Item 10.
Directors, Executive Officers and Corporate Governance
The following table sets forth certain information as to our directors and executive officers as of July 25, 2017.
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Name
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Age
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Office and Position Currently Held With Company
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Mark J. Barrenechea
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52
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Chief Executive Officer and Chief Technology Officer, Director
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John M. Doolittle
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53
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Executive Vice President and Chief Financial Officer
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Gordon A. Davies
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55
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Executive Vice President, Chief Legal Officer and Corporate Development
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Prentiss Donohue
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47
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Senior Vice President, Professional Services
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Simon Harrison
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47
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Senior Vice President, Enterprise Sales
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Adam Howatson
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35
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Chief Marketing Officer
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David Jamieson
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52
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Chief Information Officer
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Aditya Maheshwari
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43
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Senior Vice President and Chief Accounting Officer
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Muhi Majzoub
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57
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Executive Vice President, Engineering
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James McGourlay
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48
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Senior Vice President, Global Technical Services
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Douglas M. Parker
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46
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Senior Vice President, Corporate Development
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Leslie Sarauer
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55
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Senior Vice President, Human Resources
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George Schulze
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61
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Senior Vice President, Business Network Sales
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Gary Weiss
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50
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Senior Vice President, GM Discovery and Analytics
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P. Thomas Jenkins
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57
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Chairman of the Board
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Randy Fowlie (2)(3)
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57
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Director
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Gail E. Hamilton (2)
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67
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Director
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Brian J. Jackman (1)
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76
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Director
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Stephen J. Sadler
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66
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Director
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Michael Slaunwhite (1)(3)
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56
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Director
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Katharine B. Stevenson (2)
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55
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Director
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Carl Jürgen Tinggren (2)
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59
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Director
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Deborah Weinstein (1)(3)
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57
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Director
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(1)
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Member of the Compensation Committee.
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(2)
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Member of the Audit Committee.
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(3)
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Member of the Corporate Governance and Nominating Committee.
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Mark J. Barrenechea
Mr. Barrenechea joined OpenText in January 2012 as the President and Chief Executive Officer. In January 2016, Mr. Barrenechea stepped down as President and assumed the role of Chief Technology Officer, in addition to remaining the Company’s Chief Executive Officer. Before joining OpenText, Mr. Barrenechea was President and Chief Executive Officer of Silicon Graphics International Corporation (SGI), where he also served as a member of the Board. During Mr. Barrenechea's tenure at SGI, he led strategy and execution, which included transformative acquisition of assets, as well as penetrating diverse new markets and geographic regions. Mr. Barrenechea also served as a director of SGI from 2006 to 2012. Prior to SGI, Mr. Barrenechea served as Executive Vice President and CTO for CA, Inc. (CA) (formerly Computer Associates International, Inc.) from 2003 to 2006 and was a member of the executive management team. Before going to CA, Mr. Barrenechea was the Senior Vice President of Applications Development at Oracle Corporation from 1997 to 2003, managing a multi-thousand person global team while serving as a member of the executive management team. From 1994 to 1997, Mr. Barrenechea served as
Vice President of Development at Scopus, a software applications company. Prior to Scopus, Mr. Barrenechea was the Vice President of Development at Tesseract, where he was responsible for reshaping the company's line of human capital management software. Mr. Barrenechea serves as a member of the Board and Audit Committee of Dick's Sporting Goods and also serves as a board member of Hamilton Insurance Group. Mr. Barrenechea holds a Bachelor of Science degree in computer science from Saint Michael's College. Mr. Barrenechea has authored several books including
The Golden Age of Innovation, On Digital, Digital: Disrupt or Die
,
eGovernment or Out of Government
,
Enterprise Information Management: The Next Generation of Enterprise Software, Software Rules
and
e-Business or out of Business
.
John Doolittle
Mr. Doolittle joined OpenText as Chief Financial Officer in September 2014. Mr. Doolittle has experience in taxation, financial planning and analysis, treasury, and mergers and acquisitions. With more than 20 years of financial experience, Mr. Doolittle was most recently the Chief Financial Officer of Mattamy Homes from 2012 to 2014. Prior to joining Mattamy, Mr. Doolittle held senior financial roles with Nortel Networks Corporation, including serving as its Chief Financial Officer from 2009 to 2012. In the past, Mr. Doolittle has also served as the Vice-President of Finance for the Bank of Montreal’s Global Treasury Group from 1997 to 1999. Mr. Doolittle holds a Bachelor of Commerce degree from McMaster University and is a Chartered Professional Accountant (Ontario) (1988).
Gordon A. Davies
Mr. Davies joined OpenText as Chief Legal Officer in September 2009. Mr. Davies also serves as the Company's Corporate Secretary and Chief Compliance Officer, and has responsibility for Corporate Development and the Program Management Office. Prior to joining OpenText, Mr. Davies was the Chief Legal Officer and Corporate Secretary of Nortel Networks Corporation. During his sixteen years at Nortel, Mr. Davies acted as Deputy General Counsel and Corporate Secretary during 2008, and as interim Chief Legal Officer and Corporate Secretary in 2005 and again in 2007. He led the Corporate Securities legal team as General Counsel-Corporate from 2003, with responsibility for providing legal support on all corporate and securities law matters, and spent five years in Europe supporting all aspects of the Europe, Middle East and Africa (EMEA) business, ultimately as General Counsel, EMEA. Prior to joining Nortel, Mr. Davies practiced securities law at a major Toronto law firm. Mr. Davies holds an LL.B and an MBA from the University of Ottawa, and a B.A. from the University of British Columbia. He is a member of the Law Society of Upper Canada, the Canadian Bar Association, the Association of Canadian General Counsel and the Society of Corporate Secretaries and Governance Professionals.
Prentiss Donohue
Mr. Donohue joined OpenText as Senior Vice President of Professional Services in April 2016. He brings over 20 years of experience in support and services management. Prior to joining OpenText, Mr. Donohue served as Group Vice President and General Manager of Advanced Customer Services for Oracle Corporation from January 2010 to March 2016, where he was responsible for driving Oracle’s innovative software, systems and cloud services. From April 1998 to December 2010, Mr. Donohue worked at Sun Microsystems in various leadership roles, including in Managed Services Management and Corporate Marketing. Mr. Donohue served on the board of directors of Summit Charter School until May 2016. Mr. Donohue holds a BA from the University of Colorado and has completed executive leadership programs at the University of Michigan’s Ross School of Business and the University of Hong Kong.
Simon Harrision
Mr. Harrison has served as the Company’s Senior Vice President of Enterprise Sales since May 2015. 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 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.
Adam Howatson
Mr. Howatson has served as the Company's Chief Marketing Officer (CMO) since October 2014. Prior to becoming CMO, Mr. Howatson held a number of positions at OpenText, which include serving in Engineering from March 2013 to September 2014, Office of The President/PMO during 2012, and Product Management from 2006 to 2012. Prior to that, he also held roles in Technical Marketing, Mergers & Acquisitions, and Information Technology. Mr. Howatson currently serves as a director of LogiSense Corporation and ScribbleLive Inc. Mr. Howatson also served on the national board of directors for the Information Technology Association of Canada (ITAC) from June 2013 to September 2014. Mr. Howatson holds certifications from the University of Waterloo and the Canadian Forces College.
David Jamieson
Mr. Jamieson joined OpenText as the Chief Information Officer in November 2014. He brings over 25 years of experience in leading Information Technology organizations through the ever-changing technology landscape. Prior to joining OpenText, Mr. Jamieson worked at Barrick Gold Corporation, where he served as Director of Information Technology for four years before being appointed as the Vice President of Information Management and Technology in 2005. Mr. Jamieson has held senior positions with companies, such as Universal Studios Canada from 1999 to 2001, EDS/SHL Systemhouse from 1996 to 1999, and Canadian Pacific Railway from 1988 to 1996. Mr. Jamieson holds a Bachelor of Applied Science, Mechanical Engineering from the University of Toronto and received his Professional Engineer designation in 1990.
Aditya Maheshwari
Mr. Maheshwari joined OpenText as Senior Vice President and Chief Accounting Officer in February 2016. Prior to joining OpenText, Mr. Maheshwari was an Audit Partner in the Technology, Media and Telecoms practice at KPMG LLP, Canada until February 5, 2016. With 15 years of experience at KPMG including international postings in the UK and India, Mr. Maheshwari has the experience of working with several large multinational companies under U.S. GAAP and International Financial Reporting Standards. Mr. Maheshwari represented Canada on KPMG's global think-tank for the Technology sector and is the co-author of 11 technical and thought-leadership publications, published by KPMG, on revenue recognition for the Technology, Media and Telecoms sector. During his tenure in the UK, Mr. Maheshwari worked in KPMG's technical accounting group, International Standards Group, specializing in revenue recognition. Mr. Maheshwari is a Chartered Professional Accountant (Ontario), Certified Public Accountant (Colorado) and Chartered Accountant (India).
Muhi Majzoub
Mr. Majzoub has served as Executive Vice President, Engineering since January 2016. Prior to that he served as Senior Vice President, Engineering from June 2012 to January 2016. Mr. Majzoub is responsible for managing product development cycles, global development organization and driving internal operations and development processes. Mr. Majzoub is a seasoned enterprise software technology executive having recently served as Head of Products for NorthgateArinso, a private company that provides global Human Resources software and services. Prior to this, Mr. Majzoub was Senior Vice President of Product Development for CA, Technologies from June 2004 to July 2010. Mr. Majzoub also worked for several years as Vice President for Product Development at Oracle Corporation from January 1989 to June 2004. Mr. Majzoub attended San Francisco State University.
James McGourlay
Mr. McGourlay has served as the Senior Vice President of Global Technical Services since May 2015. Prior to this, Mr. McGourlay was the Company's Senior Vice President of Worldwide Customer Service from February 2012 to May 2015. Mr. McGourlay joined OpenText in 1997 and held progressive positions in information technology, technical support, product support and special projects, including, Director, Customer Service and Vice President, Customer Service in 2005.
Douglas M. Parker
Mr. Parker has served as the Senior Vice President, Corporate Development since June 2015. Prior to this role, Mr. Parker held the position of Vice President, General Counsel & Assistant Secretary from November 2009 to June 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 and is a graduate of the OpenText Leader’s Circle program. 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 June 2007 to September 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.
Leslie Sarauer
Ms. Sarauer joined OpenText as Senior Vice President of Human Resources in April 2016. She brings with her over 25 years of diverse experience as a Human Resource leader in both the corporate and professional services settings. Prior to joining OpenText, Ms. Sarauer held various senior leadership roles at Agrium Inc., including Senior Director, Corporate HR & Organizational Development from July 2012 to August 2014; Senior Director, Wholesales Human Resources from September 2006 to June 2012; and Senior Director, Total Compensation from January 2003 to August 2006. Ms. Sarauer also held various roles at Mercer Human Resources Consulting, including Principle Consultant, Executive Compensation from April 1997 to
August 2002. Ms. Sarauer holds a Bachelor of Arts in Economics and a Bachelor of Laws from Queen’s University. She also attended the Advanced HR Executive Program at the Ross School of Business of the University of Michigan.
George Schulze
Mr. Schulze has served as the Senior Vice President of Business Network Sales (previously Information Exchange Sales) for OpenText since May 2015. Mr. Schulze came to OpenText through its January 2014 acquisition of GXS Inc. (GXS). Mr. Schulze joined GXS in 2005 as Vice President of Sales for the Americas region. During Mr. Schulze’s 30-year career in Information Technology serving Fortune 500 companies, he has performed a wide variety of roles including Vice President and Managing Director of Sales at BearingPoint and Managing Director of KPMG. He has also previously served as Vice President/General Manager of the Americas for 724 Solutions, Vice President of Global Sales for SCC Communications and held various sales management positions at Tandem Computers Inc., Digital Equipment Corporation and Wang Laboratories Inc. Mr. Schulze holds a Bachelor of Science degree in Civil Engineering from Lehigh University.
Gary Weiss
Mr. Weiss has served as Senior Vice President and General Manager, Discovery, Analytics and OEM Business since May 2016. Prior to this role, Mr.Weiss held the position of Senior Vice President, Cloud Services from September 2014 to May 2016 and SVP of Information Exchange from July 2012 to September 2014. Prior to joining OpenText, Mr. Weiss worked at CA, Inc. (formerly Computer Associates International, Inc.) from 2003 to 2011. During his tenure at CA, Mr. Weiss held various executive level positions, including SVP of Sales for the Security business, SVP, Business Development and Alliances, and was a member of the Senior Leadership team at CA from 2009 to 2011. Mr. Weiss has also worked as an independent consultant to small- to mid-size security organizations for many years. He began his career in Information Technology in 1993 as one of the first sales executives at Security Dynamics (later renamed RSA Security) before joining e-Security in 2001 to lead the North American Sales, Channel, and Technology Services. Mr. Weiss holds a B.A. from Tulane University.
P. Thomas Jenkins
Mr. Jenkins is Chairman 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 the tenth Chancellor of the University of Waterloo. Currently, Mr. Jenkins is a board member of Manulife Financial Corporation, and TransAlta Corporation. In the past five years, Mr. Jenkins also served as a board member of Thomson Reuters Inc. He is the Chair of the National Research Council of Canada (NRC) and Canadian Chair of the Atlantik Bruecke. Mr. Jenkins received an M.B.A. from Schulich School of Business at York University, an M.A.Sc. from the University of Toronto and a B.Eng. & Mgt. from McMaster University. Mr. Jenkins received honorary doctorates from six universities. He is a Companion of the Canadian Business Hall of Fame and recipient of the Ontario Entrepreneur of the Year award, the McMaster Engineering L.W. Shemilt Distinguished Alumni Award and the Schulich School of Business Outstanding Executive Leadership award. He is a Fellow of the Canadian Academy of Engineering (FCAE). Mr. Jenkins was awarded the Canadian Forces Decoration (CD) and the Queen's Diamond Jubilee Medal (QJDM). Mr. Jenkins is an Officer of the Order of Canada (OC).
Randy Fowlie
Mr. Fowlie has served as a director of OpenText since March 1998. From March 2011 to April 2017, Mr. Fowlie was the President and CEO of RDM Corporation, a leading provider of specialized hardware and software solutions in the electronic payment industry. Mr. Fowlie operated a consulting practice from July 2006 to December 2010. From January 2005 until July 2006, Mr. Fowlie held the position of Vice President and General Manager, Digital Media, of Harris Corporation, formerly Leitch Technology Corporation (Leitch), a company that was engaged in the design, development, and distribution of audio and video infrastructure to the professional video industry. Leitch was acquired in August 2005 by Harris Corporation. From June 1999 to January 2005, Mr. Fowlie held the position of Chief Operating Officer and Chief Financial Officer of Inscriber Technology Corporation (Inscriber), a computer software company and from February 1998 to June 1999 Mr. Fowlie was the Chief Financial Officer of Inscriber. Inscriber was acquired by Leitch in January 2005. Prior to working at Inscriber Mr. Fowlie was a partner with KPMG LLP, Chartered Accountants, where he worked from 1984 to February 1998. Mr. Fowlie received a B.B.A. (Honours) from Wilfrid Laurier University and is a Chartered Professional Accountant. In the last five years, Mr. Fowlie also served as a director of Semcan Inc. and RDM Corporation.
Gail E. Hamilton
Ms. Hamilton has served as a director of OpenText since December 2006. For the five years prior thereto, Ms. Hamilton led a team of over 2,000 employees worldwide as Executive Vice President at Symantec Corp (Symantec), an infrastructure software company, and most recently had “P&L” responsibility for their global services and support business. During her five years at Symantec, Ms. Hamilton helped steer the company through an aggressive acquisition strategy. In 2003, Information Security magazine recognized Ms. Hamilton as one of the “20 Women Luminaries” shaping the security industry. Ms. Hamilton has over 20 years of experience growing leading technology and services businesses in the enterprise market. She has extensive management experience at Compaq and Hewlett Packard, as well as Microtec Research. Ms. Hamilton received both a BSEE from the University of Colorado and an MSEE from Stanford University. Currently, Ms. Hamilton is also a director of the following public companies: Westmoreland Coal Company and Arrow Electronics, Inc. In the past five years Ms. Hamilton also served as a director of Ixia.
Brian J. Jackman
Mr. Jackman has served as a director of OpenText since December 2002. Mr. Jackman is the President of the Jackman Group Inc., a private consulting firm he founded in 2005. From 1982 until his retirement in September 2001, Mr. Jackman held various positions with Tellabs Inc., a U.S. based manufacturer of telecommunications equipment, most recently as Executive Vice President of the company, and President, Global Systems and Technologies division, and as a member of the board of directors of the company. Prior to joining Tellabs Inc., Mr. Jackman worked for IBM Corporation from 1965 to 1982, in a variety of systems, sales and marketing positions. Mr. Jackman also serves as a director of PC-TEL, Incorporated. Mr. Jackman received a B.A from Gannon University and an M.B.A from The Pennsylvania State University.
Stephen J. Sadler
Mr. Sadler has served as a director of OpenText since September 1997. From April 2000 to present, Mr. Sadler has served as the Chairman and CEO of Enghouse Systems Limited, a publicly traded software engineering company that develops geographic information systems as well as contact center systems. Mr. Sadler was previously Chief Financial Officer, President and Chief Executive Officer of GEAC Computer Corporation Ltd. (GEAC). Prior to Mr. Sadler's involvement with GEAC, he held executive positions with Phillips Electronics Limited and Loblaws Companies Limited, and was Chairman of Helix Investments (Canada) Inc. Currently, Mr. Sadler is a director of Enghouse Systems Limited. Mr. Sadler holds a B.A. Sc. (Honours) in Industrial Engineering and an M.B.A. (Dean's List) and he is a Chartered Professional Accountant.
Michael Slaunwhite
Mr. Slaunwhite has served as a director of OpenText since March 1998. Mr. Slaunwhite is presently Director and Chairman of Saba Software Inc. (effective May 1, 2017 at the time of its acquisition of Halogen Software Inc.), and also serves as Manager and Chairman of Vector Talent Holdings, L.P., the parent holding company to both Saba Software Inc. and Halogen Software Inc. Prior to his appointment at Saba Software in May 2017, Mr. Slaunwhite served as CEO and Chairman of Halogen Software Inc. from 2000 to August 2006, and as President and Chairman from 1995 to 2000. 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 private company boards in Canada and the United States. Ms. Stevenson is director of the Canadian Imperial Bank of Commerce (CIBC) where she chairs its Corporate Governance Committee. Ms. Stevenson is also a director of CAE Inc., Capital Power Corporation, and Lucky Iron Fish Enterprise. CIBC, CAE Inc., and Capital Power Corporation are all publicly listed companies. She was formerly a senior finance executive of Nortel Networks Corporation from 1995 to 2007, serving as global treasurer. Previously, she held a variety of positions in investment and corporate banking at JP Morgan Chase & Co. Ms. Stevenson holds a B.A. (
Magna Cum Laude
) from Harvard University. She is certified with the professional designation ICD.D. granted by the Institute of Corporate Directors (ICD). Previously, Ms. Stevenson also served as a director of Valeant Pharmaceuticals International Inc. and OSI Pharmaceuticals Inc.
Carl Jürgen Tinggren
Mr. Tinggren has served as a director of OpenText since February 2017. Mr. Tinggren is the former Chief Executive Officer of Schindler Group, a European based global industrial corporation, and has over 30 years of international business experience. Previous to Schindler Group, Mr. Tinggren gained extensive management experience at Sika AG, a public specialty
manufacturing company, based out of Switzerland, Sweden and North America, as well as at Booz Allen & Hamilton. Mr. Tinggren is currently a non-executive member of the board of directors of Johnson Controls International, where he also serves as chair of the audit committee. He is also a director at Sika AG and the Conference Board. Previously, Mr. Tinggren also served as a director of Schindler Group. Mr. Tinggren received an M.B.A. from Stockholm School of Economics and New York University Business School.
Deborah Weinstein
Ms. Weinstein has served as a director of OpenText since December 2009. Ms. Weinstein is a co-founder and partner of LaBarge Weinstein LLP, a business law firm based in Ottawa, Ontario, since 1997. Ms. Weinstein's legal practice specializes in corporate finance, securities law, mergers and acquisitions and business law representation of public and private companies, primarily in knowledge-based growth industries. Prior to founding LaBarge Weinstein LLP, Ms. Weinstein was a partner of the law firm Blake, Cassels & Graydon LLP, where she practiced from 1990 to 1997 in Ottawa, and in Toronto from 1985 to 1987. Ms. Weinstein also serves as a director of Dynex Power Inc., a manufacturer of power semiconductors, and on a number of not-for-profit boards. Ms. Weinstein holds an LL.B. from Osgoode Hall Law School of York University. In the last five years, Ms. Weinstein also served as a director of LW Capital Pool Inc. and Standard Innovation Corporation, a private company.
