
Per share diluted
GAAP-based net income, attributable to OpenText
$
234,225 $
425,276
29,532
100,428
11,946
110,837
(127,734)
784,510 $
Year Ended June 30, 2020
0.86
1.56
0.11
0.37
0.04
0.41
(0.46)
2.89
234,225
110,837
146,378
205,717
219,559
89,458
29,532
100,428
11,946
1,148,080
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
$
$
$
58
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
GAAP-based
Measures
% of Total
Revenue
Adjustments Note
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
$
383,993
$
(948)
(1)
$
383,045
124,343
224,635
183,385
(1,242)
(1)
(1,764)
(1)
(183,385)
(2)
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)
(1)
(7,880)
(1)
(9,945)
(1)
(189,827)
(2)
(35,719)
(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 18 "Special Charges (Recoveries)" to our
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 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.
59
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2019
Per share diluted
GAAP-based net income, attributable to OpenText
$
285,501 $
373,212
26,770
35,719
(10,156)
154,937
(121,257)
744,726 $
Year Ended June 30, 2019
1.06
1.38
0.10
0.13
(0.04)
0.57
(0.44)
2.76
285,501
154,937
136,592
183,385
189,827
97,716
26,770
35,719
(10,156)
1,100,291
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
$
$
$
60
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 18 "Special Charges (Recoveries)" to our
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 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 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.
61
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2018
Per share diluted
GAAP-based net income, attributable to OpenText
$
242,224 $
369,986
27,594
29,211
(17,973)
143,826
(111,292)
683,576 $
Year Ended June 30, 2018
0.91
1.38
0.10
0.11
(0.07)
0.54
(0.41)
2.56
242,224
143,826
138,540
185,868
184,118
86,943
27,594
29,211
(17,973)
1,020,351
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
$
$
$
62
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 (1)
Total cash, cash equivalents and restricted cash $ 1,697,263
4,413
As of June 30,
2020
$ 1,692,850
Change
increase
(decrease)
751,841
1,879
As of June 30,
2019
941,009
$
2,534
753,720
$
943,543
$
$
Change
increase
(decrease)
258,067
1,485
As of June 30,
2018
682,942
$
1,049
259,552
$
683,991
$
$
(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the
Consolidated Balance Sheets.
Year Ended June 30,
(In thousands)
Cash provided by operating activities
Cash used in investing activities
Change
2020
954,536
$
$
$
$ (1,469,417) $ (1,004,891) $
$
$ 1,417,153
78,258
2019
876,278
$
(464,526) $
(148,374) $
Change
168,197
$
(20,085) $
(124,701) $
2018
708,081
(444,441)
(23,673)
Cash (used in) provided by financing activities $ 1,268,779
Cash and cash equivalents
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. Proceeds from our $600 million draw down on the Revolver (defined below), (for
which notice to the lenders was provided on March 5, 2020) have resulted in total cash and cash equivalents of $1.7 billion as
of June 30, 2020.
As of June 30, 2020, we recognized a provision of $24.8 million (June 30, 2019—$17.4 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 fourth quarter of Fiscal 2020, we deferred approximately $41 million in payments, primarily as a result of the
CARES Act that was enacted in the U.S. in the third quarter of Fiscal 2020 and other COVID-19 related tax relief programs in
EMEA. These deferrals will become payable primarily in Fiscal 2021 with a portion becoming payable in Fiscal 2022.
Cash flows provided by operating activities
Cash flows from operating activities increased by $78.3 million due to an increase in net income before the impact of
non-cash items of $60.7 million and an increase in changes from working capital of $17.6 million. The increase in operating
cash flow from changes in working capital was primarily due to the net impact of the following increases:
(i) $52.3 million relating to an increase in accounts payable and accrued liabilities;
(ii) $27.1 million relating to deferred revenues;
(iii) $9.0 million relating to accounts receivable; and
(iv) $1.1 million relating to changes in other assets.
These increases in operating cash flows were partially offset by the following decreases:
(i) $62.4 million relating to changes in income taxes payable, net of receivables,
(ii) $6.1 million relating to a increase in prepaid expenses and other current assets,
(iii) $2.7 million relating to an increase in contract assets, and
(iv) $0.9 million relating to changes in net operating lease assets and liabilities.
63
During the fourth quarter of Fiscal 2020 our days sales outstanding (DSO) was 51 days, compared to a DSO of 56 days
during the fourth quarter of Fiscal 2019. The per day impact of our DSO in the fourth quarter of Fiscal 2020 and Fiscal 2019 on
our cash flows was $9.2 million and $8.3 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 $1.0 billion, primarily due to an increase in consideration paid for
acquisitions during Fiscal 2020, as compared to Fiscal 2019. During Fiscal 2020 we acquired Carbonite for $1.4 billion,
inclusive of cash acquired, and XMedius for $73.3 million.
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 repurchases of our Common Shares.
Cash flows provided by financing activities increased by $1.4 billion. This was primarily due to proceeds from the
issuance of Senior Notes 2028 and Seniors Notes 2030 (both defined below) of $1.8 billion. A portion of these proceeds were
used to redeem $800 million of our Senior Notes 2023 (defined below) and repay $750 million that was drawn on the Revolver
in the second quarter of Fiscal 2020. Additionally, in February 2020, all Notes due 2022, inherited through our acquisition of
Carbonite, were surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal amount, for an aggregate
repayment of $153.6 million, and in March 2020, we drew $600 million from the Revolver as a preemptive measure in light of
current uncertainty in the global markets.
Cash Dividends
During the year ended June 30, 2020, we declared and paid cash dividends of $0.6984 per Common Share in the
aggregated amount of $188.7 million (year ended June 30, 2019 and 2018—$0.6300 and $0.5478 per Common Share,
respectively, in the aggregate amount of $168.9 million and $145.6 million, respectively).
Future declarations of dividends and the establishment of future record and payment dates are subject to final
determination and discretion of the Board. See Item 5 "Dividend Policy" in this Annual Report on Form 10-K for more
information.
Long-term Debt and Credit Facilities
Senior Unsecured Fixed Rate Notes
Senior Notes 2030
On February 18, 2020 Open Text Holdings, Inc. (OTHI), a wholly-owned indirect subsidiary of the Company, issued
$900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by us (Senior Notes 2030) 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
2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing
on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their
terms, or repurchased.
We may redeem all or a portion of the Senior Notes 2030 at any time prior to February 15, 2025 at a redemption price
equal to 100% of the principal amount of the Senior Notes 2030 plus an applicable premium, plus accrued and unpaid interest,
if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2030, on
one or more occasions, prior to February 15, 2025, using the net proceeds from certain qualified equity offerings at a
redemption price of 104.125% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject
to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2030, in whole or in part, at
any time on and after February 15, 2025 at the applicable redemption prices set forth in the indenture governing the Senior
Notes 2030, dated as of February 18, 2020, among OTHI, 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 2030 Indenture), plus accrued
and unpaid interest, if any, to the redemption date.
64
If we experience one of the kinds of change of control triggering events specified in the 2030 Indenture, we will be
required to make an offer to repurchase the Senior Notes 2030 at a price equal to 101% of the principal amount of the Senior
Notes 2030, plus accrued and unpaid interest, if any, to the date of purchase.
The 2030 Indenture contains covenants that limit the Company, OTHI and certain of the Company's 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, OTHI or certain of the Company's subsidiaries without such subsidiary
becoming a subsidiary guarantor of Senior Notes 2030; 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 2030 Indenture. The 2030 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 Senior Notes 2030 to be due and payable immediately.
Senior Notes 2030 are guaranteed on a senior unsecured basis by the Company and the Company's existing and future
wholly-owned subsidiaries (other than OTHI) that borrow or guarantee the obligations under our existing senior credit
facilities. Senior Notes 2030 and the guarantees rank equally in right of payment with all of the Company, OTHI and the
guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the Company,
OTHI and the guarantors’ future subordinated debt. Senior Notes 2030 and the guarantees will be effectively subordinated to all
of the Company, OTHI and the 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 2030 Indenture does not purport to be complete and is qualified in its entirety by
reference to the full text of the 2030 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed
with the SEC on February 18, 2020.
Senior Notes 2028
On February 18, 2020 we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior
Notes 2028) 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 2028 bear interest at a
rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.
Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.
We may redeem all or a portion of the Senior Notes 2028 at any time prior to February 15, 2023 at a redemption price
equal to 100% of the principal amount of the Senior Notes 2028 plus an applicable premium, plus accrued and unpaid interest,
if any, to the redemption date. We may also redeem up to 40% of the aggregate principal amount of the Senior Notes 2028, on
one or more occasions, prior to February 15, 2023, using the net proceeds from certain qualified equity offerings at a
redemption price of 103.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject
to compliance with certain conditions. We may, on one or more occasions, redeem the Senior Notes 2028, in whole or in part, at
any time on and after February 15, 2023 at the applicable redemption prices set forth in the indenture governing the Senior
Notes 2028, dated as of February 18, 2020, 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 2028 Indenture), plus accrued and
unpaid interest, if any, to the redemption date.
If we experience one of the kinds of change of control triggering events specified in the 2028 Indenture, we will be
required to make an offer to repurchase the Senior Notes 2028 at a price equal to 101% of the principal amount of the Senior
Notes 2028, plus accrued and unpaid interest, if any, to the date of purchase.
The 2028 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 Senior Notes 2028;
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 2028 Indenture. The 2028 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 Senior Notes 2028 to be due and payable immediately.
Senior Notes 2028 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 2028 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 2028 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.
65
The foregoing description of the 2028 Indenture does not purport to be complete and is qualified in its entirety by
reference to the full text of the 2028 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed
with the SEC on February 18, 2020.
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.
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 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 bore 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 were to mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.
On March 5, 2020, we redeemed Senior Notes 2023 in full at a price equal to 101.406% of the principal amount plus
accrued and unpaid interest up to but excluding the redemption date. A portion of the net proceeds from the offerings of Senior
Notes 2028 and Senior Notes 2030 was used to redeem Senior Notes 2023. Upon redemption, Senior Notes 2023 were
cancelled and any obligation thereunder was extinguished. The resulting loss of $17.9 million has been recorded as a
component of Other income (expense), net in our Consolidated Statements of Income. See note 23 "Other Income (Expense),
Net" to our Consolidated Financial Statements.
66
Notes due 2022
Following our acquisition of Carbonite, our consolidated debt reflected $143.8 million of principal debt convertible notes
(Notes due 2022). Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an unregistered offering to
qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes due 2022 were issued under an
Indenture (the 2022 Notes Indenture) between Carbonite and U.S. Bank National Association, as trustee (the 2022 Notes
Trustee). The Notes due 2022 accrued interest at 2.5% per year, which was payable semiannually in arrears on April 1 and
October 1 of each year. The Notes due 2022 were to mature on April 1, 2022, unless earlier repurchased, redeemed or
converted. Carbonite, now a subsidiary of OpenText, was the sole obligor on the Notes due 2022.
In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022
Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental
Indenture). The 2022 Notes Supplemental Indenture provided that, at and after the effective time of our acquisition of
Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such
principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022
Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00, which was
the price per share we paid in connection with our acquisition of Carbonite.
As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by
7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of
Notes due 2022. The increased Conversion Rate was in effect until the close of business on February 27, 2020. As of February
27, 2020, all Notes due 2022 had been surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal
amount. As of such date, there are no remaining Notes due 2022 outstanding.
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
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, 2020, the outstanding balance on the Term Loan B bears an interest rate of 1.92%. For more information
regarding the impact of LIBOR, see "-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" included within Part I, Item 1A of this Annual Report on Form 10-K.
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, 2020, our consolidated
net leverage ratio was 2.0:1.
Revolver
On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total
commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to
October 31, 2024. 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
67
ratio ranging from 1.25% to 1.75%. As of June 30, 2020, the outstanding balance on the Revolver bears an interest rate of
1.94%. For more information regarding the impact of LIBOR, see "-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" included within Part I, Item 1A of this
Annual Report on Form 10-K.
During the second quarter of Fiscal 2020, we drew down $750 million from the Revolver to partially fund the acquisition
of Carbonite. In February 2020, we repaid $750 million drawn under the Revolver with a portion of the proceeds from the
Senior Notes 2030 and Senior Notes 2028. In March 2020, we drew down $600 million from the Revolver as a preemptive
measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global
markets resulting from the COVID-19 pandemic. The proceeds from the $600 million draw down are presented within cash and
cash equivalents and within the current portion of long-term debt in our Consolidated Balance Sheet as of June 30, 2020.
Under the Revolver, 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, 2020, our consolidated
net leverage ratio was 2.0:1.
As of June 30, 2020, we have $600 million outstanding balance on the Revolver (June 30, 2019—nil) and $150 million
remains available to be drawn.
As of June 30, 2019, we had no outstanding balance on the Revolver. There was no activity during the year ended
June 30, 2019.
For further details relating to our debt, please see note 11 "Long-Term Debt" to our Consolidated Financial Statements.
Shelf Registration Statement
On November 29, 2019, 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 November 29, 2019. 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, 2020, our total unfunded pension plan obligations were $75.8 million, of which $2.7 million is payable
within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations
in the normal course of operations.
Our anticipated payments under our most significant plans, Open Text Document Technologies GmbH (CDT), GXS
GmbH (GXS GER), GXS Philippines, Inc. (GXS PHP), for the fiscal years indicated below are as follows:
2021
2022
2023
2024
2025
2026 to 2030
Total
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
777
839
934
1,037
1,082
6,209
10,878
$
$
943
971
971
978
1,006
4,934
9,803
$
$
115
403
213
282
339
2,907
4,259
For a detailed discussion on pensions, see note 12 "Pension Plans and Other Post Retirement Benefits" to our
Consolidated Financial Statements.
68
Commitments and Contractual Obligations
As of June 30, 2020, we have entered 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 for
contracts not accounted for as
lease obligations
Payments due between
Total
4,668,943
308,609
July 1, 2020 - June
30, 2021
July 1, 2021 - June
30, 2023
July 1, 2023 - June
30, 2025
July 1, 2025
and beyond
$
150,929
$
301,274
$
1,226,553
$
2,990,187
71,577
105,177
59,198
72,657
108,572
47,489
61,083
—
—
$
5,086,124
$
269,995
$
467,534
$
1,285,751
$
3,062,844
(1) Includes interest up to maturity and principal payments. Excludes $600 million currently drawn on the Revolver, which we
expect to repay within one year. Please see note 11 "Long-Term Debt" to our Consolidated Financial Statements for more
details.
(2) Represents the undiscounted future minimum lease payments under our operating leases liabilities and excludes sublease
income expected to be received under our various sublease agreements with third parties. Please see note 6 "Leases" to our
Consolidated Financial Statements for more details.
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 accrued liabilities 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. As
more fully described below, we are unable at this time to estimate a possible loss or range of losses in respect of certain
disclosed matters.
69
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 pursuing various
alternatives available to taxpayers to contest the proposed adjustments, including currently through IRS Appeals and potentially
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 14 "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, Fiscal 2014 and Fiscal 2015. Assuming the utilization of available tax attributes
(further described below), we estimate our potential aggregate liability, as of June 30, 2020, in connection with the CRA's
reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 to be limited to penalties and interest that may be due
of approximately $44 million.
The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 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, Fiscal 2014 and
Fiscal 2015 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013 and
Fiscal 2014, and we will be filing a notice of objection for Fiscal 2015 shortly. We are currently seeking competent authority
consideration under applicable international treaties in respect of these reassessments.
70
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012,
Fiscal 2013, Fiscal 2014 and Fiscal 2015, 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 2016 and Fiscal 2017. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
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 $1.2 million to cover our
anticipated financial exposure in this matter.
Carbonite Class Action Complaint
On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action
complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer,
Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually
and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-
LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made
materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other
things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses,
including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical
complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v.
Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the
“Securities Actions”). On November 21, 2019, the court consolidated the Securities Actions, appointed a lead plaintiff, and
designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the
same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the
Securities Actions on March 10, 2020. The motion was fully briefed in June 2020 and awaits the court's decision. In light of,
among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to
reasonably estimate the amount or range of loss, if any, that could result from this proceeding.
Carbonite vs Realtime Data
On February 27, 2017, prior to our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC
(“Realtime Data”) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas "Realtime Data
LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)", alleging that certain of Carbonite’s cloud storage services infringe
upon certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified
amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the
case to the U.S District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous
other patent suits on the asserted patents against other companies around the country. In one of those suits, filed in the U.S.
District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid
three of the four patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District
Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware
lawsuit. As to the fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019
invalidated certain claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending
Carbonite vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-
practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered
by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss
associated with this litigation.
71
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.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans
and foreign currency exchange rates.
Interest rate risk
Our exposure to interest rate fluctuations relate primarily to our Term Loan B and the Revolver.
As of June 30, 2020, we had an outstanding balance of $977.5 million on Term Loan B. Term Loan B bears a floating
interest rate of 1.75% plus LIBOR. As of June 30, 2020, 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 $9.8 million, assuming that the loan balance
as of June 30, 2020 is outstanding for the entire period (June 30, 2019—$9.9 million).
As of June 30, 2020, we had an outstanding balance of $600.0 million on the Revolver. Borrowings under the Revolver
bear interest per annum at a floating rate of LIBOR plus a fixed rate that is dependent on our consolidated net leverage ratio
ranging from 1.25% to 1.75%. As of June 30, 2020, an adverse change of one percent on the interest rate would have the effect
of increasing our annual interest payment on the Revolver by approximately $6.0 million, assuming that the full balance as of
June 30, 2020 is outstanding for the entire period (June 30, 2019—nil).
For more information regarding the impact of LIBOR, see "-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" included within Part I, Item 1A of this Annual
Report on Form 10-K.
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 and are
transacted in non-functional currency. We expect that we will continue to realize gains or losses with respect to our foreign
currency exposures. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the
size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and
changes in those rates. Additionally, we have hedged certain of our Canadian dollar foreign currency exposures relating to our
payroll expenses in Canada.
Based on the foreign exchange forward contracts outstanding as of June 30, 2020, a one cent change in the Canadian
dollar to U.S. dollar exchange rate would have caused a change of $0.6 million in the mark to market on our existing foreign
exchange forward contracts (June 30, 2019—$0.6 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 (AOCI) on our
Consolidated Balance Sheets).
The following table shows our cash and cash equivalents denominated in certain major foreign currencies as of June 30,
2020 (equivalent in U.S. dollar):
72
(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, 2020
U.S. Dollar
Equivalent at
June 30, 2019
$
229,579
$
64,865
20,311
43,365
93,292
451,412
1,241,438
$
1,692,850
$
120,417
33,703
12,635
56,776
105,273
328,804
612,205
941,009
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 $45.1 million (June 30, 2019—$32.9
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.
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, 2020, 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, 2020, 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 Carbonite, Inc. (Carbonite), which we acquired on December 24, 2019 as
discussed in note 19 "Acquisitions" to the Consolidated Financial Statements included elsewhere in this Annual Report on
73
Form 10-K. Total revenues subject to Carbonite's ICFR represented 7.6% of our consolidated total revenues for the fiscal year
ended June 30, 2020. Total assets subject to Carbonite's ICFR represented 17.2% of our consolidated total assets as of June 30,
2020 (of which $1.6 billion, or 15.6% of our consolidated total assets, represents goodwill and net intangible assets subject to
our internal control over financial reporting as of June 30, 2020).
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, 2020.
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, 2020 has been audited by KPMG LLP, our independent registered public accounting firm, as stated
in their report which is included in Part IV, Item 15 of this Annual Report.
Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure
controls or our ICFR will prevent or detect all error or all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have
been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error. Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Any evaluation of prospective control effectiveness, with respect
to future periods, is subject to risks. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.
(C) Attestation Report of the Independent Registered Public Accounting Firm
KPMG LLP, our independent registered public accounting firm, has issued a report under Public Company Accounting
Oversight Board Auditing Standard No. 5 on the effectiveness of our ICFR. See Part IV, Item 15 of this Annual Report on Form
10-K.
(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, 2020 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
As a result of COVID-19, our employees have shifted to a work from home model beginning in March 2020. While pre-
existing controls were not specifically designed to operate in our current work from home environment, we believe that
established internal controls over financial reporting continue to address all identified risk areas.
Item 9B.
Other Information
None.
74
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 31, 2020.
Name
Age Office and Position Currently Held With Company
Mark J. Barrenechea
Madhu Ranganathan
Savinay Berry
Lou Blatt
Gordon A. Davies
Prentiss Donohue
Paul Duggan
Simon Harrison
David Jamieson
Muhi Majzoub
James McGourlay
Douglas M. Parker
Howard Rosen
Craig Stilwell
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)
55 Vice Chair, Chief Executive Officer and Chief Technology Officer, Director
56
44
58
58
50
45
50
55
60
51
49
56
49
56
60
Executive Vice President, Chief Financial Officer
Senior Vice President, Cloud Service Delivery
Senior Vice President, Chief Marketing Officer
Executive Vice President, Chief Legal Officer and Corporate Development
Senior Vice President, Partners & Alliances
Senior Vice President, Revenue Operations
Executive Vice President, Worldwide Sales
Senior Vice President, Chief Information Officer
Executive Vice President, Chief Product Officer
Executive Vice President, Customer Operations
Senior Vice President, Corporate Development
Senior Vice President, Chief Accounting Officer
Executive Vice President and General Manager SMB and Consumer
Senior Vice President, Chief Human Resources Officer
Chairman of the Board
60 Director
63 Director
70 Director
69 Director
57 Director
59 Director
58 Director
62 Director
60 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
75
geographic regions. Mr. Barrenechea also served as a director of SGI from 2006 to 2012. Prior to SGI, Mr. Barrenechea served
as Executive Vice President and CTO for CA, Inc. (CA), (formerly Computer Associates International, Inc.) from 2003 to 2006
and was a member of the executive management team. Before going to CA, Mr. Barrenechea was the Senior Vice President of
Applications Development at Oracle Corporation from 1997 to 2003, managing a multi-thousand person global team while
serving as a member of the executive management team. From 1994 to 1997, Mr. 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. He
has been the recipient of many awards, including the 2011 Best Large Company CEO from the San Francisco Business Times
and 2015 Results-Oriented CEO of the year by CEO World Awards. 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. He has also written a number of whitepapers, such as The Resilient Organization:
COVID-19 and New Ways to Work, The Cloud: Destination for Innovation and Security: Creating Trust in a Zero Trust World.
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.
Lou Blatt
Mr. Blatt has served as OpenText's Senior Vice President and Chief Marketing Officer since April 2020. Prior to joining
OpenText, Mr. Blatt served as the Senior Vice President, Strategy and Operations at Genesys from June 2015 to July 2019.
While at Genesys, Mr. Blatt led strategic efforts, including the company’s transition to the cloud. From April 2011 to June 2015
Mr. Blatt served as Senior Vice President at Pega (PEGA) leading its transformation from a business process management
company to a customer relationship management company. Mr. Blatt was also the Chief Product Officer at ACI Worldwide
(ACIW) from March 2008 to March 2011 where he was responsible for defining and communicating the company's product
vision, strategy and the development life cycle. Mr. Blatt holds a Ph.D. and MA from Boston University and graduated from the
Advanced Management Program at Harvard Business School. Mr. Blatt currently serves as Advisory Board Member for Earth
PBC, a software company focused on sustainability and fair labor practices in some of the most remote parts of the world.
Gordon A. Davies
Mr. Davies joined OpenText as Chief Legal Officer in September 2009. Mr. Davies also has responsibility for Corporate
Development, the Office of the Chief Compliance Officer 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
76
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.
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 Harrison
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.
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
77
and held progressive positions in information technology, technical support, product support and special projects, including,
Director, Customer Service and Vice President, Customer Service.
Douglas M. Parker
Mr. Parker has served as the Company's Senior Vice President, Corporate Development since October 2019. From
January 2018 to October 2019, Mr. Parker served as President & Chief Executive Officer of Quarterhill Inc., focused on the
acquisition, management and growth of companies in dedicated technology areas. Mr. Parker previously served as Senior Vice
President, Corporate Development of OpenText from 2015 to 2017. Prior to this role, Mr. Parker held the position of Vice
President, General Counsel & Assistant Secretary from 2009 to 2015, where he was responsible for a variety of corporate legal,
litigation management, and governance activities. Mr. Parker also served as Executive Sponsor to OpenText Brazil operations
in 2014. Prior to joining OpenText, Mr. Parker worked for Nortel Networks Corporation in a variety of senior legal roles,
including Managing Attorney, where he was responsible for the company’s global M&A legal function from 2006 to 2009. Mr.
Parker holds an Executive Masters of Business Administration from the Richard Ivey School of Business, The University of
Western Ontario, a Bachelor of Laws degree from Queen’s University, and a Bachelor of Arts (Honors) degree from Trinity
College, The University of Toronto.
Howard Rosen
Mr. Rosen joined OpenText as Senior Vice President and Chief Accounting Officer in April 2020. Prior to joining
OpenText, Mr. Rosen served as Vice President, Global Controller and Principal Accounting Officer at Wesco Aircraft from
September 2018 to March 2020. Mr. Rosen also served as Vice President and Corporate Controller at Safe-Guard Products
International from June 2017 to September 2018, as Senior Vice President and Chief Accounting Officer at RioCan from 2011
to 2016, as Chief Accounting Officer, Global Controller at Husky Injection Moldings Systems from 2010 to 2011 and as Senior
Vice President and Chief Accounting Officer at MDS Inc. from 2007 to 2010. Mr. Rosen is a CPA and holds a BSBA,
Accounting from Georgetown University.
Craig Stilwell
Mr. Stilwell joined OpenText as the Executive Vice President and General Manager, SMB and Consumer in December
2019 through the acquisition of Carbonite. Prior to joining OpenText, Mr. Stilwell was the Chief Revenue Officer of Carbonite
from July 2019 to December 2019, where he was responsible for leading the company’s go-to-market efforts, including global
sales and marketing. From February 2000 to July 2019 Mr. Stilwell held various leadership roles at Citrix Systems, including
Senior Vice President of Partner Sales, Vice President of US Commercial Sales and Regional COO of the Americas. Mr.
Stilwell holds a BSBA with honors in Finance from the University of Florida and serves on the Board of Trustees for his local
Leukemia and Lymphoma Society chapter.
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 2018, 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 1993 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. Mr. Jenkins has also served as a board member of Manulife
Financial Corporation, Thomson Reuters Inc. and TransAlta Corporation. He was also past Chair of the Ontario Global 100
(OG100) and past Canadian Co-Chair of the Atlantik Bruecke. 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.
78
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 Dye & Durham Corporation, which became a public company in July 2020, as well as InvestorCom Inc. and
Sapphire Digital Health Solutions Inc., both privately held companies. 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
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, Antoxa Corp.
and the Canadian Forces College Foundation. He 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.
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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 company that provides enterprise software
solutions focusing on remote work, contact centers, visual computing and communications for next generation software defined
networks. 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 has a Business and Security Valuation certificate from the Canadian
Association of Business Valuators, holds a B.A. Sc. (Honours) in Industrial Engineering and an M.B.A. (Dean's List) from York
University. He is also 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.