Involvement in Certain Legal Proceedings
Ms. Stevenson served as the Treasurer of Nortel Networks Corporation (Nortel) from 2000 to August 2007. Mr. Doolittle served as the Chief Financial Officer of Nortel from 2009 to 2012. Mr. Davies served as the Chief Legal Officer and Corporate Secretary of Nortel during 2007 and from January to September 2009. Mr. Parker served as the Associate General Counsel and Managing Attorney of Nortel from June 2007 to September 2009. In January 2009, Nortel filed petitions under applicable bankruptcy and insolvency laws of the United States, Canada and the United Kingdom.
Ms. Stevenson served as a director of Valeant Pharmaceuticals International, Inc. (Valeant) from 2010 to March 2016. During her tenure, Valeant was, and continues to be, the subject of certain putative securities class action claims in Canada and the United States. These claims allege, among other things, misrepresentations by Valeant in certain of its public disclosure documents.
Mr. Fowlie was a director of Meikle Group Inc. (Meikle Group), a private company, from June 2009 to April 2010. Subsequent to Mr. Fowlie's resignation, as part of a restructuring, creditors appointed a receiver to sell the business assets and transfer employees of Meikle Group, as a going concern, to a newly financed company.
Mr. Sadler was a director of Frontline Technologies Inc. (formerly Belzberg Technologies Inc.) from October 1997 to April 2012. Subsequent to Mr. Sadler's resignation, Frontline Technologies Inc. filed an assignment into bankruptcy under applicable bankruptcy and insolvency laws of Canada.
Audit Committee
The Audit Committee currently consists of four directors, Mr. Fowlie (Chair), Mr. Tinggren, and Mses. Hamilton and Stevenson, all of whom have been determined by the Board of Directors to be independent as that term is defined in NASDAQ Rule 5605(a)(2) and in Rule 10A-3 promulgated by the SEC under the Exchange Act, and within the meaning of our director independence standards and those of any exchange, quotation system or market upon which our securities are traded.
The responsibilities, mandate and operation of the Audit Committee are set out in the Audit Committee Charter, a copy of which is available on the Company's website,
investors.opentext.com
under the Corporate Governance section.
The Board of Directors has determined that Mr. Fowlie qualifies as an “audit committee financial expert” as such term is defined in SEC Regulation S-K, Item 407(d)(5)(ii).
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics (the Ethics Code) that applies to all of our directors, officers and employees. The Ethics Code incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and compliance with all applicable laws and regulations. The Ethics Code also incorporates our expectations of our employees that enable us to provide full, fair, accurate, timely and understandable disclosure in our filings with the SEC and other public communications.
The full text of the Ethics Code is published on our web site at
investors.opentext.com
under the Corporate Governance section.
If we make any substantive amendments to the Ethics Code or grant any waiver, including any implicit waiver, from a provision of the Ethics Code to our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, we will disclose the nature of the amendment or waiver on our website at
investors.opentext.com
or on a Current Report on Form 8-K.
Board Diversity and Term Limits
The Company, including the Corporate Governance and Nominating Committee, views diversity in a broad context and considers a variety of factors when assessing nominees for the Board. The Company has established a Board Diversity Policy recognizing that a Board made up of highly qualified directors from diverse backgrounds, including diversity of gender, age, race, sexual orientation, religion, ethnicity and geographic representation, is important. The Company has not established a specific target number or date by which to achieve a specific number of women on the Board, as we consider a multitude of factors, including skills, experience, expertise and character, in determining the best nominee at the time and consider the Company’s objectives and challenges at such time. There are currently three women on the Board which represents approximately 30% of the current Board and of the director nominees, and 38% of the current independent Board members.
The Company has not set term limits for independent directors because it values the cumulative experience and comprehensive knowledge of the Company that long serving directors possess. The Company does not have a director retirement policy, however the Corporate Governance and Nominating Committee considers the results of its director assessment process in determining the nominees to be put forward. In conducting director evaluations and nominations, the Corporate Governance and Nominating Committee considers the composition of the Board and whether there is a need to include nominees with different skills, experiences and perspectives on the Board. This flexible approach allows the Company to consider each director individually as well as the Board composition generally to determine if the appropriate balance is being achieved.
Diversity in Executive Officer Positions
The Company is committed to a diverse and inclusive workplace, including advancing women to executive officer positions. The Company has not adopted specific objectives or targets regarding women at the executive officer level; however, the Company has adopted a formal written Global Diversity and Inclusion Policy which expresses its commitment to fostering a diverse and inclusive workplace for all employees. The Company currently only has one woman (8%) on the executive leadership team (ELT), our Senior Vice President, Human Resources, while approximately 20% of existing positions on the senior leadership team (SLT), exclusive of our ELT, are held by women. A principal objective of our Global Diversity and Inclusion Policy is to support and monitor the identification, development and retention of diverse employees, including gender diversity at executive and leadership positions. We will continue to develop a sustainable culture of diversity and inclusion that provides all employees an opportunity to excel.
Item 11. Executive Compensation
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed with our management the following Compensation Discussion and Analysis (CD&A). Based on this review and discussion, our Compensation Committee has recommended to the Board that the following CD&A be included in our Annual Report on Form 10-K for Fiscal 2017.
This report is provided by the following independent directors, who comprise our Compensation Committee:
Michael Slaunwhite (Chair), Brian J. Jackman, Deborah Weinstein.
To the extent that this Annual Report on Form 10-K has been or will be specifically incorporated by reference into any filing by us under the Securities Act of 1933, as amended, or the Exchange Act, this “Compensation Committee Report” shall not be deemed “soliciting materials”, unless specifically otherwise provided in any such filing.
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation arrangements of the following individuals for the year which ended on June 30, 2017 (Fiscal 2017), should be read together with the compensation tables and related disclosures set forth below: (i) our principal executive officer, (ii) our principal financial officer, (iii) our three most highly compensated executive officers, other than our principal executive officer and principal financial officer, and (iv) one additional individual for whom disclosure would have been provided but for the fact that such individual was not serving as an executive officer on June 30, 2017 (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
0.754836
.
Overview of Compensation Program
The compensation of our Named Executive Officers is the responsibility of the Compensation Committee of OpenText's board of directors (the Compensation Committee or the Committee), either alone or in certain circumstances, in consultation with the Board. The Compensation Committee ensures compensation decisions are in line with our goal to provide total compensation to our Named Executive Officers that (i) is fair, reasonable and consistent with our compensation philosophy to achieve our short-term and long-term business goals, and (ii) provides market competitive compensation. The Named Executive Officers who are the subject of this CD&A are:
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Mark J. Barrenechea - Chief Executive Officer and Chief Technology Officer (CEO)
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John M. Doolittle - Executive Vice President and Chief Financial Officer (CFO)
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Gordon A. Davies - Executive Vice President, Chief Legal Officer and Corporate Development
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Muhi Majzoub - Executive Vice President, Engineering
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George Schulze - Senior Vice President, Business Network Sales
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Steve Murphy - former President
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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, including all Named Executive Officers with the exception of our CEO.
In making compensation decisions relating to, among other things, performance targets, base salary, bonuses, short-term incentives and long-term incentives, the Compensation Committee considers the input of the CEO. With respect to the compensation of our CEO, the Compensation Committee makes recommendations to the Board for approval. The Compensation Committee reviews and approves all equity awards related to executive compensation, which are granted by the Board.
The Board, the Compensation Committee, and our management have instituted a set of detailed policies and procedures to evaluate the performance of each of our Named Executive Officers which help determine the amount of the short-term incentives and long-term incentives to award to each Named Executive Officer.
The Compensation Committee considers previous compensation awards, the impact of tax, accounting treatments and applicable regulatory requirements when approving compensation programs.
During Fiscal 2017, the Committee’s work included the following:
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Executive Compensation Review
- The Compensation Committee continually reviews compensation practices and policies with respect to our senior management team against similar-sized global technology companies, in order to allow us to place our compensation practices for these positions in a market context. This benchmarking may include a review of base salary, total cash compensation and total direct compensation. During Fiscal 2017, the Compensation Committee reviewed and approved an updated peer group.
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CEO Compensation
- The Committee initiated a review of CEO compensation in consultation with its independent compensation consultant and recommended to the Board changes to such compensation.
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Long-Term Incentive Plan
- The Compensation Committee reviewed semi-annual analysis provided by Mercer Canada Limited (Mercer) related to performance under all outstanding Performance Share Unit Programs (for details on the programs, refer to the section titled “Long Term Incentives”).
|
In reaching its decisions, the Compensation Committee may consider input from management, analysis provided from the compensation consultant, as well as other factors that the Committee considers appropriate. Decisions made by the Compensation Committee are the responsibility of the Committee and may reflect factors and considerations other than the information and/or recommendations provided by management and the compensation consultants.
Compensation Consultant
NASDAQ standards require compensation committees to have certain responsibilities and authority regarding the retention, oversight and funding of committees' advisors and perform an evaluation of each advisor's independence, taking into consideration all factors relevant to that person's independence from management. NASDAQ standards also require that such rights and responsibilities be enumerated in the compensation committee's charter. While, as a foreign private issuer, we are exempt from these rules, nonetheless, our Compensation Committee has the sole authority to retain and terminate outside consultants. From time to time, the Compensation Committee seeks the advice of an outside compensation consultant to provide assistance and guidance on compensation issues. The consultant may provide the Compensation Committee with relevant information pertaining to market compensation levels, alternative compensation plan designs, market trends and best practices and may assist the Compensation Committee with respect to determining the appropriate benchmarks for each Named Executive Officer's compensation.
In Fiscal 2017, the Compensation Committee retained Hugessen Consulting Inc. (Huggessen), an independent consulting firm specializing in executive compensation consulting. Hugessen did not attend any Compensation Committee meetings; however, during their respective times engaged as compensation consultants, representatives of Hugessen did work in consultation with members of the Compensation Committee. Hugessen did not provide any other services to the Company during Fiscal 2017, outside of its capacity as compensation consultants.
The Compensation Committee met four times during Fiscal 2017. Management assisted in the coordination and preparation of the meeting agenda and materials for each meeting. The agenda is reviewed and approved by the Chairman of the Compensation Committee. The meeting materials are generally posted and made available to the other Committee members and invitees, if any, for review approximately one week in advance of each meeting.
Compensation Philosophy
We believe that compensation plays an important role in achieving short and long-term business objectives that ultimately drives business success in alignment with long-term shareholder goals.
Our compensation philosophy is based on three fundamental principles:
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•
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Strong link to business strategy
- Our short and long-term goals are reflected in our overall compensation program.
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•
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Pay for Performance
- We aim to reward sustained company performance and individual achievements by aligning a significant portion of total compensation to our financial results and strategic objectives. We believe compensation should fluctuate with financial performance and accordingly, we structure total compensation to be at or above our peer group median when our financial performance exceeds our target performance and likewise, we structure total compensation to be below our peer group median if our financial performance falls below our targets; and
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•
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Market relevant
- Our compensation program provides market competitive pay in terms of value and structure in order to retain talent who are performing according to their objectives and to attract new talent of the highest caliber. We aim to position our executive officers’ compensation targets at the median in relation to our peer group, however, actual pay depends on performance of the executive officers and the Company.
|
Our reward package is based primarily on results achieved by the Company as a whole. The Compensation Committee has the flexibility to exercise discretion to ensure total compensation appropriately reflects performance.
Compensation Objectives
The objectives of our compensation program are to:
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•
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Attract and retain highly qualified executive officers who have a history of proven success;
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•
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Align the interests of executive officers with our shareholders' interests and with the execution of our business strategy;
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•
|
Motivate and reward our high caliber executive team through competitive pay practices and an appropriate mix of short and long-term incentives;
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•
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Evaluate executive performance on the basis of key financial measurements which we believe closely correlate to long-term shareholder value; and
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•
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Tie compensation awards directly to key financial measurements with evaluations based on achieving and overachieving predetermined objectives.
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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 on being competitive in the market with respect to total compensation remains.
The Compensation Committee regularly reviews data related to compensation levels and programs of a peer group of comparable organizations. The Company has grown substantially in size in terms of total revenues, adjusted operating income and overall scale from when it had last conducted a benchmarking process and established a peer group. In November 2016,
a peer group analysis was prepared using the criteria described in the table below by Radford, an AON Hewitt Company (Radford) for management, which was presented to and approved by the Compensation Committee. Our peer group consists of 17 companies that include 16 US-based companies and one Israel-based company. Our new peer group consists of 11 companies from our previous peer group and six new companies.
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General Description
|
Criteria Considered
|
Peer Group List
|
Global software and service providers that are similar in size, business complexity, and scope of operations to us.
|
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.
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Akamai Technologies, Inc.
Autodesk, Inc.
Broadridge Financial Solutions, Inc.
Brocade Communications Systems, Inc.
CA Technologies
Cadence Design Systems, Inc.
Check Point Software Technologies Ltd.
Citrix Systems, Inc.
Global Payments Inc.
Nuance Communications, Inc.
Pitney Bowes Inc.
Red Hat, Inc.
Sabre Corporation
Symantec Corporation
Synopsys, Inc.
Teradata Corporation
The Dun & Bradstreet Corporation
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The purpose of the benchmarking process was to:
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•
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Update our peer group in light of the substantial growth in scale that the Company has undergone since its previous peer group was established.
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•
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Understand the competitiveness of our current pay levels for each executive position relative to companies with similar revenues and business characteristics in our peer group;
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•
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Identify and understand gaps that may exist between our actual compensation levels and market compensation levels; and
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•
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Serve as a basis for developing salary adjustments and short-term and long-term incentive award programs for the Compensation Committee's approval.
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Taking into account the benchmarking review performed in November 2016, compensation adjustments were made for our Named Executive Officers to align their compensation packages more closely with our stated compensation objectives. Messrs. Barrenechea, Doolittle, Davies, and Majzoub received an adjustment to their respective short-term incentive compensation during Fiscal 2017. Mr. Doolittle also received an adjustment to his total cash compensation during Fiscal 2017.
CEO Compensation
Mr. Barrenechea’s leadership of the company as CEO, including several transformative acquisitions, have both strengthened the market position of Open Text and delivered superior shareholder value. The Compensation Committee and the Board of Directors are committed to providing the CEO with a competitive compensation package which rewards outstanding performance, provides incentives for continued long term sustainable growth, and accomplishes the Board’s retention objectives.
To achieve these goals, Mr. Barrenechea’s annual compensation has been supplemented with a grant of performance-based equity. The structure of this grant is described in detail below in the section “Long Term Incentives - Long Term Equity Grants to CEO”.
The philosophy behind this grant is to align the CEO’s compensation with superior shareholder return, while accomplishing the long-term retention of the executive through its deferred vesting schedules. Its focus is on the long term strategic goals of the company and is targeted to pay above average compensation only for above average performance.
Aligning Officers' Interests with Shareholders' Interests
We believe that transparent, objective and easily verified corporate goals play an important role in creating and maintaining an effective compensation strategy for our Named Executive Officers. Our objective is to facilitate an increase in shareholder value, over the longer term, through the achievement of these corporate goals under the leadership of our Named Executive Officers working in conjunction with all of our valued employees.
We use a combination of fixed and variable compensation to motivate our executive officers to achieve our corporate goals. For Fiscal 2017, the basic components of our executive officer compensation program were:
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•
|
Short-term incentives; and
|
To ensure alignment of the interests of our executive officers with the interests of our shareholders, our executive officers have a significant proportion of compensation “at risk”. Compensation that is “at risk” means compensation that may or may not be paid to an executive officer depending on whether the Company and such executive officer is able to meet or exceed applicable performance targets. Short-term incentives and long-term incentives meet this definition of compensation which is at risk, and long-term incentives are an additional incentive used to promote the creation of longer-term shareholder value. In general, the greater the executive officer’s influence upon our financial or operational results, the higher is the risk/reward portion of his 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 2017:
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|
|
|
|
Named Executive Officer
|
Fixed Pay Percentage
(“Not At Risk”)
|
Short-Term Incentive
Percentage (at 100% target)
(“At Risk”)
|
Long-Term Incentive
Percentage (at 100% target)
(“At Risk”)
|
Mark J. Barrenechea
|
13%
|
16%
|
71%
|
John M. Doolittle
|
26%
|
27%
|
47%
|
Gordon A. Davies
|
20%
|
18%
|
62%
|
Muhi Majzoub
|
23%
|
21%
|
56%
|
George Schulze
|
39%
|
43%
|
18%
|
Steve Murphy
|
29%
|
29%
|
42%
|
Fixed Pay
Fixed pay includes:
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. 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 the determination of base salary and 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:
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•
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An annual executive medical physical examination;
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|
•
|
A base allowance to cover expenses such as financial planning or health club memberships.
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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:
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•
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Medical health insurance;
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|
|
•
|
Tax based retirement savings plans matching contributions.
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Short-Term Incentives
In Fiscal 2017, 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 and they usually focus on worldwide revenue targets and worldwide adjusted operating income targets. 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. Schulze. Due to his specific responsibilities relating to sales, which is primarily focused on cloud-based products, it was determined that it would be more appropriate for Mr. Schulze to participate in an incentivized sales commission plan with terms that correspond to the results achieved by his sales team. The objectives set for Mr. Schulze's sales commission plan consist of direct sales revenue and direct sales minimum contract value (direct sales MCV).
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’ roles 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.
For Mr. Schulze's short-term incentive plan, direct sales revenue is the total commissionable revenue earned through Mr. Schulze's sales team, which has been recognized in the "Total Revenues" line of our audited income statement.
Direct sales MCV is the total projected commissionable incremental revenue earned through Mr. Schulze's sales team, as defined in a signed and written agreement between the Company and its customer. It represents the minimum amount of revenue that we expect to receive from a contract. For the purposes of calculating the achievement of this performance objective, we only consider MCV that is derived from new or incremental business earned through his direct sales team.
For Fiscal 2017, 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.
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|
|
|
|
|
|
|
|
Named Executive Officer
|
Total Target
Award
|
Worldwide Revenues
|
Worldwide Adjusted Operating Income
|
Direct Sales Revenue
|
MCV
|
Mark J. Barrenechea
|
$
|
1,185,000
|
|
50%
|
50%
|
N/A
|
N/A
|
John M. Doolittle
|
$
|
446,612
|
|
50%
|
50%
|
N/A
|
N/A
|
Gordon A. Davies
|
$
|
285,958
|
|
50%
|
50%
|
N/A
|
N/A
|
Muhi Majzoub
|
$
|
324,500
|
|
50%
|
50%
|
N/A
|
N/A
|
George Schulze
|
$
|
475,000
|
|
N/A
|
N/A
|
50%
|
50%
|
Steve Murphy
|
$
|
600,000
|
|
50%
|
50%
|
N/A
|
N/A
|
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 2017” below.
For each performance measure noted above, the Compensation Committee approves the total target award, and the Board applies a threshold and target level of performance. Where applicable, the Board also applies an objective formula for determining the percentage payout under awards for levels of performance above and below threshold and target. To the extent target performance is exceeded, the award will be proportionately greater. The threshold and target levels and payout formula are set forth below as well as actual performance and payout percentages achieved in Fiscal 2017. The Board has discretion to make positive or negative adjustments if it considers them to be reasonably appropriate; the Board rarely exercises this discretion.