Michael Slaunwhite
Mr. Slaunwhite has served as a director of OpenText since March 1998. Mr. Slaunwhite also currently serves on the board
of Vector Talent Holdings, L.P., the parent holding company of Saba Software, since 2017. Previously, Mr. Slaunwhite also
served as Chairman of the board of Saba Software. 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
CIBC Bancorp USA Inc. and CIBC USA, and serves on the board of Capital Power Corporation (Audit Committee Chair).
CIBC and Capital Power Corporation are 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 CAE 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
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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 has been recognized by Martindale- Hubbell
(U.S.) with the highest possible rating in both Legal Ability and Ethical Standards. As well LaBarge Weinstein has been
recognized by Canadian Lawyer as one of the Top 10 Corporate Boutiques. 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. The parties to these class action claims
reached settlement agreements which, assuming approval by the respective courts, will resolve and discharge, based on the
terms of the settlements, all such class claims against Valeant and the other defendants in the actions without any admissions of
liability and with all allegations of wrongdoing denied.
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.
Mr. Stilwell served as the Chief Revenue Officer of Carbonite from July 2019 to December 2019. During his tenure,
Carbonite was, and continues to be, the subject of certain putative securities class action claims in the United States. See note
14 “Guarantees and Contingencies - Carbonite Class Action Complaint” for more details.
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.
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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.
In reference to the new disclosure requirements under the CBCA, the Company has not adopted a written policy that
specifically relates to the identification and nomination of women, aboriginal peoples in Canada, persons with disabilities and
members of visible minorities (the “Designated Groups”) for election as directors. As discussed above, the Board Diversity Policy
of the Company includes consideration of broader categories of diversity beyond those of the Designated Groups but which
encompass the Designated Groups and which the Board of Directors considers to be better aligned to achieve the range of
perspectives, experience and expertise required by the Company. As of the date of this Annual Report on Form 10-K, for each of
the four Designated Groups, the Company has not established a specific target number or percentage, nor a specific target date by
which to achieve a specific target number or percentage of members of each Designated Groups on the Board, as we consider a
multitude of factors, including skills, experience, expertise, character and the Company’s objective and challenges at the time in
determining the best nominee at such time. As of the date of this Annual Report on Form 10-K, 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. One director self-identified to the Company as a person with disabilities.
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 Designated Groups at the executive officer level, as we
consider a multitude of factors, including skills, experience, expertise, character and the Company’s objectives and challenges at
the time in determining the best appointment at such time; however, the Company has adopted a formal written Global Employment
Equity and Diversity Policy which expresses its commitment to fostering a diverse and inclusive workplace for all employees,
regardless of culture, national origin, race, color, gender, gender identification, sexual orientation, family status, age, veteran status,
disability, or religion, or other basis. The Company currently has one woman as a Named Executive Officer (20%) and as one of
our executive officers part of the executive leadership team (ELT) (7%), while approximately 26% of existing positions on the
senior leadership team (SLT), exclusive of our ELT, are held by women. In addition, two members of the ELT and SLT have self-
identified to the Company as a visible minority. A principal objective of our Global Employment Equity and Diversity 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, and strive to present diverse slates of candidates for all our roles and mandate it for our senior leader
positions.
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 2020.
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),
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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, 2020 (Fiscal 2020), 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 0.746217.
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)
• Craig Stilwell - Executive Vice President & General Manager SMB and Consumer
• Muhi Majzoub - Executive Vice President, Chief Product Officer
• Gordon A. Davies - Executive Vice President, Chief Legal Officer and Corporate Development
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.
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 2020, 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”).
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• COVID-19 Compensation Review - In order to mitigate the operational impacts of COVID-19, our Compensation
Committee and Board approved the following compensation adjustments, relating to our Named Executive Officers
and directors, effective for the period May 15, 2020 through June 30, 2021, subject to review and modification as the
situation warrants:
•
•
•
•
15% base salary reduction and forbearance of any annual variable cash compensation effective May 15, 2020
for the remainder of Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction in targeted
cash compensation, for our CEO & CTO;
15% base salary reduction and 15% reduction in target annual variable cash compensation for our other
Named Executive Officers and members of the executive leadership team (ELT);
15% reduction in cash retainer compensation fees payable to the Board of Directors; and
Suspension of employer paid contributions to retirement benefits in the United States and Canada for the
remainder of Fiscal 2020 and Fiscal 2021.
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 2020, the Compensation Committee retained Hugessen Consulting Inc. (Hugessen), an independent consulting
firm specializing in executive compensation consulting. During Fiscal 2020 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 2020, outside of its capacity as
compensation consultants.
In Fiscal 2020, Compensation Committee also had various discussions with Frederic W. Cook & Co., Inc. (FW Cook), an
independent consulting firm specializing in executive compensation consulting. During Fiscal 2020, the Chairman and
members of the Compensation Committee held discussions from time to time with representatives of FW Cook in connection
with compensation market practices in light of COVID-19, and potential impacts on Company's financial performance. FW
Cook reviewed relevant information and industry benchmarks on matters relating to CEO and executive officer compensation,
including compensation market practices adopted in light of COVID-19.
The Compensation Committee met five times during Fiscal 2020. 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.
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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 February 2019 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 19 companies that include 18 US-based companies and one
Israel-based company. In Fiscal 2020, seven new companies were added to our peer group and four were removed.
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.
Amdocs Ltd.
Autodesk, Inc.
Avaya Inc.
Broadridge Financial Solutions, Inc.
Cadence Design Systems, Inc.
CDK Global LLC
Check Point Software Technologies Ltd.
Citrix Systems, Inc.
NetApp, Inc.
Nuance Communications, Inc.
Pitney Bowes Inc.
Palo Alto Networks, Inc.
Sabre Corporation
Symantec Corporation
SS&C Technologies, Inc.
Synopsys, Inc.
Teradata Corporation
Total System Services, Inc.
The following graph compares for each of the five fiscal years ended June 30, 2020, the yearly percentage change in the
cumulative total shareholder return on our Common Shares with the average cumulative total return of the NASDAQ
Composite Index, the S&P/TSX Composite Index (the Indices) and our peer group listed above. The graph illustrates the
cumulative return on a $100 investment in our Common Shares made on June 30, 2015, as compared with the cumulative
return on a $100 investment in the respective Indices and the average cumulative return on a $100 investment in our peer group
85
made on the same day. Dividends declared on securities comprising the respective Indices and our peer group 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. Please also see “Stock
Performance Graph and Cumulative Total Return” included elsewhere in this Annual Report on Form 10-K for more details.
Taking into account the benchmarking review performed in February 2019, further efforts were made to align our Named
Executive Officers' compensation packages more closely with our stated compensation objectives. Accordingly, Messrs.
Barrenechea, Davies and Ms. Ranganathan received an adjustment to their respective long-term incentive compensation during
Fiscal 2020.
Effective May 15, 2020, as a result of the COVID-19 compensation adjustments discussed above, all of our Named
Executive Officers', with the exception of Mr. Barrenechea accepted a 15% base salary reduction and a 15% reduction in target
annual variable cash compensation. Mr. Barrenechea accepted a 15% base salary reduction and forbearance of any annual
variable cash compensation for the remainder of Fiscal 2020 and for all of Fiscal 2021, totaling an approximate 60% reduction
in targeted cash compensation. These reductions will remain in effect through June 30, 2021, subject to review and
modification as the situation warrants. Please also see "Special Fiscal 2020 Performance Bonus" below.
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 2020, 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
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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 2020:
Before COVID-19 Compensation Adjustments
After COVID-19 Compensation Adjustments
Fixed Pay
Percentage
(“Not At Risk”)
10%
24%
24%
22%
20%
Short-Term
Incentive
Percentage
(at 100% target)
(“At Risk”)
Long-
Term Incentive
Percentage
(at 100% target)
(“At Risk”)
15%
24%
25%
22%
21%
75%
52%
51%
56%
59%
Fixed Pay
Percentage
(“Not At Risk”)
10%
23%
24%
21%
20%
Short-Term
Incentive
Percentage
(at 100% target)
(“At Risk”)
Long-
Term Incentive
Percentage
(at 100% target)
(“At Risk”)
14%
24%
24%
22%
20%
76%
53%
52%
57%
60%
Named Executive
Officer
Mark J. Barrenechea
Madhu Ranganathan
Craig Stilwell
Muhi Majzoub
Gordon A. Davies
Fixed Pay
Fixed pay includes:
• Base salary;
• Perquisites; and
• Other benefits.
Base Salary
The base salary review for each Named Executive Officer takes into consideration factors such as current competitive
market conditions and particular skills (such as leadership ability and management effectiveness, experience, responsibility and
proven or expected performance) of the particular individual. The Compensation Committee obtains information regarding
competitive market conditions through the assistance of management and our compensation consultants.
The performance of each of our Named Executive Officers, other than our CEO, is assessed by our CEO in his capacity
as the direct supervisor of the other Named Executive Officers. The performance of our CEO is assessed by the Board
(excluding the CEO). The Board conducts the initial discussions and makes the initial decisions with respect to the performance
of our CEO in a special session from which management is absent.
For details on our benchmarking process, see "Competitive Compensation" above.
Perquisites
Our Named Executive Officers receive a minimal amount of non-cash compensation in the form of executive perquisites.
In order to remain competitive in the market place, our Named Executive Officers are entitled to some limited benefits that are
not otherwise available to all of our employees, including:
• An annual executive medical physical examination;
• A base allowance to cover expenses such as financial planning, 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;
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• Dental insurance;
•
•
Life insurance; and
Tax based retirement savings plans matching contributions.
Short-Term Incentives
In Fiscal 2020, 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. Stilwell. Due to his responsibilities relating to sales, Mr. Stilwell's objectives consist of SMB
and Consumer (SMBC) revenues and SMBC adjusted EBITDA.
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 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.
SMBC revenue is the total revenue earned through Mr. Stilwell's SMBC team, which has been recognized in the "Total
Revenues" line of our audited income statement.
SMBC adjusted EBITDA is the total adjusted earnings before interest, taxes, depreciation and amortization, derived from
Mr. Stilwell's SMBC team.
For Fiscal 2020, 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
Craig Stilwell(2)
Muhi Majzoub
Gordon A. Davies
Total Target
Award (1)
1,245,902
Worldwide
Revenues
50%
490,574
192,500
416,988
377,056
50%
N/A
50%
50%
$
$
$
$
$
Worldwide
Adjusted
Operating
Income
50%
50%
N/A
50%
50%
SMBC Revenues
N/A
SMBC Adjusted
EBITDA
N/A
N/A
70%
N/A
N/A
N/A
30%
N/A
N/A
(1) Target amounts have been adjusted to reflect the COVID-19 compensation adjustments discussed above, which became effective May 15, 2020.
(2) Target amount was prorated based on the number of months Mr. Stilwell was employed with us during Fiscal 2020.
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 2020” 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 2020. The Board and the Compensation Committee have broad discretion to make positive or negative
adjustments if it considers them to be reasonably appropriate. No discretionary adjustments were made for Fiscal 2020 awards.
Effective August 5, 2020, a policy addendum was adopted to our short-term and long-term compensation plans that outlines the
principles under which the broad discretion may, from time to time, be applied in order to avoid unintended windfalls or
penalties for plan participants. Events that might warrant such discretionary adjustments include, but are not limited to,
terrorism, political unrest, war, pandemics and natural disasters.
88
Objectives (in millions)
Worldwide Revenues
Worldwide Adjusted Operating Income
SMBC Revenues
SMBC Adjusted EBITDA
Threshold
Target
Target
Fiscal 2020
Actual (1)
$
$
$
$
2,881 $
935 $
241 $
82 $
3,201 $
1,039 $
268 $
91 $
3,122
1,062
265
101
% Target
Actually
Achieved
98%
102%
99%
111%
% of
Payment per
Fiscal 2020
Payout Table
85%
200%
85%
200%
(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. Stilwell, in accordance with our actual results achieved during Fiscal 2020.
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%
% Attainment
100.0%
100.5%
101.0%
101.5%
102% and above
% Payment
100%
125%
150%
175%
200% cap
Formula:
Actual / Budget = % of Attainment
Linear x25 for every 0.5% over 100%
Example:
Attainment of 101.0% results in a payment of 150%
In Fiscal 2020, we achieved 98% of our worldwide revenue target and 102% 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 98% of target for the worldwide revenue performance criteria results in an
award payment of 85% of the target award amount and an achievement of 102% of target for the worldwide adjusted operating
income performance criterion results in an award payment of 200% of the target award amount.
The tables below illustrates the percentage of the target awards paid to Mr. Stilwell, as a result of more direct
responsibilities relating to SMBC sales, in accordance with our actual results achieved during Fiscal 2020.
% Attainment
0 - 89%
90 - 91%
92 - 93%
94 - 95%
96 - 97%
98 - 99%
SMBC Revenues - Attainment and Corresponding Payment
% Payment
—%
15%
40%
55%
70%
85%
% Attainment
100%
101%
102%
103%
104%
105% and above
% Payment
100%
120%
140%
160%
180%
200% cap
Formula:
Actual / Budget = % of Attainment
Linear x20 for every 1.0% over 100%
Example:
Attainment of 101% results in a payment of 120%
89
SMBC Adjusted EBITDA - Attainment and Corresponding Payment
% Attainment
0 - 89%
90 - 91%
92 - 93%
94 - 95%
96 - 97%
98 - 99%
100%
101%
102%
% Payment
—%
15%
40%
55%
70%
85%
100%
110%
120%
% Attainment
103%
104%
105%
106%
107%
108%
109%
110% and above
% Payment
130%
140%
150%
160%
170%
180%
190%
200% cap
Formula:
Actual / Budget = % of Attainment
Linear x10 for every 1.0% over 100%
Example:
Attainment of 101% results in a payment of 110%
In Fiscal 2020, Mr. Stilwell achieved 99% of his SMBC revenue target and 111% of his SMBC adjusted EBITDA target.
The “SMBC Revenue Calculation" and "SMBC Adjusted EBITDA Calculation” tables above illustrates under the “%
Attainment” column that an achievement of 99% of target for the SMBC revenue performance criteria results in an award
payment of 85% of the target award amount and an achievement of 111% of target for the SMBC adjusted EBITDA
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 2020 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 2020, 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
Craig Stilwell
Performance Measure:
SMBC Revenues
SMBC Adjusted EBITDA
Total
Payable at
Target
Payable at
Threshold
622,951 $
622,951 $
93,443 $
93,443 $
Actual
Payable
($)
529,508
1,245,902
1,245,902 $
186,886 $
1,775,410
Actual
Payable
(% of Target)
85%
200%
143%
Payable at
Target
Payable at
Threshold
Actual
Payable
($)
Actual
Payable
(% of Target)
245,287 $
245,287 $
490,574 $
36,793 $
36,793 $
73,586 $
208,494
490,574
699,068
85%
200%
143%
Payable at
Target
Payable at
Threshold
134,750 $
57,750 $
192,500 $
20,213 $
8,663 $
28,876 $
Actual
Payable
($)
114,538
115,500
230,038
Actual
Payable
(% of Target)
85%
200%
120%
$
$
$
$
$
$
$
$
$
The target amount and resulting amount payable was prorated based on the number of months Mr. Stilwell was employed with
the Company during Fiscal 2020.
90
Muhi Majzoub
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Gordon A. Davies
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Special Fiscal 2020 Performance Bonus
Payable at
Target
Payable at
Threshold
208,494 $
208,494 $
416,988 $
31,274 $
31,274 $
62,548 $
Actual
Payable
($)
177,220
416,988
594,208
Actual
Payable
(% of Target)
85%
200%
143%
Payable at
Target
Payable at
Threshold
188,528 $
188,528 $
377,056 $
28,279 $
28,279 $
56,558 $
Actual
Payable
($)
160,249
377,057
537,306
Actual
Payable
(% of Target)
85%
200%
143%
$
$
$
$
$
$
Despite the impact of COVID-19, we were able to deliver strong financial results for Fiscal 2020, including our fourth
fiscal quarter, as a result of the hard work and commitment of our employees. In recognition of their contributions, following
the end of Fiscal 2020, the Compensation Committee decided to grant a special performance bonus to those employees whose
pay had been cut as a result of the COVID-19 compensation adjustments described above. Employees, including our Named
Executive Officers, will receive an amount equal to the reductions in their Fiscal 2020 salary and annual incentive payout made
pursuant to such compensation adjustments. The special performance bonus will be paid in September 2020. However, as it
relates to performance in Fiscal 2020, the bonus received by each of the Named Executive Officers is included in the Bonus
column of the Summary Compensation Table below. The special performance bonuses were determined to be made in respect
of Fiscal 2020 only and the COVID-19 compensation adjustments will remain in place throughout Fiscal 2021, subject to
review and modification as the situation warrants.
Long-Term Incentives
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.
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Description
Vesting
Payout
Vehicle
Performance
Share Units
(PSU)
% of Total
LTIP
50% of LTIP
target award
value
Restricted
Share Units
(RSU)
25% of LTIP
target award
value
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.
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.
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.
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.
Vesting is
typically 25%
on each of the
first four
anniversaries of
grant date.
Options expire
seven years
after the grant
date.
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 2022 LTIP
Grants made in Fiscal 2020 under the Fiscal 2022 LTIP took effect on August 5, 2019 with the goal of measuring
performance over the three year period starting July 1, 2019. The table below illustrates the target value of each element under
the Fiscal 2022 LTIP for each Named Executive Officer.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Craig Stilwell(1)
Muhi Majzoub
Gordon A. Davies
Performance Share Units
$
$
3,500,000 $
550,000 $
$
$
$
416,667 $
550,000 $
550,000 $
Restricted Share Units
Stock Options
Total
1,750,000 $
275,000 $
208,333 $
275,000 $
275,000 $
1,750,000 $
275,000 $
208,333 $
275,000 $
275,000 $
7,000,000
1,100,000
833,333
1,100,000
1,100,000
(1) The target amount was prorated based on the number of months Mr. Stilwell was employed with us during Fiscal 2020
Awards granted in Fiscal 2020 under the Fiscal 2022 LTIP were in addition to the awards granted in Fiscal 2019, Fiscal
2018, 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 2022 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
92
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 2022 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:
Below 25th percentile
25th percentile
50th percentile
80th percentile
—%
50%
100%
200%
Any target percentile achieved between 25th and 80th percentile will be interpolated to determine a payout that can range
from 50% to 200% of the target award.
The amounts that may be realized for PSU awards under the Fiscal 2022 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2020, 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
Craig Stilwell(1)
Muhi Majzoub
Gordon A. Davies
Fiscal 2022 LTIP PSUs
50% Payout
at June 30, 2022
100% Payout
at June 30, 2022
200% Payout
at June 30, 2022
$
$
$
$
$
1,761,646 $
276,757 $
191,160 $
276,757 $
276,757 $
3,523,291 $
553,514 $
382,320 $
553,514 $
553,514 $
7,046,582
1,107,028
764,640
1,107,028
1,107,028
(1) Grants made to Mr. Stilwell under the LTIP 2022 plan were prorated based on the number of months Mr. Stilwell was employed with the Company during
Fiscal 2020.
Fiscal 2022 LTIP - RSUs
RSUs vest over three years and do not have any specific performance-based vesting criteria. Provided the eligible
employee remains employed throughout the vesting period, all RSUs granted shall become vested RSUs at the end of the Fiscal
2022 LTIP period.
The amounts that may be realized for RSU awards under the Fiscal 2022 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2020, and applied to the number of equivalent RSUs to be
issued to the Named Executive Officers.
Fiscal 2022 LTIP RSUs
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan
Craig Stilwell(1)
Muhi Majzoub
Gordon A. Davies
Value upon Payout at
June 30, 2022
$
$
$
$
$
1,761,646
276,970
191,160
276,970
276,970
(1) Grants made to Mr. Stilwell under the LTIP 2022 plan were prorated based on the number of months Mr. Stilwell was employed with the Company during
Fiscal 2020.
Fiscal 2022 LTIP - Stock Options
The stock options granted in connection with the Fiscal 2022 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 13 “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.
93
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 2020, we granted stock options and RSUs to one of our Named Executive Officers, namely, Mr. Stilwell in
connection with the commencement of his employment. 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.
94
The Board implemented the Share Ownership Guidelines in October 2009 and recommends that equity ownership levels
be achieved within five years of becoming a member of the executive leadership team, including Named Executive Officers.
The Board also recommends that the executive leadership team retain their ownership levels for so long as they remain
members of the executive leadership team.
Named Executive Officers
Named Executive Officers may achieve these Share Ownership Guidelines through the exercise of stock option awards,
purchases under the OpenText Employee Stock Purchase Plan (ESPP), through open market purchases made in compliance
with applicable securities laws or through any equity plan(s) we may adopt from time to time providing for the acquisition of
Common Shares. Until the Share Ownership Guidelines are met, it is recommended that a Named Executive Officer retain a
portion of any stock option exercise or LTIP award in Common Shares to contribute to the achievement of the Share Ownership
Guidelines. Common Shares issuable pursuant to the unexercised options shall not be counted towards meeting the equity
ownership target.
As of the date of this Annual Report on Form 10-K, all Named Executive Officers comply with the Share Ownership
Guidelines for Fiscal 2020, as they have either met the share ownership guidelines or, in the case of Ms. Ranganathan and Mr.
Stilwell, have five years from becoming subject to these guidelines to achieve the equity ownership guidelines required by their
position, which in the case of Ms. Ranganathan is 2023 and Mr Stilwell is 2025.
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 2020”.
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. Effective Fiscal 2019, we are no longer
able to deduct under Section 162(m) compensation paid in excess of $1,000,000 to any person who served as CEO or CFO
during the taxable year and any other Named Executive Officer serving as an executive at the end of the taxable year (each, a
“covered employee”) as well any person who was a covered employee in a preceding taxable year, subject to limited transition
relief.
95
Summary Compensation Table
The following table sets forth summary information concerning the annual compensation of our Named Executive
Officers. All numbers are rounded to the nearest dollar or whole share. Changes in exchange rates will impact payments
illustrated below that are made in currencies other than the U.S. dollar. Any Canadian dollar payments included herein have
been converted to U.S. dollars at an annual average rate of 0.746217, 0.756489, and 0.786589, for Fiscal 2020, Fiscal 2019,
and Fiscal 2018, respectively.
Fiscal
Year
Salary
($) (1)
Bonus
($) (2)
Stock
Awards
($) (3)
Option
Awards
($) (4)
Non-Equity
Incentive Plan
Compensation
($) (1)(5)
Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($) (6)
Mark J. Barrenechea
2020
$ 932,188 $ 273,028 $ 4,970,594 $ 1,751,342 $
1,775,410
N/A
$ 47,643
Vice Chair, Chief
Executive Officer and
Chief Technology
Officer
2019
$ 950,000
— $ 3,693,934 $ 1,407,800 $
2,030,625
N/A
$ 17,315
2018
$ 950,000
— $ 3,538,963 $ 1,407,556 $
1,211,250
N/A
$ 37,161
Madhu Ranganathan
2020
$ 490,625 $ 22,807 $
781,072 $
275,201 $
699,068
EVP, Chief Financial
Officer
2019
$ 500,000
— $
656,237 $
250,019 $
712,500
2018
$ 125,000
— $
315,057 $ 2,275,143 $
106,250
Craig Stilwell
2020
$ 197,519 $ 16,462 $ 1,491,150 $ 1,061,898 $
230,038
N/A
N/A
N/A
N/A
EVP & General
Manager SMB and
Consumer
2019
N/A
N/A
2018
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Muhi Majzoub
2020
$ 417,031 $ 19,386 $
781,072 $
275,201 $
594,208
N/A
Executive Vice
President, Chief
Product Officer
2019
$ 412,500
— $
721,564 $
938,260 $
605,625
N/A
2018
$ 400,000
— $
691,379 $
274,993 $
340,000
Gordon A. Davies
2020
$ 377,096 $ 17,530 $
781,072 $
275,201 $
537,306
N/A
N/A
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
Executive Vice
President, Chief Legal
Officer and Corporate
Development
2019
$ 371,310
— $
656,237 $
913,258 $
555,169
N/A
$ 14,730
2018
$ 367,077
— $
628,627 $
249,994 $
312,015
N/A
$ 15,969
Total ($)
$ 9,750,205
$ 8,099,674
$ 7,144,930
$ 2,268,773
$ 2,118,756
$ 2,821,450
$ 2,997,067
(7)
(8)
(8)
(9)
(8)
(8)
(9)
(9)
(8)
(8)
(9)
(8)
(8)
$ 2,086,898
$ 2,677,949
$ 1,706,372
$ 1,988,205
$ 2,510,704
$ 1,573,682
(10)
(10)
N/A
N/A
N/A
N/A
(1)
Amounts reflect the COVID-19 compensation adjustments discussed above, which became effective May 15, 2020.
(2) Amounts set forth in this column represent a special performance bonus, approved by the Board, equal to an amount equal to the reductions in their Fiscal
2020 salary and annual incentive payout made pursuant to the COVID-19 compensation adjustments described above. The special performance bonus
will be paid in September 2020; however, as it relates to performance in Fiscal 2020, the bonus received by each of the Named Executive Officers is
included herein. The special performance bonuses were determined to be made in respect of Fiscal 2020 only and the COVID-19 compensation
adjustments will remain in place throughout Fiscal 2021, subject to review and modification as the situation warrants.
(3) PSUs and RSUs were granted pursuant to the Fiscal 2022 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 2022 LTIP”. For a discussion of the assumptions used in these valuations, see note 13 “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 2020 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 2020” table below.
(4) 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 13 “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.
96
(5) The amounts set forth in this column for Fiscal 2020 represent payments under the short-term incentive plan.
(6) 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.
(7) Represents amounts we paid or reimbursed for tax, financial, and estate planning.
(8) 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, 2019 and June 30, 2018.
(9) The total value of all perquisites and personal benefits for this Named Executive Officer was less than $10,000, and, therefore, excluded.
(10) The executive officer was not a Named Executive Officer, nor an employee of the Company, during the fiscal year, and, therefore compensation details
have been excluded.
Grants of Plan-Based Awards in Fiscal 2020
The following table sets forth certain information concerning grants of awards made to each Named Executive Officer
during Fiscal 2020.
Name
Grant Date
Threshold
($)
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 5, 2019
$ 186,886 $ 1,245,902 $ 2,491,804
273,010 $
38.76 $ 1,751,342
Madhu Ranganathan
August 5, 2019
Craig Stilwell
Muhi Majzoub
February 3, 2020
August 5, 2019
Gordon A. Davies
August 5, 2019
$
$
$
$
73,586 $ 490,574 $
981,148
42,900 $
38.76 $
275,201
28,876 $ 192,500 $
62,548 $ 416,988 $
385,000
833,976
145,790 $
42,900 $
44.99 $ 1,061,898
275,201
38.76 $
56,558 $ 377,056 $
754,112
42,900 $
38.76 $
275,201
Name
Grant Date
Mark J. Barrenechea
Madhu Ranganathan
Craig Stilwell
Muhi Majzoub
Gordon A. Davies
August 5, 2019
August 5, 2019
February 3, 2020
February 3, 2020
February 3, 2020
August 5, 2019
August 5, 2019
Estimated Future Payouts
Under Equity
Incentive Plan Awards (4)
Target
(#)
82,940
Threshold
(#)
41,470
Maximum
(#)
165,880
6,515
4,500
81
6,515
6,515
13,030
9,000
5,400
13,030
13,030
26,060
18,000
8,100
26,060
26,060
All Other Stock
Awards: Number
of Securities
Underlying (5)
Stock
(#)
41,470
6,520
$
$
4,500
$
2,700 (6) $
10,000 (6) $
$
6,520
$
6,520
Grant
Date Fair
Value of
Stock (3)
Awards ($)
4,970,594
781,072
683,865
344,385
462,900
781,072
781,072
(1) Represents the threshold, target and maximum estimated payouts under our short-term incentive plan for Fiscal 2020. 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 13
“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 2022 LTIP PSUs. For further information, see “Compensation
Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2022 LTIP” above.
(5) Represents the estimated payouts under our Fiscal 2022 LTIP RSUs granted in Fiscal 2020. For further information, see “Compensation Discussion and
Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2022 LTIP” above.
(6) On February 3, 2020 Mr. Stilwell was granted 5,400 PSUs and 2,700 RSUs under our Fiscal 2021 LTIP plan. Additionally, on February 3, 2020, Mr.
Stilwell was granted 10,000 RSUs in accordance with his employment agreement, which vest 2 years from the date of grant.
97
Outstanding Equity Awards at End of Fiscal 2020
The following table sets forth certain information regarding outstanding equity awards held by each Named Executive
Officer as of June 30, 2020.
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)
41,730 $ 1,772,690
37,320 $ 1,585,354
41,470 $ 1,761,646
83,470 $
3,545,806
74,640 $
3,170,707
82,940 $
3,523,291
3,980 $
169,070
6,630 $
281,642
6,520 $
276,970
2,700 $
114,696
4,500 $
191,160
10,000 $
424,800
7,960 $
338,141
13,260 $
563,285
13,030 $
553,514
5,400 $
229,392
9,000 $
382,320
Option Awards (1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Non-
exercisable
Option
Exercise
Price ($)
Option
Expiration
Date
551,887
147,420
66,667
—
94,590
40,260
— $
27.09 January 29, 2022
49,140 $
29.75 July 29, 2023
133,333 $
400,000 $
94,590 $
120,780 $
32.63 June 1, 2024
32.63 June 1, 2024
34.49 August 7, 2024
39.27 August 6, 2025
—
273,010 $
38.76 August 5, 2026
146,756
146,754 $
34.71 May 11, 2025
7,150
—
21,450 $
39.27 August 6, 2025
42,900 $
38.76 August 5, 2026
—
145,790 $
44.99 February 3, 2027
20,996
23,140
37,840
24,420
18,480
7,865
—
—
— $
— $
— $
16.58 August 2, 2020
27.83 August 1, 2021
22.87 July 31, 2022
8,140 $
18,480 $
29.75 July 29, 2023
34.49 August 7, 2024
23,595 $
39.27 August 6, 2025
75,000 $
40.20 May 7, 2026
42,900 $
38.76 August 5, 2026
8,150 $
346,212
7,290 $
309,679
16,310 $
692,849
98
Name
Grant Date
Mark J.
Barrenechea
January 29, 2015
July 29, 2016
June 1, 2017
June 1, 2017
August 7, 2017
August 6, 2018
August 5, 2019
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
August 5, 2019
August 5, 2019
Madhu
Ranganathan May 11, 2018
August 6, 2018
August 5, 2019
May 11, 2018
May 11, 2018
August 6, 2018
August 6, 2018
August 5, 2019
August 5, 2019
February 3, 2020
February 3, 2020
February 3, 2020
February 3, 2020
February 3, 2020
February 3, 2020
Craig Stilwell
Muhi Majzoub August 2, 2013
August 1, 2014
July 31, 2015
July 29, 2016
August 7, 2017
August 6, 2018
May 7, 2019
August 5, 2019
August 7, 2017
August 7, 2017
August 6, 2018
Gordon A.
Davies
August 6, 2018
August 5, 2019
August 5, 2019
July 29, 2016
August 7, 2017
August 6, 2018
May 7, 2019
August 5, 2019
August 7, 2017
August 7, 2017
August 6, 2018
August 6, 2018
August 5, 2019
August 5, 2019
—
—
9,580 $
29.75 July 29, 2023
16,800 $
34.49 August 7, 2024
7,150
21,450 $
39.27 August 6, 2025
—
—
75,000 $
40.20 May 7, 2026
42,900 $
38.76 August 5, 2026
6,520 $
276,970
14,580 $
619,358
13,030 $
553,514
7,410 $
314,777
6,630 $
281,642
6,520 $
276,970
14,830 $
629,978
13,260 $
563,285
13,030 $
553,514
(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 2020, Fiscal 2021, and Fiscal 2022 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, 2020 based upon the closing price for the Company's Common Shares as traded on
the NASDAQ on such date of $42.48.
(3) Represents each Named Executive Officer's target number of PSUs granted pursuant to the Fiscal 2020, Fiscal 2021, and Fiscal 2022 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, 2020 based upon the closing price for the Company's Common Shares as traded on the NASDAQ on
such date of $42.48.
As of June 30, 2020, options to purchase an aggregate of 7,429,537 Common Shares had been previously granted and
are outstanding under our stock option plans, of which 2,248,358 Common Shares were vested. Options to purchase an
additional 7,540,748 Common Shares remain available for issuance pursuant to our stock option plans. Our outstanding options
pool represents 2.8% of the Common Shares issued and outstanding as of June 30, 2020.
During Fiscal 2020, the Company granted options to purchase 2,742,230 Common Shares or 1.0% of the Common
Shares issued and outstanding as of June 30, 2020.
Option Exercises and Stock Vested in Fiscal 2020
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 2020:
Name
Mark J. Barrenechea
Madhu Ranganathan
Craig Stilwell
Muhi Majzoub
Gordon A. Davies
Option Awards
Stock Awards (3)
Number of Shares
Acquired on Exercise
(#)
656,140 $
— $
— $
18,788 $
65,374 $
Value Realized on
Exercise(1)
($)
13,672,231
—
—
479,257
1,190,446
Number of Shares
Acquired on Vesting
(#)
Value Realized on
Vesting(2)
($)
80,704 $
— $
— $
13,376 $
15,723 $
3,433,149
—
—
569,015
668,856
(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 2019 LTIP.
99
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
100
• 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. These amounts have not been adjusted to reflect the COVID-19 compensation adjustments discussed
above, which became effective May 15, 2020.
No Change in Control
Mark J.
Barrenechea
Madhu
Ranganathan
Craig Stilwell
Muhi Majzoub
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Gordon A.
Davies
Termination without cause or
Change in relationship
No change in control
Base
Short term
incentives (1)
LTIP (2)
Options (3)
Employee and
Medical Benefits (4)
24 months
24 months
Prorated
Vested
24 months(5)
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
(1) Assuming 100% achievement of the expected targets for the fiscal year in which the triggering event occurred.
(2) LTIP amounts are prorated for the number of months of participation at termination date in the applicable 38 month performance period. If the
termination date is before the commencement of the 19th month of the performance period, a prorated LTIP will not be paid.
(3) Already vested as of termination date with no acceleration of unvested options. For a period of 90 days following the termination date, the Named
Executive Officer has the right to exercise all options which have vested as of the date of termination.
(4) Employee and medical benefits provided to each Named Executive Officer immediately prior to the occurrence of the trigger event.
(5)
In accordance with the terms of his employment agreement, as amended, Mr. Barrenechea is entitled to participate until the age of 65 in healthcare
benefits substantially similar to what he currently receives as Vice Chair, Chief Executive Officer and Chief Technology Officer of the Company. These
benefits will be provided at the cost of the Company, provided that Mr. Barrenechea continues to be responsible for funding an amount that is equal to his
employee contribution as Vice Chair, Chief Executive Officer and Chief Technology Officer, unless he becomes employed elsewhere, at which point this
benefit will terminate. In the event that the employee or company contribution funding increases, Mr. Barrenechea would be responsible for that increase.
101
Within 12 Months of a Change in Control
Mark J.
Barrenechea
Madhu
Ranganathan
Craig Stilwell
Muhi Majzoub
Gordon A.
Davies
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Termination without cause or
Change in relationship
Within 12 Months of a Change in Control
Base
Short term
incentives (1)
24 months
24 months
24 months
24 months
12 months
12 months
24 months
24 months
24 months
24 months
LTIP
100%
Vested
100%
Vested
100%
Vested
100%
Vested
100%
Vested
Options (2)
Employee and
Medical Benefits (3)
100% Vested
24 months(4)
100% Vested
24 months
100% Vested
12 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, 2020. 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 $42.48 per share as reported on the
NASDAQ on June 30, 2020, 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,
2020, of 0.746217;
• 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, 2020; and
• Payments under the LTIPs are calculated as though 100% of Fiscal 2022 LTIP (granted in Fiscal 2020), Fiscal 2021
LTIP (granted in Fiscal 2019), and Fiscal 2020 LTIP (granted in Fiscal 2018) have vested with respect to a termination
102
without cause or change in relationship following a change in control event, and as though a pro-rated amount have
vested with respect to no change in control event.
Actual payments made at any future date may vary, including the amount the Named Executive Officer would have
accrued under the applicable benefit or compensation plan as well as the price of our Common Shares.
Named Executive Officer
Mark J.
Barrenechea
Madhu
Ranganathan
Craig Stilwell
Muhi
Majzoub
Gordon A.
Davies
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
Short-term
Incentive
Payment
($)
Gain on Vesting
of LTIP and
Non-LTIP
RSUs
($)
Gain on
Vesting of
Stock Options
($)
Salary
($)
Employee
Benefits
($)
Total
($)
$ 1,900,000 $ 2,850,000 $ 8,042,403 $
— $
95,286 (1) $ 12,887,689
$ 1,900,000 $ 2,850,000 $ 15,359,494 $ 8,038,203 $
95,286
$ 28,242,983
$
500,000 $
500,000 $ 1,014,154 $
— $
7,429
$
2,021,583
$ 1,000,000 $ 1,000,000 $ 2,182,622 $ 1,368,721 $
14,859
$
5,566,202
$
400,000 $
400,000 $
642,119 $
— $
9,782
$
1,451,901
$
400,000 $
400,000 $ 1,342,368 $
— $
9,782
$
2,152,150
$
425,000 $
425,000 $ 1,571,134 $
— $
6,512
$
2,427,646
$
850,000 $
850,000 $ 2,798,582 $
657,646 $
13,025
$
5,169,253
$
384,302 $
384,302 $ 1,428,669 $
— $
6,618
$
2,203,891
$
768,604 $
768,604 $ 2,620,166 $
655,676 $
13,237
$
4,826,287
(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.
103
Director Compensation for Fiscal 2020
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, 2020.
Fees Earned
or Paid in
Cash
($) (1)
Stock
Awards
($) (2)
$ 200,000 $ 376,484 $ — $
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)
$
$
$
$
$
$
$
$
$
47,275 $ 358,397 $ — $
70,000 $ 243,330 $ — $
91,000 $ 276,919 $ — $
— $ 359,478 $ — $
27,000 $ 304,029 $ — $
3,500 $ 401,920 $ — $
— $ 383,983 $ — $
95,000 $ 240,221 $ — $
— $ 398,141 $ — $
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
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
All Other
Compensation
($)
Total
($)
$ 576,484
$ 405,672
$ 313,330
—
—
—
—
$ 367,919
671,054 (13) $1,030,532
$ 331,029
—
—
—
—
—
$ 405,420
$ 383,983
$ 335,221
$ 398,141
(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 13 “Share Capital, Option Plan and
Share-based Payments” to our consolidated financial statements. In Fiscal 2020, Messrs. Jenkins, Fowlie, Fraser, Sadler, Singh, Slaunwhite and Tinggren
and Mses. Hamilton, Stevenson and Weinstein received 9,336, 8,871, 6,006, 8,907, 7,511, 9,947, 5,939, 6,865, 9,499, and 9,852 DSUs, respectively.
(3) As of June 30, 2020, Mr. Jenkins holds 116,896 DSUs. Mr. Jenkins serves as Chairman of the Board.
(4) As of June 30, 2020, Mr. Fowlie holds 97,012 DSUs.
(5) As of June 30, 2020, Mr. Fraser holds 13,594 DSUs.
(6) As of June 30, 2020, Ms. Hamilton holds 76,657 DSUs.
(7) As of June 30, 2020, Mr. Sadler holds 92,312 DSUs.
(8) As of June 30, 2020, Mr. Singh holds 14,909 DSUs.
(9) As of June 30, 2020, Mr. Slaunwhite holds 111,364 DSUs.
(10) As of June 30, 2020, Ms. Stevenson holds 91,829 DSUs.
(11) As of June 30, 2020, Mr. Tinggren holds 23,438 DSUs.
(12) As of June 30, 2020, Ms. Weinstein holds 106,564 DSUs.
(13) During Fiscal 2020, Mr. Sadler received $671,054 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.
104
Directors who are salaried officers or employees receive no compensation for serving as directors. Mr. Barrenechea was
the only employee director in Fiscal 2020. 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.
Effective May 15, 2020, as a result of the COVID-19 compensation adjustments discussed above, all of our non-
management directors accepted a 15% reduction in cash retainer compensation fees payable. For Fiscal 2020, all cash related
payments were completed prior to this announcement, and therefore did not result in an adjustment to compensation in Fiscal
2020. These reductions will remain in effect through June 30, 2021, subject to review and modification as the situation
warrants.
The Board has adopted a DSU Plan which is available to any non-management director of the Company. In Fiscal 2020,
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 2020, the annual DSU grant was approximately $225,000 for each non-management director and
approximately $295,000 for the Chairman of the Board. DSUs granted as compensation for directors fees vest immediately
whereas the annual DSU grant vests at the Company’s next annual general meeting. No DSUs are payable by the Company
until the director ceases to be a member of the Board.
As with its employees, the Company believes that granting compensation to directors in the form of equity, such as DSUs,
promotes a greater alignment of long-term interests between directors of the Company and the shareholders of the Company
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
105
subsidiaries, or had any relationship requiring disclosure herein. None of our executive officers served as a member of the
compensation committee of another entity (or other committee of the board of directors performing equivalent functions, or in
the absence of any such committee, the entire board of directors) one of whose executive officers served as a director of ours.
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, 2020 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, 2020.
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.
106
Name and Address of Beneficial Owner
Jarislowsky, Fraser Ltd. (1)
1010 Sherbrooke St. West, Montreal QC H3A 2R7
Caisse de Depot et Placement du Quebec (1)
1000 Place Jean-Paul Riopelle, Montreal H2Z 2B3
P. Thomas Jenkins (2)
Mark J. Barrenechea (3)
Michael Slaunwhite (4)
Randy Fowlie (5)
Muhi Majzoub (6)
Stephen J. Sadler (7)
Madhu Ranganathan (8)
Katharine B. Stevenson (9)
Deborah Weinstein (10)
Gordon A. Davies (11)
Gail E. Hamilton (12)
Carl Jürgen Tinggren (13)
Harmit Singh (14)
David Fraser (15)
Craig Stilwell
All executive officers and directors as a group (16)
Amount and Nature of
Beneficial Ownership
Percent of Common
Shares Outstanding
16,589,013
6.10%
14,540,600
2,368,418
1,993,841
574,010
297,458
244,243
221,758
173,615
138,890
121,010
97,089
71,113
17,884
9,355
8,040
—
5.35%
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
6,590,651
2.40%
(2)
(3)
*
(1)
Less than 1%
Information regarding the shares outstanding is based on information filed in Schedule 13G, 13F, or Schedule 13G/A
with the SEC. The percentage of Common Shares outstanding is calculated using the total shares outstanding as of
June 30, 2020.
Includes 2,258,804 Common Shares owned and 109,614 deferred stock units (DSUs) which are exercisable.
Includes 888,069 Common Shares owned, 900,824 options which are exercisable and 204,948 options which will become
exercisable within 60 days of June 30, 2020.
Includes 468,200 Common Shares owned and 105,810 DSUs which are exercisable.
Includes 206,000 Common Shares owned and 91,458 DSUs which are exercisable.
Includes 75,532 Common Shares owned, 132,741 options which are exercisable and 35,970 options which will become
exercisable within 60 days of June 30, 2020.
Includes 135,000 Common Shares owned and 86,758 DSUs which are exercisable.
Includes 1,834 Common Shares owned, 153,906 options which are exercisable and 17,875 options which will become
exercisable within 60 days of June 30, 2020.
(9)
Includes 52,615 Common Shares owned and 86,275 DSUs which are exercisable.
(10) Includes 20,000 Common Shares owned and 101,010 DSUs which are exercisable.
(11) Includes 54,084 Common Shares owned, 7,150 options which are exercisable and 35,855 options which will become
(4)
(5)
(6)
(7)
(8)
exercisable within 60 days of June 30, 2020.
(12) Includes 10 Common Shares owned and 71,103 DSUs which are exercisable.
(13) Includes 17,884 DSUs which are exercisable.
(14) Includes 9,355 DSUs which are exercisable.
(15) Includes 8,040 DSUs which are exercisable.
(16) Includes 4,201,412 Common Shares owned, 1,349,025 options which are exercisable, 352,907 options which will
become exercisable within 60 days of June 30, 2020, and 687,307 DSUs which are exercisable.
107
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, 2020:
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)
7,429,537
744,575
553,104
578,898
9,306,114
(b)
$36.18
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)
7,540,748
—
—
—
7,540,748
For more information regarding stock compensation plans, please refer to note 13 "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.
108
During Fiscal 2020, Mr. Sadler received CAD $0.9 million in consulting fees from OpenText (equivalent to $0.7 million
USD), inclusive of CAD $0.86 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 2020 and Fiscal 2019 were:
(In thousands)
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
Year ended June 30,
2020(1)
2019
5,362
$
257
52
—
5,671
$
4,598
—
108
40
4,746
$
$
(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 (d) annual statutory audits where applicable.
(2) Audit related fees were primarily for assurance and related services, such as the review of offering documents and
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 2020 and Fiscal 2019 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.
109
Item 15.
Exhibits and Financial Statement Schedules
Part IV
(a) Financial Statements and Schedules
Index to Consolidated Financial Statements and Supplementary Data (Item 8)
Page Number
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2020 and 2019
Consolidated Statements of Income for the years ended June 30, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended June 30, 2020, 2019, and 2018
Consolidated Statements of Shareholders' Equity for the years ended June 30, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended June 30, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
115
117
119
120
121
122
123
125
(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 15 "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
2.7
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
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)
Agreement and Plan of Merger, dated November 10, 2019, by and among Open Text Corporation, Coral Merger
Sub Inc. and Carbonite, Inc. (41)
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)
3.10
Articles of Continuance of the Company, dated December 29, 2005. (7)
110
3.11
By-Law 1 of Open Text Corporation. (39)
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
10.1*
10.2*
10.3*
10.4*
10.5
10.6*
10.7*
10.8*
10.9*
10.10*
10.11
10.12
Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of
1934 (46)
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)
Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare
Investor Services, Inc. dated September 4, 2019 (42)
Indenture (including form of Note), dated as of April 4, 2017, by and between Carbonite, Inc. and U.S. Bank
National Association, as trustee (43)
First Supplemental Indenture, dated as of December 24, 2019, by and between Carbonite, Inc. and U.S. Bank
National Association, as trustee (43)
Indenture, dated as of February 18, 2020, between Open Text Corporation and the Bank of NY Mellon, as U.S.
Trustee, and BNY Trust Company of Canada, as Canadian trustee (44)
Indenture, dated as of February 18, 2020, between Open Text Holdings, Inc. and the Bank of NY Mellon, as U.S.
Trustee, and BNY Trust Company of Canada, as Canadian trustee (44)
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)
Employment Agreement, as of December 19, 2012, between Gordon A. Davies and the Company. (18)
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)
111
10.13
10.14
10.15
10.16*
10.17*
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)
Employment Agreement, dated October 13, 2014, between David Jamieson and the Company. (28)
10.18*
10.19* Amended and Restated Employee Stock Purchase Plan (29)
10.20
10.21
10.22*
10.23*
10.24
10.25*
10.26
10.27
10.28*
10.29
Repricing Amendment and Amendment No. 2 dated as of February 22, 2017 to Credit Agreement, by and among
Open Text Corporation, as guarantor, Open Text GXS ULC, as borrower, the other guarantors party thereto, each
of the lenders party thereto and Barclays Bank PLC, as administrative agent. (32)
Amendment No. 3 to Second Amended and Restated Credit Agreement, dated as of May 5, 2017, among Open
Text ULC, Open Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party thereto, each
of the lenders party thereto, and Barclays Bank PLC, as sole administrative agent and collateral agent. (33)
Amendment No. 3 to the Employment Agreement between Mark J. Barrenechea and the Company dated June 1,
2017 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October
30, 2012). (34)
Employment Agreement, dated January 2, 2014, between George Schulze and the Company (35)
Amendment No. 4 to Second Amended and Restated Credit Agreement, dated as of September 6, 2017, among
Open Text ULC, Open Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party thereto,
each of the lenders party thereto, and Barclays Bank PLC, as sole administrative agent and collateral agent. (36)
Employment Agreement, dated January 30, 2018, among the Company, Open Text Inc. and Madhu Ranganathan
(37)
Amended and Restated Credit Agreement dated as of May 30, 2018, by and among Open Text Corporation, as
borrower, the guarantors party thereto, each of the lenders party thereto and Barclays Bank PLC, as administrative
agent and collateral agent (38)
Third Amended and Restated Credit Agreement dated as of May 30, 2018, by and among Open Text ULC, Open
Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party thereto, each of the lenders
party thereto, Barclays Bank PLC, as administrative agent, collateral agent and swing line lender and Royal Bank
of Canada as documentary credit lender. (38)
Employment Agreement, dated October 1, 2017, between Simon (Ted) Harrison and the Company (40)
Fourth Amended and Restated Credit Agreement dated as of October 31, 2019, 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 (45)
10.30*
Employment Agreement, dated December 24, 2019, among the Company, Open Text Inc. and Craig Stilwell
18.1
21.1
23.1
31.1
31.2
32.1
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.
112
32.2
101.INS
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.
XBRL instance document - the instance document does not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL taxonomy extension schema.
101.CAL Inline XBRL taxonomy extension calculation linkbase.
101.DEF Inline XBRL taxonomy extension definition linkbase.
101.LAB Inline XBRL taxonomy extension label linkbase.
101.PRE Inline XBRL taxonomy extension presentation.
*
Indicates management contract relating to compensatory plans or arrangements
(1) Filed as an Exhibit to the Company's Registration Statement on Form F-1 (Registration Number 33-98858) as filed
with the Securities and Exchange Commission (the “SEC”) on November 1, 1995 or Amendments 1, 2 or 3 thereto
(filed on December 28, 1995, January 22, 1996 and January 23, 1996 respectively), and incorporated herein by
reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2001 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2002 and
incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 29, 2003 and
incorporated herein by reference.
(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.
113
(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.
(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.
(41) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on November 12, 2019 and
incorporated herein by reference.
(42) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 4, 2019 and
incorporated herein by reference.
(43) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on January 30, 2020 and
incorporated herein by reference.
(44) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on February 18, 2020 and
incorporated herein by reference.
(45) Filed as an Exhibit to Company's Current Report on Form 8-K, as filed with the SEC on November 5, 2019 and
incorporated herein by reference.
(46) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 1, 2019 and
incorporated herein by reference.
114
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, 2020
and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-
year period ended June 30, 2020, 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, 2020, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated August 5, 2020 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, in the year ended June 30, 2020, Open Text Corporation
adopted the new accounting standard, "Leases" on a modified retrospective basis through a cumulative-effect adjustment to
opening retained earnings. In the year ended June 30, 2019, 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.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
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.
Evaluation of the determination of standalone selling prices of revenue performance obligations for customer contracts
with a software license
As discussed in Note 2 and 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
customer contracts with a software license requires an allocation of the transaction price to each distinct performance obligation
based on the determination of the standalone selling price (SSP). SSP for a performance obligation in a customer contract is an
115
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. This estimate determines the allocation of the transaction price and affects the amount and timing of
revenue recognized for each performance obligation in a customer contract. SSP is estimated based on the impact of geographic
or regional specific factors, internal costs, profit objectives and pricing practices for different performance obligations.
We identified the evaluation of the determination of the SSP of revenue performance obligations for customer contracts with a
software license as a critical audit matter. A higher degree of auditor judgment was required to evaluate the methodology used
to establish SSP for each performance obligation which could be offered in a customer contract.
The primary procedures we performed to address this critical audit matter included the following. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s revenue process, including controls over the
methodology used to determine SSP for identified performance obligations in customer contracts which include a software
license. We evaluated the methodology used to determine SSP based on current pricing patterns in relevant customer contracts,
historical analysis of renewal contract pricing completed by the Company and pricing practices observed in the industry. We
inspected a selection of contracts from the SSP population and compared attributes such as price and employee consultant level
to historical information. For a sample of software license contracts with multiple performance obligations, we tested that the
determined SSP was correctly applied in the allocation of the transaction price to each performance obligation.
Assessment of uncertain tax positions
As discussed in Note 2 and Note 15 to the consolidated financial statements, 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 assessment of uncertain tax positions as a critical audit matter. The assessment of tax exposures and the
ultimate resolution of uncertain tax positions requires a higher degree of auditor judgment in evaluating the Company’s
interpretation of, and compliance with, tax law globally across multiple jurisdictions.
The primary procedures we performed to address this critical audit matter included the following. We evaluated the design and
tested the operating effectiveness of certain internal controls over the Company’s process to assess uncertain tax positions,
including controls related to the interpretation of tax law and identification of uncertain tax positions, the evaluation of which
of the Company’s tax positions may not be sustained upon audit and the estimation of exposures associated with uncertain tax
positions. We involved domestic and international tax professionals with specialized skills and knowledge who assisted in
assessing filed tax positions and transfer pricing studies, and evaluating the Company’s interpretation of tax law and its
assessment of certain tax uncertainties and expected outcomes, including, if applicable, the measurement thereof, by reading
advice obtained from the Company’s external specialists and correspondence with taxation authorities.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company’s auditor since 2001.
Toronto, Canada
August 5, 2020
116
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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020 and related notes (collectively, the consolidated financial statements), and our report dated August 5, 2020
expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Carbonite, Inc. on December 24, 2019, and management excluded from its assessment of the
effectiveness of the Company’s internal control over financial reporting as of June 30, 2020, Carbonite, Inc’s internal control
over financial reporting associated with 7.6% of consolidated total revenues and 17.2% of consolidated total assets (of which
$1.6 billion, or 15.6% of consolidated total assets, represents goodwill and net intangible assets included within the scope of the
assessment) included in the consolidated financial statements of the Company as of and for the year ended June 30, 2020. Our
audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over
financial reporting of Carbonite, 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.