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|
|
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|
|
|
|
|
|
|
|
|
Objectives (in millions)
|
Threshold Target
|
Target
|
Fiscal 2017
Actual
(1)
|
% Target Actually Achieved
|
% of Payment per Fiscal 2017 Payout Table
|
Worldwide Revenues
|
$
|
2,081
|
|
$
|
2,312
|
|
$
|
2,307
|
|
99.8
|
%
|
100
|
%
|
Worldwide Adjusted Operating Income
|
$
|
638
|
|
$
|
709
|
|
$
|
741
|
|
104.5
|
%
|
225
|
%
|
Direct Sales Revenue
|
$
|
564
|
|
$
|
594
|
|
$
|
594
|
|
100.0
|
%
|
100
|
%
|
Direct Sales MCV
(2)
|
N/A
|
|
$
|
220
|
|
$
|
209
|
|
95.0
|
%
|
N/A
|
|
|
|
(1)
|
Adjusted to remove the impact of foreign exchange and, in some cases, reflect certain adjustments relating to the aging of accounts receivable.
|
|
|
(2)
|
Direct sales MCV in this table is representative of achievement earned by Mr. Schulze and his direct sales team and is not representative of the total MCV achieved by the Company as a whole. Additionally, there is no threshold target for this performance measure. Payments under this performance measure are determined based on a graduated scale where every dollar MCV achieved results in a certain correlated performance payment. Additionally, because payments are based on a graduated scale, it is not meaningful to show a single percentage of payment per the Fiscal 2017 "MCV" payout table, as more than one percentage level could be applicable.
|
The tables below illustrate the percentage of the target awards that are paid to our Named Executives Officers, in accordance with our actual results achieved during Fiscal 2017.
|
|
|
|
|
|
Worldwide Revenues and Worldwide Adjusted Operating Income - Attainment and Corresponding Payment
|
% Attainment
|
% Payment
|
% Attainment
|
% Payment
|
0 - 89%
|
—%
|
|
102%
|
150%
|
90 - 91%
|
15%
|
|
103%
|
175%
|
92 - 93%
|
40%
|
|
104%
|
200%
|
94 - 95%
|
55%
|
|
105%
|
225%
|
96 - 97%
|
70%
|
|
106%
|
250%
|
98 - 99%
|
85%
|
|
107%
|
275%
|
100%
|
100%
|
|
108% and above
|
300% cap
|
101%
|
125%
|
|
|
|
Formula:
|
|
|
Actual / Budget = % of Attainment
|
Example: an attainment of 102% results in a payment of 150%
|
In Fiscal 2017, rounded up, we achieved
100%
of our worldwide revenue target and
105%
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
100%
of target for the worldwide revenue performance criteria results in an award payment of
100%
of the target award amount and an achievement of
105%
of target for the worldwide adjusted operating income performance criterion results in an award payment of
225%
of the target award amount.
|
|
|
|
|
|
Direct Sales Revenue - Attainment and Corresponding Payment
|
% Attainment
|
% Payment
|
% Attainment
|
% Payment
|
0 - 94%
|
—%
|
|
99%
|
95%
|
95%
|
75%
|
|
100%
|
100%
|
96%
|
80%
|
|
101%
|
125%
|
97%
|
85%
|
|
102%
|
150%
|
98%
|
90%
|
|
103% and above
|
200% cap
|
In Fiscal 2017, Mr. Schulze achieved
100%
of his direct sales revenue target. The “Direct Sales Revenue Calculation” table above illustrates under the “% Attainment” column that an achievement of
100%
of target for the direct sales revenue performance criteria results in an award payment of
100%
of the target award amount.
|
|
|
Direct Sales MCV - Attainment and Corresponding Payment
|
% Attainment
|
% Payment
|
0 - 100.01%
|
0.10794641%
|
100.01% - 120.01%
|
0.21589281%
|
120.01% - 150.01%
|
0.29685262%
|
150.01% and above
|
0.32383922%
|
In Fiscal 2017, Mr. Schulze achieved
95%
of his direct sales MCV target. For direct sales MCV achieved up to, and including, the target amount of his direct sales MCV target, short-term incentive payments were paid at a rate of
0.10794641%
, resulting in a payment of approximately
$0.2 million
.
The actual short-term incentive award earned by each Named Executive Officer for Fiscal 2017 was determined in accordance with the formulas described above. We have set forth below for each Named Executive Officer the award amount actually paid for Fiscal 2017, and the percentage of target award amount represented by the actual award paid broken out by performance measure as follows:
Mark J. Barrenechea
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Worldwide Revenues
|
$
|
592,500
|
|
$
|
88,875
|
|
$
|
592,500
|
|
100
|
%
|
Worldwide Adjusted Operating Income
|
$
|
592,500
|
|
$
|
88,875
|
|
$
|
1,333,125
|
|
225
|
%
|
Total
|
$
|
1,185,000
|
|
$
|
177,750
|
|
$
|
1,925,625
|
|
163
|
%
|
John M. Doolittle
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Worldwide Revenues
|
$
|
223,306
|
|
$
|
33,496
|
|
$
|
223,306
|
|
100
|
%
|
Worldwide Adjusted Operating Income
|
$
|
223,306
|
|
$
|
33,496
|
|
$
|
502,438
|
|
225
|
%
|
Total
|
$
|
446,612
|
|
$
|
66,992
|
|
$
|
725,744
|
|
163
|
%
|
Gordon A. Davies
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Worldwide Revenues
|
$
|
142,979
|
|
$
|
21,447
|
|
$
|
142,979
|
|
100
|
%
|
Worldwide Adjusted Operating Income
|
$
|
142,979
|
|
$
|
21,447
|
|
$
|
321,702
|
|
225
|
%
|
Total
|
$
|
285,958
|
|
$
|
42,894
|
|
$
|
464,681
|
|
163
|
%
|
Muhi Majzoub
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Worldwide Revenues
|
$
|
162,250
|
|
$
|
24,338
|
|
$
|
162,250
|
|
100
|
%
|
Worldwide Adjusted Operating Income
|
$
|
162,250
|
|
$
|
24,338
|
|
$
|
365,063
|
|
225
|
%
|
Total
|
$
|
324,500
|
|
$
|
48,676
|
|
$
|
527,313
|
|
163
|
%
|
George Schulze
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Direct Sales Revenue
|
$
|
237,500
|
|
$
|
178,125
|
|
$
|
237,500
|
|
100
|
%
|
Direct Sales MCV
|
$
|
237,500
|
|
N/A
|
|
$
|
225,367
|
|
95
|
%
|
Total
|
$
|
475,000
|
|
N/A
|
|
$
|
462,867
|
|
97
|
%
|
Steve Murphy
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure:
|
Payable at
Target
|
Payable at
Threshold
|
Actual
Payable
($)
|
Actual
Payable
(% of Target)
|
Worldwide Revenues
|
$
|
300,000
|
|
$
|
45,000
|
|
$
|
238,846
|
|
80
|
%
|
Worldwide Adjusted Operating Income
|
$
|
300,000
|
|
$
|
45,000
|
|
$
|
268,846
|
|
90
|
%
|
Total
|
$
|
600,000
|
|
$
|
90,000
|
|
$
|
507,692
|
|
85
|
%
|
Mr. Murphy received four payments based on his performance measures during Fiscal 2017. Due to his more direct influence on revenue generation, Mr. Murphy had calculations performed each quarter on quarterly revenue and margin achievements (versus annual target). As a result, his payouts were different from the payout of the other Named Executive Officers and the percentages illustrated under the payout tables above. Also as a result of his departure from the Company in May 2017, Mr. Murphy’s payout for the fourth quarter of Fiscal 2017 was calculated at a pro-rata portion of his quarterly target.
Long-Term Incentives
As with many North American technology companies, we have a general practice of granting variable long-term incentives to executive officers. Our long-term incentives represent a significant proportion of our executive officers’ total compensation, and its purpose is two-fold: (i) as a component of a competitive compensation package; and (ii) to align the interests of our executive officers with the interests of our shareholders. Grants are consistent with competitive market practice, and vesting occurs over time, to ensure alignment with our performance over the longer term. Usually a very high percentage of the long-term incentive is "at risk" and will not provide any compensation to the executive unless shareholders have received a positive return.
Long-Term Incentive Plans (LTIP) - General
A target value is established by the Compensation Committee for each Named Executive Officer, except for the CEO
,
whose target value is established by the Board, based on competitive market practice and by the respective Named Executive Officer’s ability to influence financial or operational performance. Grants are generally made annually and are comprised of the components outlined in the table below.
The target value of the LTIP is split into three components, with 50% represented by Performance Share Units (PSUs), 25% represented by Restricted Share Units (RSUs) and 25% represented by stock options. PSUs and RSUs are based on a rolling three-year program
,
which means that assessment of a Named Executive Officer's performance under each grant is made continuously over the period, but payments on that grant may only be made at the end of the applicable three year term in either cash or Common Shares, at the discretion of the Board. Options granted under the LTIP generally vest over four years. The LTIP payments may also be subject to certain payment limitations in the event of early termination of employment or change in control of the Company. As well, LTIP payments are subject to mandatory repayment or “clawback” in the event of fraud, willful misconduct or gross negligence by any executive officer, including a Named Executive Officer, affecting the financial performance or financial statements of the Company or the price of our Common Shares. The performance targets and the weightings of performance targets under each LTIP are first recommended by the Compensation Committee and then approved by the Board. No dividends are paid or accrued on PSUs or RSUs.
|
|
|
|
|
|
Vehicle
|
% of Total LTIP
|
Description
|
Vesting
|
Payout
|
Performance Share Units (PSU)
|
50% 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.
|
Cliff vesting in the third year following the determination by the Board that the performance criteria have been met.
|
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.
|
Restricted Share Units (RSU)
|
25% of LTIP target award value
|
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.
|
Cliff vesting, generally three years after grant date.
|
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.
|
Stock Options
|
25% of LTIP target award value
|
The dollar value of the target award is converted to a number of options using a Black Scholes model. The exercise price is equal to the closing price of our Common Shares on the trading day preceding the date of grant.
|
Vesting is typically 25% on each of the first four anniversaries of grant date. Options expire seven years after the grant date.
|
Once vested, participants may exercise options for Common Shares.
|
Fiscal 2019 LTIP
For each Named Executive Officer, other than Mr. Schulze, the compensation target under the Fiscal 2019 LTIP, was determined based on the Named Executive Officer's overall compensation and by their ability to influence our financial or operational performance.
The target compensation set for each Named Executive Officer under the Fiscal 2019 LTIP is comprised of three elements: PSUs, RSUs and stock options and represent 50%, 25% and 25%, respectively, of the Named Executive Officer’s total LTIP target award. The table below illustrates the target value of each element under the Fiscal 2019 LTIP for each Named Executive Officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
Performance Share Units
|
Restricted Share Units
|
Stock Options
|
Total
|
Mark J. Barrenechea
|
$
|
2,565,000
|
|
$
|
1,282,500
|
|
$
|
1,282,500
|
|
$
|
5,130,000
|
|
John M. Doolittle
|
$
|
377,418
|
|
$
|
188,709
|
|
$
|
188,709
|
|
$
|
754,836
|
|
Gordon A. Davies
|
$
|
500,000
|
|
$
|
250,000
|
|
$
|
250,000
|
|
$
|
1,000,000
|
|
Muhi Majzoub
|
$
|
425,000
|
|
$
|
212,500
|
|
$
|
212,500
|
|
$
|
850,000
|
|
George Schulze
(1)
|
$
|
—
|
|
$
|
200,000
|
|
$
|
—
|
|
$
|
200,000
|
|
Steve Murphy
(2)
|
$
|
425,000
|
|
$
|
212,500
|
|
$
|
212,500
|
|
$
|
850,000
|
|
|
|
(1)
|
Given Mr. Schulze’s position within the organization at the time that the Fiscal 2019 LTIP grants were made, Mr. Schulze was not eligible for PSU or option awards granted under this plan and was only awarded RSUs.
|
|
|
(2)
|
As a result of his departure from the Company, the grants made to Mr. Murphy under Fiscal 2019 LTIP are not eligible for vesting.
|
Awards granted in Fiscal 2017, under the Fiscal 2019 LTIP were in addition to the awards granted in Fiscal 2015 and Fiscal 2016, and prior years. For details of our previous LTIPs, see Item 11 of our Annual Report on Form 10-K for the appropriate year.
Fiscal 2019 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 $1.2 billion to $5.1 billion and is a useful measure of the performance of mid-sized companies. Relative TSR is the sole measure for each Named Executive Officer's performance over the relevant three year period for the Fiscal 2019 LTIP with respect to PSUs. If over the three year period, the relative cumulative TSR of the Company compared to the cumulative TSR of the Index
is greater than the 66
th
percentile, the relative TSR target will be achieved in full. If it is negative at the end of the three year period, no payout will be made. Otherwise, any target percentile achieved between 1% and 100% will be interpolated to determine a payout that can range from 1.5% to 150% of the target award based on the number of PSUs that were granted in connection with the Fiscal 2019 LTIP.
The amounts that may be realized for PSU awards under the Fiscal 2019 LTIP
are as follows, calculated based on the market price of our Common Shares on the NASDAQ as of June 30, 2017, and applied to the number of PSUs to be issued to the Named Executive Officers based on target level achievement.
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 LTIP PSUs
|
Named Executive Officer
|
1.5% Achievement at June 30, 2019
|
100% Achievement
at June 30, 2019
|
150% Achievement
at June 30, 2019
|
Mark J. Barrenechea
|
$
|
39,362
|
|
$
|
2,624,128
|
|
$
|
3,936,192
|
|
John M. Doolittle
|
$
|
5,857
|
|
$
|
390,465
|
|
$
|
585,698
|
|
Gordon A. Davies
|
$
|
7,674
|
|
$
|
511,579
|
|
$
|
767,369
|
|
Muhi Majzoub
|
$
|
6,519
|
|
$
|
434,621
|
|
$
|
651,932
|
|
George Schulze
(1)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Steve Murphy
(2)
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
(1)
|
Given Mr. Schulze’s position within the organization at the time that the Fiscal 2019 LTIP grants were made, Mr. Schulze was not eligible for PSU or option awards granted under this plan and was only awarded RSUs.
|
|
|
(2)
|
As a result of his departure from the Company, the grants made to Mr. Murphy under Fiscal 2019 LTIP are not eligible for vesting.
|
Fiscal 2019 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 2019 LTIP period.
The amounts that may be realized for RSU awards under the Fiscal 2019 LTIP
are as follows, calculated based on the market price of our Common Shares on the NASDAQ as of June 30, 2017, and applied to the number of equivalent RSUs to be issued to the Named Executive Officers.
|
|
|
|
|
Fiscal 2019 LTIP RSUs
|
|
Named Executive Officer
|
Value at June 30, 2017
|
Mark J. Barrenechea
|
$
|
1,312,064
|
|
John M. Doolittle
|
$
|
194,917
|
|
Gordon A. Davies
|
$
|
255,474
|
|
Muhi Majzoub
|
$
|
217,626
|
|
George Schulze
|
$
|
204,379
|
|
Steve Murphy
(1)
|
N/A
|
|
|
|
(1)
|
As a result of his departure from the Company, the grants made to Mr. Murphy under Fiscal 2019 LTIP are not eligible for vesting.
|
Fiscal 2019 LTIP - Stock Options
The stock options granted in connection with the Fiscal 2019 LTIP vest over four years, do not have any specific performance-based vesting criteria and, if not exercised, expire after seven years.
Other Long-Term Equity Grants
In addition to grants made in connection with the LTIP, 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. Aside from the options granted to our CEO, as discussed below, we did not grant any other such awards to our NEO's during Fiscal 2017. 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 and promotions of existing employees, 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.
Long-Term Equity Grants to CEO
In connection with the Compensation Committee's review of competitive compensation and the review of Mr. Barrenechea's performance, as discussed earlier under "Competitive Compensation - CEO Compensation", on June 1, 2017, Mr. Barrenechea received a grant of stock options under the 2004 Stock Option Plan to purchase 600,000 Common Shares at an exercise price of $32.63 expiring seven years after the date of grant, and vesting subject to certain conditions provided that Mr. Barrenechea remains an employee.
Time Vested Options
-
Of these options granted to Mr. Barrenechea, options to purchase 200,000 Common Shares vest in accordance with the following schedule:
|
|
|
|
Date
|
Number of Options to Vest
|
June 1, 2020
|
66,667
|
|
June 1, 2021
|
66,667
|
|
June 1, 2022
|
66,666
|
|
Performance Vested Options
-
The balance of the options granted to Mr. Barrenechea to purchase 400,000 Common Shares are performance options that vest subject to exceeding a threshold target for the trading price of OpenText Common Shares of $44.05 and up to a target of $57.10 (representing absolute share growth between 35% and 75%) within five years commencing July 1, 2017. The targets required to be met for these performance options to vest are as follows:
50% Vesting
- Performance options to purchase 200,000 Common Shares will vest if the average closing price (ACP) of OpenText Common Shares on NASDAQ for the trading days in any fiscal quarter commencing July 1, 2017 and ending June 30, 2022 exceeds $44.05.
50% - 100% Vesting
-
Performance options to purchase up to an additional 200,000 Common Shares will vest from time to time on a linear basis to the extent that the ACP for the trading days in any fiscal quarter commencing July 1, 2017 and ending June 30, 2022 exceeds a threshold target of $44.05 up to a maximum ACP of $57.10. The following vesting schedule illustrates the aggregate number of these additional performance options that would vest based on the ACP in the quarter:
|
|
|
|
Illustrative ACP
|
Aggregate Number of Options to Vest
|
$46.66
|
40,000
|
|
$49.27
|
80,000
|
|
$51.88
|
120,000
|
|
$54.49
|
160,000
|
|
$57.10
|
200,000
|
|
The number of Common Shares subject to additional performance options to vest would be equal to 200,000 multiplied by a fraction, the numerator of which is the excess (if any) of ACP in the quarter over $44.05 and the denominator of which is the excess of $57.10 over $44.05. To the extent that the ACP increased from time to time in any subsequent quarter in the five year vesting period, additional performance options would vest in accordance with this formula using the ACP for the prior quarter in which performance options vested in the numerator rather than $44.05. The aggregate number of Common Shares subject to vested performance options is limited to 200,000 in total. The calculation of ACP will be subject to general anti-dilution adjustments substantially similar to those provided for in the Stock Option Plan applicable to option exercise prices.
To the extent that performance options vest during the five year vesting period, they must be held by Mr. Barrenechea until the earlier of the fifth anniversary of the date of grant and the date he ceases to be an employee. Any performance options that vest may be exercised by Mr. Barrenechea during this five year period, provided that the Common Shares acquired on exercise, net of a number of Common Shares that may be sold by Mr. Barrenechea to fund the exercise price and any income taxes payable as a result of such exercise, must be held by Mr. Barrenechea for this same period. Also see “Compensation Objectives - 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
|
4x base salary
|
Other senior management
|
1x base salary
|
Non-management director
|
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 Securities Exchange Act through any contract, arrangement, understanding, relationship or otherwise in which such person has or shares:
•
voting power which includes the power to vote, or to direct the voting of, such security; and/or
•
investment power which includes the power to dispose, or to direct the disposition of, such security.
Also, Common Shares will be valued at the greater of their book value (i.e., purchase price) or the current market value. On an annual basis, the Compensation Committee reviews the recommended ownership levels under the Share Ownership Guidelines and the compliance by our executive officers and directors with the Share Ownership Guidelines.
The Board implemented the Share Ownership Guidelines in October 2009 and recommends that equity ownership levels be achieved within five years of becoming a member of the executive leadership team, including Named Executive Officers. The Board also recommends that the executive leadership team retain their ownership levels for so long as they remain members of the executive leadership team.
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, Messrs. Barrenechea, Davies, Majzoub comply with the Share Ownership Guidelines for Fiscal 2017
.
Messrs. Doolittle and Schulze have only become subject to these guidelines within the past five years, and have five years from becoming subject to these guidelines to achieve the equity ownership guidelines required by his position.
Directors
With respect to non-management directors, both Common Shares and deferred stock units (DSUs) are counted towards the achievement of the Share Ownership Guidelines. Effective February 2, 2010, the Board adopted the Directors’ Deferred Share Unit Plan (DSU Plan), whereby any non-management director of the Company may elect to defer all or part of his or her retainer and/or fees in the form of common stock equivalents. As of the date of this Annual Report on Form 10-K, all non-management directors have exceeded the Share Ownership Guidelines applicable to them, which is three times their annual retainer, with the exception of Mr. Tinggren, who only recently joined as a member of our Board on February 25, 2017
.
For further details, see the table below titled “Director Compensation for Fiscal 2017”.
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. Certain compensation paid under plans that are “performance-based” (which means compensation paid only if the individual's performance meets pre-established objective goals based upon performance criteria approved by shareowners) are not subject to the $1,000,000 annual limit. Although our compensation policy is designed to link compensation to performance, payments in excess of $1,000,000 made pursuant to any of our compensation plans to United States-based executives may not be deductible under Section 162(m).