117
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
August 5, 2020
118
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 $20,906 as of June 30,
2020 and $17,011 as of June 30, 2019 (note 4)
Contract assets (note 3)
Income taxes recoverable (note 15)
Prepaid expenses and other current assets
Total current assets
Property and equipment (note 5)
Operating lease right of use assets (note 6)
Long-term contract assets (note 3)
Goodwill (note 7)
Acquired intangible assets (note 8)
Deferred tax assets (note 15)
Other assets (note 9)
Long-term income taxes recoverable (note 15)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 10)
Current portion of long-term debt (note 11)
Operating lease liabilities (note 6)
Deferred revenues (note 3)
Income taxes payable (note 15)
Total current liabilities
Long-term liabilities:
Accrued liabilities (note 10)
Pension liability (note 12)
Long-term debt (note 11)
Long-term operating lease liabilities (note 6)
Deferred revenues (note 3)
Long-term income taxes payable (note 15)
Deferred tax liabilities (note 15)
Total long-term liabilities
Shareholders’ equity:
Share capital and additional paid-in capital (note 13)
271,863,354 and 269,834,442 Common Shares issued and outstanding at June 30, 2020
and June 30, 2019, respectively; authorized Common Shares: unlimited
Accumulated other comprehensive income (note 21)
Retained earnings
Treasury stock, at cost (622,297 shares at June 30, 2020 and 802,871 shares at June 30, 2019,
respectively)
Total OpenText shareholders' equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
Guarantees and contingencies (note 14)
Related party transactions (note 25)
Subsequent events (note 26)
June 30, 2020
June 30, 2019
$
1,692,850
$
941,009
466,357
29,570
61,186
136,436
2,386,399
244,555
207,869
15,427
4,672,356
1,612,564
911,565
154,467
29,620
10,234,822
373,314
610,000
64,071
812,218
44,630
1,904,233
34,955
73,129
3,584,311
217,165
94,382
171,200
148,738
4,323,880
$
$
1,851,777
17,825
2,159,396
(23,608)
4,005,390
1,319
4,006,709
10,234,822
$
$
$
$
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
See accompanying Notes to Consolidated Financial Statements
119
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
Revenues (note 3):
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 8)
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 8)
Special charges (recoveries) (note 18)
Total operating expenses
Income from operations
Other income (expense), net (note 23)
Interest and other related expense, net
Income before income taxes
Provision for (recovery of) income taxes (note 15)
Net income
Net (income) loss attributable to non-controlling interests
Net income attributable to OpenText
Earnings per share—basic attributable to OpenText (note 24)
Earnings per share—diluted attributable to OpenText (note 24)
Weighted average number of Common Shares outstanding—basic (in
'000's)
Weighted average number of Common Shares outstanding—diluted (in
'000's)
Year Ended June 30,
2020
2019
2018
$
$
$
$
$
402,851
1,157,686
1,275,586
273,613
3,109,736
11,321
449,940
123,894
212,903
205,717
1,003,775
2,105,961
370,411
585,044
237,532
89,458
219,559
100,428
1,602,432
503,529
(11,946)
(146,378)
345,205
110,837
234,368
(143)
234,225
0.86
0.86
$
$
428,092
907,812
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
$
$
$
$
$
$
$
$
437,512
828,968
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
270,847
268,784
266,085
271,817
269,908
267,492
See accompanying Notes to Consolidated Financial Statements
120
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
Net income for the period
$
234,368
$
285,637
$
242,300
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments
(7,784)
(3,882)
(9,582)
Year Ended June 30,
2020
2019
2018
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect of
($599), $6 and ($171) for the year ended June 30, 2020, 2019
and 2018, respectively
(Gain) loss reclassified into net income - net of tax (expense)
recovery effect of $355, $539 and ($489) for the year ended June
30, 2020, 2019 and 2018, respectively
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect of
$1,219, ($2,004) and ($1,846) for the year ended June 30, 2020,
2019 and 2018, respectively
Amortization of actuarial (gain) loss into net income - net of tax
(expense) recovery effect of $520, $292 and $183 for the year
ended June 30, 2020, 2019 and 2018, respectively
Release of unrealized gain on marketable securities - net of tax
effect of nil for the year ended June 30, 2020, 2019, and 2018
respectively
(1,662)
16
(476)
985
1,494
(1,357)
1,245
(7,421)
(3,383)
917
—
272
—
260
(617)
Total other comprehensive income (loss) net, for the period
(6,299)
(9,521)
(15,155)
Total comprehensive income
228,069
276,116
227,145
Comprehensive (income) loss attributable to non-controlling interests
(143)
(136)
(76)
Total comprehensive income attributable to OpenText
$
227,926
$
275,980
$
227,069
See accompanying Notes to Consolidated Financial Statements
121
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
Balance as of June 30, 2017
Issuance of Common Shares
Under employee stock option plans
Under employee stock purchase plans
Share-based compensation
Issuance of treasury stock
Dividends 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
Common Shares and
Additional Paid in Capital
Treasury Stock
Shares
Amount
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
264,060
$1,613,454
(1,102) $ (27,520) $1,897,624
$
48,800
$
961
$ 3,533,319
2,870
721
—
—
—
54,355
20,458
27,594
(8,788)
—
—
—
—
411
—
—
—
—
8,788
—
—
—
—
—
(145,613)
—
—
—
—
—
—
—
—
—
—
54,355
20,458
27,594
—
(145,613)
—
—
267,651
—
—
$1,707,073
—
—
—
—
242,224
—
(691) $ (18,732) $1,994,235
$
(15,155)
—
33,645
$
—
76
1,037
(15,155)
242,300
$ 3,717,258
Under employee stock option plans
Under employee stock purchase plans
1,472
711
35,626
21,835
26,770
—
(16,465)
—
—
—
—
—
—
—
—
—
(726)
614
(26,499)
16,465
—
—
—
—
—
—
—
—
—
—
—
(168,859)
(26,780)
29,786
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
35,626
21,835
26,770
(26,499)
—
(168,859)
(26,780)
29,786
—
—
—
—
—
—
—
—
—
269,834
—
(625)
—
$1,774,214
—
—
—
—
—
—
—
285,501
—
(803) $ (28,766) $2,113,883
$
(9,521)
—
—
24,124
$
—
42
136
1,215
(9,521)
(583)
285,637
$ 3,884,670
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
Balance as of June 30, 2019
Issuance of Common Shares
Under employee stock option plans
Under employee stock purchase plans
1,530
499
Share-based compensation
Purchase of treasury stock
Issuance of treasury stock
Dividends declared
($0.6984 per Common Share)
Other comprehensive income - net
Non-controlling interest
Net income for the year
—
—
—
—
—
—
—
41,282
17,757
29,532
—
—
—
—
—
—
—
(300)
(12,424)
(11,008)
481
17,582
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(188,712)
—
—
234,225
—
—
—
—
—
—
(6,299)
—
—
—
—
—
—
—
—
—
(39)
143
41,282
17,757
29,532
(12,424)
6,574
(188,712)
(6,299)
(39)
234,368
Balance as of June 30, 2020
271,863
$1,851,777
(622) $ (23,608) $2,159,396
$
17,825
$
1,319
$ 4,006,709
See accompanying Notes to Consolidated Financial Statements
122
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:
2020
Year Ended June 30,
2019
2018
$
234,368
$
285,637
$
242,300
Depreciation and amortization of intangible assets
Share-based compensation expense
Pension expense
Amortization of debt issuance costs
Amortization of deferred charges and credits
Accelerated amortization of right of use assets (note 18)
Loss on extinguishment of debt
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
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
Operating lease assets and liabilities, net
Net cash provided by operating activities
Cash flows from investing activities:
Additions of property and equipment
Purchase of XMedius
Purchase of Carbonite, Inc., net of cash and restricted cash acquired
Purchase of Dynamic Solutions Group Inc.
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
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
514,734
29,532
5,802
4,633
—
36,864
17,854
9,714
—
51,388
(8,700)
—
84,499
(40,301)
(6,897)
(35,086)
30,613
25,306
1,127
(914)
954,536
(72,709)
(73,335)
(1,305,097)
(4,149)
—
—
—
—
—
(14,127)
(1,469,417)
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)
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)
Proceeds from issuance of Common Shares from exercise of stock options and
ESPP
66,600
57,889
75,935
Proceeds from long-term debt and Revolver
Repayment of long-term debt and Revolver
Debt extinguishment costs (note 23)
Debt 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
$
3,150,000
(1,713,631)
(11,248)
(21,806)
(12,424)
—
(188,712)
1,268,779
(178)
753,720
943,543
1,697,263
$
—
(10,000)
—
(322)
(26,499)
(583)
(168,859)
(148,374)
(3,826)
259,552
683,991
943,543
$
1,200,000
(1,149,620)
—
(4,375)
—
—
(145,613)
(23,673)
(2,186)
237,781
446,210
683,991
123
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
Reconciliation of cash, cash equivalents and restricted cash:
June 30, 2020
June 30, 2019
June 30, 2018
Cash and cash equivalents
Restricted cash (1)
Total cash, cash equivalents and restricted cash
$
$
1,692,850
4,413
1,697,263
$
$
941,009
2,534
943,543
$
$
682,942
1,049
683,991
(1) Restricted cash is classified under the Prepaid expenses and other current assets and Other assets line items on the Consolidated Balance
Sheets
Supplemental cash flow disclosures (note 22)
See accompanying Notes to Consolidated Financial Statements
124
OPEN TEXT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended June 30, 2020
(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, 2020, were 70% and 81% owned, respectively, by OpenText. All intercompany balances and transactions have been
eliminated.
Throughout this Annual Report on Form 10-K: (i) the term "Fiscal 2021" means our fiscal year beginning on July 1, 2020
and ending June 30, 2021; (ii) the term “Fiscal 2020” means our fiscal year beginning on July 1, 2019 and ended June 30,
2020; (iii) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30, 2019; (iv) the term
“Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ended June 30, 2018; and (v) the term “Fiscal 2017” means
our fiscal year beginning on July 1, 2016 and ended June 30, 2017.
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 certain assets and liabilities of Dynamic Solutions Group Inc.
(The Fax Guys), with effect from December 2, 2019, the financial results of Carbonite, Inc. (Carbonite), with effect from
December 24, 2019 and the financial results of XMedius with effect from March 9, 2020 (see note 19 "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.
In March 2020, COVID-19 was characterized as a pandemic by the World Health Organization. The spread of COVID-19
continues to significantly impact the global economy. As the impacts of the pandemic continue to evolve, estimates and
assumptions about future events and their effects cannot be determined with certainty and therefore require increased judgment.
As of June 30, 2020, we have recorded certain estimates resulting from the pandemic, particularly with respect to the
COVID-19 Restructuring Plan and allowance for doubtful accounts, based on management's estimates and assumptions
utilizing the most currently available information. Such estimates may be subject to change particularly given the
unprecedented nature of the COVID-19 pandemic. We will continue to monitor the potential impact of COVID-19 on our
financial statements and related disclosures, including the need for additional estimates going forward, which could include
costs related to potential items such as special charges, restructurings, asset impairments and other non-recurring costs. Please
see note 18 "Special Charges (Recoveries)" and "Risk Factors" included within Part I Item 1A of this Annual Report on Form
10-K.
Impact of Recently Adopted Accounting Pronouncements
Leases
Effective July 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02 “Leases (Topic 842)” (Topic 842)
using the modified retrospective transition approach. In accordance with this adoption method, results for reporting periods as
of July 1, 2019 are presented under the new standard, while prior period results continue to be reported under the previous
standard. Additionally, we elected the package of practical expedients permitted under the transition guidance within Topic 842,
which allowed us to (i) carry forward the historical lease classification for any expired or existing leases, (ii) not reassess
125
whether any expired or existing contracts contain leases and (iii) not reassess any initial direct cost for existing leases. We did
not elect the practical expedient of hindsight when determining the lease term of existing contracts at the effective date. As a
result of this adoption, we recorded the following adjustments as of July 1, 2019 on the Consolidated Balance Sheets:
• An increase in operating lease right of use assets of $217.5 million;
• An increase in total operating lease liabilities of $253.5 million;
• A decrease in prepaid expenses and other current assets of $6.6 million in connection with lease fair value adjustments
and prepaid rent;
• A decrease in other assets of $0.2 million in connection with lease fair value adjustments; and
• A decrease in total accrued liabilities of $42.8 million in connection with tenant allowances, deferred rent, lease fair
value adjustments, and amounts payable in respect of restructured facilities.
The adoption of Topic 842 had no impact to the Consolidated Statements of Income, Consolidated Statements of
Comprehensive Income, Consolidated Statement of Shareholders' Equity or Consolidated Statements of Cash Flows. Please
refer to note 2 "Accounting Policies and Recent Accounting Pronouncements" and note 6 “Leases” for additional information.
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 and 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, 2020 and 2019.
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 Sheets when they are no longer in use. Please see the "Impairment of long-lived assets" section below for policy on
property and equipment impairments. The following represents the estimated useful lives of property and equipment as of June
30, 2020:
Furniture and fixtures
Office equipment
Computer hardware
Computer software
Capitalized software
Leasehold improvements
Building
5 years
5 years
3 to 5 years
3 to 7 years
3 to 5 years
Lesser of the lease term or 5 years
40 years
126
Capitalized Software
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, 2020 and 2019 our capitalized software development costs were $111.2 million and $95.7 million,
respectively. Our additions, relating to capitalized software development costs, incurred during Fiscal 2020 and Fiscal 2019
were $15.4 million and $14.3 million, respectively.
Leases
We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and
equipment for use in the ordinary course of business. Leases with an initial term of 12 months or less are not recorded on the
Consolidated Balance Sheets and we do not have any material finance leases. In accordance with ASC Topic 842
"Leases" (Topic 842), we account for a contract as a lease when we have the right to direct the use of the asset for a period of
time while obtaining substantially all of the asset’s economic benefits. We determine the initial classification and measurement
of our right of use (ROU) assets and lease liabilities at the lease commencement date and thereafter if modified. Refer to note 6
"Leases" for our full policy.
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.
127
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, ROU assets 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 2020, Fiscal 2019 and Fiscal
2018.
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, "desktop as a service" (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 Information Management 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 quantitative assessment of the impairment test is performed. In the quantitative
assessment, 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, 2020. 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
2020 (no impairments were recorded for Fiscal 2019 and Fiscal 2018).
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 which are generally recorded within "General and
administrative" expense in our Consolidated Statements of Income. 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.
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 premise (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 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
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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 does not take possession of the software, as well as from end-to-end fully outsourced 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 PaaS, 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 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.
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
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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 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.
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
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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 SSP basis.
Standalone selling price
The SSP reflects the price we would charge for a specific product or service if it were sold separately in similar
circumstances and to similar customers. In most cases we can 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). Typically, we conclude that the resellers are Open Text customers in our reseller agreements. The resellers have
control over the pricing, 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
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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. However, we do
offer consumers who purchase certain of our products on-line directly from us an unconditional full 70-days money-back
guarantee. Distributors and resellers are also permitted to return the consumer products, subject to certain limitations.
Revenue is reduced for such rights based on the estimate of future returns originating from contractual agreements with
these customers.
Additionally, 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.
Certain of our subscription services and product support arrangements generally contain performance response time
guarantees. For subscription services arrangements, we estimate variable consideration using a portfolio approach because
performance penalties are tied to standard response time requirements. For product support arrangements, we estimate
variable consideration on a contract basis because such arrangements are customer-specific. For both subscription services
and product support arrangements, we use an expected value approach to estimate variable consideration based on
historical business practices and current and future performance expectations to determine the likelihood of incurring
penalties.
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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 / SaaS
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)
Customer support revenue:
When and if available updates and upgrades and technical
support
Professional service and other revenue:
Professional services
Ratable over the course of the service term (over time)
As the services are provided (over time)
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 current assets", while
our long-term capitalized costs to obtain a contract are included in "Other assets" on our Consolidated Balance Sheets.
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
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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. The first step is to evaluate the tax position for
recognition by determining if the weight of the available evidence indicates it is more likely than not, based solely on the
technical merits, that the position will be sustained on audit, including the 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 15 "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 16 "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
are recorded 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 2020, Fiscal
2019 and Fiscal 2018 were $(4.2) million, $(4.3) million, and $4.8 million, respectively.
Restructuring charges
We record restructuring charges relating to contractual lease obligations, not accounted for under ASC 842, 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 not accounted for under ASC 842.
The recognition of restructuring charges requires us to make certain judgments regarding the nature, timing and amount
associated with the planned restructuring activities, including estimating sub-lease income and the net recoverable amount of
equipment to be disposed of. At the end of each reporting period, we evaluate the appropriateness of the remaining accrued
balances (see note 18 "Special Charges (Recoveries)" for more details).
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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 Annual Report on
Form 10-K, the aggregate of such accrued liabilities 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. As
described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain
disclosed matters (see note 14 "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 24 "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 13 "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 12 "Pension Plans and Other Post Retirement Benefits" for
more details).
Accounting Pronouncements Adopted in Fiscal 2020
During Fiscal 2020, we have adopted the following ASUs, in addition to those discussed in note 1 "Basis of
Presentation". The ASUs listed below did not have a material impact to our reported financial position, results of operations or
cash flows:
• ASU No. 2017-12 “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging
Activities” (ASU 2017-12)
• 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”
136
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. We will adopt ASU 2018-14 in the first quarter of our fiscal year ending June 30, 2021. The effect on our
Consolidated Financial Statements and related disclosures is not expected to be material.
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, ASU 2019-05, ASU 2019-11, and ASU
2020-02 (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. We will adopt Topic 326 in the first quarter of our fiscal year
ending June 30, 2021 by applying a cumulative effect adjustment to retained earnings. The effect on our Consolidated Financial
Statements and related disclosures is not expected to be material.
NOTE 3—REVENUES
Disaggregation of Revenue
We have four revenue streams: license, cloud services and subscriptions, customer support, and professional service and
other. 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:
Total Revenues by Geography:
Americas (1)
EMEA (2)
Asia Pacific (3)
Total revenues
Total Revenues by Type of Performance Obligation:
Recurring revenues (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
137
Year Ended June 30,
2020
2019
1,903,650
$
942,281
263,805
3,109,736
$
1,683,282
920,422
265,051
2,868,755
Year Ended June 30,
2020
2019
1,157,686
1,275,586
2,433,272
402,851
273,613
3,109,736
402,851
2,706,885
3,109,736
$
$
$
$
$
907,812
1,247,915
2,155,727
428,092
284,936
2,868,755
428,092
2,440,663
2,868,755
$
$
$
$
$
$
$
(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 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.
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, 2020
As of June 30, 2019
$
$
$
$
29,570
15,427
812,218
94,382
$
$
$
$
20,956
15,386
641,656
46,974
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, 2020, we reclassified $33.0 million (year ended June 30, 2019—$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, 2020 and 2019,
there was no significant impairment loss recognized related to contract assets.
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, 2020 that was included in the deferred revenue balances at June 30, 2019 was $631
million (year ended June 30, 2019—$617 million).
Incremental Costs of Obtaining a Contract with a Customer
The following table summarizes the changes in total capitalized costs 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
New capitalized costs incurred
Amortization of capitalized costs
Adjustments on account of foreign exchange
Capitalized costs to obtain a contract as of June 30, 2020
$
$
35,151
24,347
(11,003)
(211)
48,284
29,427
(16,919)
371
61,163
During the year ended June 30, 2020 and 2019, there was no significant impairment loss recognized related to capitalized
costs to obtain a contract. Refer to note 2 "Accounting Policies and Recent Accounting Pronouncements" for additional
information on incremental costs of obtaining a contract.
Transaction Price Allocated to the Remaining Performance Obligations
As of June 30, 2020, approximately $1.4 billion of revenue is expected to be recognized from remaining performance
obligations on existing contracts. We expect to recognize approximately 46% of this amount over the next 12 months and the
138
remaining balance thereafter. We apply the practical expedient and do not disclose performance obligations that have original
expected durations of one year or less.
Refer to note 2 "Accounting Policies and Recent Accounting Pronouncements" for additional information on our revenue
policy.
NOTE 4—ALLOWANCE FOR DOUBTFUL ACCOUNTS
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
Bad debt expense
Write-off /adjustments
Balance as of June 30, 2020
$
$
6,319
9,942
(6,520)
9,741
13,461
(6,191)
17,011
11,461
(7,566)
20,906
Included in accounts receivable are unbilled receivables in the amount of $55.2 million as of June 30, 2020 (June 30,
2019—$56.1 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, 2020
Accumulated
Depreciation
Net
Cost
39,158
2,272
294,745
127,299
111,202
111,384
49,268
735,328
$
$
(28,473) $
(1,329)
(198,194)
(103,057)
(70,015)
(74,395)
(15,310)
(490,773) $
10,685
943
96,551
24,242
41,187
36,989
33,958
244,555
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
$
$
$
$
139
NOTE 6—LEASES
We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and
equipment for use in the ordinary course of business. The duration of the majority of these leases generally range from 1 to 10
years, some of which include options to extend for an additional 3 to 5 years after the initial term. Additionally, the land upon
which our headquarters in Waterloo, Ontario, Canada is located, 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. Leases with an initial term of 12
months or less are not recorded on the Consolidated Balance Sheets and we do not have any material finance leases.
We account for a contract as a lease when we have the right to direct the use of the asset for a period of time while
obtaining substantially all of the asset’s economic benefits. We determine the initial classification and measurement of our right
of use (ROU) assets and lease liabilities at the lease commencement date and thereafter if modified.
ROU assets represent our right to control the underlying assets under lease, and the lease liability is our obligation to
make the lease payments related to the underlying assets under lease, over the contractual term. ROU assets and lease liabilities
are recognized on the Consolidated Balance Sheets based on the present value of future minimum lease payments to be made
over the lease term. When available, we will use the rate implicit in the lease to discount lease payments to present value.
However, real estate leases generally do not provide a readily determinable implicit rate, therefore, we must estimate our
incremental borrowing rate to discount the lease payments. We estimate our incremental borrowing rate based on a
collateralized basis with similar terms and payments, in an economic environment where the leased asset is located.
The ROU asset equals the lease liability, adjusted for any initial direct costs, prepaid rent and lease incentives. Fixed
lease costs are included in the recognition of ROU assets and lease liabilities. Variable lease costs are not included in the
measurement of the lease liability. These variable lease payments are recognized in the Consolidated Statements of Income in
the period in which the obligation for those payments is incurred. Consistent with previous lease accounting rules under ASC
Topic 840, lease expense for minimum lease payments continue to be recognized in the Consolidated Statements of Income on
a straight-line basis over the lease term.
We have not elected the practical expedient to combine lease and non-lease components in the determination of lease
costs for our facility leases. For all other asset classes, we have elected the practical expedient to combine the lease and the
non-lease components. The lease liability includes lease payments related to options to extend or renew the lease term only if
we are reasonably certain we will exercise those options. Our leases typically do not contain any material residual value
guarantees or restrictive covenants.
In certain circumstances, we sublease all or a portion of a leased facility, to various other companies through a sublease
agreement.
Lease Costs and Other Information
The following illustrates the various components of operating lease costs for the period indicated:
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
Year Ended June 30, 2020
68,705
$
1,178
3,536
(6,035)
67,384
$
The following table summarizes the weighted average remaining lease term and discount rate as of June 30, 2020:
Weighted-average remaining lease term
Weighted-average discount rate
Supplemental Cash Flow Information
6.18 years
3.12%
The following table presents supplemental information relating to cash flows arising from lease transactions. Cash
payment made for variable lease cost and short-term lease are not included in the measurement of operating lease liabilities,
and, as such, are excluded from the amounts below:
140
Cash paid for amounts included in the measurement of operating lease liabilities:
Right of use assets obtained in exchange for new operating lease liabilities(1) :
(1) Excludes the impact of $60.1 million of ROU assets acquired as part of the acquisition of Carbonite and $2.9 million of ROU
assets acquired as part of the acquisition of XMedius during the year ended June 30, 2020.
71,900
32,328
$
$
Year Ended June 30, 2020
Maturity of Lease Liabilities
The following table presents the future minimum lease payments under our operating leases liabilities as of June 30,
2020:
Fiscal years ending June 30,
2021
2022
2023
2024
2025
Thereafter
Total Lease payments
Less: Imputed interest
Total
Reported as:
Current operating lease liabilities
Non-current operating lease liabilities
Total
$
$
$
$
71,577
59,399
45,778
34,077
25,121
72,657
308,609
(27,373)
281,236
64,071
217,165
281,236
Operating lease maturity amounts included in the table above do not include sublease income expected to be received
under our various sublease agreements with third parties. Under the agreements initiated with third parties, we expect to receive
sublease income of $7.6 million in Fiscal 2021, and $19.5 million thereafter. These amounts do not include any potential
sublease income from facilities vacated during the fourth quarter of Fiscal 2020 under our COVD-19 restructuring plan.
The following table presents the future minimum lease payments under our operating leases, based on the expected due
dates of the various agreements as of June 30, 2019, as previously reported in our Annual Report on Form 10-K for the year
ended June 30, 2019, prior to the adoption of Topic 842:
Fiscal years ending June 30,
2020
2021
2022
2023
2024
Thereafter
Total minimum lease payments (1)
$
$
72,853
59,451
46,943
33,871
25,570
80,163
318,851
(1) Net of $30.7 million of sublease income to be received from properties which we have subleased to third parties.
141
NOTE 7—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, 2018:
Balance as at June 30, 2018
Acquisition of Catalyst (note 19)
Acquisition of Liaison (note 19)
Adjustments on account of foreign exchange
Balance as of June 30, 2019
Acquisition of XMedius (note 19)
Acquisition of Carbonite (note 19)
Acquisition of The Fax Guys (note 19)
Adjustments relating to acquisitions prior to Fiscal 2020 that had open measurement periods (note 19)
Adjustments on account of foreign exchange
Balance as of June 30, 2020
NOTE 8—ACQUIRED INTANGIBLE ASSETS
$
$
Technology assets
Customer assets
Total
Technology assets
Customer assets
Total
Cost
1,084,144
1,434,832
2,518,976
Cost
835,498
1,397,937
2,233,435
$
$
$
$
As of June 30, 2020
Accumulated
Amortization
(502,376) $
(404,036)
(906,412) $
As of June 30, 2019
Accumulated
Amortization
(349,259) $
(737,672)
(1,086,931) $
$
$
$
$
3,580,129
30,973
163,592
(4,786)
3,769,908
49,633
853,162
1,951
1,476
(3,774)
4,672,356
Net
581,768
1,030,796
1,612,564
Net
486,239
660,265
1,146,504
Where applicable, the above balances as of June 30, 2020 have been reduced to reflect the impact of intangible assets
where the gross cost has become fully amortized during the year ended June 30, 2020. The impact of this resulted in a reduction
of $52.6 million to technology assets and $553.2 million to customer assets.
The weighted average amortization periods for acquired technology and customer intangible assets are approximately
five years and seven 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,
2021
2022
2023
2024
2025
2026 and beyond
Total
$
$
432,514
396,799
314,979
234,580
122,320
111,372
1,612,564
142
NOTE 9—OTHER ASSETS
Deposits and restricted cash
Capitalized costs to obtain a contract
Investments
Long-term prepaid expenses and other long-term assets
Total
As of June 30, 2020
As of June 30, 2019
$
$
11,612
43,029
76,002
23,824
154,467
$
$
13,671
35,593
67,002
32,711
148,977
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.
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 investment funds 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 (see note 23 "Other Income (Expense), Net"). During the year ended June 30, 2020, our share of income
(loss) from these investments was $8.7 million (year ended June 30, 2019 and 2018 — $13.7 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 10—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities:
Accounts payable—trade
Accrued salaries and commissions
Accrued liabilities(1)
Accrued interest on Senior Notes
Amounts payable in respect of restructuring and other Special charges(1)
Asset retirement obligations
Total
Long-term accrued liabilities:
Amounts payable in respect of restructuring and other Special charges(1)
Other accrued liabilities(1)
Asset retirement obligations
Total
As of June 30, 2020
As of June 30, 2019
41,469
$
155,496
129,048
30,761
12,185
4,355
373,314
$
46,323
131,430
117,551
24,786
8,153
1,660
329,903
As of June 30, 2020
As of June 30, 2019
13,768
8,215
12,972
34,955
$
$
4,804
30,338
14,299
49,441
$
$
$
$
(1) Previously, in Fiscal 2019, tenant allowances, deferred rent, lease fair value adjustments and amounts payable relating to
restructured facilities were included in total accrued liabilities. Effective July 1, 2019, these balances were reclassified to
operating lease right of use assets in accordance with the adoption of Topic 842. See note 1 "Basis of Presentation" and note 6
"Leases" for more information.
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, 2020, the present value of this obligation was $17.3 million (June 30, 2019—$16.0 million), with an undiscounted
value of $18.7 million (June 30, 2019—$17.6 million).
143
NOTE 11—LONG-TERM DEBT
Total debt
Senior Notes 2030
Senior Notes 2028
Senior Notes 2026
Senior Notes 2023
Term Loan B
Revolver
Total principal payments due
Premium on Senior Notes 2026
Debt issuance costs
Total amount outstanding
Less:
Current portion of long-term debt
Term Loan B
Revolver
Total current portion of long-term debt
As of June 30, 2020
As of June 30, 2019
$
$
900,000
900,000
850,000
—
977,500
600,000
4,227,500
4,756
(37,945)
4,194,311
10,000
600,000
610,000
—
—
850,000
800,000
987,500
—
2,637,500
5,405
(28,027)
2,614,878
10,000
—
10,000
Non-current portion of long-term debt
$
3,584,311
$
2,604,878
Senior Unsecured Fixed Rate Notes
Senior Notes 2030
On February 18, 2020, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $900 million
in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) 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
2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing
on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their
terms, or repurchased.
For the year ended June 30, 2020, we recorded interest expense of $13.7 million relating to Senior Notes 2030.
Senior Notes 2028
On February 18, 2020, we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior
Notes 2028) 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 2028 bear interest at a
rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020.
Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.
For the year ended June 30, 2020, we recorded interest expense of $12.9 million relating to Senior Notes 2028.
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.
144
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, 2020, we recorded interest expense of $49.9 million relating to Senior Notes 2026 (year
ended June 30, 2019 and 2018— $49.9 million, respectively).
Senior Notes 2023
On January 15, 2015, we issued $800 million in aggregate principal amount of 5.625% Senior Notes due 2023 (Senior
Notes 2023) 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 bore 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 were to mature on January 15, 2023, unless earlier redeemed, in accordance with their terms, or repurchased.
On March 5, 2020, we redeemed Senior Notes 2023 in full at a price equal to 101.406% of the principal amount plus
accrued and unpaid interest up to but excluding the redemption date. A portion of the proceeds from the offerings of Senior
Notes 2028 and Senior Notes 2030 was used to redeem Senior Notes 2023. Upon redemption, Senior Notes 2023 were
cancelled and any obligation thereunder was extinguished. The resulting loss of $17.9 million has been recorded as a
component of "Other income (expense), net" in our Consolidated Statements of Income. See note 23 "Other Income (Expense),
Net".
For the year ended June 30, 2020, we recorded interest expense of $30.6 million relating to Senior Notes 2023 (year
ended June 30, 2019 and 2018— $45.0 million, respectively).
Notes due 2022
Following our acquisition of Carbonite (see note 19 "Acquisitions"), our consolidated debt reflected $143.8 million of
principal debt convertible notes (Notes due 2022). Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an
unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes due 2022 were
issued under an Indenture (the 2022 Notes Indenture) between Carbonite and U.S. Bank National Association, as trustee (the
2022 Notes Trustee). The Notes due 2022 accrued interest at 2.5% per year, which was payable semiannually in arrears on
April 1 and October 1 of each year. The Notes due 2022 were to mature on April 1, 2022, unless earlier repurchased, redeemed
or converted. Carbonite, now a subsidiary of OpenText, was the sole obligor on the Notes due 2022.
In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022
Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental
Indenture). The 2022 Notes Supplemental Indenture provided that, at and after the effective time of our acquisition of
Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such
principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022
Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00, which was
the price per share we paid in connection with our acquisition of Carbonite.
As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by
7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of
Notes due 2022. The increased Conversion Rate was in effect until the close of business on February 27, 2020. As of February
27, 2020, all Notes due 2022 had been surrendered and converted at a rate of $1,068.7341 in cash for each $1,000 principal
amount. As of such date, there are no remaining Notes due 2022 outstanding.
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, 2020, the
outstanding balance on the Term Loan B bears an interest rate of 1.92%. For more information regarding the impact of LIBOR,
see "-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" included within Part I, Item 1A of this Annual Report on Form 10-K.
145
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, 2020, our consolidated
net leverage ratio was 2.0:1.
For the year ended June 30, 2020, we recorded interest expense of $33.3 million relating to Term Loan B (year ended
June 30, 2019 and 2018— $41.1 million and $27.9 million, respectively).
Revolver
On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total
commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to
October 31, 2024. 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, 2020, the outstanding balance on the Revolver bears an interest rate of
1.94%. For more information regarding the impact of LIBOR, see "-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" included within Part I, Item 1A of this
Annual Report on Form 10-K.
Under the Revolver, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial
quarter. As of June 30, 2020, our consolidated net leverage ratio was 2.0:1.
During the second quarter of Fiscal 2020, we drew down $750 million from the Revolver to partially fund the acquisition
of Carbonite. In February 2020, we repaid $750 million drawn under the Revolver with a portion of the use of proceeds from
the Senior Notes 2030 and Senior Notes 2028. In March 2020, we drew down $600 million from the Revolver as a preemptive
measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global
markets resulting from the COVID-19 pandemic. The proceeds from the $600 million draw down are presented within "Cash
and cash equivalents" and within the "Current portion of long-term debt" in our Consolidated Balance Sheet as of June 30,
2020.
As of June 30, 2020, we have outstanding borrowings of $600 million under the Revolver (June 30, 2019—nil) and $150
million remains available to be drawn.
During the year ended June 30, 2020, we recorded interest expense relating to amounts drawn of $7.7 million.
As of June 30, 2019, we had 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.
During the year ended June 30, 2018, we repaid $375.0 million and recorded interest expense of $9.0 million relating to
amounts drawn on the Revolver.
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 2026, Senior Notes 2028 and Senior Notes 2030 (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.
146
NOTE 12—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, 2020 and June 30, 2019:
CDT defined benefit plan
GXS GER defined benefit plan
GXS PHP defined benefit plan
Other plans
Total
CDT defined benefit plan
GXS GER defined benefit plan
GXS PHP defined benefit plan
Other plans
Total
Total benefit
obligation
As of June 30, 2020
Current portion of
benefit obligation(1)
Non-current portion of
benefit obligation
$
$
$
$
32,851
24,105
10,270
8,590
75,816
Total benefit
obligation
35,836
26,739
6,904
8,052
77,531
$
$
$
$
777
943
115
852
2,687
$
$
32,074
23,162
10,155
7,738
73,129
As of June 30, 2019
Current portion of
benefit obligation(1)
Non-current portion of
benefit obligation
675
1,012
124
481
2,292
$
$
35,161
25,727
6,780
7,571
75,239
(1) 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 10 "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, 2020, there is $0.7 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, 2020, there is $0.1
million in accumulated other comprehensive income related to the GXS GER plan that is expected to be recognized as a
component of net periodic benefit costs over the next fiscal year.
147
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 $0.04 million as of June 30, 2020, 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, 2020, there is an immaterial amount 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.
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, 2020
As of June 30, 2019
CDT
GXS GER GXS PHP
Total
CDT
GXS GER GXS PHP
Total
Benefit obligation—beginning of
fiscal year
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
$ 35,836
572
459
(644)
(3,073)
(299)
32,851
(777)
$ 26,739
319
337
(926)
(2,083)
(281)
24,105
(943)
$ 6,904
1,247
368
(792)
2,333
210
10,270
(115)
$ 69,479
2,138
1,164
(2,362)
(2,823)
(370)
67,226
(1,835)
$ 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)
$ 32,074
$ 23,162
$ 10,155
$ 65,391
$ 35,161
$ 25,727
$ 6,780
$ 67,668
The following are details of net pension expense relating to the following pension plans:
2020
CDT
GXS
GER
GXS
PHP
Total
CDT
Year Ended June 30,
2019
GXS
GER
GXS
PHP
2018
Total
CDT
GXS
GER
GXS
PHP
Total
$ 572
$ 319
$1,247
$2,138
$ 550
$ 566
$ 771
$1,887
$ 501
$ 472
$ 832
$1,805
459
337
368
1,164
642
489
300
1,431
607
489
241
1,337
939
244
(288)
895
696
130
(562)
264
541
72
(241)
372
$1,970
$ 900
$1,327
$4,197
$1,888
$1,185
$ 509
$3,582
$1,649
$1,033
$ 832
$3,514
Pension
expense:
Service cost
Interest cost
Amortization
of actuarial
(gains) and
losses
Net pension
expense
Service-related net periodic pension costs are recorded within operating expense and all other non-service related net
periodic pension costs are classified under "Other income (expense), net" on our Consolidated Statements of Income.
148
In determining the fair value of the pension plan benefit obligations as of June 30, 2020 and June 30, 2019, respectively,
we used the following weighted-average key assumptions:
Assumptions:
Salary increases
Pension increases
Discount rate
Normal retirement age
Employee fluctuation rate:
to age 20
to age 25
to age 30
to age 35
to age 40
to age 45
to age 50
from age 51
As of June 30, 2020
As of June 30, 2019
CDT
GXS GER
GXS PHP
CDT
GXS GER
GXS PHP
1.75%
1.50%
1.46%
65-67
—%
—%
1.00%
0.50%
—%
0.50%
0.50%
1.00%
2.50%
2.00%
1.46%
65-67
—%
—%
—%
—%
—%
—%
—%
—%
6.50%
N/A
3.50%
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
—%
—%
—%
—%
—%
—%
—%
—%
6.50%
N/A
5.00%
60
12.19%
16.58%
13.97%
10.77%
7.39%
3.28%
—%
—%
Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:
2021
2022
2023
2024
2025
2026 to 2030
Total
Other Plans
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
777
839
934
1,037
1,082
6,209
10,878
$
$
943
971
971
978
1,006
4,934
9,803
$
$
115
403
213
282
339
2,907
4,259
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 13—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS
Cash Dividends
For the year ended June 30, 2020, pursuant to the Company’s dividend policy, we declared total non-cumulative
dividends of $0.6984 per Common Share in the aggregate amount of $188.7 million, which we paid during the same period
(year ended June 30, 2019 and 2018—$0.6300 and $0.5478 per Common Share, respectively, in the aggregate amount of
$168.9 million and $145.6 million, respectively).
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.
149
Treasury Stock
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, 2020, we repurchased 300,000 of our Common Shares in the open market, at a cost of
$12.4 million for potential reissuance under our LTIP or other plans (year ended June 30, 2019 and 2018—726,059 and nil,
respectively, at a cost of $26.5 million and nil, respectively), described below.
During the year ended June 30, 2020, we reissued 480,574 Common Shares from treasury stock (year ended June 30,
2019 and 2018—613,524 and 411,276 Common Shares, respectively), in connection with the settlement of awards and other
plans.
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
35,140,648
(19,192,995)
(8,518,116)
7,429,537
Immediately “for cause”; 90 days for any other reason; 180 days due to death
25% per year, unless otherwise specified
$16.58 - $44.99
8/2/2020 - 5/4/2027
The following table summarizes information regarding stock options outstanding at June 30, 2020:
Range of Exercise
Prices
Number of options
Outstanding as of
June 30, 2020
Options Outstanding
Options Exercisable
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Number of options
Exercisable as of
June 30, 2020
Weighted
Average
Exercise
Price
$ 16.58 - $
27.47 -
31.51 -
33.18 -
34.61 -
37.55 -
38.31 -
39.03 -
39.99 -
43.07 -
$ 16.58 - $
27.46
31.50
33.17
34.60
37.54
38.30
39.02
39.98
43.06
44.99
44.99
960,483
547,692
615,000
867,036
674,760
439,000
730,110
792,686
700,980
1,101,790
7,429,537
25.84
29.37
32.64
34.10
35.86
37.84
38.76
39.35
40.51
44.99
36.18
960,483 $
405,982
66,667
399,065
231,006
—
—
185,155
—
—
2,248,358 $
25.84
29.20
32.63
34.00
35.32
—
—
39.36
—
—
30.18
1.39 $
2.91
3.92
4.13
5.17
6.84
6.10
5.23
6.01
6.60
4.78 $
150
Share-Based Payments
Total share-based compensation expense for the periods indicated below is detailed as follows:
Stock options
Performance Share Units (issued under LTIP)
Restricted Share Units (issued under LTIP)
Restricted Share Units (other)
Deferred Share Units (directors)
Employee Share Purchase Plan
Total share-based compensation expense
Summary of Outstanding Stock Options
Year Ended June 30,
2020
2019
2018
9,779
$
10,232
$
5,997
5,943
174
3,345
3,461
5,917
175
3,133
4,294
29,532
$
3,852
26,770
$
9,828
3,553
6,602
936
2,921
3,754
27,594
$
$
As of June 30, 2020, an aggregate of 7,429,537 options to purchase Common Shares were outstanding and an additional
7,540,748 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, 2020 is as follows:
Outstanding at June 30, 2019
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2020
Exercisable at June 30, 2020
Outstanding at June 30, 2018
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2019
Exercisable at June 30, 2019
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
($’000s)
31.82
41.81
26.98
34.51
36.18
30.18
4.10 $
66,656
4.78 $
2.87 $
49,574
27,651
Options
7,102,753
$
2,742,230
(1,529,947)
(885,499)
7,429,537
2,248,358
$
$
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
4.43 $
48,405
4.10 $
3.03 $
66,656
29,950
Options
7,078,435
1,870,340
(1,472,031)
(373,991)
7,102,753
2,176,002
$
$
$
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.
151
We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate
in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future
events or the value ultimately realized by employees who receive equity awards.
For the periods indicated, the weighted-average fair value of options and weighted-average assumptions were as follows:
Weighted–average fair value of options granted
Weighted-average assumptions used:
Expected volatility
Risk–free interest rate
Expected dividend yield
Expected life (in years)
Forfeiture rate (based on historical rates)
Average exercise share price
Year Ended June 30,
2020
2019
2018
$
6.88
$
8.39
$
7.58
22.63%
1.30%
1.64%
4.12
7%
25.72%
2.57%
1.54%
4.44
6%
26.95%
2.18%
1.50%
4.38
6%
$
41.81
$
38.81
$
34.60
As of June 30, 2020, the total compensation cost related to the unvested stock option awards not yet recognized was
$29.7 million, which will be recognized over a weighted-average period of 2.9 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, 2020, cash in the amount of $41.3 million was received as the result of the exercise of
options granted under share-based payment arrangements (year ended June 30, 2019 and 2018—$35.6 million and $54.4
million, respectively). The tax benefit realized by us during the year ended June 30, 2020 from the exercise of options eligible
for a tax deduction was $1.9 million (year ended June 30, 2019 and 2018— $2.9 million and $1.5 million, respectively).
Long-Term Incentive Plans
We incentivize certain eligible employees, 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. 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. Stock options
granted under the LTIPs have been measured using the Black-Scholes option-pricing model, consistent with Topic 718.
As of June 30, 2020, the total expected compensation cost related to the unvested LTIP awards not yet recognized was
$18.2 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 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. We settled the Fiscal 2019 LTIP awards by issuing 255,502 Common
Shares from treasury stock during the three months ended December 31, 2019, with a cost of $9.1 million.
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.
152
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.
Fiscal 2022 LTIP
Grants made in Fiscal 2020 under the LTIP (collectively referred to as Fiscal 2022 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2020 starting on August 5, 2019. 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 2022 LTIP. We
expect to settle the Fiscal 2022 LTIP awards in stock.
Restricted Share Units (RSUs)
During the year ended June 30, 2020, we granted 15,000 RSUs to employees in accordance with employment and other
non-LTIP related agreements (year ended June 30, 2019 and 2018—nil and 4,464, respectively). RSUs vest over a specified
contract date, typically three years from the respective date of grants. We expect to settle RSU awards in stock.
During the year ended June 30, 2020, we issued 3,334 Common Shares from treasury stock, with a cost of $0.1 million in
connection with the settlement of vested RSUs (year ended June 30, 2019 and 2018— 22,627 and 98,625 Common Shares,
respectively, with a cost of $0.7 million and $2.1 million, respectively).
Deferred Share Units (DSUs)
During the year ended June 30, 2020, we granted 82,733 DSUs to certain non-employee directors (year ended June 30,
2019 and 2018 — 100,271 and 87,501 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, 2020, we did not issue shares from treasury stock in connection with the settlement of
vested DSUs (year ended June 30, 2019 and 2018 — 51,794 and nil DSUs, respectively, with a cost of $2.0 million and nil,
respectively).
Employee Share Purchase Plan (ESPP)
Our ESPP offers employees a purchase price discount of 15%.
During the year ended June 30, 2020, 742,961 Common Shares were eligible for issuance to employees enrolled in the
ESPP (year ended June 30, 2019 and 2018— 696,091 and 729,521 Common Shares, respectively).
During the year ended June 30, 2020, cash in the amount of $25.3 million was received from employees relating to the
ESPP (year ended June 30, 2019 and 2018— $22.2 million and $21.5 million, respectively).
153
NOTE 14—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) $
Purchase obligations for
contracts not accounted for as
lease obligations (2)
$
Total
4,668,943
108,572
4,777,515
Payments due between
July 1, 2020 - June
30, 2021
July 1, 2021 - June
30, 2023
July 1, 2023 - June
30, 2025
July 1, 2025
and beyond
$
$
150,929
$
301,274
$
1,226,553
$
2,990,187
47,489
198,418
$
61,083
362,357
$
—
1,226,553
$
—
2,990,187
(1) Includes interest up to maturity and principal payments. Excludes $600 million currently drawn on the Revolver, which we
expect to repay within one year. Please see note 11 "Long-Term Debt" for more details.
(2) For contractual obligations relating to leases and purchase obligations accounted for under Topic 842, please see note 6
"Leases".
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 accrued liabilities 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. As
described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain
disclosed matters.
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.
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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 pursuing various
alternatives available to taxpayers to contest the proposed adjustments, including currently through IRS Appeals and potentially
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, Fiscal 2014 and Fiscal 2015. Assuming the utilization of available tax attributes
(further described below), we estimate our potential aggregate liability, as of June 30, 2020, in connection with the CRA's
reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 to be limited to penalties and interest that may be due
of approximately $44 million.
The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014 and Fiscal 2015 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, Fiscal 2014 and
Fiscal 2015 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013 and
Fiscal 2014, and we will be filing a notice of objection for Fiscal 2015 shortly. We are currently seeking competent authority
consideration under applicable international treaties in respect of these reassessments.
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal
2013, Fiscal 2014 and Fiscal 2015, 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 2016 and Fiscal 2017. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
155
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 $1.2 million to cover our anticipated
financial exposure in this matter.
Carbonite Class Action Complaint
On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action
complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer,
Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and
on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS).
The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made
materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other
things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses,
including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical
complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v.
Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the
“Securities Actions”). On November 21, 2019, the court consolidated the Securities Actions, appointed a lead plaintiff, and
designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the
same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the
Securities Actions on March 10, 2020. The motion was fully briefed in June 2020 and awaits the court's decision. In light of,
among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to
reasonably estimate the amount or range of loss, if any, that could result from this proceeding.
Carbonite vs Realtime Data
On February 27, 2017, prior to our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime
Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas "Realtime Data LLC v.
Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)", alleging that certain of Carbonite’s cloud storage services infringe upon
certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount
and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the
U.S District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent
suits on the asserted patents against other companies around the country. In one of those suits, filed in the U.S. District Court
for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four
patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District Court for the
District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit. As to the
fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain
claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending Carbonite
vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is
inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to
be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this
litigation.
Please also see Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-K.
NOTE 15—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 effective tax rate decreased to a provision of 32.1% for the year ended June 30, 2020, compared to a provision of
35.2% for the year ended June 30, 2019. The decrease in tax expense of $44.1 million was primarily due to (i) a decrease of
$23.7 million relating to lower net income including the impact of foreign rates, (ii) a decrease of $51.3 million for changes in
unrecognized tax benefits, (iii) a decrease of $7.0 million from tax rate differential in tax years applicable to United States loss
carryforwards that became eligible for carryback under the Coronavirus Aid, Relief, and Economic Security (CARES) Act
enacted in the third quarter of Fiscal 2020, and (iv) a decrease of $16.0 million related to tax costs of internal reorganizations
156
that did not recur in Fiscal 2020. These were partially offset by (i) an increase of $25.2 million related to the US Base Erosion
Anti-avoidance Tax (US BEAT), (ii) an increase in accruals for repatriations from foreign subsidiaries of $17.3 million, (iii) an
increase in the effect of withholding taxes of $5.9 million, and (iv) an increase in the change in the valuation allowance of $4.8
million. The remainder of the difference was due to normal course movements and non-material items.
A reconciliation of the combined Canadian federal and provincial income tax rate with our effective income tax rate is as
follows:
Year Ended June 30,
2020
2019
2018
26.5%
26.5%
26.5%
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 US BEAT
Effect of CARES Act
Other Items
$
$
91,479
218
(222)
—
1,215
(19,284)
8,036
933
—
(14,947)
4,233
41,207
(7,009)
4,527
Impact of internal reorganization of subsidiaries
451
110,837
$
$
The following is a geographical breakdown of income before the provision for income taxes:
Domestic income (loss)
Foreign income
Income before income taxes
Year Ended June 30,
2020
2019
241,862
103,343
345,205
$
$
269,331
171,243
440,574
$
$
The provision for (recovery of) income taxes consisted of the following:
116,752
(1,344)
(5,045)
—
(577)
31,992
2,097
(250)
—
(13,550)
(13,112)
16,030
—
5,473
16,471
154,937
$
$
$
$
102,323
2,352
1,779
4,242
4,332
5,543
7,927
1,321
19,037
(3,875)
(1,154)
—
—
(1)
—
143,826
2018
238,405
147,721
386,126
Current income taxes (recoveries):
Domestic
Foreign
Deferred income taxes (recoveries):
Domestic
Foreign
Provision for (recovery of) income taxes
Year Ended June 30,
2020
2019
2018
$
$
12,547
46,902
59,449
68,580
(17,192)
51,388
110,837
$
$
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
As of June 30, 2020, we have $347.0 million of domestic non-capital loss carryforwards. In addition, we have $478.6
million of foreign non-capital loss carryforwards of which $87.7 million have no expiry date. The remainder of the domestic
157
and foreign losses expires between 2021 and 2040. In addition, investment tax credits of $55.0 million will expire between
2021 and 2040.
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,
2020
2019
$
208,248
$
152
160,354
415,516
21,999
60,026
76,031
161,119
155
137,253
683,777
17,845
53,254
59,584
$
$
$
$
$
$
942,326
$
(81,810) $
1,112,987
(77,328)
(14,361) $
(83,328)
(97,689) $
762,827
$
911,565
(148,738)
762,827
$
(14,482)
(72,599)
(87,081)
948,578
1,004,450
(55,872)
948,578
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, 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
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, 2020
$
$
$
177,812
25,642
15,024
—
(9,236)
209,242
7,296
17,853
(20,457)
(18,853)
195,081
Included in the above tabular reconciliation are unrecognized tax benefits of $15.0 million relating to deferred tax assets,
of which $6.0 million would not impact the effective tax rate if reversed. The net unrecognized tax benefit excluding these
deferred tax assets is $180.0 million as of June 30, 2020 (June 30, 2019—$198.1 million).
158
We recognize interest expense and penalties related to income tax matters in income tax expense. For the year ended
June 30, 2020, 2019 and 2018, we recognized the following amounts as income tax-related interest expense and penalties:
Interest expense (recoveries)
Penalties expense (recoveries)
Total
Year Ended June 30,
2020
2019
2018
$
$
5,764
327
6,091
$
$
10,512
945
11,457
$
$
6,233
(191)
6,042
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, 2020
As of June 30, 2019
$
$
70,364
2,620
$
$
64,530
2,525
* These balances are primarily 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, 2020, could decrease tax
expense in the next 12 months by $7.3 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, Germany, India, Italy and the Philippines. 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 14 "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 14 "Guarantees and Contingencies".
As at June 30, 2020, we have recognized a provision of $24.8 million (June 30, 2019—$17.4 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. 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.
NOTE 16—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
159
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, 2020 and June 30, 2019:
June 30, 2020
June 30, 2019
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,
2019
Quoted prices
in active
markets for
identical
assets/
(liabilities)
Significant
other
observable
inputs
Significant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
June 30,
2020
Financial Assets:
Foreign currency
forward contracts
designated as cash
flow hedges (note 17) $
$
Total
Financial Liabilities:
Foreign currency
forward contracts
designated as cash
flow hedges (note 17) $
$
Total
—
— $
N/A
$
— $
—
— $
N/A
$
— $
736
736
$
N/A
$
— $
736
736
N/A
$
—
(185)
(185) $
N/A
$
— $
(185)
(185) $
N/A
$
— $
—
— $
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.
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, 2020 and 2019, 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, 2020 and 2019, no
impairments were identified and therefore no fair value measurements were required.
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NOTE 17—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, 2020, is recorded within "Accounts payable and accrued liabilities" and represents the
net loss before tax effect that is expected to be reclassified from accumulated other comprehensive income into earnings with
the next twelve months.
As of June 30, 2020, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian
dollars was $62.3 million (June 30, 2019—$62.0 million).
Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance
The effect of these derivative instruments on our Consolidated Financial Statements for the periods indicated below were
as follows (amounts presented do not include any income tax effects).
Fair Value of Derivative Instruments in the Consolidated Balance Sheets (see note 16 "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, 2020
As of June 30, 2019
Fair Value
Asset (Liability)
Fair Value
Asset (Liability)
$
(185) $
736
Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI)
Year Ended June 30, 2020
Derivatives in Cash Flow
Hedging Relationship
Amount of Gain or (Loss) Recognized
in OCI on Derivatives (Effective
Portion)
Location of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Foreign currency
forward contracts
$
(2,261)
Operating expenses
$
(1,340)
Year Ended June 30, 2019
Derivatives in Cash Flow
Hedging Relationship
Amount of Gain or (Loss) Recognized
in OCI on Derivatives (Effective
Portion)
Location of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Foreign currency
forward contracts
$
22
Operating expenses
$
(2,033)
Year Ended June 30, 2018
Derivatives in Cash Flow
Hedging Relationship
Amount of Gain or (Loss) Recognized
in OCI on Derivatives (Effective
Portion)
Location of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Amount of Gain or (Loss)
Reclassified from Accumulated OCI
into Income
(Effective Portion)
Foreign currency
forward contracts
$
(647)
Operating expenses
$
1,846
161
NOTE 18—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.