Summary Compensation Table
The following table sets forth summary information concerning the annual compensation of our Named Executive Officers. All numbers are rounded to the nearest dollar or whole share. Changes in exchange rates will impact payments illustrated below that are made in currencies other than the U.S. dollar. Any Canadian dollar payments included herein have been converted to U.S. dollars at an annual average rate of
0.754836
,
0.755310, and 0.862713, for Fiscal 2017, Fiscal 2016, and Fiscal 2015, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
(1)
|
Option
Awards
($)
(2)
|
Non-Equity
Incentive Plan
Compensation
($)
(3)
|
Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
(4)
|
Total ($)
|
Mark J. Barrenechea
|
2017
|
$
|
945,000
|
|
—
|
|
$
|
3,233,360
|
|
$
|
5,821,023
|
|
$
|
1,925,625
|
|
N/A
|
$
|
13,926
|
|
(5)
|
$
|
11,938,934
|
|
Chief Executive Officer and Chief Technology Officer
|
2016
|
$
|
945,000
|
|
—
|
|
$
|
3,658,934
|
|
$
|
1,283,437
|
|
$
|
923,738
|
|
N/A
|
$
|
22,082
|
|
(6)
|
$
|
6,833,191
|
|
|
2015
|
$
|
847,000
|
|
—
|
|
$
|
4,578,866
|
|
$
|
8,923,671
|
|
$
|
1,115,100
|
|
N/A
|
$
|
38,352
|
|
(6)
|
$
|
15,502,989
|
|
|
|
|
|
|
|
|
|
|
|
|
John M. Doolittle
|
2017
|
$
|
415,160
|
|
—
|
|
$
|
480,818
|
|
$
|
190,968
|
|
$
|
725,744
|
|
N/A
|
$
|
10,133
|
|
(7)
|
$
|
1,822,823
|
|
EVP, Chief Financial Officer
|
2016
|
$
|
377,655
|
|
—
|
|
$
|
560,347
|
|
$
|
196,449
|
|
$
|
295,326
|
|
N/A
|
$
|
14,424
|
|
(6)
|
$
|
1,444,201
|
|
|
2015
|
$
|
351,294
|
|
—
|
|
$
|
1,233,432
|
|
$
|
2,379,500
|
|
$
|
339,334
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
4,303,560
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon A. Davies
|
2017
|
$
|
314,012
|
|
—
|
|
$
|
630,050
|
|
$
|
250,270
|
|
$
|
464,681
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
1,659,013
|
|
EVP, Chief Legal Officer and Corporate Development
|
2016
|
$
|
314,209
|
|
—
|
|
$
|
713,431
|
|
$
|
250,169
|
|
$
|
214,850
|
|
N/A
|
$
|
15,276
|
|
(6)
|
$
|
1,507,935
|
|
|
2015
|
$
|
358,889
|
|
—
|
|
$
|
636,878
|
|
$
|
202,466
|
|
$
|
296,238
|
|
N/A
|
$
|
17,774
|
|
(6)
|
$
|
1,512,245
|
|
|
|
|
|
|
|
|
|
|
|
|
Muhi Majzoub
|
2017
|
$
|
356,000
|
|
—
|
|
$
|
535,825
|
|
$
|
212,651
|
|
$
|
527,313
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
1,631,789
|
|
EVP, Engineering
|
2016
|
$
|
356,000
|
|
—
|
|
$
|
606,276
|
|
$
|
212,632
|
|
$
|
243,398
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
1,418,306
|
|
|
2015
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
N/A
|
|
(9)
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
George Schulze
|
2017
|
$
|
425,000
|
|
—
|
|
$
|
194,238
|
|
N/A
|
|
$
|
462,867
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
1,082,105
|
|
Senior Vice President, Business Network Sales
|
2016
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
N/A
|
|
(9)
|
N/A
|
|
|
2015
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
N/A
|
|
(9)
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Murphy
(10)
|
2017
|
$
|
513,636
|
|
—
|
|
$
|
535,825
|
|
$
|
212,651
|
|
$
|
507,692
|
|
N/A
|
$
|
205,283
|
|
(11)
|
$
|
1,975,087
|
|
Former President
|
2016
|
$
|
297,727
|
|
—
|
|
$
|
1,579,641
|
|
$
|
1,834,275
|
|
$
|
300,000
|
|
N/A
|
$
|
—
|
|
(8)
|
$
|
4,011,643
|
|
|
2015
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
N/A
|
|
(9)
|
N/A
|
|
|
|
(1)
|
Performance Share Units (PSUs) and Restricted Share Units (RSUs) were granted pursuant to the Fiscal 2019 LTIP and other non- LTIP related grants. The amounts set forth in this column represent the aggregate grant date fair value, as computed in accordance with ASC Topic 718 “Compensation-Stock Compensation” (Topic 718). Grant date fair value may vary from the target value indicated in the table set forth above in the section “Fiscal 2019 LTIP”. For a discussion of the assumptions used in these valuations, see note 12 “Share Capital, Option Plans and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K. For the maximum value that may be received under the PSU awards by each Named Executive Officer, see the “Maximum” column under “Estimated Future Payouts under Equity Incentive Plan Awards” under the “Grants of Plan-Based Awards in Fiscal 2017” table below.
|
|
|
(2)
|
Amounts set forth in this column represent the amount recognized as the aggregate grant date fair value of stock option awards, as calculated in accordance with Topic 718 for the fiscal year in which the awards were granted. In all cases, these amounts do not reflect whether the recipient has actually realized a financial benefit from the exercise of the awards. For a discussion of the assumptions used in this valuation, see note 12 “Share Capital, Option Plans and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.
|
|
|
(3)
|
The amounts set forth in this column for Fiscal 2017 represent payments under the short-term incentive plan.
|
|
|
(4)
|
Except as otherwise indicated the amounts in “All Other Compensation” primarily include (i) medical examinations; (ii) car allowances, (iii) club memberships reimbursed, and (iv) tax preparation and financial advisory fees paid. “All Other Compensation” does not include benefits received by the Named Executive Officers which are generally available to all our salaried employees.
|
|
|
(5)
|
Represents amounts we paid or reimbursed for Tax, Financial, and Estate Planning.
|
|
|
(6)
|
For details of the amounts of fees or expenses we paid or reimbursed please refer to Summary Compensation Table in Item 11 of our Annual Report on Form 10-K for the corresponding fiscal years ended June 30, 2016 and June 30, 2015.
|
|
|
(7)
|
Represents amounts we paid or reimbursed for:
|
a. Taxable benefit on annual sales event ($6,029);
b. Life Insurance ($3,599); and
b. Other miscellaneous expenses or benefits that are less than 10% of the total amount of perquisites and personal benefits related to Mr. Doolittle.
|
|
(8)
|
The total value of all perquisites and personal benefits for this Named Executive Officer was less than $10,000, and, therefore, excluded.
|
|
|
(9)
|
The executive officer was not a Named Executive Officer during the fiscal year, and, therefore compensation details have been excluded.
|
|
|
(10)
|
The amounts set forth for Mr. Murphy represent a prorated amount based on Mr. Murphy's employment with the Company until his departure in May 2017.
|
|
|
(11)
|
Represents amounts we paid or reimbursed for:
|
a. Vacation and severance payable as a result of Mr. Murphy's departure from the Company in May 2017 ($204,824); and
b. Other miscellaneous expenses or benefits that are less than 10% of the total amount of perquisites and personal benefits related to Mr. Murphy.
Grants of Plan-Based Awards in Fiscal 2017
The following table sets forth certain information concerning grants of awards made to each Named Executive Officer during Fiscal 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
(1)
|
All Other Option
Awards: Number
of Securities
Underlying
(2)
|
Exercise or
Base Price
of Option
Awards
|
Grant
Date Fair
Value of
Options
(3)
|
Name
|
Grant Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Options
(#)
|
($/share)
|
Awards ($)
|
Mark J. Barrenechea
|
July 29, 2016
|
$
|
177,750
|
|
$
|
1,185,000
|
|
$
|
3,555,000
|
|
196,560
|
|
$
|
29.75
|
|
$
|
1,283,743
|
|
|
June 1, 2017
|
|
|
|
600,000
|
|
$
|
32.63
|
|
$
|
4,537,280
|
|
John M. Doolittle
|
July 29, 2016
|
$
|
66,992
|
|
$
|
446,612
|
|
$
|
1,339,836
|
|
29,240
|
|
$
|
29.75
|
|
$
|
190,968
|
|
Gordon A. Davies
|
July 29, 2016
|
$
|
42,894
|
|
$
|
285,958
|
|
$
|
857,874
|
|
38,320
|
|
$
|
29.75
|
|
$
|
250,270
|
|
Muhi Majzoub
|
July 29, 2016
|
$
|
48,676
|
|
$
|
324,500
|
|
$
|
973,500
|
|
32,560
|
|
$
|
29.75
|
|
$
|
212,651
|
|
George Schulze
(6)
|
N/A
|
N/A
|
|
$
|
475,000
|
|
N/A
|
|
—
|
|
N/A
|
|
N/A
|
|
Steve Murphy
|
July 29, 2016
|
$
|
90,000
|
|
$
|
600,000
|
|
$
|
1,800,000
|
|
32,560
|
|
$
|
29.75
|
|
$
|
212,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Equity
Incentive Plan Awards
(4)
|
All Other Stock
Awards: Number
of Securities
Underlying
(5)
|
Grant
Date Fair
Value of
Stock
(3)
|
Name
|
Grant Date
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Stock
(#)
|
Awards ($)
|
Mark J. Barrenechea
|
August 14, 2016
|
1,248
|
|
83,200
|
|
124,800
|
|
41,600
|
|
|
$
|
3,233,360
|
|
John M. Doolittle
|
August 14, 2016
|
186
|
|
12,380
|
|
18,570
|
|
6,180
|
|
|
$
|
480,818
|
|
Gordon A. Davies
|
August 14, 2016
|
243
|
|
16,220
|
|
24,330
|
|
8,100
|
|
|
$
|
630,050
|
|
Muhi Majzoub
|
August 14, 2016
|
207
|
|
13,780
|
|
20,670
|
|
6,900
|
|
|
$
|
535,825
|
|
George Schulze
(6)
|
August 14, 2016
|
—
|
|
—
|
|
—
|
|
6,480
|
|
|
$
|
194,238
|
|
Steve Murphy
(7)
|
August 14, 2016
|
N/A
|
N/A
|
N/A
|
N/A
|
|
|
N/A
|
|
|
|
(1)
|
Represents the threshold, target and maximum estimated payouts under our short-term incentive plan for Fiscal 2017. For further information, see “Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Short-Term Incentives” above.
|
|
|
(2)
|
For further information regarding our options granting procedures, see “Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives” above.
|
|
|
(3)
|
Amounts set forth in this column represent the amount recognized as the aggregate grant date fair value of equity-based compensation awards, as calculated in accordance with ASC Topic 718 for the fiscal year in which the awards were granted. In all cases, these amounts do not reflect whether the recipient has actually realized a financial benefit from the exercise of the awards. For a discussion of the assumptions used in this valuation, see note 12 “Share Capital, Option Plan and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.
|
|
|
(4)
|
Represents the threshold, target and maximum estimated payouts under our Fiscal 2019 LTIP PSUs. For further information, see “Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2019 LTIP” above.
|
|
|
(5)
|
Represents the estimated payouts under our Fiscal 2019 LTIP RSUs and other non-LTIP related RSUs granted in Fiscal 2017. For further information, see “Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2019 LTIP” above.
|
|
|
(6)
|
Mr. Schulze is evaluated on (i) direct sales revenue and (ii) direct sales MCV. With respect to direct sales MCV, there is no threshold or maximum level of payment. Mr. Schulze was awarded RSUs only, as he was previously a direct report of Mr. Murphy, who is now no longer with the Company. Given Mr. Schulze’s position within the organization at the time that the Fiscal 2019 LTIP grants were made, Mr. Schulze was not eligible for PSU or option awards granted under this plan.
|
|
|
(7)
|
As a result of his departure from the Company, the grants made to Mr. Murphy under Fiscal 2019 LTIP are not eligible for vesting.
|
Outstanding Equity Awards at End of Fiscal 2017
The following table sets forth certain information regarding outstanding equity awards held by each Named Executive Officer as of June 30, 2017, other than Mr. Murphy who held no equity awards as of such date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
(1)
|
|
|
Stock Awards
|
Name
|
Grant Date
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Non-
exercisable
|
Option
Exercise
Price ($)
|
Option Expiration
Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
(2)
|
Market Value of Shares or Units of Stock That Have Not Vested
($)
(2)
|
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)
|
Mark J. Barrenechea
|
February 3, 2012
|
1,330,246
|
|
—
|
|
$
|
15.09
|
|
February 3, 2019
|
|
|
|
|
|
May 3, 2012
|
200,000
|
|
—
|
|
$
|
13.11
|
|
May 3, 2019
|
|
|
|
|
|
November 2, 2012
|
90,738
|
|
—
|
|
$
|
13.19
|
|
November 2, 2019
|
|
|
|
|
|
August 2, 2013
|
101,406
|
|
33,802
|
|
$
|
16.58
|
|
August 2, 2020
|
|
|
|
|
|
August 1, 2014
|
63,872
|
|
63,868
|
|
$
|
27.83
|
|
August 1, 2021
|
|
|
|
|
|
January 29, 2015
|
—
|
|
400,000
|
|
$
|
27.09
|
|
January 29, 2022
|
|
|
|
|
|
January 29, 2015
|
—
|
|
800,000
|
|
$
|
27.09
|
|
January 29, 2022
|
|
|
|
|
|
July 31, 2015
|
57,100
|
|
171,300
|
|
$
|
22.87
|
|
July 31, 2022
|
|
|
|
|
|
July 29, 2016
|
—
|
|
196,560
|
|
$
|
29.75
|
|
July 29, 2023
|
|
|
|
|
|
June 1, 2017
|
—
|
|
600,000
|
|
$
|
32.63
|
|
June 1, 2024
|
|
|
|
|
|
September 4, 2014
|
|
|
|
|
36,640
|
|
$
|
1,155,626
|
|
|
|
|
September 4, 2014
|
|
|
|
|
|
|
73,300
|
|
$
|
2,311,882
|
|
|
January 29, 2015
|
|
|
|
|
20,000
|
|
$
|
630,800
|
|
|
|
|
August 23, 2015
|
|
|
|
|
65,820
|
|
$
|
2,075,963
|
|
|
|
|
August 23, 2015
|
|
|
|
|
|
|
131,640
|
|
$
|
4,151,926
|
|
|
August 14, 2016
|
|
|
|
|
41,600
|
|
$
|
1,312,064
|
|
|
|
|
August 14, 2016
|
|
|
|
|
|
|
83,200
|
|
$
|
2,624,128
|
|
|
|
|
|
|
|
|
|
|
|
John M. Doolittle
|
September 8, 2014
|
150,000
|
|
150,000
|
|
$
|
28.65
|
|
September 8, 2021
|
|
|
|
|
|
September 8, 2014
|
13,832
|
|
13,828
|
|
$
|
28.65
|
|
September 8, 2021
|
|
|
|
|
|
July 31, 2015
|
8,740
|
|
26,220
|
|
$
|
22.87
|
|
July 31, 2022
|
|
|
|
|
|
July 29, 2016
|
—
|
|
29,240
|
|
$
|
29.75
|
|
July 29, 2023
|
|
|
|
|
|
September 8, 2014
|
|
|
|
|
8,332
|
|
$
|
262,791
|
|
|
|
|
September 8, 2014
|
|
|
|
|
7,060
|
|
$
|
222,672
|
|
|
|
|
September 8, 2014
|
|
|
|
|
|
|
14,100
|
|
$
|
444,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 23, 2015
|
|
|
|
|
10,080
|
|
$
|
317,923
|
|
|
|
|
August 23, 2015
|
|
|
|
|
|
|
20,160
|
|
$
|
635,846
|
|
|
August 14, 2016
|
|
|
|
|
6,180
|
|
$
|
194,917
|
|
|
|
|
August 14, 2016
|
|
|
|
|
|
|
12,380
|
|
$
|
390,465
|
|
|
|
|
|
|
|
|
|
|
|
Gordon A. Davies
|
August 2, 2013
|
—
|
|
8,072
|
|
$
|
16.58
|
|
August 2, 2020
|
|
|
|
|
|
August 1, 2014
|
—
|
|
14,308
|
|
$
|
27.83
|
|
August 1, 2021
|
|
|
|
|
|
July 31, 2015
|
—
|
|
33,390
|
|
$
|
22.87
|
|
July 31, 2022
|
|
|
|
|
|
July 29, 2016
|
—
|
|
38,320
|
|
$
|
29.75
|
|
July 29, 2023
|
|
|
|
|
|
September 4, 2014
|
|
|
|
|
8,220
|
|
$
|
259,259
|
|
|
|
|
September 4, 2014
|
|
|
|
|
|
|
16,420
|
|
$
|
517,887
|
|
|
August 23, 2015
|
|
|
|
|
12,840
|
|
$
|
404,974
|
|
|
|
|
August 23, 2015
|
|
|
|
|
|
|
25,660
|
|
$
|
809,316
|
|
|
August 14, 2016
|
|
|
|
|
8,100
|
|
$
|
255,474
|
|
|
|
|
August 14, 2016
|
|
|
|
|
|
|
16,220
|
|
$
|
511,579
|
|
|
|
|
|
|
|
|
|
|
|
Muhi Majzoub
|
June 11, 2012
|
100,000
|
|
—
|
|
$
|
11.68
|
|
June 11, 2019
|
|
|
|
|
|
November 2, 2012
|
18,788
|
|
—
|
|
$
|
13.19
|
|
November 2, 2019
|
|
|
|
|
|
August 2, 2013
|
15,748
|
|
5,248
|
|
$
|
16.58
|
|
August 2, 2020
|
|
|
|
|
|
August 1, 2014
|
11,572
|
|
11,568
|
|
$
|
27.83
|
|
August 1, 2021
|
|
|
|
|
|
July 31, 2015
|
9,460
|
|
28,380
|
|
$
|
22.87
|
|
July 31, 2022
|
|
|
|
|
|
July 29, 2016
|
—
|
|
32,560
|
|
$
|
29.75
|
|
July 29, 2023
|
|
|
|
|
|
September 4, 2014
|
|
|
|
|
6,640
|
|
$
|
209,426
|
|
|
|
|
September 4, 2014
|
|
|
|
|
|
|
13,280
|
|
$
|
418,851
|
|
|
August 23, 2015
|
|
|
|
|
10,900
|
|
$
|
343,786
|
|
|
|
|
August 23, 2015
|
|
|
|
|
|
|
21,820
|
|
$
|
688,203
|
|
|
August 14, 2016
|
|
|
|
|
6,900
|
|
$
|
217,626
|
|
|
|
|
August 14, 2016
|
|
|
|
|
|
|
13,780
|
|
$
|
434,621
|
|
|
|
|
|
|
|
|
|
|
|
George Schulze
|
January 27, 2014
|
90,000
|
|
30,000
|
|
$
|
25.04
|
|
January 27, 2021
|
|
|
|
|
|
September 4, 2014
|
|
|
|
|
8,210
|
|
$
|
256,105
|
|
|
|
|
August 23, 2015
|
|
|
|
|
10,260
|
|
$
|
323,600
|
|
|
|
|
August 14, 2016
|
|
|
|
|
6,480
|
|
$
|
204,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steve Murphy
|
February 11, 2016
|
|
|
|
|
|
|
11,076
|
|
$
|
349,337
|
|
|
|
(1)
|
Options in the table above vest annually over a period of 4 years starting from the date of grant, with the exception of 1,200,000 options granted to the CEO in Fiscal 2015 and 600,000 options granted to the CEO in Fiscal 2017. For additional detail, see “Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Long-Term Equity Grants to CEO” above and under Item 11 of our Annual Report on Form 10-K for Fiscal 2015.
|
|
|
(2)
|
Represents each Named Executive Officer's target number of RSUs granted pursuant to the Fiscal 2017, Fiscal 2018, and Fiscal 2019 LTIPs and other RSU grants, which vest upon the schedules described above in "Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long Term Incentives". These amounts illustrate the market value as of June 30, 2017 based upon the closing price for the Company's Common Shares as traded on the NASDAQ on such date of
$31.54
.
|
|
|
(3)
|
Represents each Named Executive Officer's target number of PSUs granted pursuant to the Fiscal 2017, Fiscal 2018, and Fiscal 2019 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, 2017 based upon the closing price for the Company's Common Shares as traded on the NASDAQ on such date of
$31.54
.
|
As of June 30, 2017, options to purchase an aggregate of 8,977,830 Common Shares had been previously granted and are outstanding under our stock option plans, of which 3,736,180 Common Shares were vested. Options to purchase an additional 11,864,002 Common Shares remain available for issuance pursuant to our stock option plans. Our outstanding options pool represents 3.4% of the Common Shares issued and outstanding as of June 30, 2017.
During Fiscal 2017, the Company granted options to purchase 2,278,974 Common Shares or 0.9% of the Common Shares issued and outstanding as of June 30, 2017.