COVID-19 Restructuring Plan
Fiscal 2020 Restructuring Plan
Fiscal 2019 Restructuring Plan
Fiscal 2018 Restructuring Plan
Restructuring Plans prior to Fiscal 2018 Restructuring Plan
Acquisition-related costs
Other charges (recoveries)
Total
COVID-19 Restructuring Plan
Year Ended June 30,
2020
2019
2018
$
$
$
53,616
26,680
1,516
87
(232)
13,750
5,011
100,428
$
— $
—
28,318
515
278
5,625
983
35,719
$
—
—
—
10,154
7,486
4,805
6,766
29,211
During the fourth quarter of Fiscal 2020, in response to the COVID-19 pandemic, we made a strategic decision to move
towards a significant work from home model. We began to implement restructuring activities to streamline our operations and
significantly reduce our real estate footprint around the world (COVID-19 Restructuring Plan). The COVID-19 Restructuring
Plan charges relate to workforce reductions and facility costs, including the accelerated amortization associated with the
abandonment of ROU assets, the write-off of fixed assets and other related variable lease and exit costs. Currently, our
assumptions with respect to the COVID-19 Restructuring Plan, do not include any potential sublease income from vacated
facilities. 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, 2020, we expect total costs to be incurred in connection with the COVID-19 Restructuring Plan to be
approximately $62 million to $75 million, of which $53.6 million has been recorded within "Special charges (recoveries)" to
date.
A reconciliation of the beginning and ending restructuring liability, which is included within "Accounts payable and
accrued liabilities" in our Consolidated Balance Sheets, for the year ended June 30, 2020 is shown below.
COVID-19 Restructuring Plan
Balance payable as at June 30, 2019
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2020
Workforce reduction
$
— $
8,702
(3,609)
79
5,172
$
$
Facility costs
Total
— $
12,319
(321)
278
12,276
$
—
21,021
(3,930)
357
17,448
During the year ended June 30, 2020, we incurred $27.2 million in charges associated with the accelerated amortization
charges associated with the abandonment of facility related ROU assets and $5.4 million in charges associated with the write
off of fixed assets as part of the COVID-19 Restructuring Plan.
Fiscal 2020 Restructuring Plan
During Fiscal 2020, we began to implement restructuring activities to streamline our operations (Fiscal 2020
Restructuring Plan), including in connection with our acquisitions of Carbonite and XMedius, to take further steps to improve
our operational efficiency. The Fiscal 2020 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. During the fourth quarter of Fiscal 2020, we revised our assumption
relating to potential sublease. Our current estimate does not include any potential sublease income from vacated facilities.
162
As of June 30, 2020, we expect total costs to be incurred in connection with the Fiscal 2020 Restructuring Plan to be
approximately $36 million to $44 million, of which $26.7 million has been recorded within "Special charges (recoveries)" to
date.
A reconciliation of the beginning and ending restructuring liability, which is included within "Accounts payable and
accrued liabilities" in our Consolidated Balance Sheets, for the year ended June 30, 2020 is shown below.
Fiscal 2020 Restructuring Plan
Balance payable as at June 30, 2019
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2020
Workforce reduction
$
— $
5,993
(4,412)
(5)
1,576
$
$
Facility costs
Total
— $
6,734
(261)
(31)
6,442
$
—
12,727
(4,673)
(36)
8,018
During the year ended June 30, 2020, we incurred $9.7 million in charges associated with the accelerated amortization
associated with the abandonment of ROU assets and $4.3 million in charges associated with write off of fixed assets as part of
the Fiscal 2020 Restructuring Plan.
Fiscal 2019 Restructuring Plan
During Fiscal 2019, we began to implement restructuring activities to streamline our operations (Fiscal 2019
Restructuring Plan), including in connection with our acquisitions of Catalyst Repository Systems Inc. (Catalyst) and Liaison
Technologies, Inc. (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.
Since the inception of the plan, $29.8 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, 2020 is shown below.
Fiscal 2019 Restructuring Plan
Balance payable as at June 30, 2019
Adjustment for Topic 842 (note 1 and note 6)
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2020
Workforce reduction
1,819
$
—
523
(1,718)
(223)
401
$
$
$
Facility costs
Total
$
5,288
(5,288)
993
(1,090)
97
— $
7,107
(5,288)
1,516
(2,808)
(126)
401
Fiscal 2018 Restructuring Plan
During Fiscal 2018 and in the context of our acquisitions of Covisint Corporation, Guidance Software Inc. and Hightail,
Inc., we implemented 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, $10.8 million has been recorded within "Special charges (recoveries)" to date. We do not
expect to incur any further significant charges relating to this plan.
163
A reconciliation of the beginning and ending liability for the year ended June 30, 2020 is shown below.
Fiscal 2018 Restructuring Plan
Balance payable as at June 30, 2019
Adjustment for Topic 842 (note 1 and note 6)
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2020
Workforce reduction
150
$
—
(62)
(39)
(9)
40
$
$
$
Facility costs
Total
$
486
(486)
149
(148)
(1)
— $
636
(486)
87
(187)
(10)
40
Acquisition-related costs
Included within "Special charges (recoveries)" for the year ended June 30, 2020 are costs incurred directly in relation to
acquisitions in the amount of $13.8 million (year ended June 30, 2019 and 2018—$5.6 million and $4.8 million, respectively).
Other charges (recoveries)
For the year ended June 30, 2020, "Other charges" includes $0.7 million relating to the accelerated amortization
associated with the abandonment of ROU assets and $4.3 million relating to other miscellaneous charges.
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 other miscellaneous 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 setup 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.
NOTE 19—ACQUISITIONS
Fiscal 2020 Acquisitions
Acquisition of XMedius
On March 9, 2020, we acquired all of the equity interest in XMedius for $73.3 million in an all cash transaction. XMedius
is a provider of secure information exchange and unified communication solutions. In accordance with Topic 805, this
acquisition was accounted for as a business combination. We believe the acquisition complements our Customer Experience
Management (CEM) and Business Network (BN) platforms.
The results of operations of this acquisition have been consolidated with those of OpenText beginning March 9, 2020.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of March 9, 2020, 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
$
$
8,542
3,792
35,910
11,143
(35,685)
23,702
49,633
73,335
The goodwill of $49.6 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $0.1 million is expected to be deductible for tax purposes.
164
Included in total identifiable net assets is acquired deferred revenue with a fair value of $18.5 million, which represents
our estimate of the fair value of the contractual obligations assumed based on a valuation. In arriving at this fair value, we
reduced the acquired company’s original carrying value by $2.7 million.
The fair value of current assets acquired includes accounts receivable with a fair value of $6.4 million. The gross amount
receivable was $6.7 million, of which $0.3 million is expected to be uncollectible.
Acquisition-related costs for XMedius included in "Special charges (recoveries)" in the Consolidated Financial
Statements for the year ended June 30, 2020 were $0.8 million.
The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the
assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential
unrecorded liabilities. We expect to finalize this determination on or before our quarter ending March 31, 2021.
Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the year ended
June 30, 2020. Pro forma results of operations for this acquisition have not been presented because they are not material to our
consolidated results of operations.
Acquisition of Carbonite
On December 24, 2019, we acquired all of the equity interest in Carbonite, a leading provider of cloud-based subscription
backup, disaster recovery and endpoint security to small and medium-sized businesses (SMB), consumers, and a wide variety
of partners. Total consideration for Carbonite was $1.4 billion paid in cash (inclusive of cash acquired). In accordance with
Topic 805, this acquisition was accounted for as a business combination. We believe the acquisition increases our position in
the data protection and endpoint security space, further strengthens our cloud capabilities and opens a new route to connect
with customers through Carbonite's marquee SMB and consumer channels and products.
The results of operations of Carbonite have been consolidated with those of OpenText beginning December 24, 2019.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of December 24, 2019, are set forth below:
Current assets (inclusive of cash acquired of $62.9 million)
Non-current tangible assets (inclusive of restricted cash acquired of $2.4 million)
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
129,779
105,762
549,500
290,000
(557,779)
517,262
853,162
1,370,424
The goodwill of $853.2 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $6.9 million is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $171.0 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 $74.7 million.
The fair value of current assets acquired includes accounts receivable with a fair value of $45.7 million. The gross amount
receivable was $47.1 million of which $1.4 million of this receivable was expected to be uncollectible.
Acquisition-related costs for Carbonite included in "Special charges (recoveries)" in the Consolidated Financial
Statements for the year ended June 30, 2020 were $9.2 million.
The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the
assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential
unrecorded liabilities. We expect to finalize this determination on or before our quarter ending December 31, 2020.
The amount of Carbonite's revenues and net loss included in our Consolidated Statements of Income since the date of
acquisition for the year ended June 30, 2020 is set forth below:
165
Revenues
Net Loss *
$
235,374
(49,322)
* Net loss for the year ended includes one-time fees of $16.6 million on account of special charges and $99.0 million of
amortization charges relating to intangible assets, all net of tax.
The unaudited pro forma revenues and net income of the combined entity for the year ended June 30, 2020 and 2019,
respectively, had the acquisition been consummated on July 1, 2018, are set forth below:
Supplemental Unaudited Pro Forma Information(1)
Total Revenues
Net Income (2) (3)
Year Ended June 30,
2020
2019
$
3,351,338
$
3,226,128
171,297
75,498
(1) Carbonite acquired Webroot Inc. in March 2019. The supplemental pro forma revenues and net income shown above do not
include the results of operations of Webroot Inc. for periods prior to the Webroot acquisition date.
(2) Included in pro forma net income for the year ended June 30, 2019 are $127 million of one-time expenses incurred by
Carbonite on account of the acquisition and the related tax effect of $33 million. These one-time expenses included i) $74
million related to the accelerated vesting of historical Carbonite equity awards, ii) $29 million of one time fees, primarily
related to transaction costs triggered by the closing of the acquisition, iii) $21 million related to the extinguishment of certain of
Carbonite's historical debt and interest rate swaps and iv) $3 million in employee severance costs.
(3) Included in pro forma net income for the year ended June 30, 2020 and 2019 are estimated amortization charges relating to
the allocated value of intangible assets.
The unaudited pro forma financial information in the table above is presented for information purposes only and is not
indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the
periods presented or the results that may be realized in the future.
Acquisition of Dynamic Solutions Group Inc. (The Fax Guys)
On December 2, 2019, we acquired certain assets and assumed certain liabilities of The Fax Guys, for $5.1 million, of
which $1.0 million is currently held back and unpaid in accordance with the terms of the purchase agreement. In accordance
with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our
Information Management portfolio.
The results of operations of The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019.
Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the year ended
June 30, 2020. Pro forma results of operations for this acquisition have not been presented because they are not material to our
consolidated results of operations.
Fiscal 2019 Acquisitions
Acquisition of Catalyst Repository Systems Inc.
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. Total consideration for Catalyst was $71.4 million, of which
$70.8 million was paid in cash and $0.6 million is currently held back and unpaid in accordance with the purchase agreement.
In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition
complements and extends our Information Management portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning January 31, 2019.
166
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
January 31, 2019, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
9,699
5,754
30,607
11,658
(17,891)
39,827
31,607
71,434
The goodwill of $31.6 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $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 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 was expected to be uncollectible.
The finalization of the purchase price allocation during the year ended June 30, 2020 resulted in an adjustment to amounts
previously disclosed of $0.6 million.
Acquisition of 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 $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 Information Management portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning December 17,
2018.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their 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
(57,265)
146,209
164,434
310,643
The goodwill of $164.4 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $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. 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 $20.5 million. The gross amount
receivable was $22.2 million, of which $1.7 million was expected to be uncollectible.
The finalization of the purchase price allocation during the year ended June 30, 2020 did not result in any significant
changes to the preliminary amounts previously disclosed.
167
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 $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 Information Management
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 $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 was expected to be uncollectible.
The finalization of the purchase price allocation was completed during Fiscal 2019 and 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 $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 Information Management 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:
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:
168
Current assets (inclusive of cash acquired of $5.7 million)
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
24,744
11,583
71,230
51,851
(48,670)
110,738
129,800
240,538
The goodwill of $129.8 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $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 was 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 (expense), net " in our Consolidated Statements of Income for the year ended June
30, 2018. Refer to note 23 - "Other Income (Expense), Net" for additional details.
The finalization of the purchase price allocation was completed during Fiscal 2019 and 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 $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
Information Management portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning July 26, 2017.
169
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 26,
2017, are set forth below:
Current assets (inclusive of cash acquired of $31.5 million)
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
41,586
3,426
36,600
17,300
(23,033)
75,879
26,905
102,784
The goodwill of $26.9 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, $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.
NOTE 20—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 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 sale of Information Management software and solutions.
The following table sets forth the distribution of revenues, by significant geographic area, for the periods indicated:
Revenues(1):
Canada
United States
United Kingdom
Germany
Rest of EMEA(2)
All other countries
Total revenues
2020
2019
2018
Year Ended June 30,
$
$
149,457
1,719,877
186,756
195,286
560,239
298,121
3,109,736
$
$
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
(1) Total revenues by geographic area are determined based on the location of our end customer.
(2) EMEA primarily consists of countries in Europe, the Middle East and Africa.
170
The following table sets forth the distribution of long-lived assets, representing property and equipment, ROU assets and
intangible assets, by significant geographic area, as of the periods indicated below.
Long-lived assets (1):
Canada
United States
United Kingdom
Germany
Rest of EMEA(2)
All other countries
Total
As of June 30, 2020
As of June 30, 2019
$
$
651,214
1,150,638
13,388
117,891
75,183
56,674
2,064,988
$
$
799,928
502,844
10,068
6,310
31,455
45,352
1,395,957
(1) Previously, in Fiscal 2019, our long-lived assets included only property and equipment and intangibles assets. With the
adoption of Topic 842, effective July 1, 2019, our long-lived assets as of June 30, 2020 also includes ROU assets. See note 1
"Basis of Presentation" and note 6 "Leases" for more information.
(2) EMEA primarily consists of countries in Europe, the Middle East and Africa.
NOTE 21—ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance as of June 30, 2017
$
54,216
$
864
$
(6,897) $
617
$
48,800
Foreign
Currency
Translation
Adjustments
Cash Flow
Hedges
Defined Benefit
Pension Plans
Marketable
Securities
Accumulated
Other
Comprehensive
Income
Other comprehensive income (loss)
before reclassifications, net of tax
Amounts reclassified into net
income, net of tax
Total other comprehensive income
(loss) net, for the period
Balance as of June 30, 2018
Other comprehensive income (loss)
before reclassifications, net of tax
Amounts reclassified into net
income, net of tax
Total other comprehensive income
(loss) net, for the period
Balance as of June 30, 2019
Other comprehensive income (loss)
before reclassifications, net of tax
Amounts reclassified into net
income, net of tax
Total other comprehensive income
(loss) net, for the period
Balance as of June 30, 2020
(9,582)
(476)
(3,383)
—
(13,441)
—
(1,357)
260
(9,582)
44,634
(3,882)
—
(3,882)
40,752
(7,784)
—
(7,784)
(1,833)
(969)
16
1,494
1,510
541
(1,662)
985
(677)
(3,123)
(10,020)
(7,421)
272
(7,149)
(17,169)
1,245
917
2,162
(617)
(617)
—
—
—
—
—
—
—
—
(1,714)
(15,155)
33,645
(11,287)
1,766
(9,521)
24,124
(8,201)
1,902
(6,299)
$
32,968
$
(136) $
(15,007) $
— $
17,825
171
NOTE 22—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
NOTE 23—OTHER INCOME (EXPENSE), NET
Foreign exchange gains (losses)
OpenText share in net income of equity investees (note 9)
Income from long-term other receivable
Gain on shares held in Guidance (1)
Gain from contractual settlement (2)
Loss on debt extinguishment (3)
Other miscellaneous income (expense)
Total other income (expense), net
Year Ended June 30,
2020
2019
2018
146,698
11,768
94,733
$
$
$
138,631
8,014
80,583
$
$
$
132,799
1,672
73,437
Year Ended June 30,
2020
2019
2018
(4,184) $
8,700
(4,330) $
13,668
—
—
—
(17,854)
1,392
(11,946) $
—
—
—
—
818
10,156
$
4,845
5,965
1,327
841
5,000
—
(5)
17,973
$
$
$
$
$
(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 fiscal 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.
(3) On March 5, 2020 we redeemed Senior Notes 2023 in full, which resulted in a loss on extinguishment of debt of $17.9
million. Of this, $6.7 million is related to unamortized debt issuance costs and the remaining $11.2 million is related to the
early termination call premium. See note 11 "Long-Term Debt".
NOTE 24—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(1)
Year Ended June 30,
2020
2019
2018
$
$
$
$
$
$
$
$
234,225
0.86
234,225
0.86
270,847
970
271,817
3,001
$
$
$
$
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) 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.
172
NOTE 25—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, 2020, Mr. Stephen Sadler, a member of the Board of Directors, earned $0.7 million (year
ended June 30, 2019 and 2018 — $0.6 million and $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 26—SUBSEQUENT EVENTS
Cash Dividends
As part of our quarterly, non-cumulative cash dividend program, we declared, on August 5, 2020, a dividend of $0.1746
per Common Share. The record date for this dividend is September 4, 2020 and the payment date is September 25, 2020. Future
declarations of dividends and the establishment of future record and payment dates are subject to the final determination and
discretion of our Board.
Item 16.
Form 10-K Summary
None.
173
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 6, 2020
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/ HOWARD ROSEN
Howard Rosen
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
174
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 6, 2020
Chairman of the Board
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
Director
August 6, 2020
175
Exhibit 10.30
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 24, 2019, (including any schedules hereto the
“Agreement”), among Open Text Corporation, a corporation incorporated under the laws of Canada (the
“Parent Corporation”), Open Text Inc., a wholly-owned subsidiary of the Parent Corporation incorporated
under the laws of the State of Delaware (the “Corporation”), and Craig Stilwell (the “Executive”).
WHEREAS, the Corporation and the Executive mutually desire that the Executive serves the
Corporation as Executive Vice-President and General Manager, SMB Consumer Business of the Parent
Corporation on the terms and conditions set forth herein and the parties hereto shall contemporaneously
execute the Restrictive Covenants Agreement (as defined below) set forth in Schedule “C”.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for other
good and valuable consideration, the parties agree as follows:
1. Position and Duties
(a) The Corporation hereby agrees to employ the Executive to act as Executive Vice-President and
General Manager, SMB Consumer Business and the Executive hereby accepts such position and agrees to
serve the Parent Corporation in such capacity during the Term, as defined in Section 3 hereof. The
Executive shall have such duties and responsibilities as are consistent with the Executive’s position as set
forth herein and as may be assigned by the Corporation or Parent Corporation from time to time in
accordance with the terms hereof. The Executive shall be subject to, and shall act in accordance with, all
reasonable instructions and directions of the Chief Executive Officer of the Parent Corporation (the
“Reporting Manager”) and all policies and rules of the Corporation and the Parent Corporation applicable
to executive officers.
(b) During the Term, excluding any periods of vacation and sick leave to which the Executive is
entitled, the Executive shall devote his full working time, energy and attention to the performance of his
duties and responsibilities hereunder and shall diligently endeavor to promote the business and best
interests of the Corporation and Parent Corporation. Notwithstanding the foregoing, to the extent that it
does not interfere with the performance of Executive’s duties hereunder, Executive may (i) with the prior
consent of the Reporting Manager of the Parent Corporation, serve on the board of directors or equivalent
body of up to one other company that is not a competitor of the Corporation or the Parent Corporation; (ii)
serve on the boards of directors or equivalent bodies of trade associations and/or charitable organizations;
(iii) engage in charitable activities and community affairs; and (iv) manage his personal, financial and
legal affairs.
(c) As Executive Vice-President and General Manager, SMB Consumer Business the Executive
will be responsible for all customer facing activity, as may be assigned to him from time to time by the
Reporting Manager, including sales, marketing, professional services and cloud services of the SMB
Consumer business. Your primary office location is Boston, Massachusetts and you may be required to
attend this location, as required, and in any event at least every other week in each month.
1
2. Compensation
(a) Base Salary
As compensation for the agreements made by the Executive herein and the performance by the
Executive of his obligations hereunder, during the Term, the Corporation shall pay the Executive a base
salary at the rate of US$400,000 per annum (the “Base Salary”), payable in accordance with the
Corporation's payroll practice as in effect from time to time, except to the extent that the Executive has
previously elected to defer the receipt of such Base Salary pursuant to an arrangement that meets the
requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the "Code").
(b) Variable Compensation
In addition to the Base Salary, with respect to each fiscal year of the Parent Corporation during the
Term, the Executive shall be eligible to earn a bonus (the “Variable Compensation”), with an annual target
amount of US$400,000 (the “Target Bonus”) based on the achievement of annual individual and Parent
Corporation performance objectives established by the Board, subject to the Executive's employment with
the Corporation through the applicable payment date for any such Variable Compensation.
Notwithstanding anything to the contrary herein, the Variable Compensation shall be paid no later than the
15th day of the third month following the close of the fiscal year to which the Variable Compensation
relates, except to the extent that the Executive has previously elected to defer the receipt of such Variable
Compensation pursuant to an arrangement that meets the requirements of Section 409A of the Code.
For the period commencing December 24, 2019 and ending June 30, 2020, you shall be entitled for
a pro rata bonus in respect of fiscal 2020.
(c) Long Term Compensation
During the Term, the Executive will be eligible to participate in all Long Term Incentive
Programs (“LTIP”) as and when approved by the Compensation Committee of the Board (the
“Compensation Committee”). The value of LTIP is generally determined at the beginning of the LTIP
term, and consists of 50 percent performance stock units (“PSUs”), 25 percent restricted stock units
(“RSUs”) and 25 percent stock options.
The value target to be used for the three (3) year term of each LTIP and the mix of PSUs,
RSUs and stock options of each LTIP shall be determined by the Committee and approved by the Board.
The target value for the Executive in respect of the LTIP 2020 Plan (for the performance period
commencing July 1, 2020 and ending September 15, 2023) shall be US$1,000,000.
For the LTIP 2018 Plan (for the performance period commencing July 1, 2018 and ending
September 15, 2021) you shall be entitled to a pro rate target payment of 50%.
For the LTIP 2019 Plan (for the performance period commencing July 1, 2019 and ending
September 15, 2022) you shall be entitled to a pro rate target payment of 83%.
The Executive shall be further granted 10,000 RSUs (the "Supplemental RSUs"). The
Supplemental RSUs shall vest as follows: 10,000 Supplemental RSUs shall vest on the second anniversary
of the grant date. If the Executive is terminated during the vesting period in accordance with the terms of
this Agreement, other than for Cause, the Supplemental RSUs shall automatically vest. The Supplemental
2
RSU grants are subject to approval of the Board.
All LTIP grants are subject to the approval of the Board.
(d) Equity Plans
The Corporation shall permit the Executive to participate in any share option plan, share purchase
plan or similar plan offered by the Parent Corporation from time to time to its similarly situated executive
officers in the manner and to the extent authorized by the Compensation Committee.
Executive shall be granted options to acquire 100,000 common shares of the Parent Corporation
issuable under and subject to the terms of the Parent Corporation’s 2004 Stock Option Plan as Amended.
All stock option grants are subject to approval by the Board.
(e) Stock Ownership
The Executive agrees to comply with the Equity Ownership Guidelines as set out in accordance
with Schedule “A.”
(f) Reimbursement of Expenses
During the Term, the Corporation shall reimburse the Executive for all business expenses incurred
by the Executive in performing his duties and responsibilities under this Agreement (“Business
Expenses”), in accordance and to the extent consistent with the Corporation’s policies or practices for
reimbursement of business expenses incurred by other Corporation executive officers.
(g) Other Benefits
During the Term, for so long as the Executive meets the eligibility requirements of the applicable
plan, practice, policy or program, and except as specifically provided herein: (i) the Executive shall be
entitled to participate in all savings and retirement plans, practices, policies and programs of the Parent
Corporation which are made available generally to similar situated executive officers of the Corporation;
(ii) the Executive and/or the Executive’s family, as the case may be, shall be entitled to participate in, and
shall receive all benefits under, all perquisite and welfare benefit plans, practices, policies and programs
(including the Parent Corporation’s health insurance and disability plans) provided by the Parent
Corporation which are made available to similarly situated executive officers of the Parent Corporation
(for the avoidance of doubt, such plans, practices, policies or programs shall not include any plan,
practice, policy or program which provides benefits in the nature of severance or continuation pay),
including those benefits set forth in Schedule “B”, as amended from time to time; and (iii) the Executive
shall be entitled to 20 days paid vacation per fiscal year of the Parent Corporation at a time approved in
advance by the Reporting Manager, which approval shall not be unreasonably withheld but shall take into
account the staffing requirements of the Corporation and Parent Corporation and the need for the timely
performance of the Executive’s responsibilities, subject to the Corporation’s policy respecting same in
effect from time to time.
(h) Annual Compensation Review
Other than as herein provided, there shall be no cost-of-living increase or merit increase in the
Base Salary or increases in any bonuses payable to the Executive unless approved by the Board or the
3
Compensation Committee. The Board and Compensation Committee shall review annually the Base
Salary and all other compensation to be received by the Executive under this Agreement.
3. Term
The Executive shall serve, pursuant to this Agreement, as Executive Vice-President and General
Manager, SMB Consumer Business commencing on December 24, 2019 (the “Effective Date”) and
expiring on the first anniversary of the Effective Date (such period, the “Term”); provided that, on the first
anniversary of the Effective Date and on each anniversary thereafter, the Term shall be extended
automatically for an additional one-year period unless either party provides the other party with notice of
non-renewal at least three (3) months before any such anniversary. Notwithstanding the foregoing, the
Executive’s employment hereunder may be terminated prior to the end of the Term upon his “Separation
from Service” with the Corporation (as hereinafter defined) in connection with the earliest to occur of any
of the events described in Section 4 hereof, in which case the Term shall be terminated as of the date of the
Executive’s Separation from Service. For purposes of this Agreement, the Executive’s Separation from
Service shall be deemed to occur when the level of services performed by the Executive for the
Corporation decreases to a level equal to 20% or less of the average level of services performed by the
Executive for the Corporation during the immediately preceding 36-month period (or, if shorter, during the
period from the Effective Date to the date of the relevant determination) and Executive’s employment with
the Corporation terminates (within the meaning of Treas. Regs. Section 1.409A-1(h)(ii)), and the date of
the Executive’s Separation from Service (the “Date of Separation from Service”) shall be the date
determined in accordance with Sections 5(b) and (as applicable) 5(c) hereof.
4. Separation from Service
(a) Death
The Executive shall separate from service with the Corporation, and the Term shall terminate, upon
the Executive’s death.
(b) Disability
The Corporation shall be entitled to terminate the Executive’s employment for “Disability,” and
the Executive shall separate from service with the Corporation, if, as a result of the Executive’s incapacity
due to physical or mental illness or injury, the Executive (i) shall become eligible to receive a benefit
under the Corporation’s long-term disability plan applicable to the Executive, or (ii) has been unable, due
to physical or mental illness or incapacity, to perform the essential duties of his employment with
reasonable accommodation for a continuous period of one hundred twenty (120) days or, during any
period of twelve (12) consecutive months during the Term, an aggregate of one hundred-eighty (180)
days, whether consecutive or not.
(c) Cause
The Corporation may terminate the Executive’s employment for Cause, and upon such termination
the Executive shall separate from service with the Corporation. For purposes of this Agreement, the term
“Cause” shall mean, when used in connection with the Executive’s Separation from Service with the
Corporation: (i) the Executive’s failure to attempt in good faith to perform his duties (other than as a result
4
of physical or mental illness or injury); (ii) the Executive’s willful misconduct or gross negligence of a
material nature in connection with the performance of his duties as an employee, which is or could
reasonably be expected to be injurious to the Corporation, or any of its Affiliates (as defined below)
(whether financially, reputationally or otherwise); (iii) a breach by the Executive of the Executive’s
fiduciary duty or duty of loyalty to the Corporation or its Affiliates; (iv) except in connection with the
Executive’s good faith performance of duties, the Executive’s intentional and unauthorized removal, use
or disclosure of the Corporation’s or any Affiliate’s document (in any medium or form) relating to the
Corporation or an Affiliate, or the customers of the Corporation or an Affiliate thereof and which may be
injurious to the Corporation, its customers or their respective Affiliates; (v) the willful performance by the
Executive of any act or acts of dishonesty in connection with or relating to the Corporation’s or its
Affiliates’ business or the willful misappropriation (or willful attempted misappropriation) of any of the
Corporation’s or any of its Affiliates’ funds or property; (vi) the indictment of the Executive or a plea of
guilty or nolo contendere by the Executive to any felony or other serious crime involving moral turpitude;
(vii) a material breach of any of the Executive’s obligations under any agreement entered into between the
Executive and the Corporation or any of its Affiliates that is material to the employment relationship
between Corporation or any of its Affiliates and the Executive, including without limitation, this
Agreement; or (viii) a material breach of the policies or procedures of the Corporation or any of its
Affiliates, which breach causes or could reasonably be expected to cause harm to the Corporation or its
business reputation; provided that, with respect to the events in clauses (i), (ii), (iv) or (vii) herein, the
Corporation shall have delivered written notice to the Executive of its intention to terminate the
Executive’s employment for Cause, which notice specifies in reasonable detail the circumstances claimed
to give rise to the Corporation’s right to terminate the Executive’s employment for Cause and the
Executive shall not have cured such circumstances as determined by the Board in good faith, to the extent
such circumstances are reasonably susceptible to cure as determined by the Board in good faith, within
thirty (30) days following the Corporation’s delivery of such notice. For purposes of this Agreement,
“Affiliate” means, with respect to any person, any other person that directly or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control with, the person specified.
For the purposes of this definition and this Agreement, the term “Control” means the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract or otherwise.
(d) Corporation Termination Other than for Cause and Executive Voluntary Termination (Other
Than for Good Reason)
The Corporation may terminate the employment of the Executive for any reason other than for
Cause, notwithstanding any other provision of this Agreement, upon compliance with the terms of Section
6(a) hereof. The Executive may voluntarily terminate his employment, other than for Good Reason,
provided that the Executive provides the Corporation with notice of his intent to terminate his employment
at least ninety (90) days in advance of the Date of Separation from Service (as defined below). Upon such
termination, in each case, the Executive shall separate from service with the Corporation. In the event of
non-renewal of this Agreement by the Corporation in accordance with Section 3 hereof, the Corporation
shall comply with the terms of Section 6(a) hereof.
(e) Good Reason
The Executive may terminate his employment and separate from service with the Corporation for
Good Reason. For purposes of this Agreement, the term “Good Reason” shall mean, when used in
connection with the Executive’s Separation from Service with the Corporation, unless the Executive shall
5
have consented in writing thereto, (i) a material diminution in the Executive’s duties and responsibilities
other than a change in such Executive’s duties and responsibilities that arises solely out of (a) the Parent
Corporation becoming part of a larger organization following a Change in Control or any change in the
reporting hierarchy incident thereto or (b) a reorganization of the Parent Corporation resulting in a similar
change to similarly situated executive officers’ duties and responsibilities; (ii) a material reduction in the
Executive’s Base Salary or Target Bonus, unless a proportional reduction in base salary or target bonus, as
applicable, is also applicable to similarly situated executive officers; (iii) a relocation of the Executive’s
primary work location more than fifty (50) miles from the Executive’s work location on the Effective
Date; or (iv) a reduction in the Executive’s title or position with the Corporation other than a change in
such Executive’s title or position that arises solely out of (a) the Parent Corporation becoming part of a
larger organization following a Change in Control or any change in the reporting hierarchy incident
thereto or (b) a reorganization of the Parent Corporation resulting in a similar change to similarly situated
executive officers’ title or position; provided, that in each case, within thirty (30) days following the
occurrence of any of the events set forth herein, the Executive shall have delivered written notice to the
Corporation of his intention to terminate his employment for Good Reason, which notice specifies in
reasonable detail the circumstances claimed to give rise to the Executive’s right to terminate employment
for Good Reason, the Corporation shall not have cured such circumstances within thirty (30) days
following the Corporation’s receipt of such notice, and the Executive’s Separation from Service with the
Corporation shall have occurred within sixty (60) days following such failure to cure.
5. Procedure for Separation from Service
(a) Notice of Separation from Service. Any separation of the Executive from service with the
Corporation (other than a separation from service on account of the death of Executive) shall be
communicated by written “Notice of Separation from Service” to the other party hereto in accordance with
Section 14(a) hereof.
(b) Date of Separation from Service. The Date of Separation from Service shall mean: (i) if the
Separation from Service occurs due to the Executive’s death, the date of the Executive’s death; (ii) if the
Separation from Service occurs due to a termination by the Corporation pursuant to Section 4(b), the date
on which the Executive receives a Notice of Separation from Service from the Corporation; (iii) if the
Separation from Service occurs due to the Executive’s voluntary termination without Good Reason, the
date specified in the notice given pursuant to Section 4(d) hereof, which shall not be less than ninety (90)
days after the Notice of Separation from Service; (iv) if the Separation from Service occurs due to the
Executive’s termination with Good Reason, the date of his termination in accordance with Section 4(e)
hereof; and (v) if the Separation from Service occurs for any other reason, the date on which a Notice of
Separation from Service is given or any later date (within thirty (30) days, or any alternative time period
agreed upon by the parties, after the giving of such notice) set forth in such Notice of Separation from
Service.
(c) Section 409A of the Code. Notwithstanding anything to the contrary in Section 5(b), the
determination of whether and when the Date of Separation from Service from the Corporation occurs for
the purpose of determining when any amount that is “nonqualified deferred compensation” subject to
Section 409A of the Code becomes due and payable shall be made in a manner consistent with, and based
on the presumptions set forth in, Treas. Regs. Section 1.409A-1(h). Solely for purposes of the
determination referred to in the preceding sentence, “Corporation” shall include all persons with whom the
Corporation would be considered a single employer under Sections 414(b) and 414(c) of the Code. In the
event that the Date of Separation from Service as determined in accordance with this Section 5(c) occurs
6
before the notice period specified in Section 5(b) has elapsed, the Corporation may elect to pay, or
commence payment of, any amounts to which this Section 5(c) applies following the completion of such
notice period, but not later than December 31 of the calendar year in which the Date of Separation from
Service occurs.
6. Separation Payments
(a) Other than for Cause or for Good Reason
In the event of the Executive’s Separation from Service due to termination by the Corporation other than
for Cause (including a Separation from Service as a result of Disability but not death) or by the Executive
for Good Reason, subject to (in respect of clauses (ii) through (iv)) the Executive’s continued compliance
with Section 6(h) below, Section 20 below and the Restrictive Covenants Agreement described in Section
10 below, the Corporation shall pay to the Executive the amounts described below at the times specified
below, and, except for (x) the Executive’s rights of indemnification and insurance provided in Section 9
hereof and (y) any vested benefits under any tax-qualified pension plans of the Corporation, the
Corporation shall have no additional obligations under this Agreement:
(i) Accrued Payments. Within thirty (30) days following the Date of Separation from Service, (w)
any Base Salary earned by the Executive but not paid through the Date of Separation from Service
(reduced by any amounts that the Executive received in connection with benefits paid or payable as a
result of Disability, if applicable); (x) any Variable Compensation earned by the Executive for the fiscal
year prior to the year in which the Date of Separation from Service has occurred but not yet paid prior to
the Date of Separation from Service (except that, with respect to (w) and (x), to the extent that the
Executive has previously elected to defer the receipt of such Base Salary or Variable Compensation
pursuant to an arrangement that meets the requirements of Section 409A of the Code, the timing of the
payment of such Base Salary or Variable Compensation shall be in accordance with the terms of such
arrangement); (y) the Executive’s accrued but unused vacation pay through the Date of Separation from
Service; and (z) any Business Expenses not reimbursed as of the Date of Separation from Service (the
amounts described in (w) through (z), together, the “Accrued Payments”);
(ii) Separation Payments. In respect of each month during the 12-month period measured from the
day of the Executive’s Date of Separation from Service (the “Severance Period”), (x) an amount equal to
one-twelfth of the Base Salary as in effect for the year in which the Date of Separation from Service
occurs shall be paid in equal installments in accordance with the Corporation’s standard payroll practices
(reduced by any amounts received by and/or payable to Executive in connection with benefits paid or
payable as a result of Disability, if applicable) (the “Salary Continuation Payments”); and (y) an amount
equal to one-twelfth of the Target Bonus as in effect for the year in which the Date of Separation from
Service occurs shall be paid once a month (together with the Salary Continuation Payments, the
“Separation Payments”);
(iii) Pro Rata Bonus. At the time that Variable Compensation for the Parent Corporation’s fiscal
year in which the Date of Separation from Service occurred would otherwise be paid (but in no event later
than the 15th day of the third month following the close of such fiscal year), an amount equal to the
product of (i) the Target Bonus for such fiscal year that the Executive would have received had the
Executive remained employed with the Corporation and (ii) a fraction, the numerator of which is the
number of full weeks the Executive was employed with the Corporation in such fiscal year and the
denominator of which is fifty-two (the “Pro Rata Bonus”); provided that, to the extent that the Executive
7
has previously elected to defer the receipt of such bonus pursuant to an arrangement that meets the
requirements of Section 409A of the Code, the timing of the payment of the Pro Rata Bonus shall be in
accordance with the terms of such arrangement; and
(iv) Continued Group Medical Benefits. The Executive’s ability to participate in the medical plan
of the Corporation shall continue only through the Date of Separation from Service. If the Executive elects
to continue his health and dental insurance coverage pursuant to COBRA, the Corporation shall reimburse
the Executive for the COBRA premiums for the Executive and his dependents for the number of months
corresponding to the Severance Period; provided, however, that if the Executive is eligible to receive
comparable medical or other welfare benefits under another employer-provided plan, the COBRA
premium reimbursement described herein shall be terminated. The Executive shall promptly notify the
Corporation of any changes in his medical benefits coverage.
(b) Timing of Separation Payments
Notwithstanding anything to the contrary in this Section 6, in the event that Executive is a
“specified employee” (within the meaning of Section 409A(2)(B) of the Code) on the Date of Separation
from Service, no Separation Payments shall be paid until the earlier of (x) the date of the Executive’s
death or (y) the first business day of the first calendar month that begins after the six-month anniversary of
the Date of Separation from Service at which time all Separation Payments which would otherwise have
been paid that would otherwise have been paid during such period of delay shall be paid with Interest (as
defined below) and the remaining Separation Payments shall be paid in accordance with Section 6(a)
above. “Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code, from the date on which payment would otherwise have been made but for any required delay
through the date of payment.
(c) Cause or Voluntarily (other than for Good Reason)
In the event of the Executive’s Separation from Service with the Corporation due to termination by
the Corporation for Cause or voluntarily by the Executive other than for Good Reason, the Corporation
shall pay the Executive, within thirty (30) days following the Date of Separation from Service, any
Accrued Payments. In the event of the Executive’s Separation from Service with the Corporation due to
termination voluntarily by the Executive other than for Good Reason, the Board, in their sole and absolute
discretion, may waive the notice period required by Section 4(d) above, in which case the Executive’s
employment shall be deemed to terminate immediately, provided the Executive shall still be entitled to
compensation due on account of Annual Base Salary and benefits earned up to the last date of the 3 month
advance written notice period given by the Executive and any Variable Compensation earned and prorated
during such 3 month notice period. Except as provided in this Section 6(c), and except for the Executive’s
rights of indemnification and insurance provided in Section 9 hereof and any vested benefits under any tax
qualified pension or equity incentive compensation plans of the Corporation, and continuation of health
insurance benefits on the terms and to the extent required by statute as may be applicable to the Executive,
the Corporation shall have no additional obligations under this Agreement.
(d) Death
In the event of the Executive’s Separation from Service with the Corporation as a result of the
Executive’s death, the Corporation shall pay the Executive’s estate within thirty (30) days following the
Date of Separation from Service, the Accrued Payments. Except as provided in this Section 6(d), and
8
except for the Executive’s rights of indemnification and insurance provided in Section 9 hereof and any
vested benefits under any tax qualified pension or equity incentive compensation plans of the Corporation,
the Corporation shall have no additional obligations under this Agreement.
(e) Options
Except as expressly stipulated in Section 7 hereof, any options which have not vested as of the
Date of Separation from Service shall terminate and be of no further force and effect as of the Date of
Separation from Service and neither any period of notice nor any payment in lieu thereof upon Separation
from Service hereunder shall be considered as extending the period of employment for the purposes of
vesting of options notwithstanding anything to the contrary in any other agreement between the Parent
Corporation and the Executive. In the event of a Separation from Service other than by the Corporation for
Cause, the Executive shall have the right to exercise any options which are vested as at the Date of
Separation from Service for ninety (90) days following such date at which time such unexercised options
will expire. In the event of a Separation from Service by the Corporation for Cause, all options, vested and
unvested, shall terminate and be of no further force and effect as of Date of Separation from Service and
neither any period of notice nor any payment in lieu thereof upon Separation from Service hereunder shall
be considered as extending the period of employment for the purposes of vesting of options
notwithstanding anything to the contrary in any other agreement between the Corporation and the
Executive. In addition, notwithstanding anything contained in this Section 6 or elsewhere in this
Agreement, in the event of Separation from Service due to death of the Executive, the estate of the
Executive shall be entitled to exercise any options which have vested as at the date of death of the
Executive, at any time during the period which is twelve (12) months following the date of death of the
Executive at the end of which period such options will expire.
(f) Long Term Compensation
Except as expressly provided in Section 7 below, in the event of the Executive’s Separation from
Service for any reason, all outstanding awards granted under any LTIP shall continue to be governed by
the terms set forth in such LTIP.
(g) No Further Entitlements
Except as expressly provided in this Section 6 and Section 7 below, in the event of the Executive’s
Separation from Service for any reason, the Executive will not be entitled to receive any further payments,
in lieu of notice or as damages for any reason whatsoever. Except as to any entitlement as expressly
provided in this Agreement, the Executive hereby waives any claims the Executive may have against the
Corporation or the Parent Corporation for or in respect of termination pay, severance pay, or notice in lieu
thereof on account of loss of office or employment.
(h) Release
Notwithstanding anything to the contrary in this Agreement, the payments and benefits described
in Section 6(a) above, other than the Accrued Payments, shall commence being made to the Executive,
subject to the condition that Executive has delivered to the Corporation an executed copy of a release
substantially in the form attached as Schedule “D” and that such release has become effective, enforceable
and irrevocable in accordance with its terms, on the date that is 30 days after the Date of Separation from
Service or, to the extent required, on the date specified in Section 6(b) above.
9
7. Change in Control
(a) Definition
For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of the
following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Parent Corporation on a consolidated basis to
any person or group of related persons for purposes of Section 13(d) of the Securities Exchange Act of
1934 (the “Exchange Act” and a “Group,” respectively); (ii) the approval by the holders of the outstanding
voting power of the Parent Corporation of any plan or proposal for the liquidation or dissolution of the
Parent Corporation; (iii) any person or Group shall become the beneficial owner (within the meaning of
Section 13(d) of the Exchange Act), directly or indirectly, of shares representing more than 50% of the
aggregate outstanding voting power of the Parent Corporation and such person or Group actually has the
power to vote such shares in any such election; (iv) the replacement of a majority of the Board over a
twelve-month period from the directors who constituted the Board at the beginning of such period, and
such replacement shall not have been approved by a vote of at least a majority of the Board then still in
office who were members of such Board at the beginning of such period; or (v) consummation of a
reorganization, merger, consolidation or similar transaction involving the Parent Corporation and/or any
entity controlled by the Parent Corporation, or a sale or other disposition of substantially all of the assets
of the Parent Corporation, or the acquisition of assets or stock of another entity by the Parent Corporation
or any entity controlled by the Parent Corporation (each, a “Business Combination”) unless following
such Business Combination the shareholders of the Parent Corporation immediately prior to the Business
Combination own at least 50% of the then-outstanding equity securities and of the combined voting power
of the corporation or other entity resulting from such Business Combination (including, without limitation,
an entity that, as a result of such Business Combination, owns the Parent Corporation or substantially all
of the Parent Corporation’s assets either directly or through one or more subsidiaries). Notwithstanding the
foregoing, for the purposes of this Agreement, an event or series of events shall not be deemed to be a
Change in Control to the extent that the application of the relevant definition of Change in Control would
cause any tax to become due under Section 409A of the Code.
(b) Change-in-Control Benefits and Payments
In the event of the Executive’s Separation from Service due to termination by the Corporation
other than for Cause or by the Executive for Good Reason within the one (1) year period following a
Change in Control, then the Executive shall be entitled to the following, notwithstanding any else in this
Agreement to the contrary:
(i) payments under Section 6(a) of this Agreement at the time and in the manner set forth therein
except that for purposes of clause (ii) of Section 6(a), the Severance Period shall be 12 months;
(ii) all options which have not vested as of the Date of Separation from Service 11 shall vest
immediately upon such Date and the Executive shall have the right to exercise all of such options for 90
days following such Date at which time any unexercised options will expire; and
(iii) all outstanding awards granted under any LTIP shall vest 100% and any payments under
Section 6.2(b) of the Schedule to the LTIP (Special Provisions Applicable to Eligible Employees Subject
to Section 409A of the United States Internal Revenue Code) shall be made as set forth therein except that
the Target Bonus (as defined in the LTIP) shall vest 100%;
10
(iv) notwithstanding anything to the contrary in this Section 7, in the event that Executive is a
“specified employee” (within the meaning of Section 409A(2)(B) of the Code) on the Date of Separation
from Service, no Separation Payments shall be paid until the earlier of the date of the Executive’s death or
the first business day of the first calendar month that begins after the six-month anniversary of the Date of
Separation from Service at which time all Separation Payments which would otherwise have been paid
that would otherwise have been paid during such period of delay shall be paid with Interest (as defined
below) and the remaining Separation Payments shall be paid in accordance with Section 6(a) above.
“Interest” shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the
Code, from the date on which payment would otherwise have been made but for any required delay
through the date of payment.
(c) Certain Additional Payments by the Corporation
(i) If it is determined (as hereafter provided) that any payment or distribution by the Corporation or
Parent Corporation to or for the benefit of Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement of the Corporation or Parent Corporation, including
without limitation any stock options or other equity award, or the lapse or termination of any restriction on
or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto), or any interest or penalties
with respect to such excise tax (such tax or taxes, together with any such interest and penalties, are
hereafter collectively referred to as the “Excise Tax”), then the Payments shall be payable either (x) in full
or (y) as to the maximum value of such lesser amount which would result in no portion of the Payments
being subject to the Excise Tax and Executive shall receive the greater, on an after-tax basis, of (x) or (y)
above. The reduction of the amounts payable under this Agreement, if applicable, shall be made as
follows:
First, if the Payments include the value of acceleration in the time at which any Payment not
subject to Section 409A of the Code is paid, a delay in the time of payment (but not a delay of vesting) of
such Payment, provided that such delay shall apply to the aggregate amount of such Payments (and not on
a Payment-by-Payment basis) and such aggregate amount shall be delayed only to the extent necessary to
satisfy this Section 7(c)(i);
Second, to the extent further reduction is required by this Section 7(c)(i), a reduction in the amount
of Payments required to be paid or delivered, provided that the Executive shall be entitled to select among
the forms of Payment that shall be reduced; and
Third, to the extent further reduction is required by this Section 7(c)(i), if the Payments include the
value of acceleration in the time at which any Payment vests, a cutback in the extent of such accelerated
vesting, provided that such cutback shall apply to the aggregate amount of such Payments (and not on a
Payment-by-Payment basis) and accelerated vesting of such aggregate amount shall be cut back only to
the extent necessary to satisfy this Section 7(c)(i).
(ii) Subject to the provisions of Section 7(c)(i) of this Agreement, all determinations required to be
made under this Section 7(c), including whether an Excise Tax is payable by Executive and the amount of
such Excise Tax and whether and, if so, what reductions are required by Section 7(c)(i), will be made by a
nationally recognized firm of certified public accountants (the “Accounting Firm”) chosen by the
11
Corporation. The Corporation will direct the Accounting Firm to submit its determination and detailed
supporting calculations to both the Corporation and Executive within fifteen (15) calendar days after the
date of the event giving rise to the Payment or the Date of Separation from Service, if applicable, and any
other such time or times as may be reasonably requested by the Corporation or Executive. If the
Accounting Firm determines that an Excise Tax would be payable by Executive, it will perform the
calculation set out in Section 7(c)(i). Any determination by the Accounting Firm as to the determination
made under Section 7(c)(i) will be binding upon the Corporation, the Parent Corporation and Executive. If
the Accounting Firm determines that no Excise Tax is payable by Executive, it will, at the same time as it
makes such determination, furnish Executive with an opinion that he has substantial authority not to report
any Excise Tax on his federal, state, local income or other tax return. The Corporation, Parent Corporation
and Executive will each cooperate with the Accounting Firm in connection with the preparation and
issuance of the determination contemplated by this Section 7(c)(ii).
(iii) The fees and expenses of the Accounting Firm for its services in connection with the
determinations and calculations contemplated by Section 7(c)(ii) of this Agreement will be borne by the
Corporation and paid as incurred. If such fees and expenses are initially advanced by Executive, the
Corporation will reimburse Executive the full amount of such fees and expenses within fifteen (15)
business days after receipt from Executive of a statement therefor and reasonable evidence of his payment
thereof.
8. No Mitigation
Except as expressly provided herein, the Executive shall not be required to seek other employment
or otherwise mitigate the amount of any payments to be made by the Corporation pursuant to this
Agreement. Except as otherwise provided herein, the payments provided pursuant to this Agreement shall
not be reduced by any compensation earned by the Executive as the result of employment by another
employer after the termination of the Executive’s employment or otherwise. The Corporation’s obligation
to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action
which the Corporation may have against the Executive or others.
9. Legal Fees; Indemnification; Liability Insurance
(a) In the event of any contest or dispute between the Corporation and the Executive with respect
to this Agreement or the Executive’s employment hereunder, each of the parties shall be responsible for its
respective legal fees and expenses.
(b) During the Term and for so long as there exists liability thereafter with regard to the
Executive’s activities during the Term on behalf of the Corporation, the Corporation shall indemnify the
Executive to the fullest extent permitted by applicable law (and in no event in connection with the
Executive’s gross negligence or willful misconduct), and shall at the Corporation’s election provide the
Executive with legal representation or shall advance to the Executive reasonable attorneys’ fees and
expenses as such fees and expenses are incurred (subject to an undertaking from the Executive to repay
such advances if it shall be finally determined by a judicial decision which is not subject to further appeal
that the Executive was not entitled to the reimbursement of such fees and expenses).
(c) During the Term and for six years thereafter, the Executive shall be entitled to the same
directors’ and officers’ liability insurance coverage that the Corporation or the Parent Corporation provides
12
generally to its other directors and officers, as may be amended from time to time for such directors and
officers.
10. Restrictive Covenants
The Executive agrees to execute contemporaneously with his execution of this Agreement the
confidentiality and non-solicitation agreement annexed hereto as Schedule “C” (the “Restrictive
Covenants Agreement”).
11. Injunctive Relief
It is impossible to measure in money the damages that will accrue to the Corporation or any of its
Affiliates in the event that the Executive breaches any of the Restrictive Covenants. In the event that the
Executive breaches any such Restrictive Covenant, the Corporation or any of its Affiliates shall be entitled
to an injunction restraining the Executive from violating such Restrictive Covenant (without posting any
bond). If the Corporation or any of its Affiliates shall institute any action or proceeding to enforce any
such Restrictive Covenant, the Executive hereby waives the claim or defense that the Corporation or any
of its Affiliates has an adequate remedy at law and agrees not to assert in any such action or proceeding
the claim or defense that the Corporation or any of its Affiliates has an adequate remedy at law. The
foregoing shall not prejudice the Corporation’s or any of its Affiliates’ right to require the Executive to
account for and pay over to the Corporation or any of its Affiliates, and the Executive hereby agrees to
account for and pay over, the compensation, profits, monies, accruals or other benefits derived or received
by the Executive as a result of any transaction constituting a breach of any of the Restrictive Covenants.
12. Arbitration; Forum Selection.
(a) Arbitration
If there is a disagreement or dispute between the parties with respect to this Agreement or the
interpretation thereof, such disagreement or dispute will be referred to binding arbitration to be conducted
by a single arbitrator, if Executive and the Corporation agree upon one, otherwise by three arbitrators
appointed as hereinafter set out, pursuant to the American Arbitration Association’s (the “AAA”) rules
governing commercial arbitration in effect at the time of the arbitration, except as modified herein. A party
who wishes to arbitrate shall give written notice of such intention to the other party (a “Notice of
Intention”). The arbitrator shall be appointed by agreement by agreement of Executive and the
Corporation or, in default of agreement within ten (10) Business Days of service of the Notice of
Intention, each of Executive and the Corporation shall within five (5) Business Days of the expiry of the
aforesaid ten (10) Business Day period, select one arbitrator and notify the other of its selection, with the
third arbitrator to be chosen by the first two named arbitrators within five (5) Business Days of the expiry
of the aforesaid five (5) Business Day period. If one of the parties does not so notify the other of its
selection within the prescribed time, then the arbitrator selected by the other party in accordance with the
above procedure shall be the sole arbitrator. The arbitration shall be held in the State of Delaware. The
procedure to be followed shall be as agreed by the parties or, in default of agreement, determined by the
arbitrator(s), provided, however, that depositions or examinations for discovery will not be allowed but
information may be exchanged by other means. The parties will use their best efforts to ensure that the
arbitration hearing is conducted no later than sixty (60) days after the arbitrator is, or arbitrators are,
selected. The final decision of the arbitrator or arbitrators or any two of the three arbitrators will be
furnished to the parties in writing and will constitute a conclusive determination of the issue in question,
13
binding upon the parties, without right of appeal. The fees and expenses of the arbitration shall be in the
discretion of the arbitrator(s). Judgment upon the award may be entered in any court of competent
jurisdiction.
(b) Forum Selection
The parties hereby agree that all demands, claims, actions, causes of action, suits, proceedings and
litigation between or among the parties or arising out of the employment relationship between the
Executive and the Corporation not subject to the Arbitration provision in Section 12(a) hereof shall be
filed, tried and litigated only in a federal or state court located in the State of Delaware. In connection with
the foregoing, the parties hereto irrevocably consent to the jurisdiction and venue of such court and
expressly waive any claims or defenses of lack of jurisdiction of or proper venue by such court.