Option Exercises and Stock Vested in Fiscal 2017
The following table sets forth certain details with respect to each of the Named Executive Officers concerning the exercise of stock options and vesting of stock in Fiscal 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
(3)
|
Name
|
Number of Shares
Acquired on Exercise
(#)
|
Value Realized on
Exercise
(1)
($)
|
Number of Shares
Acquired on Vesting
(#)
|
Value Realized on Vesting
(2)
($)
|
Mark J. Barrenechea
|
—
|
|
$
|
—
|
|
129,020
|
|
$
|
4,257,483
|
|
John M. Doolittle
|
—
|
|
$
|
—
|
|
8,334
|
|
$
|
264,354
|
|
Gordon A. Davies
|
63,270
|
|
$
|
871,641
|
|
26,044
|
|
$
|
850,857
|
|
Muhi Majzoub
|
40,000
|
|
$
|
891,400
|
|
16,928
|
|
$
|
553,038
|
|
George Schulze
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
Steve Murphy
|
84,840
|
|
$
|
836,098
|
|
40,000
|
|
$
|
1,328,400
|
|
|
|
(1)
|
“Value realized on exercise” is the excess of the market price, at date of exercise, of the shares underlying the options over the exercise price of the options.
|
|
|
(2)
|
“Value realized on vesting” is the market price of the underlying Common Shares on the vesting date.
|
|
|
(3)
|
Relates to (i) the vesting of PSUs and RSUs under our Fiscal 2016 LTIP, and (ii) the vesting of RSUs for Messrs. Barrenechea, Doolittle and Murphy in accordance with the terms of their respective contractual agreements.
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
We have entered into employment contracts with each of our Named Executive Officers. These contracts may require us to make certain types of payments and provide certain types of benefits to the Named Executive Officers upon the occurrence of any of these events:
|
|
•
|
If the Named Executive Officer is terminated without cause; and
|
|
|
•
|
If there is a change in control in the ownership of the Company and subsequent to the change in control, there is a change in the relationship between the Company and the Named Executive Officer.
|
When determining the amounts and the type of compensation and benefits to provide in the event of a termination or change in control described above, we considered available information with respect to amounts payable to similarly situated officers of our peer groups and the position held by the Named Executive Officer within the Company. The amounts payable upon termination or change in control represent the amounts determined by the Company and are not the result of any individual negotiations between us and any of our Named Executive Officers.
Our employment agreements with our Named Executive Officers are similar in structure, terms and conditions, with the key exception of the amount of severance payments, which is determined by the position held by the Named Executive Officer. Details are set out below of each of their potential payments upon a termination by the Company without cause and upon a change in control event where there is a subsequent change in the relationship between the Company and the Named Executive Officer.
Termination Without Cause
If the Named Executive Officer is terminated without cause, we may be obligated to make payments or provide benefits to the Named Executive Officer. A termination without cause means a termination of a Named Executive Officer for any reason other than the following, each of which provides “cause” for termination:
|
|
•
|
The failure by the Named Executive Officer to attempt in good faith to perform his duties, other than as a result of a physical or mental illness or injury;
|
|
|
•
|
The Named Executive Officer's willful misconduct or gross negligence of a material nature in connection with the performance of his duties which is or could reasonably be expected to be injurious to the Company;
|
|
|
•
|
The breach by the Named Executive Officer of his fiduciary duty or duty of loyalty to the Company;
|
|
|
•
|
The Named Executive Officer's intentional and unauthorized removal, use or disclosure of information relating to the Company, including customer information, which is injurious to the Company or its customers;
|
|
|
•
|
The willful performance by the Named Executive Officer of any act of dishonesty or willful misappropriation of funds or property of the Company or its affiliates;
|
|
|
•
|
The indictment of the Named Executive Officer or a plea of guilty or nolo contender to a felony or other serious crime involving moral turpitude;
|
|
|
•
|
The material breach by the Named Executive Officer of any obligation material to his employment relationship with the Company; or
|
|
|
•
|
The material breach by the Named Executive Officer of the Company's policies and procedures which breach causes or could reasonably be expected to cause harm to the Company;
|
provided that in certain of the circumstances listed above, OpenText has given the Named Executive Officer reasonable notice of the reason for termination as well as a reasonable opportunity to correct the circumstances giving rise to the termination.
Change in Control
If there is a change in control of the Company and within one year of such change in control event, there is a change in the relationship between the Company and the Named Executive Officer without the Named Executive Officer's written consent, we may be obligated to provide payments or benefits to the Named Executive Officer, unless such a change is in connection with the termination of the Named Executive Officer either for cause or due to the death or disability of the Named Executive Officer.
A change in control includes the following events:
|
|
•
|
The sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially all of the Company’s assets;
|
|
|
•
|
The approval by the holders of Common Shares of any plan or proposal for the liquidation or dissolution of the Company;
|
|
|
•
|
Any transaction in which any person or group acquires ownership of more than 50% of outstanding Common Shares; or
|
|
|
•
|
Any transaction in which a majority of the Board is replaced over a twelve-month period and such replacement of the Board was not approved by a majority of the Board still in office at the beginning of such period.
|
Examples of a change in the relationship between the Named Executive Officer and the Company where payments or benefits may be triggered following a change in control event include:
|
|
•
|
A material diminution in the duties and responsibilities of the Named Executive Officer, other than (a) a change arising solely out of the Company becoming part of a larger organization following the change in control event or any related change in the reporting hierarchy or (b) a reorganization of the Company resulting in similar changes to the duties and responsibilities of similarly situated executive officers;
|
|
|
•
|
A material reduction to the Named Executive Officer's compensation, other than a similar reduction to the compensation of similarly situated executive officers;
|
|
|
•
|
A relocation of the Named Executive Officer's primary work location by more than fifty miles;
|
|
|
•
|
A reduction in the title or position of the Named Executive Officer, other than (a) a change arising solely out of the Company becoming part of a larger organization following the change in control event or any related change in the reporting hierarchy or (b) a reorganization of the Company resulting in similar changes to the titles or positions of similarly situated executive officers;
|
None of our Named Executive Officers are entitled to the payments or benefits described below, or any other payments or benefits, solely upon a change in control where there is no change to the Named Executive Officer's relationship with the Company.
Amounts Payable Upon Termination or Change in Control
Generally, upon termination of employment without cause or following a change in the Named Executive Officer's relationship with the Company, in each case, either within twelve months of a change in control event or absent a change in control event, the Named Executive Officer is entitled to either twelve or twenty-four months of compensation, depending upon the Named Executive Officer's position, including short term incentives equal to 100% of the current year's target bonus, 100% of other long-term equity RSU grants, and a pro-rated portion of the LTIP.
With respect to the LTIP, if the termination of employment occurs either without cause or due to a change in the nature of the relationship between the Named Executive Officer and the Company, in each case, within twelve months of a change in control event, the Named Executive Officer is entitled to 100% of his LTIP.
With respect to options, (a) upon termination of employment without cause or following a change in the Named Executive Officer's relationship with the Company, in each case, absent a change in control event, the Named Executive Officer is entitled to exercise those stock options which have vested as of the date of termination; and (b) upon termination of employment without cause or upon a change in the relationship between the Named Executive Officer and the Company, in each case, within twelve months of a change in control event, the Named Executive Officer is entitled to exercise 100% of all
outstanding options, which are all deemed immediately vested. The Named Executive Officer shall have 90 days from the termination date to exercise vested options.
Further details of each Named Executive Officer’s entitlement upon termination of employment without cause or following a change in the Named Executive Officer’s relationship with the Company, both absent a change in control event and within twelve months of a change in control event, are set forth below.
No Change in Control
|
|
|
|
|
|
|
|
|
|
No change in control
|
|
Base
|
Short term incentives
(1)
|
LTIP
(2)
|
Non-LTIP RSUs
|
Options
(3)
|
Employee and Medical Benefits
(4)
|
Mark J. Barrenechea
|
Termination without cause or Change in relationship
|
24 months
|
24 months
|
Prorated
|
100% Vested
|
Vested
|
24 months
(5)
|
John M. Doolittle
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
Prorated
|
100% Vested
|
Vested
|
12 months
|
Gordon A. Davies
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
Prorated
|
N/A
|
Vested
|
12 months
|
Muhi Majzoub
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
Prorated
|
N/A
|
Vested
|
12 months
|
George Schulze
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
Prorated
|
N/A
|
Vested
|
12 months
|
Steve Murphy
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
Prorated
|
100% Vested
|
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 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.
|
Within 12 Months of a Change in Control
|
|
|
|
|
|
|
|
|
|
Within 12 Months of a Change in Control
|
|
Base
|
Short term incentives
(1)
|
LTIP
|
Non-LTIP RSUs
|
Options
(2)
|
Employee and Medical Benefits
(3)
|
Mark J. Barrenechea
|
Termination without cause or Change in relationship
|
24 months
|
24 months
|
100% Vested
|
100% Vested
|
100% Vested
|
24 months
(4)
|
John M. Doolittle
|
Termination without cause or Change in relationship
|
24 months
|
24 months
|
100% Vested
|
100% Vested
|
100% Vested
|
24 months
|
Gordon A. Davies
|
Termination without cause or Change in relationship
|
24 months
|
24 months
|
100% Vested
|
N/A
|
100% Vested
|
24 months
|
Muhi Majzoub
|
Termination without cause or Change in relationship
|
24 months
|
24 months
|
100% Vested
|
N/A
|
100% Vested
|
24 months
|
George Schulze
|
Termination without cause or Change in relationship
|
12 months
|
12 months
|
100% Vested
|
N/A
|
24 months continued vesting
|
12 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 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.
|
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 unpaid 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, 2017. 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
$31.54
per share as reported on the NASDAQ on June 30, 2017, the last trading day of our fiscal year. The other material assumptions made with respect to the numbers reported in the table below are:
|
|
•
|
Payments in Canadian dollars included herein are converted to U.S. dollars using an exchange rate, as of June 30, 2017, of
0.754836
; and
|
|
|
•
|
The salary and incentive payments are calculated based on the amounts of salary and incentive payments which were payable to each Named Executive Officer as of June 30, 2017; and
|
|
|
•
|
Payments under the LTIPs are calculated as though 100% of Fiscal 2019 LTIP (granted in Fiscal 2017), Fiscal 2018 LTIP (granted in Fiscal 2016), and Fiscal 2017 LTIP (granted in Fiscal 2015) have vested with respect to a termination without cause or change in relationship following a change in control event, and as though a pro-rated amount have vested with respect to no change in control event.
|
Actual payments made at any future date may vary, including the amount the Named Executive Officer would have accrued under the applicable benefit or compensation plan as well as the price of our Common Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
Salary
($)
|
Short-term
Incentive
Payment
($)
|
Gain on Vesting of LTIP and Non-LTIP RSUs
($)
|
Gain on
Vesting of
Stock Options
($)
|
Employee
Benefits
($)
|
Total
($)
|
Mark J. Barrenechea
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
1,890,000
|
|
$
|
2,370,000
|
|
$
|
7,849,210
|
|
$
|
—
|
|
$
|
27,852
|
|
(2)
|
$
|
12,137,062
|
|
|
Termination Without Cause / Change in Relationship, within 12 months following a Change in Control
|
$
|
1,890,000
|
|
$
|
2,370,000
|
|
$
|
14,262,388
|
|
$
|
7,919,642
|
|
$
|
27,852
|
|
|
$
|
26,469,882
|
|
John M. Doolittle
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
415,160
|
|
$
|
446,611
|
|
$
|
1,497,433
|
|
$
|
—
|
|
$
|
17,131
|
|
|
$
|
2,376,335
|
|
|
Termination Without Cause / Change in Relationship, within 12 months following a Change in Control
|
$
|
830,320
|
|
$
|
893,223
|
|
$
|
2,469,330
|
|
$
|
753,130
|
|
$
|
34,262
|
|
|
$
|
4,980,265
|
|
Gordon A. Davies
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
314,012
|
|
$
|
285,957
|
|
$
|
1,503,163
|
|
$
|
—
|
|
$
|
16,745
|
|
|
$
|
2,119,877
|
|
|
Termination Without Cause / Change in Relationship, within 12 months following a Change in Control
|
$
|
628,024
|
|
$
|
571,914
|
|
$
|
2,758,488
|
|
$
|
532,334
|
|
$
|
33,490
|
|
|
$
|
4,524,250
|
|
Muhi Majzoub
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
356,000
|
|
$
|
324,500
|
|
$
|
1,246,992
|
|
$
|
—
|
|
$
|
11,402
|
|
|
$
|
1,938,894
|
|
|
Termination Without Cause / Change in Relationship, within 12 months following a Change in Control
|
$
|
712,000
|
|
$
|
649,000
|
|
$
|
2,312,513
|
|
$
|
426,114
|
|
$
|
22,804
|
|
|
$
|
4,122,431
|
|
George Schulze
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
425,000
|
|
$
|
475,000
|
|
$
|
447,005
|
|
$
|
—
|
|
$
|
3,564
|
|
|
$
|
1,350,569
|
|
|
Termination Without Cause / Change in Relationship, within 12 months following a Change in Control
|
$
|
425,000
|
|
$
|
475,000
|
|
$
|
784,084
|
|
$
|
195,000
|
|
$
|
3,564
|
|
|
$
|
1,882,648
|
|
Steve Murphy
(1)
|
Termination Without Cause / Change in Relationship with no Change in Control
|
$
|
600,000
|
|
$
|
657,692
|
|
$
|
743,834
|
|
$
|
—
|
|
$
|
2,136
|
|
|
$
|
2,003,662
|
|
|
|
(1)
|
The amounts set forth for Mr. Murphy represent the actual amounts to be paid as a result of his departure from the Company on May 8, 2017, in accordance with his termination agreement.
|
|
|
(2)
|
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.
|
Director Compensation for Fiscal 2017
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, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
Paid in Cash
($)
(1)
|
Stock
Awards
($)
(2)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in Pension Value and Non-qualified
Deferred Compensation
Earnings
($)
|
All Other
Compensation
($)
|
|
Total
($)
|
P. Thomas Jenkins
(3)
|
$
|
—
|
|
$
|
564,838
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
564,838
|
|
Randy Fowlie
(4)
|
$
|
63,750
|
|
$
|
320,000
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
383,750
|
|
Gail E. Hamilton
(5)
|
$
|
87,000
|
|
$
|
249,746
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
336,746
|
|
Brian J. Jackman
(6)
|
$
|
77,000
|
|
$
|
244,820
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
321,820
|
|
Stephen J. Sadler
(7)
|
$
|
2,000
|
|
$
|
311,385
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
785,470
|
|
(12)
|
$
|
1,098,855
|
|
Michael Slaunwhite
(8)
|
$
|
8,750
|
|
$
|
346,404
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
355,154
|
|
Katharine B. Stevenson
(9)
|
$
|
—
|
|
$
|
339,038
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
339,038
|
|
Carl Jurgen Tinggren
(10)
|
$
|
47,500
|
|
$
|
131,766
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
179,266
|
|
Deborah Weinstein
(11)
|
$
|
—
|
|
$
|
349,486
|
|
$
|
—
|
|
$
|
—
|
|
N/A
|
$
|
—
|
|
|
$
|
349,486
|
|
|
|
(1)
|
Non-management directors may elect to defer all or a portion of their retainer and/or fees in the form of Common Share equivalent units under our Directors' Deferred Share Unit Plan (DSU Plan) based on the value of the Company's shares as of the date fees would otherwise be paid. The DSU Plan became effective February 2, 2010, is available to any non-management director of the Company and is designed to promote greater alignment of long-term interests between directors of the Company and its shareholders. DSUs granted as compensation for directors fees vest immediately whereas the annual DSU grant vests at the Company’s next annual general meeting. No DSUs are payable by the Company until the director ceases to be a member of the Board.
|
|
|
(2)
|
The amounts set forth in this column represents the amount recognized as the aggregate grant date fair value of equity-based compensation awards, inclusive of DSU dividend equivalents, as calculated in accordance with ASC Topic 718. These amounts do not reflect whether the recipient has actually realized a financial benefit from the awards. For a discussion of the assumptions used in this valuation, see note 12 “Share Capital, Option Plan and Share-based Payments” to our consolidated financial statements. In Fiscal 2017, Messrs. Jenkins, Fowlie, Jackman, Sadler, and Slaunwhite and Mses. Hamilton, Stevenson and Weinstein received 18,323, 10,309, 7,894, 10,031, 11,122, 8,047, 10,894, and 11,219 DSUs, respectively.
|
|
|
(3)
|
As of June 30, 2017, Mr. Jenkins holds no options and 75,153 DSUs. Mr. Jenkins serves as Chairman of the Board.
|
|
|
(4)
|
As of June 30, 2017, Mr. Fowlie holds no options and 68,869 DSUs.
|
|
|
(5)
|
As of June 30, 2017, Ms. Hamilton holds no options and 54,441 DSUs.
|
|
|
(6)
|
As of June 30, 2017, Mr. Jackman holds 22,000 options and 44,048 DSUs.
|
|
|
(7)
|
As of June 30, 2017, Mr. Sadler holds no options and 63,753 DSUs.
|
|
|
(8)
|
As of June 30, 2017, Mr. Slaunwhite holds no options and 79,522 DSUs.
|
|
|
(9)
|
As of June 30, 2017, Ms. Stevenson holds no options and 61,272 DSUs.
|
|
|
(10)
|
As of June 30, 2017, Mr. Tinggren holds no options and 3,841 DSUs.
|
|
|
(11)
|
As of June 30, 2017, Ms. Weinstein holds no options and 74,965 DSUs.
|
|
|
(12)
|
During Fiscal 2017, Mr. Sadler received $785,470 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.
|
Directors who are salaried officers or employees receive no compensation for serving as directors. Mr. Barrenechea was the only employee director in Fiscal 2017. The material terms of our director compensation arrangements are as follows
:
|
|
|
Description
|
Amount and Frequency of Payment
|
Annual Chairman retainer fee payable to the Chairman of the Board
|
$200,000 per year payable following our Annual General Meeting
|
|
|
Annual retainer fee payable to each non-management director
|
$60,000 per director payable following our Annual General Meeting
|
|
|
Annual Independent Lead Director fee payable to the Independent Lead Director
|
$25,000 payable following our Annual General Meeting
|
|
|
Annual Audit Committee retainer fee payable to each member of the Audit Committee
|
$25,000 per year payable at $6,250 at the beginning of each quarterly period.
|
|
|
Annual Audit Committee Chair retainer fee payable to the Chair of the Audit Committee
|
$10,000 per year payable at $2,500 at the beginning of each quarterly period.
|
|
|
Annual Compensation Committee retainer fee payable to each member of the Compensation Committee
|
$15,000 per year payable at $3,750 at the beginning of each quarterly period.
|
|
|
Annual Compensation Committee Chair retainer fee payable to the Chair of the Compensation Committee
|
$10,000 per year payable at $2,500 at the beginning of each quarterly period.
|
|
|
Annual Corporate Governance Committee retainer fee payable to each member of the Corporate Governance Committee
|
$8,000 per year payable at $2,000 at the beginning of each quarterly period.
|
|
|
Annual Corporate Governance Committee Chair retainer fee payable to the Chair of the Corporate Governance Committee
|
$6,000 per year payable at $1,500 at the beginning of each quarterly period.
|
The Board has adopted a DSU Plan which is available to any non-management director of the Company. In Fiscal 2017, certain directors elected to receive DSUs instead of a cash payment for his or her 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. DSUs granted as compensation for directors fees vest immediately whereas the annual DSU grant vests at the Company’s next annual general meeting. No DSUs are payable by the Company until the director ceases to be a member of the Board.
As with its employees, the Company believes that granting compensation to directors in the form of equity, such as DSUs, promotes a greater alignment of long-term interests between directors of the Company and the shareholders of the Company. During Fiscal 2017, no stock options were granted to non-management directors and the Company has taken the position that non-management directors will receive DSUs instead of stock options where granting of equity awards is appropriate. All non-management directors have exceeded the Share Ownership Guidelines applicable to them, which is three times their annual retainer, with the exception of Mr. Tinggren, who only recently joined as a member of our Board on February 25, 2017. For further details of our Share Ownership Guidelines as they relate to directors, see “Share Ownership Guidelines” above.
The Company does not have a retirement policy for its directors; however, the Company does review its director performance annually as part of its governance process.
Compensation Committee Interlocks and Insider Participation
The members of our Compensation Committee consist of Messrs. Slaunwhite (Chair) and Jackman and Ms. Weinstein. None of the members of the Compensation Committee have been or are an officer or employee of the Company, or any of our subsidiaries, or had any relationship requiring disclosure herein. None of our executive officers served as a member of the
compensation committee of another entity (or other committee of the board of directors performing equivalent functions, or in the absence of any such committee, the entire board of directors) one of whose executive officers served as a director of ours.
Board's Role in Risk Oversight
The Board has responsibility for risk oversight. On an annual basis, management reviews our risk management policies and practices and presents the results of this review to the Board. 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.
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, 2017
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, 2017
. 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.
|
|
|
|
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of Common
Shares Outstanding
|
Caisse de Depot et Placement du Quebec (1)
1000 Place Jean-Paul Riopelle, Montreal H2Z 2B3
|
17,556,800
|
|
6.65%
|
Jarislowsky, Fraser Ltd. (1)
1010 Sherbrooke St. West, Montreal QC H3A 2R7
|
17,149,056
|
|
6.49%
|
FMR LLC (1)
245 Summer Street, Boston, Massachusetts 02210
|
13,630,775
|
|
5.16%
|
P. Thomas Jenkins (2)
|
4,263,595
|
|
1.59%
|
Mark J. Barrenechea (3)
|
2,261,700
|
|
*
|
Michael Slaunwhite (4)
|
506,172
|
|
*
|
Randy Fowlie (5)
|
289,519
|
|
*
|
Muhi Majzoub (6)
|
232,584
|
|
*
|
Stephen J. Sadler (7)
|
207,203
|
|
*
|
John M. Doolittle (8)
|
196,744
|
|
*
|
Brian J. Jackman (9)
|
131,898
|
|
*
|
Katharine B. Stevenson (10)
|
110,912
|
|
*
|
George Schulze (11)
|
90,000
|
|
*
|
Deborah Weinstein (12)
|
88,415
|
|
*
|
Gordon A. Davies (13)
|
81,106
|
|
*
|
Gail E. Hamilton (14)
|
61,891
|
|
*
|
Carl Jürgen Tinggren (15)
|
3,841
|
|
*
|
All executive officers and directors as a group (16)
|
8,922,030
|
|
3.34%
|
|
|
(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, 2017
.
|
|
|
(2)
|
Includes 4,198,104 Common Shares owned, and 65,491 deferred stock units (DSUs) which are exercisable.
|
|
|
(3)
|
Includes 246,362 Common Shares owned, 1,843,362 options which are exercisable, and 171,976 options which will become exercisable within 60 days of
June 30, 2017
.
|
|
|
(4)
|
Includes 433,200 Common Shares owned, and 72,972 DSUs which are exercisable.
|
|
|
(5)
|
Includes 227,200 Common Shares owned, and 62,319 DSUs which are exercisable.
|
|
|
(6)
|
Includes 48,384 Common Shares owned, 155,568 options which are exercisable, and 28,632 options which will become exercisable within 60 days of
June 30, 2017
.
|
|
|
(7)
|
Includes 150,000 Common Shares owned and 57,203 DSUs which are exercisable.
|
|
|
(8)
|
Includes 8,122 Common Shares owned, 172,572 options which are exercisable, and 16,050 options which will become exercisable within 60 days of
June 30, 2017
.
|
|
|
(9)
|
Includes 72,400 Common Shares owned, 22,000 options which are exercisable, and 37,498 DSUs which are exercisable.
|
|
|
(10)
|
Includes 56,190 Common Shares owned, and 54,722 DSUs which are exercisable.
|
|
|
(11)
|
Includes 90,000 options which are exercisable.
|
|
|
(12)
|
Includes 20,000 Common Shares owned, and 68,415 DSUs which are exercisable.
|
|
|
(13)
|
Includes 45,170 Common Shares owned, and 35,936 options which will become exercisable within 60 days of
June 30, 2017
.
|
|
|
(14)
|
Includes 14,000 Common Shares owned, and 47,891 DSUs which are exercisable.
|
|
|
(15)
|
Includes 3,841 DSUs which are exercisable.
|
|
|
(16)
|
Includes 5,566,256 Common Shares owned, 2,574,856 options which are exercisable, and 310,566 options which will become exercisable within 60 days of
June 30, 2017
, and 470,352 DSUs which are exercisable.
|
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, 2017
:
|
|
|
|
|
Plan Category
|
Number of securities
to be issued upon exercise
of outstanding options,
warrants, and rights
|
Weighted average
exercise price
of outstanding options,
warrants, and rights
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column a)
|
|
(a)
|
(b)
|
(c)
|
Equity compensation plans approved by security holders:
|
8,977,830
|
$24.57
|
11,864,002
|
Equity compensation plans not approved by security holders :
|
|
|
|
Under deferred stock unit awards
|
525,864
|
N/A
|
—
|
Under performance stock unit awards
|
512,856
|
N/A
|
—
|
Under restricted stock unit awards
|
923,869
|
N/A
|
—
|
Total
|
10,940,419
|
N/A
|
11,864,002
|
For more information regarding stock compensation plans, please refer to note 12 "Share Capital, Option Plans and Share-Based Payments" to our Consolidated Financial Statements, under Item 8 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 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.
During Fiscal
2017
, Mr. Sadler received approximately CAD
$1.0 million
in consulting fees from OpenText (equivalent to
$0.8 million
USD), inclusive of CAD $980 thousand bonus fees for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.
|
|
Item 14.
|
Principal Accountant Fees and Services
|
The aggregate fees for professional services rendered by our independent registered public accounting firm, KPMG LLP, for Fiscal 2017 and Fiscal 2016 were:
|
|
|
|
|
|
|
|
|
|
Year ended June 30,
|
(In thousands)
|
2017
|
|
2016
|
Audit fees (1)
|
$
|
4,269
|
|
|
$
|
3,935
|
|
Audit-related fees (2)
|
166
|
|
|
—
|
|
Tax fees (3)
|
98
|
|
|
35
|
|
All other fees (4)
|
9
|
|
|
—
|
|
Total
|
$
|
4,542
|
|
|
$
|
3,970
|
|
|
|
(1)
|
Audit fees were primarily for professional services rendered for (a) the annual audits of our consolidated financial statements and the accompanying attestation report regarding our ICFR contained in our Annual Report on Form 10-K, (b) the review of quarterly financial information included in our Quarterly Reports on Form 10-Q, (c) audit services related to mergers and acquisitions and offering documents, and (d) annual statutory audits where applicable.
|
|
|
(2)
|
Audit-related fees were primarily for assurance and related services, such as the review of non-periodic filings with the SEC.
|
|
|
(3)
|
Tax fees were for services related to tax compliance, including the preparation of tax returns, tax planning and tax advice.
|
|
|
(4)
|
All other fees consist of fees for services other than the services reported in audit fees, audit-related fees, and tax fees.
|
OpenText's Audit Committee has established a policy of reviewing, in advance, and either approving or not approving, all audit, audit-related, tax and other non-audit services that our independent registered public accounting firm provides to us. This policy requires that all services received from our independent registered public accounting firm be approved in advance by the Audit Committee or a delegate of the Audit Committee. The Audit Committee has delegated the pre-approval responsibility to the Chair of the Audit Committee. All services that KPMG LLP provided to us in Fiscal 2017 and Fiscal 2016 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.
Item 15. Exhibits and Financial Statements Schedules
(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, 2017 and 2016
|
|
Consolidated Statements of Income for the years ended June 30, 2017, 2016, and 2015
|
|
Consolidated Statements of Comprehensive Income for the years ended June 30, 2017, 2016, and 2015
|
|
Consolidated Statements of Shareholders' Equity for the years ended June 30, 2017, 2016, and 2015
|
|
Consolidated Statements of Cash Flows for the years ended June 30, 2017, 2016, and 2015
|
|
Notes to Consolidated Financial Statements
|
|
(b) The following documents are filed as a part of this report:
1) Consolidated financial statements and Reports of Independent Registered Public Accounting Firm and the related notes thereto are included under Item 8, in Part II.
2) Valuation and Qualifying Accounts; see note 3 "Allowance for Doubtful Accounts" and note 14 "Income Taxes" in the Notes to Consolidated Financial Statements included under Item 8, in Part II.
3) Exhibits: The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated by reference to exhibits previously filed with the SEC.
|
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
2.1
|
|
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)
|
2.2
|
|
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)
|
2.3
|
|
Support Agreement, dated as of November 4, 2013, among GXS Group, Inc., Open Text Corporation, and Global Acquisition LLC. (20)
|
2.4
|
|
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)
|
2.5
|
|
Agreement and Plan of Merger, dated as of December 5, 2014, by and among Open Text Corporation, Asteroid Acquisition Corporation and Actuate. (24)
|
2.6
|
|
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)
|
3.1
|
|
Articles of Amalgamation of the Company. (1)
|
3.2
|
|
Articles of Amendment of the Company. (1)
|
3.3
|
|
Articles of Amendment of the Company. (1)
|
3.4
|
|
Articles of Amalgamation of the Company. (1)
|
3.5
|
|
Articles of Amalgamation of the Company, dated July 1, 2001. (2)
|
3.6
|
|
Articles of Amalgamation of the Company, dated July 1, 2002. (3)
|
3.7
|
|
Articles of Amalgamation of the Company, dated July 1, 2003. (4)
|
3.8
|
|
Articles of Amalgamation of the Company, dated July 1, 2004. (5)
|
3.9
|
|
Articles of Amalgamation of the Company, dated July 1, 2005. (6)
|
3.10
|
|
Articles of Continuance of the Company, dated December 29, 2005. (7)
|
3.11
|
|
By-Law 1 of Open Text Corporation. (19)
|
4.1
|
|
Form of Common Share Certificate. (1)
|
|
|
|
|
4.2
|
|
Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare Investor Services, Inc. dated September 23, 2016. (19)
|
4.3
|
|
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)
|
4.4
|
|
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)
|
4.5
|
|
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). (31)
|
4.6
|
|
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. (32)
|
4.7
|
|
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. (32)
|
10.1*
|
|
1998 Stock Option Plan. (8)
|
10.2*
|
|
Form of Indemnity Agreement between the Company and certain of its officers dated September 7, 2006. (9)
|
10.3*
|
|
Consulting Agreement between Steven Sadler and SJS Advisors Inc. and the Company, dated May 3, 2005. (10)
|
10.4*
|
|
Open Text Corporation Directors' Deferred Share Unit Plan effective February 2, 2010. (11)
|
10.5
|
|
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)
|
10.6*
|
|
OpenText Corporation 2004 Stock Option Plan, as amended and restated September 26, 2016. (15)
|
10.7*
|
|
OpenText Corporation Long-Term Incentive Plan 2015 for eligible employees, effective October 3, 2012. (16)
|
10.8*
|
|
Employment Agreement, dated October 30, 2012 between Mark Barrenechea and the Company. (16)
|
10.9*
|
|
Amendment No. 1 to the Employment Agreement between Mark J. Barrenechea and the Company dated January 24, 2013 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October 30, 2012). (17)
|
10.10*
|
|
Employment Agreement, as of December 19, 2012, between Gordon A. Davies and the Company. (18)
|
10.11
|
|
Commitment Letter, dated as of November 4, 2013, by and among Barclays Bank PLC, Royal Bank of Canada and Open Text Corporation. (20)
|
10.12
|
|
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)
|
10.13
|
|
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)
|
10.14
|
|
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)
|
10.15
|
|
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)
|
10.16*
|
|
Employment Agreement, dated November 30, 2012, between Muhi Majzoub and the Company. (23)
|
10.17*
|
|
Employment Agreement, dated July 30, 2014, between John M. Doolittle and the Company. (23)
|
10.18*
|
|
Amendment No. 2 to the Employment Agreement between Mark J. Barrenechea and the Company dated July 30, 2013 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October 30, 2012). (23)
|
10.20*
|
|
Employment Agreement, dated October 13, 2014, between David Jamieson and the Company. (28)
|
10.21*
|
|
Employment Agreement, dated December 21, 2015, among the Company, Open Text Inc. and Stephen F. Murphy. (29)
|
|
|
|
|
10.22*
|
|
Amended and Restated Employee Stock Purchase Plan (30)
|
10.23
|
|
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. (33)
|
10.24
|
|
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. (34)
|
10.25*
|
|
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). (35)
|
10.26*
|
|
Employment Agreement, dated January 2, 2014, between George Schulze and the Company
|
12.1
|
|
Statement of Computation of Ratios of Earnings to Combined Fixed Charges and Preferences
|
18.1
|
|
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)
|
21.1
|
|
List of the Company's Subsidiaries.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
31.1
|
|
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.
|
31.2
|
|
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.
|
32.1
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
|
XBRL instance document.
|
101.SCH
|
|
XBRL taxonomy extension schema.
|
101.CAL
|
|
XBRL taxonomy extension calculation linkbase.
|
101.DEF
|
|
XBRL taxonomy extension definition linkbase.
|
101.LAB
|
|
XBRL taxonomy extension label linkbase.
|
101.PRE
|
|
XBRL taxonomy extension presentation.
|
* Indicates management contract relating to compensatory plans or arrangements
|
|
(1)
|
Filed as an Exhibit to the Company's Registration Statement on Form F-1 (Registration Number 33-98858) as filed with the Securities and Exchange Commission (the “SEC”) on November 1, 1995 or Amendments 1, 2 or 3 thereto (filed on December 28, 1995, January 22, 1996 and January 23, 1996 respectively), and incorporated herein by reference.
|
|
|
(2)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2001 and incorporated herein by reference.
|
|
|
(3)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2002 and incorporated herein by reference.
|
|
|
(4)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 29, 2003 and incorporated herein by reference.
|
|
|
(5)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 13, 2004 and incorporated herein by reference.
|
|
|
(6)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 27, 2005 and incorporated herein by reference.
|
|
|
(7)
|
Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on February 3, 2006 and incorporated herein by reference.
|
|
|
(8)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 20, 1999 and incorporated herein by reference.
|
|
|
(9)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 12, 2006 and incorporated herein by reference.
|
|
|
(10)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 26, 2008 and incorporated herein by reference.
|
|
|
(11)
|
Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on April 30, 2010 and incorporated herein by reference.
|
|
|
(12)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on November 9, 2011 and incorporated herein by reference.
|
|
|
(13)
|
Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on February 2, 2012 and incorporated herein by reference.
|
|
|
(14)
|
Filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 3, 2012 and incorporated herein by reference.
|
|
|
(15)
|
Filed as an exhibit to the Company's Registration Statement on Form S-8, as filed with the SEC on November 3, 2016, and incorporated herein by reference.
|
|
|
(16)
|
Filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 1, 2012 and incorporated herein by reference.
|
|
|
(17)
|
Filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on January 25, 2013 and incorporated herein by reference.
|
|
|
(18)
|
Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 1, 2013 and incorporated herein by reference.
|
|
|
(19)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 23, 2016 and incorporated herein by reference.
|
|
|
(20)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K/A, as filed with the SEC on November 6, 2013 and incorporated herein by reference.
|
|
|
(21)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on December 20, 2013 and incorporated herein by reference.
|
|
|
(22)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on January 16, 2014 and incorporated herein by reference.
|
(23)Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on July 31, 2014 and incorporated herein by reference.
|
|
(24)
|
Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on December 5, 2014 and incorporated herein by reference.
|
(25) Filed as an exhibit to the Company's Current Report on Form 8-K, as fined with the SEC on December 23, 2014 and incorporated herein by reference.
(26) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 23, 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 December 24, 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 October 2, 2015 and incorporated herein by reference.
(31) 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.
(32) 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.
(33) 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.
(34) 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.
(35) 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.
Item 16. Form 10-K Summary
None.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Open Text Corporation
We have audited the accompanying consolidated balance sheets of Open Text Corporation as of June 30, 2017 and June 30, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended June 30, 2017. 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 conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Open Text Corporation as of June 30, 2017 and June 30, 2016, and its consolidated results of operations and its consolidated cash flows for each of the years in the three-year period ended June 30, 2017, 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), Open Text Corporation’s internal control over financial reporting as of June 30, 2017, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated August 2, 2017 expressed an unqualified opinion on the effectiveness of Open Text Corporation’s internal control over financial reporting.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
August 2, 2017
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Open Text Corporation
We have audited Open Text Corporation’s internal control over financial reporting as of June 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Open Text Corporation’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 Part II, Item 9A of this 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 conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 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.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Open Text Corporation maintained, in all material respects, effective internal control over financial reporting as of June 30, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Open Text Corporation acquired certain assets and liabilities of the Enterprise Content Division of Dell-EMC (ECD Business) during Fiscal 2017, and management excluded from its assessment of the effectiveness of Open Text Corporation’s internal control over financial reporting as of June 30, 2017, ECD Business’ internal control over financial reporting associated with total assets of $1.7 billion (of which $1.6 billion represents goodwill and net intangible assets included within the scope of the assessment) and total revenues of $193 million included in the consolidated financial statements of Open Text Corporation as of and for the year ended June 30, 2017. Our audit of internal control over financial reporting of Open Text Corporation also excluded an evaluation of the internal control over financial reporting of ECD Business.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Open Text Corporation as of June 30, 2017 and June 30, 2016, and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended June 30, 2017, and our report dated August 2, 2017 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
August 2, 2017
OPEN TEXT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
443,357
|
|
|
$
|
1,283,757
|
|
Short-term investments
|
—
|
|
|
11,839
|
|
Accounts receivable trade, net of allowance for doubtful accounts of $6,319 as of June 30, 2017 and $6,740 as of June 30, 2016 (note 3)
|
445,812
|
|
|
285,904
|
|
Income taxes recoverable (note 14)
|
32,683
|
|
|
31,752
|
|
Prepaid expenses and other current assets
|
81,625
|
|
|
59,021
|
|
Total current assets
|
1,003,477
|
|
|
1,672,273
|
|
Property and equipment (note 4)
|
227,418
|
|
|
183,660
|
|
Goodwill (note 5)
|
3,416,749
|
|
|
2,325,586
|
|
Acquired intangible assets (note 6)
|
1,472,542
|
|
|
646,240
|
|
Deferred tax assets (note 14)
|
1,215,712
|
|
|
241,161
|
|
Other assets (note 7)
|
93,763
|
|
|
53,697
|
|
Deferred charges (note 8)
|
42,344
|
|
|
22,776
|
|
Long-term income taxes recoverable (note 14)
|
8,557
|
|
|
8,751
|
|
Total assets
|
$
|
7,480,562
|
|
|
$
|
5,154,144
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable and accrued liabilities (note 9)
|
$
|
342,120
|
|
|
$
|
257,450
|
|
Current portion of long-term debt (note 10)
|
182,760
|
|
|
8,000
|
|
Deferred revenues
|
570,328
|
|
|
373,549
|
|
Income taxes payable (note 14)
|
31,835
|
|
|
32,030
|
|
Total current liabilities
|
1,127,043
|
|
|
671,029
|
|
Long-term liabilities:
|
|
|
|
Accrued liabilities (note 9)
|
50,338
|
|
|
29,848
|
|
Deferred credits (note 8)
|
5,283
|
|
|
8,357
|
|
Pension liability (note 11)
|
58,627
|
|
|
61,993
|
|
Long-term debt (note 10)
|
2,387,057
|
|
|
2,137,987
|
|
Deferred revenues
|
61,678
|
|
|
37,461
|
|
Long-term income taxes payable (note 14)
|
162,493
|
|
|
149,041
|
|
Deferred tax liabilities (note 14)
|
94,724
|
|
|
79,231
|
|
Total long-term liabilities
|
2,820,200
|
|
|
2,503,918
|
|
Shareholders’ equity:
|
|
|
|
Share capital (note 12)
|
|
|
|
264,059,567 and 242,809,354 Common Shares issued and outstanding at June 30, 2017 and June 30, 2016, respectively; authorized Common Shares: unlimited
|
1,439,850
|
|
|
817,788
|
|
Additional paid-in capital
|
173,604
|
|
|
147,280
|
|
Accumulated other comprehensive income
|
48,800
|
|
|
46,310
|
|
Retained earnings
|
1,897,624
|
|
|
992,546
|
|
Treasury stock, at cost (1,101,612 shares at June 30, 2017 and 1,267,294 at June 30, 2016, respectively)
|
(27,520
|
)
|
|
(25,268
|
)
|
Total OpenText shareholders' equity
|
3,532,358
|
|
|
1,978,656
|
|
Non-controlling interests
|
961
|
|
|
541
|
|
Total shareholders’ equity
|
3,533,319
|
|
|
1,979,197
|
|
Total liabilities and shareholders’ equity
|
$
|
7,480,562
|
|
|
$
|
5,154,144
|
|
Guarantees and contingencies (note 13)
Related party transactions (note 22)
Subsequent events (note 23)
See accompanying Notes to
Consolidated Financial Statements
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
License
|
$
|
369,144
|
|
|
$
|
283,710
|
|
|
$
|
294,266
|
|
Cloud services and subscriptions
|
705,495
|
|
|
601,018
|
|
|
605,309
|
|
Customer support
|
981,102
|
|
|
746,409
|
|
|
731,797
|
|
Professional service and other
|
235,316
|
|
|
193,091
|
|
|
220,545
|
|
Total revenues
|
2,291,057
|
|
|
1,824,228
|
|
|
1,851,917
|
|
Cost of revenues:
|
|
|
|
|
|
License
|
13,632
|
|
|
10,296
|
|
|
12,899
|
|
Cloud services and subscriptions
|
300,255
|
|
|
244,021
|
|
|
237,310
|
|
Customer support
|
122,753
|
|
|
89,861
|
|
|
94,456
|
|
Professional service and other
|
195,195
|
|
|
155,584
|
|
|
172,742
|
|
Amortization of acquired technology-based intangible assets (note 6)
|
130,556
|
|
|
74,238
|
|
|
81,002
|
|
Total cost of revenues
|
762,391
|
|
|
574,000
|
|
|
598,409
|
|
Gross profit
|
1,528,666
|
|
|
1,250,228
|
|
|
1,253,508
|
|
Operating expenses:
|
|
|
|
|
|
Research and development
|
281,680
|
|
|
194,057
|
|
|
196,491
|
|
Sales and marketing
|
444,838
|
|
|
344,235
|
|
|
373,610
|
|
General and administrative
|
170,438
|
|
|
140,397
|
|
|
162,728
|
|
Depreciation
|
64,318
|
|
|
54,929
|
|
|
50,906
|
|
Amortization of acquired customer-based intangible assets (note 6)
|
150,842
|
|
|
113,201
|
|
|
108,239
|
|
Special charges (recoveries) (note 17)
|
63,618
|
|
|
34,846
|
|
|
12,823
|
|
Total operating expenses
|
1,175,734
|
|
|
881,665
|
|
|
904,797
|
|
Income from operations
|
352,932
|
|
|
368,563
|
|
|
348,711
|
|
Other income (expense), net
|
15,743
|
|
|
(1,423
|
)
|
|
(28,047
|
)
|
Interest and other related expense, net
|
(119,124
|
)
|
|
(76,363
|
)
|
|
(54,620
|
)
|
Income before income taxes
|
249,551
|
|
|
290,777
|
|
|
266,044
|
|
Provision for (recovery of) income taxes (note 14)
|
(776,364
|
)
|
|
6,282
|
|
|
31,638
|
|
Net income for the period
|
$
|
1,025,915
|
|
|
$
|
284,495
|
|
|
$
|
234,406
|
|
Net (income) loss attributable to non-controlling interests
|
(256
|
)
|
|
(18
|
)
|
|
(79
|
)
|
Net income attributable to OpenText
|
$
|
1,025,659
|
|
|
$
|
284,477
|
|
|
$
|
234,327
|
|
Earnings per share—basic attributable to OpenText (note 21)
|
$
|
4.04
|
|
|
$
|
1.17
|
|
|
$
|
0.96
|
|
Earnings per share—diluted attributable to OpenText (note 21)
|
$
|
4.01
|
|
|
$
|
1.17
|
|
|
$
|
0.95
|
|
Weighted average number of Common Shares outstanding—basic
|
253,879
|
|
|
242,926
|
|
|
244,184
|
|
Weighted average number of Common Shares outstanding—diluted
|
255,805
|
|
|
244,076
|
|
|
245,914
|
|
Dividends declared per Common Share
|
$
|
0.4770
|
|
|
$
|
0.4150
|
|
|
$
|
0.3588
|
|
As a result of the
two
-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in these Consolidated Financial Statements and Notes to the Consolidated Financial Statements are presented on a post share split basis.