13. Section 409A
(a) The intent of the parties is that payments and benefits under this Agreement comply with
Section 409A of the Code and the regulations and guidance promulgated thereunder (except to the extent
exempt as short-term deferrals or otherwise) and, accordingly, to the maximum extent permitted, this
Agreement shall be interpreted to be in compliance therewith. If the Executive notifies the Corporation
(with specificity as to the reason therefor) that the Executive believes that any provision of this Agreement
(or of any award of compensation, including equity compensation or benefits) would cause Executive to
incur any additional tax or interest under Section 409A of the Code or the Corporation independently
makes such determination, the Corporation shall, after consulting with Executive and solely in the event
and to the extent the Corporation’s outside counsel deems it necessary to avoid any such additional tax or
interest, reform such provision to comply with Section 409A of the Code. To the extent that any provision
hereof is modified in order to comply with Section 409A of the Code, such modification shall be made in
good faith and shall, to the maximum extent reasonably possible, maintain the original intent and
economic benefit to the Executive and the Corporation of the applicable provision without violating the
provisions of Section 409A of the Code. In no event shall the Corporation be required to pay Executive
any “gross-up” or other payment with respect to any taxes or penalties imposed under Section 409A of the
Code with respect to any benefit paid or promised to Executive hereunder.
(b) It is intended that each installment, if any, of the payments and benefits, if any, provided to the
Executive under Section 6 hereof shall be treated as a separate “payment” for purposes of Section 409A of
the Code. Neither the Corporation nor the Executive shall have the right to accelerate or defer the delivery
of any such payments or benefits except to the extent specifically permitted or required by Section 409 of
the Code.
(c) All reimbursements and in-kind benefits provided under this Agreement shall be made or
provided in accordance with the requirements of Section 409A of the Code to the extent that such
reimbursements or in-kind benefits are subject to Section 409A of the Code. All expenses or other
reimbursements paid pursuant herewith that are taxable income to the Executive shall in no event be paid
later than the end of the calendar year next following the calendar year in which Executive incurs such
expense or pays such related tax. With regard to any provision herein that provides for reimbursement of
costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, the right to
reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, the
amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall
not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable
14
year, provided that, the foregoing clause shall not be violated with regard to expenses reimbursed under
any arrangement covered by Section 105(b) of the Code, if applicable, solely because such expenses are
subject to a limit related to the period the arrangement is in effect and such payments shall be made on or
before the last day of the Executive’s taxable year following the taxable year in which the expense
occurred.
(d) Whenever a payment under this Agreement specifies a payment period with reference to a
number of days (e.g., “payment shall be made within thirty (30) days following the Date of Separation
from Service”), the actual date of payment within the specified period shall be within the sole discretion of
the Corporation.
14. Miscellaneous
(a) Any notice or other communication required or permitted under this Agreement shall be
effective only if it is in writing and shall be deemed to be given when delivered personally or four days
after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one day after
it is sent by a reputable overnight courier service and, in each case, addressed as follows (or if it is sent
through any other method agreed upon by the parties):
If to the Corporation:
c/o Open Text Inc.
1301 South Mopac Expressway, Suite 150
Austin, Texas 78746
With a copy to, in all cases, the Parent Corporation:
c/o Open Text Corporation
275 Frank Tompa Drive Waterloo, Ontario
Canada N2L 0A1
If to the Executive:
Craig Stilwell
Address on file.
or to such other address as any party hereto may designate by notice to the others.
(b) This Agreement shall constitute the entire agreement among the parties hereto with respect to
the Executive’s employment hereunder, and supersedes and is in full substitution for any and all prior
understandings or agreements with respect to the Executive’s employment.
(c) This Agreement may be amended only by an instrument in writing signed by the parties hereto,
and any provision hereof may be waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure of any party hereto at any time
to require the performance by any other party hereto of any provision hereof shall in no way affect the full
right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a
breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision
15
or a waiver of the provision itself or a waiver of any other provision of this Agreement.
(d) The parties hereto acknowledge and agree that each party has reviewed and negotiated the
terms and provisions of this Agreement and has had the opportunity to contribute to its revision.
Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party
shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be
construed fairly as to both parties hereto and not in favor or against either party.
(e) The parties hereto hereby represent that they each have the authority to enter into this
Agreement, and the Executive hereby represents to the Corporation that the execution of, and performance
of duties under, this Agreement shall not constitute a breach of or otherwise violate any other agreement to
which the Executive is a party. The Executive hereby further represents to the Corporation that he will not
utilize or disclose any confidential information obtained by the Executive in connection with any former
employment with respect to his duties and responsibilities hereunder.
(f) This Agreement is binding on and is for the benefit of the parties hereto and their respective
successors, assigns, heirs, executors, administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by the Executive.
(g) The Corporation shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to
assume this Agreement in the same manner and to the same extent that the Corporation would have been
required to perform it if no such succession had taken place. As used in the Agreement, “the Corporation”
shall mean both the Corporation as defined above and any such successor that assumes this Agreement, by
operation of law or otherwise.
(h) Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section 14(h), be
ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the
remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this
Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed
invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the
modified covenant valid, legal and enforceable. No waiver of any provision or violation of this Agreement
by the Corporation shall be implied by the Corporation’s forbearance or failure to take action.
(i) The Corporation may withhold from any amounts payable to the Executive hereunder all
federal, state, city or other taxes that the Corporation may reasonably determine are required to be
withheld pursuant to any applicable law or regulation, (it being understood that the Executive shall be
responsible for payment of all taxes in respect of the payments and benefits provided herein).
(j) This Agreement shall be governed by and construed in accordance with the laws of the State of
Delaware without reference to its principles of conflicts of law.
(k) This Agreement may be executed in several counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument. A facsimile of a signature shall be
deemed to be and have the effect of an original signature.
16
(l) The headings in this Agreement are inserted for convenience of reference only and shall not be
a part of or control or affect the meaning of any provision hereof.
15. Disclosure
During the Term, the Executive shall promptly disclose to the Board full information concerning
any interest, direct or indirect, of the Executive (as owner, shareholder, partner, lender or other investor,
director, officer, employee, consultant or otherwise) or any member of his family in any business that is
reasonably known to the Executive to purchase or otherwise obtain services or products from, or to sell or
otherwise provide services or products to, the Corporation or to any of its suppliers or customers.
16. Return of Materials
All files, forms, brochures, books, materials, written correspondence, memoranda, documents,
manuals, computer disks, software products and lists (including lists of customers, suppliers, products and
prices) pertaining to the business of the Corporation or any of its subsidiaries, Affiliates, and Associates
that may come into the possession or control of the Executive shall at all times remain the property of the
Corporation or such subsidiary, Affiliate or Associate, as the case may be. The term “Associate” shall have
the meaning ascribed thereto under Rule 14a-1(a) of the General Rules of the Securities Exchange Act of
1934. On termination of the Executive’s employment for any reason, the Executive agrees to deliver
promptly to the Corporation all such property of the Corporation in the possession of the Executive or
directly or indirectly under the control of the Executive. The Executive agrees not to make for his personal
or business use or that of any other party, reproductions or copies of any such property or other property of
the Corporation.
17. Resignation of Directorships, etc.
The Executive agrees that after Separation from Service, he will, at the request of the Board, tender
his resignation from any position he may hold as an officer or director of the Corporation or any of its
subsidiaries, Affiliates or Associates, and the Executive further covenants and agrees, if so requested by
the Board, not to stand for re-election to any office of the Corporation or any of its subsidiaries, Affiliates
or Associates at any time following termination of the Executive’s employment hereunder.
18. No Derogation
Nothing herein derogates from any rights the Executive may have under applicable law, except as
set out in this section. The parties agree that the rights, entitlements and benefits set out in this Agreement
to be paid to the Executive are in full satisfaction of any rights or entitlements the Executive may have as
against the subsidiaries, Affiliates and Associates of the Corporation as a result of the termination of his
employment with such subsidiaries, Affiliates or Associates.
19. Currency
All dollars referenced herein are in US dollars unless expressly provided to the contrary.
20. Non-Disparagement
Each of the parties to this Agreement covenants and agrees not to engage in any pattern of conduct
that involves the making or publishing of written or oral statements or remarks (including, without
17
limitation, the repetition or distribution of derogatory rumors, allegations, negative reports or comments)
which are disparaging, deleterious or damaging to the integrity, reputation or goodwill of the other party,
which for the purposes of the Corporation, includes its subsidiaries, Affiliates or Associates or its and their
management. For the sake of clarity, nothing in this Section 20 shall prohibit statements or remarks made
in the good faith performance of the Corporation or Executive’s obligations under this Agreement or in
accordance with applicable law.
21. No Set-Off
The existence of any claim, demand, action or cause of action of the Executive against the
Corporation, whether or not based upon this Agreement, will not constitute a defense to the enforcement
by the Corporation of any covenant or agreement of the Executive contained herein.
* * * * * *
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
Executive
/s/ Craig Stilwell
Craig Stilwell
Open Text Corporation
OpenText Inc.
/s/ Michelle Berry
Michelle Berry
VP, Human Resources
18
Schedule A
Equity Ownership Guidelines
EQUITY OWNERSHIP GUIDELINES
In a continuing effort to align the interests of the Executives of the Parent Corporation, with the
interest of Parent Corporation’s shareholders, the Board has established the following
recommended Equity Ownership guidelines (the “Guidelines”).
COVERED EXECUTIVES
The Guidelines cover the Corporation’s CEO, all NEO’s (Named
Executive Officers), and the Executive Leadership Team (the “Covered Executives”).
OWNERSHIP GUIDELINES
The Board recommends that the Covered Executives achieve the equity ownership levels
within five (5) years after the date of his/her qualifications as a Covered Executive,
and (ii) hold such number of common shares or share equivalents recommended for so long as
they are Covered Executives.
Executive Title
CEO
Executive Leadership Team
Required Equity Ownership
4x base salary
1x base salary
Covered Executives may achieve these Guidelines through the exercise of stock option awards, purchases
under the Open Text Employee Stock Purchase Plan (“ESPP”), through an open market purchase made in
compliance with applicable securities laws or through any equity plan(s) the Corporation may adopt from
time to time. Until the Guideline is met, it is recommended that a Covered Executive retains a portion of
any stock option exercise or LTIP award in common shares of the Corporation to contribute to these
Guidelines.
For the purpose of compliance with the Guidelines, the common shares will be valued at the greater of
their book value (i.e., purchase price) and the current market value. The Compensation Committee of the
Board will review the recommended executive ownership guideline achievement levels on an annual
basis.
19
Schedule B
Benefits
Benefits to be enjoyed by the Executive during the term of this Agreement shall include, but are not
limited to:
(i)
reimbursement of reasonable cell phone expenses consistent with corporate policy;
(ii)
a US$5,000 perquisite allowance per fiscal year, which may be used for reimbursement of the
following types of services or fees:
• Financial planning
• Tax planning
• Estate planning
• Athletic/Health Club
• Additional Life Insurance
(iii)
the services of Medisys Health Group Inc., or a substantially similar organization, for the
purposes of obtaining mandatory and regular Health Examinations.
20
Schedule C
Restrictive Covenants Agreement
EMPLOYEE CONFIDENTIALITY AND
NON-SOLICITATION AGREEMENT
As an employee of Open Text Corporation or any related or affiliated company (the “Company”):
I understand and agree that I have a responsibility to protect and avoid the unauthorized use or
A.
disclosure of confidential information of the Company; and
I have a responsibility not to solicit or entice away from the Company any customer of the Company
B.
or any employee of the Company.
I.
Confidential Information. For purposes of this Agreement, the term “confidential information”
means all information that is not generally known and which I obtained from the Company, or learn, discover,
develop, conceive or create during the term of my employment with the Company, and which relates directly
to the business or to assets of the Company. Confidential information includes, but is not limited to: inventions,
discoveries, know-how, ideas, computer programs, designs, algorithms, processes and structures, product
information, research and development information, lists of clients and other information related thereto,
financial data and information, business plans and processes, and any other information of the Company that
the Company informs me, or which I should know by virtue of my position or the circumstances in which I
learned it, is to be kept confidential. Confidential information also includes information obtained by the
Company in confidence from its vendors or its clients. Confidential information may or may not be labeled
as “confidential”. If I am unsure as to whether information is “confidential”, I will ask my manager for
assistance.
Confidential information does not include any information that has been made generally available to the
public. It also does not include any general technical skills or general experience gained by me during my
employment with the Company. I understand that the Company has no objection to my using these skills and
experience in any new business venture or employment following the cessation of my employment with the
Company.
I recognize and acknowledge that in the course of my employment with the Company I may obtain knowledge
of confidential and proprietary information of a special and unique nature and value and I may become
familiar with trade secrets of the Company relating to the conduct and details of the Company’s business.
While I am employed by the Company and for a period of three years following the cessation of my
employment I agree:
to keep confidential and hold in secrecy and not disclose, divulge, publish, reveal or otherwise make
A.
known, directly or indirectly, or suffer or permit to be disclosed, divulged, published, revealed or otherwise
made known to any person whatsoever, or used (except for the benefit and proper purposes of the Company),
and shall faithfully do all in my power to assist the Company in holding in secrecy all of the Company’s
confidential information as defined above.
B.
to keep confidential and hold in secrecy and not disclose, divulge, publish, reveal or otherwise make
known, directly or indirectly, or suffer or permit to be disclosed, divulged, published, revealed or otherwise
made known to any person whatsoever, or used (except for the benefit and proper purposes of the Company)
21
any and all secrets or confidential information related to the Company’s activities or affairs which I now
know or which are hereafter disclosed or made known to me or otherwise learned or acquired by me, including
information respecting the business affairs, prospects, operations or strategic plans respecting the Company,
which knowledge I gain in my capacity as an employee of the Company and which knowledge is not publicly
available or disclosed.
Agreement Not to Solicit. I agree that while I am an employee of the Company and for six (6) months
II.
thereafter that I will:
A.
not solicit or entice or attempt to solicit or entice away from the Company any of the employees of
the Company to enter into employment or service with any person, business, firm or corporation other than
the Company;
not solicit or entice or attempt to solicit or entice away from the Company any customer or any other
B.
person, firm or corporation dealing with the Company.
III. Return of Documents. Upon the cessation of my employment with the Company for any reason, I
agree to return to the Company all records, documents, memoranda, or other papers, copies or recordings,
tapes, disks containing software, computer source code listings, routines, file layouts, record layouts, system
design information, models, manuals, documentation and notes as are in my possession or control. I
acknowledge and agree that all such items are strictly confidential and are the sole and exclusive property
of the Company.
IV. General.
A.
I further represent and warrant that I have not entered into any Agreement with any previous or present
employer which would prevent me from accepting employment with the Company or which would prevent
me from lawfully executing this Agreement.
I understand that the obligations outlined in this Agreement are the concern and responsibility of all
B.
employees of the Company. I agree to report in writing any violations of these policies to my manager or to
the Senior Vice-President of Human Resources.
C.
All the provisions of this Agreement will be deemed severable, and if any part of any provision is
held illegal, void or invalid under applicable law, such provision may be changed to the extent reasonably
necessary to make the provision, as so changed, legal, valid and binding. If any provision of this Agreement
is held illegal, void or invalid in its entirety, the remaining provisions of this Agreement will not in any way
be affected or impaired, but will remain binding in accordance with its terms.
This Agreement and all the rights and obligations arising herefrom shall be interpreted and applied
D.
in accordance with the laws of the Province of Ontario and in the courts of the Province of Ontario there
shall be exclusive jurisdiction to determine all disputes relating to this Agreement and all the rights and
obligations created hereby. I hereby irrevocably attorn to the jurisdiction of the courts of the Province of
Ontario.
E.
I acknowledge that my employment with the Company is contingent on my acceptance and my
observance of this Agreement, and that such employment is adequate and sufficient consideration to bind
me to all of the covenants and agreements made by me under this Agreement.
22
_________________________
Print Name of Witness
_______________________________
Print Name of Employee
_________________________
Signature of Witness
_______________________________
Signature of Employee
Date: ____________________
23
Schedule D
General Release
1. Release of Claims and Waiver of Rights.
(a) In consideration of any payments and benefits being provided to me under Section 6(a) of the
employment agreement (the “Employment Agreement”) dated as of December 24, 2019, as it may have
been amended to the date hereof, between me and Open Text Corporation (the “Company”), those
payments and benefits being good and valuable consideration, the adequacy and sufficiency of which are
acknowledged by me (the “Payments”), I, Craig Stilwell, hereby release, remise and acquit Company, its
present and past parents, subsidiaries and affiliates, their successors, assigns, benefit plans and/or
committees, and their respective present or past officers, directors, managers, supervisors, employees,
shareholders, attorneys, advisors, agents and representatives in their individual and corporate capacity, and
their successors and assigns (the “Releasees”), from, and hold them harmless against, any and all claims,
obligations, or liabilities (including attorneys, fees and expenses), asserted or unasserted, known or
unknown, that I, my heirs, successors or assigns have or might have, which have arisen by reason of any
matter, cause or thing whatsoever related to my employment (or termination of my employment) with the
Company on or prior to the date on which this General Release is signed.
(b) The terms “claims, obligations, or liabilities” (whether denominated claims, demands, causes of action,
obligations, damages or liabilities) include, but are not limited to, any and all claims under any contract
with the Company, claims of age, disability, race, religion, national origin, sex, retaliation, and/or other
forms of employment discrimination, breach of express or implied contract, breach of employee
handbook, practices or procedures, libel, slander, intentional tort or wrongful dismissal, claims for
reinstatement or reemployment, arising under any federal, state, or local common or statutory law; claims
for unpaid salary, commission or fringe benefits; or any other statutory claim before any state or federal
court, tribunal or administrative agency, arising out of or in any way related to my employment
relationship with the Company and its affiliates and the termination of that relationship. I will not file or
permit to be filed on my behalf any such claim.
(c) This General Release constitutes, among other things, a waiver of all rights and claims I may have
under the Age Discrimination in Employment Act of 1967 (29 U.S.C. 621, et seq.) (“ADEA”), the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, Title VII of the
United States Civil Rights Act of 1964, all as amended including the amendment set forth in 42 U.S.C. §
1981 concerning damages in cases of intentional discrimination in employment and any other comparable
national or state laws, all as amended, and as may be specified on or prior to the date on which this
General Release is signed.
(d) Notwithstanding the preceding paragraphs (b) or (c) or any other provision of this Agreement, this
General Release is not intended to interfere with my right to file a charge with the Equal Employment
Opportunity Commission (the “EEOC”) in connection with any claim I believe I may have against the
Company or its affiliates. However, by executing this General Release, I hereby waive the right to recover
in any proceeding I may bring before the EEOC or any state human rights commission or in any
proceeding brought by the EEOC or any state human rights commission on my behalf. In addition, this
General Release is not intended to interfere with my right to challenge that my waiver of any and all
ADEA claims pursuant to this General Release is a knowing and voluntary waiver, notwithstanding my
specific representation that I have entered into this General Release knowingly and voluntarily.
24
(e) This General Release is for any relief, no matter how denominated, including, but not limited to,
injunctive relief, wages, back pay, front pay, compensatory damages, or punitive damages.
(f) This General Release shall not apply to any rights in the nature of indemnification or payments under
(i) applicable law, (ii) the charter, bylaws or operating agreements of the Company, or (iii) applicable
directors and officers insurance policies which I may have with respect to claims against me relating to or
arising out of my employment with the Company and its affiliates or my service on their respective boards
of directors, or any vested benefit to which I am entitled under any tax qualified pension plan of the
Company or its affiliates, COBRA continuation coverage benefits or any other similar benefits required to
be provided by statute. Furthermore, notwithstanding anything to the contrary contained in this Section 1,
I do not release any of the Releasees from the Company’s obligation to timely provide me with all
payments and benefits to which I am entitled pursuant to the terms of the Employment Agreement, or any
other obligations of the Company under the Employment Agreement.
2. Representations and Covenants. I hereby represent and agree to all of the following:
(a) I have carefully read this General Release.
(b) I understand it fully.
(c) I am freely, voluntarily and knowingly releasing the Releasees in accordance with the terms contained
above.
(d) Before executing this General Release, I had twenty-one (21) days to consider my rights and
obligations under this General Release.
(e) The period of time I had to consider my rights and obligations under this General Release was
reasonable.
(f) Before signing this General Release, I was advised to consult with an attorney and given a reasonable
period of time to do so and in executing this General Release have not relied on any representation or
statement not set forth herein.
(g) Execution of this General Release and the General Release becoming enforceable (in accordance with
paragraph (h) below) within 30 days from the date of my “separation from service” (as determined under
Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations issued
thereunder) is a condition to the Payments, which payments and benefits are in addition to anything of
value to which I am already entitled to receive from the Company and its affiliates.
(h) For a period of seven (7) days following the date on which I sign this General Release, I may revoke it.
Any such revocation must be made in writing and received by the Corporate Secretary of the Company, by
the seventh day following the date on which I sign this General Release. The Company’s obligation to pay
the consideration as set forth in Section 1 above shall not become effective or enforceable until this seven
(7) day revocation period has expired without my having exercised my right to revoke.
(i) There are no pending lawsuits, charges, employee dispute resolution proceedings, administrative
proceedings or other claims of any nature whatsoever, that I have brought (and which are pending) against
any Releasee, in any state or federal court, before any agency or other administrative body or in any other
forum.
(j) I am not aware of any material violation of any laws or Company policies or procedures by a Company
employee or officer that has not been reported to Company officials.
25
(k) If I violate my obligations under the Employment Agreement and such violation causes material harm
to the Company, I understand that, in addition to other relief to which the Company may be entitled, the
Company shall be entitled to cease providing the Payments and benefits provided to me pursuant to
Section 1 above unless such violation is cured (if capable of being cured) within 30 days of notification by
the Company to me of such violation (and, following such cure, all suspended payments shall be made in
a single lump sum), and this General Release will remain in full force and effect.
(l) If I should hereafter make any claim or demand or commence or threaten to commence any action,
claim or proceeding against the Releasees with respect to any matter, cause or thing which is the subject of
the release under Section 1 of this General Release, this General Release may be raised as a complete bar
to any such action, claim or proceeding, and the applicable Releasee may recover from me all costs
incurred in connection with such action, claim or proceeding, including attorneys’ fees.
(m) If any provision of this General Release is declared illegal, invalid, or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such provisions will immediately
become null and void, leaving the remainder of this General Release in full force and effect.
(n) This General Release shall be governed by and construed in accordance with the laws of the State of
Delaware, without regard to conflicts of laws principles.
3. Declaration. I declare under penalty of perjury under the laws of the State of Delaware that the
foregoing is true and correct.
___________________________
Date: ___________________
Craig Stilwell
Acknowledged before me this ______________
________________, NOTARY PUBLIC
26
Subsidiaries of Open Text Corporation as of June 30, 2020
Exhibit 21.1
Corporation Name
GXS (ANZ) Pty Limited
Open Text Pty Limited
Webroot Pty Ltd.
Xpedite Systems Pty Limited
Open Text Software Austria GmbH
Webroot Austria GmbH
Open Text Technologia Da Informacao (Brasil) Ltda.
8493642 Canada Inc.
Carbonite Cloud Backup (Canada) Inc.
GXS Canada Inc.
Open Text Canada Ltd.
Carbonite (China) 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.
AVST Parent, LLC
Carbonite China Holdings, LLC
Carbonite India Holdings, LLC
Carbonite, Inc.
GXS International, Inc.
GXS, Inc.
Mozy, Inc.
Open Text Inc.
Open Text Holdings Inc.
Vignette Partnership, LP
Webroot Inc.
XMedius America Inc.
XMedius USA LLC
Open Text A/S
Acquisition U.K. Limited
Carbonite (UK) Limited
EasyLink Services International Limited
GXS Limited
GXS UK Holding Limited
ICCM Professional Services Limited
Liaison Technologies Limited
Metastorm Limited
Metastorm UK Limited
Open Text UK Limited
Resonate KT Limited
Sysgenics Limited
Webroot Services Limited
XMedius UK Limited
Xpedite Systems (UK) Limited
Liaison Technologies Oy
Open Text OY
Carbonite (France) SAS
XMedius Europe SAS
Jurisdiction
Australia
Australia
Australia
Australia
Austria
Austria
Brazil
Canada
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
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Denmark
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
England & Wales
England & Wales
Finland
Finland
France
France
Open Text SARL
Mailstore Software GmbH
Open Text Document Technologies GmbH
Open Text Software GmbH
Recommind GmbH
Global 360 China Limited
Open Text (Hong Kong) Limited
GXS India Technology Centre Private Limited
Open Text Corporation India Private Limited
Open Text Technologies India Private Limited
Vignette India Private Limited
Mozy International Limited
Open Text Ireland Limited
Webroot Global Holdings Limited
Webroot International Limited
Mozy Holdings Limited
Open Text S.r.l.
Open Text K.K.
Webroot K.K.
Open Text Software Technology (Malaysia) Sdn Bhd
Carbonite Securities Corporation
Habinger de Mexico, S. de R.L. de C.V.
Open Text, S. de R.L. de C.V.
Carbonite Holdings B.V.
Carbonite International Holdings B.V.
Carbonite Operations 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.
XMedius Solutions Inc.
GXS Inc.
Open Text Korea Co., Ltd.
Open Text LLC
Open Text Technology LLC
Open Text Saudi Arabia LLC
EC1 Pte Ltd
Open Text (Asia) Pte Limited
Open Text South Africa (Pty) Limited
Open Text Software S.L.U.
Open Text AB
Carbonite GmbH
Open Text AG
GXS Ltd
France
Germany
Germany
Germany
Germany
Hong Kong
Hong Kong
India
India
India
India
Ireland
Ireland
Ireland
Ireland
Ireland - Bermuda
Italy
Japan
Japan
Malaysia
Massachusetts, United States
Mexico
Mexico
Netherlands
Netherlands
Netherlands
Netherlands
New Zealand
Nova Scotia, Canada
Nova Scotia, Canada
Nova Scotia, Canada
Ontario, Canada
Philippines
Poland
Quebec, Canada
Quebec, Canada
Republic of Korea
Republic of Korea
Russian Federation
Russian Federation
Saudi Arabia
Singapore
Singapore
South Africa
Spain
Sweden
Switzerland
Switzerland
Thailand
Open Text Public Sector Solutions, Inc.
Virginia, 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 August 5, 2020, on the consolidated financial statements of Open Text Corporation (the ”Company”),
which comprise the consolidated balance sheets as at June 30, 2020 and June 30, 2019, 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, 2020, and the related notes (collectively the “consolidated financial statements”), and
our report dated August 5, 2020 on the effectiveness of the Company’s internal control over financial reporting as of June
30, 2020
each of which is included in this annual report on Form 10-K of the Company for the fiscal year ended June 30, 2020.
Our report on the consolidated financial statements refers to changes in accounting policies due to the adoption of the new
accounting standard for “Leases” in the year ended June 30, 2020, and two new accounting standards, "Revenue from Contracts
with Customers" and "Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory" in the year ended June 30, 2019.
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. 333-235307 on Form S-3 of the Company.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
August 6, 2020
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 6, 2020
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 6, 2020
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, 2020 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 6, 2020
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, 2020 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 6, 2020
By:
/s/ MADHU RANGANATHAN
Madhu Ranganathan
Executive Vice President and Chief Financial Officer
Annual Report 2020