See accompanying Notes to
Consolidated Financial Statements
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Net income for the period
|
$
|
1,025,915
|
|
|
$
|
284,495
|
|
|
$
|
234,406
|
|
Other comprehensive income—net of tax:
|
|
|
|
|
|
Net foreign currency translation adjustments
|
(4,756
|
)
|
|
(3,318
|
)
|
|
15,690
|
|
Unrealized gain (loss) on cash flow hedges:
|
|
|
|
|
|
Unrealized gain (loss) - net of tax expense (recovery) effect of $34, ($928) and ($2,188) for the year ended June 30, 2017, 2016 and 2015, respectively
|
95
|
|
|
(2,574
|
)
|
|
(6,064
|
)
|
(Gain) loss reclassified into net income - net of tax recovery effect of $67, $1,065 and $2,059 for the year ended June 30, 2017, 2016 and 2015, respectively
|
186
|
|
|
2,956
|
|
|
5,710
|
|
Actuarial gain (loss) relating to defined benefit pension plans:
|
|
|
|
|
|
|
Actuarial gain (loss) - net of tax expense (recovery) effect of $840, ($1,612) and ($1,422) for the year ended June 30, 2017, 2016 and 2015, respectively
|
6,216
|
|
|
(3,374
|
)
|
|
(3,302
|
)
|
Amortization of actuarial loss into net income - net of tax recovery effect of $241, $132 and $89 for the year ended June 30, 2017, 2016 and 2015, respectively
|
565
|
|
|
347
|
|
|
357
|
|
Unrealized net gain (loss) on marketable securities - net of tax effect of nil for the year ended June 30, 2017, 2016 and 2015, respectively
|
184
|
|
|
445
|
|
|
(12
|
)
|
Unrealized gain on marketable securities - net of tax effect of nil for the year ended June 30, 2017, 2016 and 2015, respectively
|
—
|
|
|
—
|
|
|
1,906
|
|
Release of unrealized gain on marketable securities - net of tax effect of nil for the year ended June 30, 2017, 2016 and 2015, respectively
|
—
|
|
|
—
|
|
|
(1,906
|
)
|
Total other comprehensive income (loss) net, for the period
|
2,490
|
|
|
(5,518
|
)
|
|
12,379
|
|
Total comprehensive income
|
1,028,405
|
|
|
278,977
|
|
|
246,785
|
|
Comprehensive (income) attributable to non-controlling interests
|
(256
|
)
|
|
(18
|
)
|
|
(79
|
)
|
Total comprehensive income attributable to OpenText
|
$
|
1,028,149
|
|
|
$
|
278,959
|
|
|
$
|
246,706
|
|
See accompanying Notes to
Consolidated Financial Statements
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Treasury Stock
|
|
Additional
Paid in
Capital
|
|
Retained
Earnings
|
|
Accumulated Other
Comprehensive
Income
|
|
Non-Controlling Interests
|
|
Total
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Balance as of June 30, 2014
|
|
243,516
|
|
|
$
|
792,834
|
|
|
(1,526
|
)
|
|
$
|
(19,132
|
)
|
|
$
|
112,398
|
|
|
$
|
716,317
|
|
|
$
|
39,449
|
|
|
$
|
301
|
|
|
$
|
1,642,167
|
|
Issuance of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under employee stock option plans
|
|
952
|
|
|
12,159
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,159
|
|
Under employee stock purchase plans
|
|
118
|
|
|
3,017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,017
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,047
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,047
|
|
Income tax effect related to share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,675
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,675
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
(480
|
)
|
|
(10,557
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,557
|
)
|
Issuance of treasury stock
|
|
—
|
|
|
—
|
|
|
754
|
|
|
9,703
|
|
|
(9,703
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(87,629
|
)
|
|
—
|
|
|
—
|
|
|
(87,629
|
)
|
Other comprehensive income (loss) - net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,379
|
|
|
—
|
|
|
12,379
|
|
Non-controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
143
|
|
|
143
|
|
Net income for the year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
234,327
|
|
|
—
|
|
|
79
|
|
|
234,406
|
|
Balance as of June 30, 2015
|
|
244,586
|
|
|
$
|
808,010
|
|
|
(1,252
|
)
|
|
$
|
(19,986
|
)
|
|
$
|
126,417
|
|
|
$
|
863,015
|
|
|
$
|
51,828
|
|
|
$
|
523
|
|
|
$
|
1,829,807
|
|
Issuance of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under employee stock option plans
|
|
936
|
|
|
14,576
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,576
|
|
Under employee stock purchase plans
|
|
240
|
|
|
5,027
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,027
|
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,978
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,978
|
|
Income tax effect related to share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
230
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
(450
|
)
|
|
(10,627
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,627
|
)
|
Issuance of treasury stock
|
|
—
|
|
|
—
|
|
|
434
|
|
|
5,345
|
|
|
(5,345
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Common Shares repurchased
|
|
(2,952
|
)
|
|
(9,825
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(55,684
|
)
|
|
—
|
|
|
—
|
|
|
(65,509
|
)
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(99,262
|
)
|
|
—
|
|
|
—
|
|
|
(99,262
|
)
|
Other comprehensive income(loss) - net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,518
|
)
|
|
—
|
|
|
(5,518
|
)
|
Non-controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income for the year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
284,477
|
|
|
—
|
|
|
18
|
|
|
284,495
|
|
Balance as of June 30, 2016
|
|
242,810
|
|
|
$
|
817,788
|
|
|
(1,268
|
)
|
|
$
|
(25,268
|
)
|
|
$
|
147,280
|
|
|
$
|
992,546
|
|
|
$
|
46,310
|
|
|
$
|
541
|
|
|
$
|
1,979,197
|
|
Issuance of Common Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under employee stock option plans
|
|
1,012
|
|
|
20,732
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20,732
|
|
Under employee stock purchase plans
|
|
427
|
|
|
11,604
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,604
|
|
Under the public Equity Offering
|
|
19,811
|
|
|
604,223
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
604,223
|
|
Income tax effect related to public Equity Offering
|
|
—
|
|
|
5,077
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,077
|
|
Equity issuance costs
|
|
—
|
|
|
(19,574
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(19,574
|
)
|
Share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,507
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,507
|
|
Income tax effect related to share-based compensation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,534
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,534
|
|
Purchase of treasury stock
|
|
—
|
|
|
—
|
|
|
(244
|
)
|
|
(8,198
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,198
|
)
|
Issuance of treasury stock
|
|
—
|
|
|
—
|
|
|
410
|
|
|
5,946
|
|
|
(5,946
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Dividends
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(120,581
|
)
|
|
—
|
|
|
—
|
|
|
(120,581
|
)
|
Other comprehensive income (loss) - net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,490
|
|
|
—
|
|
|
2,490
|
|
Non-controlling interest
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
229
|
|
|
—
|
|
|
—
|
|
|
164
|
|
|
393
|
|
Net income for the year
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,025,659
|
|
|
—
|
|
|
256
|
|
|
1,025,915
|
|
Balance as of June 30, 2017
|
|
264,060
|
|
|
$
|
1,439,850
|
|
|
(1,102
|
)
|
|
$
|
(27,520
|
)
|
|
$
|
173,604
|
|
|
$
|
1,897,624
|
|
|
$
|
48,800
|
|
|
$
|
961
|
|
|
$
|
3,533,319
|
|
See accompanying Notes to
Consolidated Financial Statements
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income for the period
|
$
|
1,025,915
|
|
|
$
|
284,495
|
|
|
$
|
234,406
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization of intangible assets
|
345,715
|
|
|
242,368
|
|
|
240,147
|
|
Share-based compensation expense
|
30,507
|
|
|
25,978
|
|
|
22,047
|
|
Excess tax (benefits) on share-based compensation expense
|
(1,534
|
)
|
|
(230
|
)
|
|
(1,675
|
)
|
Pension expense
|
3,893
|
|
|
4,577
|
|
|
4,796
|
|
Amortization of debt issuance costs
|
5,014
|
|
|
4,678
|
|
|
4,556
|
|
Amortization of deferred charges and credits
|
6,298
|
|
|
9,903
|
|
|
10,525
|
|
Loss on sale and write down of property and equipment
|
784
|
|
|
1,108
|
|
|
1,368
|
|
Release of unrealized gain on marketable securities to income
|
—
|
|
|
—
|
|
|
(3,098
|
)
|
Deferred taxes
|
(871,195
|
)
|
|
(54,461
|
)
|
|
(14,578
|
)
|
Share in net (income) of equity investees
|
(5,952
|
)
|
|
—
|
|
|
—
|
|
Write off of unamortized debt issuance costs
|
833
|
|
|
—
|
|
|
2,919
|
|
Other non-cash charges
|
1,033
|
|
|
—
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
(126,784
|
)
|
|
8,985
|
|
|
43,189
|
|
Prepaid expenses and other current assets
|
(7,766
|
)
|
|
316
|
|
|
(3,534
|
)
|
Income taxes and deferred charges and credits
|
(1,683
|
)
|
|
6,294
|
|
|
2,933
|
|
Accounts payable and accrued liabilities
|
53,490
|
|
|
(5,671
|
)
|
|
(22,714
|
)
|
Deferred revenue
|
3,484
|
|
|
(4,781
|
)
|
|
6,775
|
|
Other assets
|
(22,799
|
)
|
|
2,163
|
|
|
(5,031
|
)
|
Net cash provided by operating activities
|
439,253
|
|
|
525,722
|
|
|
523,031
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Additions of property and equipment
|
(79,592
|
)
|
|
(70,009
|
)
|
|
(77,046
|
)
|
Proceeds from maturity of short-term investments
|
9,212
|
|
|
11,297
|
|
|
17,017
|
|
Purchase of ECD Business
|
(1,622,394
|
)
|
|
—
|
|
|
—
|
|
Purchase of HP Inc. CCM Business
|
(315,000
|
)
|
|
—
|
|
|
—
|
|
Purchase of Recommind, Inc.
|
(170,107
|
)
|
|
—
|
|
|
—
|
|
Purchase of HP Inc. CEM Business
|
(7,289
|
)
|
|
(152,711
|
)
|
|
—
|
|
Purchase of ANXe Business Corporation
|
143
|
|
|
(104,570
|
)
|
|
—
|
|
Purchase of Daegis Inc., net of cash acquired
|
—
|
|
|
(22,146
|
)
|
|
—
|
|
Purchase consideration for acquisitions completed prior to Fiscal 2016
|
—
|
|
|
(13,644
|
)
|
|
(327,792
|
)
|
Other investing activities
|
(5,937
|
)
|
|
(9,393
|
)
|
|
(10,574
|
)
|
Net cash used in investing activities
|
(2,190,964
|
)
|
|
(361,176
|
)
|
|
(398,395
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Excess tax benefits on share-based compensation expense
|
1,534
|
|
|
230
|
|
|
1,675
|
|
Proceeds from issuance of long-term debt (note 10)
|
256,875
|
|
|
600,000
|
|
|
800,000
|
|
Proceeds from revolver (note 10)
|
225,000
|
|
|
—
|
|
|
—
|
|
Proceeds from issuance of Common Shares from exercise of stock options and ESPP
|
35,593
|
|
|
20,097
|
|
|
15,240
|
|
Proceeds from issuance of Common Shares under the public Equity Offering
|
604,223
|
|
|
—
|
|
|
—
|
|
Repayment of long-term debt and revolver
|
(57,880
|
)
|
|
(8,000
|
)
|
|
(530,284
|
)
|
Debt issuance costs
|
(7,240
|
)
|
|
(6,765
|
)
|
|
(18,271
|
)
|
Equity issuance costs
|
(19,574
|
)
|
|
—
|
|
|
—
|
|
Common Shares repurchased
|
—
|
|
|
(65,509
|
)
|
|
—
|
|
Purchase of treasury stock
|
(8,198
|
)
|
|
(10,627
|
)
|
|
(10,126
|
)
|
Repurchase of non-controlling interest
|
(208
|
)
|
|
—
|
|
|
—
|
|
Payments of dividends to shareholders
|
(120,581
|
)
|
|
(99,262
|
)
|
|
(87,629
|
)
|
Net cash provided by financing activities
|
909,544
|
|
|
430,164
|
|
|
170,605
|
|
Foreign exchange gain (loss) on cash held in foreign currencies
|
1,767
|
|
|
(10,952
|
)
|
|
(23,132
|
)
|
Increase (decrease) in cash and cash equivalents during the period
|
(840,400
|
)
|
|
583,758
|
|
|
272,109
|
|
Cash and cash equivalents at beginning of the period
|
1,283,757
|
|
|
699,999
|
|
|
427,890
|
|
Cash and cash equivalents at end of the period
|
$
|
443,357
|
|
|
$
|
1,283,757
|
|
|
$
|
699,999
|
|
Supplemental cash flow disclosures (note 20)
See accompanying Notes to
Consolidated Financial Statements
OPEN TEXT CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
For the
Year Ended June 30, 2017
(Tabular amounts in thousands, except share and per share data)
NOTE 1—BASIS OF PRESENTATION
The accompanying
Consolidated Financial Statements
include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as "OpenText" or the "Company". We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa), GXS, Inc. (GXS Korea) and EC1 Pte. Ltd. (GXS Singapore), which as of
June 30, 2017
, were
70%
,
85%
and
81%
owned, respectively, by OpenText. All inter-company balances and transactions have been eliminated.
Previously, our ownership in OT South Africa was
90%
. During the fourth quarter of Fiscal 2017, we acquired all of the outstanding non-controlling interests in OT South Africa for
$0.2 million
in cash. Subsequently, we sold
30%
of our ownership in OT South Africa for
$0.6 million
to an unrelated party. The purchase consideration consisted of a non-interest bearing loan to be repaid to us over
10 years
.
These
Consolidated Financial Statements
are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented and includes the financial results of Recommind, Inc. (Recommind), with effect from July 20, 2016, certain customer communication management software and services assets and liabilities acquired from HP Inc. (CCM Business), with effect from July 31, 2016, and certain assets and liabilities of the enterprise content division of EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred to as
Dell-EMC
(ECD Business), with effect from January 23, 2017 (see note 18 "Acquisitions").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the
Consolidated Financial Statements
. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, significant estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) allowance for doubtful accounts, (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, (xi) the valuation of pension assets and obligations, and (xii) accounting for income taxes.
Share Split
As a result of the
two
-for-one share split, effected January 24, 2017 by way of a share sub-division, all current and historical period per share data and number of Common Shares outstanding in these accompanying Consolidated Financial Statements and the Notes to the Consolidated Financial Statements are presented on a post share split basis. See note 12 "Share Capital, Option Plans and Share-based Payments" for additional information about the share split.
NOTE 2—ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include balances with banks as well as deposits that have terms to maturity of three months or less. Cash equivalents are recorded at cost and typically consist of term deposits, commercial paper, certificates of deposit and short-term interest bearing investment-grade securities of major banks in the countries in which we operate.
Short-Term Investments
In accordance with Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 320 "Investments - Debt and Equity Securities" (Topic 320) related to accounting for certain investments in debt and equity securities, and based on our intentions regarding these instruments, we classify our marketable securities as available for sale and account for these investments at fair value. Marketable securities consist primarily of high quality debt securities with original maturities over 90 days, and may include corporate notes, United States government agency notes and municipal notes.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make payments. We evaluate the creditworthiness of our customers prior to order fulfillment and based on these evaluations, we 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, 2017
and
2016
.
Property and equipment
Property and equipment are stated at the lower of cost or net realizable value, and shown net of depreciation which is computed on a straight-line basis over the estimated useful lives of the related assets. Gains and losses on asset disposals are taken into income in the year of disposition. Fully depreciated property and equipment are retired from the consolidated balance sheet when they are no longer in use. We did not recognize any significant property and equipment impairment charges in Fiscal 2017, Fiscal 2016, or Fiscal 2015. The following represents the estimated useful lives of property and equipment:
|
|
|
Furniture and fixtures
|
5 years
|
Office equipment
|
5 years
|
Computer hardware
|
3 years
|
Computer software
|
3 years
|
Capitalized software
|
5 to 7 years
|
Leasehold improvements
|
Lesser of the lease term or 5 years
|
Building
|
40 years
|
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
5
to
7
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, 2017
and
2016
our capitalized software development costs were
$67.1 million
and
$53.5 million
, respectively. Our additions, relating to capitalized software development costs, incurred during Fiscal 2017 and Fiscal 2016 were
$12.8 million
and
$14.9 million
, respectively.
Acquired intangibles
Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions.
Acquired technology is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired on acquisitions. We amortize acquired technology over its estimated useful life on a straight-line basis.
Customer relationships represent relationships that we have with customers of the acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows. We amortize customer relationships on a straight-line basis over their estimated useful lives.
We continually evaluate the remaining estimated useful life of our intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Impairment of long-lived assets
We account for the impairment and disposition of long-lived assets in accordance with ASC Topic 360, “Property, Plant, and Equipment” (Topic 360). We test long-lived assets or asset groups, such as property and equipment and definite lived intangible assets, for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant adverse changes in the business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold or disposed of before the end of its estimated useful life.
Recoverability is assessed based on comparing the carrying amount of the asset to the aggregate pre-tax undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group. Impairment is recognized when the carrying amount is not recoverable and exceeds the fair value of the asset or asset group. The impairment loss, if any, is measured as the amount by which the carrying amount exceeds fair value, which for this purpose is based upon the discounted projected future cash flows of the asset or asset group.
We have
no
t recorded any significant impairment charges for long-lived assets during Fiscal 2017, Fiscal 2016 and Fiscal 2015.
Business combinations
We apply the provisions of ASC Topic 805, “Business Combinations” (Topic 805), in the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities, including contingent consideration where applicable, assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified. Furthermore, when valuing certain intangible assets that we have acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from software license sales, cloud SaaS, DaaS and PaaS contracts, support agreements, consulting agreements and other customer contracts (ii) the acquired company's technology and competitive position, as well as assumptions about the period of time that the acquired technology will continue to be used in the combined company's product portfolio, and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to our
Consolidated Statements of Income
.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain
sufficient information to assess whether we include these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts.
If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, we record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We often continue to gather information and evaluate our pre-acquisition contingencies throughout the measurement period and if we make changes to the amounts recorded or if we identify additional pre-acquisition contingencies during the measurement period, such amounts will be included in the purchase price allocation during the measurement period and, subsequently, in our results of operations.
Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We review these items during the measurement period as we continue to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.
Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single industry segment: the design, development, marketing and sales of Enterprise Information Management (EIM) software and solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit.
We perform a qualitative assessment to test our reporting unit's goodwill for impairment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the second step of the impairment test is performed. In the second step of the impairment test, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.
Our annual impairment analysis of goodwill was performed as of April 1, 2017. 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 2017 (
no
impairments were recorded for Fiscal 2016 and Fiscal 2015).
Derivative financial instruments
We use derivative financial instruments to manage foreign currency rate risk. We account for these instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (Topic 815), which requires that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value as of the reporting date. Topic 815 also requires that changes in our derivative financial instruments' fair values be recognized in earnings; unless specific hedge accounting and documentation criteria are met (i.e. the instruments are accounted for as hedges). We recorded the effective portions of the gain or loss on derivative financial instruments that were designated as cash flow hedges in "Accumulated other comprehensive income", net of tax, in our accompanying Consolidated Balance Sheets. Any ineffective or excluded portion of a designated cash flow hedge, if applicable, was recognized in our Consolidated Statements of Income.
Asset retirement obligations
We account for asset retirement obligations in accordance with ASC Topic 410, “Asset Retirement and Environmental Obligations” (Topic 410), which applies to certain obligations associated with “leasehold improvements” within our leased office facilities. Topic 410 requires that a liability be initially recognized for the estimated fair value of the obligation when it is incurred. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and depreciated over the remaining life of the underlying asset and the associated liability is accreted to the estimated fair value of the obligation at the settlement date through periodic accretion charges recorded within general and administrative expenses. When the obligation is settled, any difference between the final cost and the recorded amount is recognized as income or loss on settlement in our Consolidated Statements of Income.
Revenue recognition
License revenues
We recognize revenues in accordance with ASC Topic 985-605, “Software Revenue Recognition” (Topic 985-605).
We record product revenues from software licenses and products when persuasive evidence of an arrangement exists, the software product has been shipped, there are no significant uncertainties surrounding product acceptance by the customer, the fees are fixed and determinable, and collection is considered probable. We use the residual method to recognize revenues on delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the fair value of all undelivered elements exists. If an undelivered element for the arrangement exists under the license arrangement, revenues related to the undelivered element is deferred based on vendor-specific objective evidence (VSOE) of the fair value of the undelivered element.
Our multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support (PCS) are sold together. We have established VSOE of the fair value of the undelivered PCS element based on the contracted price for renewal PCS included in the original multiple element sales arrangement, as substantiated by contractual terms and our significant PCS renewal experience, from our existing worldwide base. Our multiple element sales arrangements generally include irrevocable rights for the customer to renew PCS after the bundled term ends. The customer is not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable to the bundled PCS and cover similar terms.
It is our experience that customers generally exercise their renewal PCS option. In the renewal transaction, PCS is sold on a stand-alone basis to the licensees one year or more after the original multiple element sales arrangement. The exercised renewal PCS price is consistent with the renewal price in the original multiple element sales arrangement, although an adjustment to reflect consumer price changes is common.
If VSOE of fair value does not exist for all undelivered elements, all revenues are deferred until sufficient evidence exists or revenue is recognized over the term of the last undelivered element.
We assess whether payment terms are customary or extended in accordance with normal practice relative to the market in which the sale is occurring. Our sales arrangements generally include standard payment terms. These terms effectively relate to all customers, products, and arrangements regardless of customer type, product mix or arrangement size. Exceptions are only made to these standard terms for certain sales in parts of the world where local practice differs. In these jurisdictions, our customary payment terms are in line with local practice.
Cloud services and subscriptions revenues
Cloud services and subscription revenues consist of (i) software as a service offerings (ii) managed service arrangements and (iii) subscription revenues relating to on premise offerings. The customer contracts for each of these three offerings are long term contracts (greater than twelve months) and are based on the customer’s usage over the contract period. The revenue associated with such contracts is recognized once usage has been measured, the fee is fixed and determinable and collection is probable.
In certain managed services arrangements, we sell transaction processing along with implementation and start-up services. Start-up services performed as part of the core implementation may include: infrastructure assessment and capacity planning, provisioning of infrastructure, customer connectivity and other initial setup activities. These sets of services do not have stand-alone value and, therefore, they do not qualify as separate units of accounting and are not separated. We believe these services do not have stand-alone value as the customer only receives value from these services in conjunction with the use of the related transaction processing service, we do not sell such services separately, and the output of such services cannot be re-sold by the customer. Revenues related to start-up services are recognized over the longer of the contract term or the estimated customer life. In some arrangements, we also sell distinct implementation and professional services that do have stand-alone value and can be separated from other elements in the arrangement. To the extent that they can be separately identified, the revenue related to these services is recognized as the service is performed, otherwise they are recognized in the same pattern as discussed above. In some arrangements, we also sell professional services as a separate single element arrangement. The revenue related to these services is recognized as the service is performed.
We defer all direct and relevant costs associated with non-distinct start-up and core implementation activities of long-term customer contracts to the extent such costs can be recovered through guaranteed contract revenues. All other costs related to distinct implementation and professional services arrangements are recognized as the services is performed and expensed as incurred.
Service revenues
Service revenues consist of revenues from consulting, implementation, training and integration services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary as a result of the inclusion or exclusion of these services. For those contracts where the services are not essential to the functionality of any other element of the transaction, we determine VSOE of fair value for these services based upon normal pricing and discounting practices for these services when sold separately. These consulting and implementation services contracts are primarily time and materials based contracts that are, on average, less than six months in length. Revenues from these services are recognized at the time such services are performed.
We also enter into contracts that are primarily fixed fee arrangements wherein the services are not essential to the functionality of a software element. In such cases, the proportional performance method is applied to recognize revenues.
Revenues from training and integration services are recognized in the period in which these services are performed.
Customer support revenues
Customer support revenues consist of revenues derived from contracts to provide PCS to license holders. These revenues are recognized ratably over the term of the contract. Advance billings of PCS are not recorded to the extent that the term of the PCS has not commenced and payment has not been received.
Deferred revenues
Deferred revenues primarily relate to cloud and customer support agreements which have been paid for by customers prior to the performance of those services. Generally, the services related to customer support agreements will be provided in the twelve months after the signing of the agreement. For cloud-related service agreements, deferred revenues are primarily recognized ratably over the performance or service period, which can vary from contract to contract. Deferred implementation revenue, specifically, is recognized over the longer of the estimated customer life or initial contract term, whichever is longer.
Long-term sales contracts
We may enter into certain long-term sales contracts involving the sale of integrated solutions that include the modification and customization of software and the provision of services that are essential to the functionality of the other elements in this arrangement. As prescribed by ASC Topic 985-605, we recognize revenues from such arrangements in accordance with the contract accounting guidelines in ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (Topic 605-35), after evaluating for separation of any non-Topic 605-35 elements in accordance with the provisions of ASC Topic 605-25, “Multiple-Element Arrangements” (Topic 605-25).
When circumstances exist that allow us to make reasonably dependable estimates of contract revenues, contract costs and the progress of the contract to completion, we account for sales under such long-term contracts using the percentage-of-completion (POC) method of accounting. Under the POC method, progress towards completion of the contract is measured based upon either input measures or output measures. We measure progress towards completion based upon an input measure and calculate this as the proportion of the actual hours incurred compared to the total estimated hours. For training and integration services rendered under such contracts, revenues are recognized as the services are rendered. We will review, on a quarterly basis, the total estimated remaining costs to completion for each of these contracts and apply the impact of any changes on the POC prospectively. If at any time we anticipate that the estimated remaining costs to completion will exceed the value of the contract, the resulting loss will be recognized immediately.
When circumstances exist that prevent us from making reasonably dependable estimates of contract revenues, we account for sales under such long-term contracts using the completed contract method.
Sales to resellers and channel partners
We execute certain sales contracts through resellers and distributors (collectively, resellers) and also large, well-capitalized partners such as SAP SE and Accenture Inc. (collectively, channel partners).
We recognize revenues relating to sales through resellers and channel partners when all the recognition criteria have been met, in other words, persuasive evidence of an arrangement exists, delivery has occurred in the reporting period, the fee is fixed and determinable, and collectability is probable. In addition, we assess the creditworthiness of each reseller and if the reseller is newly formed, undercapitalized or in financial difficulty any revenues expected to emanate from such resellers are deferred and recognized only when cash is received and all other revenue recognition criteria are met.
Rights of return and other incentives
We do not generally offer rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, do not provide for or make estimates of rights of return and similar incentives.
Research and development costs
Research and development costs internally incurred in creating computer software to be sold, licensed or otherwise marketed are expensed as incurred unless they meet the criteria for deferral and amortization, as described in ASC Topic 985-20, “Costs of Software to be Sold, Leased, or Marketed” (Topic 985-20). In accordance with Topic 985-20, costs related to research, design and development of products are charged to expense as incurred and capitalized between the dates that the product is considered to be technologically feasible and is considered to be ready for general release to customers. In our historical experience, the dates relating to the achievement of technological feasibility and general release of the product have substantially coincided. In addition, no significant costs are incurred subsequent to the establishment of technological feasibility. As a result, we do not capitalize any research and development costs relating to internally developed software to be sold, licensed or otherwise marketed.
Income taxes
We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (Topic 740). Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we consider factors such as the reversal of deferred income tax liabilities, projected taxable income, and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.
We account for our uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit. On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company's best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income (see note 14 "Income Taxes" for more details).
Fair value of financial instruments
Carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable (trade and accrued liabilities) approximate their fair value due to the relatively short period of time between origination of the instruments and their expected realization.
The fair value of our total long-term debt approximates its carrying value since the interest rate is at market.
We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures”, to our derivative financial instruments that we are required to carry at fair value pursuant to other accounting standards (see note 15 "Fair Value Measurement" for more details).
Foreign currency
Our Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the previous month of the transaction. The effect of foreign currency translation adjustments not affecting net income are included in Shareholders' equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”. Transactional foreign currency gains (losses) included in the Consolidated Statements of Income under the line item “Other income (expense), net” for Fiscal 2017, Fiscal 2016 and Fiscal 2015 were
$3.1 million
,
$(1.9) million
and
$(31.0) million
, respectively.
Restructuring charges
We record restructuring charges relating to contractual lease obligations and other exit costs in accordance with ASC Topic 420, “Exit or Disposal Cost Obligations” (Topic 420). Topic 420 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred. In order to incur a liability pursuant to Topic 420, our management must have established and approved a plan of restructuring in sufficient detail. A liability for a cost associated with involuntary termination benefits is recorded when benefits have been communicated and a liability for a cost to terminate an operating lease or other contract is incurred, when the contract has been terminated in accordance with the contract terms or we have ceased using the right conveyed by the contract, such as vacating a leased facility.
The recognition of restructuring charges requires us to make certain judgments regarding the nature, timing and amount associated with the planned restructuring activities, including estimating sub-lease income and the net recoverable amount of equipment to be disposed of. At the end of each reporting period, we evaluate the appropriateness of the remaining accrued balances (see note 17 "Special Charges (Recoveries)" for more details).
Loss Contingencies
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.
If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this filing on Form
10-K
for the year ended June 30, 2017, we do not believe that the outcomes of any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized (see note 13 "Guarantees and Contingencies" for more details).
Net income per share
Basic net income per share is computed using the weighted average number of Common Shares outstanding including contingently issuable shares where the contingency has been resolved. Diluted net income per share is computed using the weighted average number of Common Shares and stock equivalents outstanding using the treasury stock method during the year (see note 21 "Earnings Per Share" for more details).
Share-based payment
We measure share-based compensation costs, in accordance with ASC Topic 718, “Compensation - Stock Compensation” (Topic 718) on the grant date, based on the calculated fair value of the award. We have elected to treat awards with graded vesting as a single award when estimating fair value. Compensation cost is recognized on a straight-line basis over the employee requisite service period, which in our circumstances is the stated vesting period of the award, provided that total compensation cost recognized at least equals the pro rata value of the award that has vested. Compensation cost is initially based on the estimated number of options for which the requisite service is expected to be rendered. This estimate is adjusted in the period once actual forfeitures are known (see note 12 "Share Capital, Option Plans and Share-based Payments" for more details).
Accounting for Pensions, post-retirement and post-employment benefits
Pension expense is accounted for in accordance with ASC Topic 715, “Compensation-Retirement Benefits” (Topic 715). Pension expense consists of: actuarially computed costs of pension benefits in respect of the current year of service, imputed returns on plan assets (for funded plans) and imputed interest on pension obligations. The expected costs of post retirement benefits, other than pensions, are accrued in the Consolidated Financial Statements based upon actuarial methods and assumptions. The over-funded or under-funded status of defined benefit pension and other post retirement plans are recognized as an asset or a liability (with the offset to “Accumulated other comprehensive income”, net of tax, within “Shareholders' equity”), respectively, on the Consolidated Balance Sheets (see note 11 "Pension Plans and Other Post Retirement Benefits" for more details).
Recent Accounting Pronouncements
Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
In March 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-07, “Compensation-Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU 2017-07). This ASU requires entities to disaggregate the service cost component from the other components of net periodic benefit costs and present the service cost component in the same line item as where other current compensation costs for related employees are recorded in the income statement. ASU 2017-07 also requires that the other components of net periodic benefit costs be presented elsewhere in the income statement and outside of income from operations, if that subtotal is presented. Currently we record our net periodic pension costs, including service cost, as a component of compensation expense all within income from operations. ASU 2017-07 is effective for us in our first quarter of our fiscal year ending June 30, 2019, on a retroactive basis, with early adoption permitted. We are currently evaluating the impact of ASU 2017-07 on our Consolidated Financial Statements. We have not early adopted ASU 2017-01 as yet.
Definition of a Business
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the definition of a Business" (ASU 2017-01), which amends the current definition of a business. Under ASU 2017-01, to be considered a business, an acquisition would have to include an input and a substantive process that together significantly contributes to the ability to create outputs. ASU 2017-01 further states that when substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. The new guidance also narrows the definition of the term “outputs” to be consistent with how it is described in ASU No. 2014-09, "Revenue from Contracts with Customers" (Topic 606). The changes to the definition of a business will likely result in more acquisitions being accounted for as asset acquisitions. ASU 2017-01 is effective for us for acquisitions commencing on or after the first quarter of our fiscal year ending June 30, 2019, with early adoption permitted. Adoption of this guidance will be applied prospectively on or after the effective date. We have not early adopted ASU 2017-01 as yet.
Share-based Compensation
In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718)" (ASU 2016-09). This standard makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. ASU 2016-09 also clarifies the presentation within the statement of cash flows for certain components of share-based awards. The standard is effective for us during the first quarter of our fiscal year ending June 30, 2018, with early adoption permitted. We currently believe the most significant impact of this ASU on our consolidated financial statements relates to the treatment of excess tax deficiencies or benefits as a component of income tax expense or (recovery). Under current U.S. GAAP, such amounts are recorded either as an offset to accumulated excess tax benefits or recognized in additional paid in capital. Under the ASU these amounts will directly impact our provision for income taxes. Although historically, over the past three fiscal years, our excess tax benefits on share-based compensation has not been material and we don’t anticipate that our provision for income taxes will be materially impacted by the pending adoption of ASU 2016-09, we note that the amount of excess tax benefits or deficiencies recorded are in part based on the movement of our share price over time as well as on the timing of when employees exercise their share-based compensation awards, both of which are out of the Company’s control and vary from period to period. We have not early adopted ASU 2016-09 as yet.
Leases
In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)” (ASU 2016-02), which supersedes the guidance in former ASC Topic 840 “Leases”. The most significant change will result in the recognition of lease assets for the right to use the underlying asset and lease liabilities for the obligation to make lease payments by lessees, for those leases classified as operating leases under current guidance. The new guidance will also require significant additional disclosures about the amount, timing and uncertainty of cash flows related to leases. This standard is effective for us for our fiscal year ending June 30, 2020, with early adoption permitted. Upon adoption of ASU 2016-02, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We have formed a sub-committee consisting of internal members from various departments to assess the effect that the pending adoption of ASU 2016-02 will have on our Consolidated Balance Sheets. Although the sub-committee has not completed their assessment, we expect the majority of the impact to come from our facility leases, and that most of our operating lease commitments will be recognized as right of use assets and operating lease liabilities, which will increase our total assets and total liabilities, as reported on our Consolidated
Balance Sheets, relative to such amounts prior to adoption. The sub-committee continues to evaluate the impact of the new standard on our consolidated financial statements.
Revenue Recognition
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively, (collectively referred to as Topic 606). These updates supersede the revenue recognition requirements in ASC Topic 605, "Revenue Recognition" and nearly all other existing revenue recognition guidance under U.S. GAAP. The core principal of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services and permits the use of the retrospective or cumulative effect transition method. Topic 606 identifies five steps to be followed to achieve its core principal, which include (i) identifying contract(s) with customers, (ii) identifying performance obligations in the contract(s), (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract(s) and (v) recognizing revenue when (or as) the entity satisfies a performance obligation.
We anticipate that we will adopt Topic 606 using the cumulative effect approach when this guidance becomes effective for us, starting in the first quarter of our fiscal year ending June 30, 2019. We are currently evaluating the effect that the pending adoption of Topic 606 will have on our Consolidated Financial Statements and related disclosures.
We have established a project team with the primary objective of evaluating the effect that Topic 606 will have on our business processes, systems and controls in order to support the requirements of the new standard and have developed a training approach for relevant stakeholders.
We have utilized a bottoms-up approach to determine the impact of the new standard on our contracts and have completed our review of current accounting policies and practices as compared to the new standard. This has resulted in the identification of differences that will result from applying the requirements of Topic 606 to our revenue contracts that will be open at the time of the transition. While we are continuing to assess all potential impacts of Topic 606, we currently believe the most significant impacts will relate to our accounting for implementation services on cloud arrangements and accounting for on premise subscription offerings.
Under current U.S. GAAP, fees charged for professional services to implement hosted software within a cloud arrangement are deferred and amortized over the estimated customer life because the activities are not deemed to be a separate element for which stand-alone value exists. The requirements for the identification of distinct performance obligations within a contract have changed under the new revenue recognition standard. Under this new standard we will be required to recognize certain implementation services that meet the criteria of being distinct as a separate performance obligation from the on-going cloud arrangement with corresponding revenues recognized as the services are provided to the customer. Costs relating to these implementation services will be expensed as they are incurred.
Under current U.S. GAAP, revenue attributable to subscription services related to on premise offerings is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of the delivered software licenses is eliminated under the new revenue recognition standard. Accordingly, under this new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the initial software at the outset of the arrangement. This difference will result in allocating a transaction price to the software component of a subscription offering and thus an earlier recognition of that transaction price.
We are still in the process of quantifying the impacts of Topic 606; however, we have determined a methodology that we will use in an effort to achieve this objective and to better estimate Standalone Selling Price (SSP) for each of the performance obligations that have been identified. It is important to note however, that certain contracts are complex, and actual determination of revenue recognition under both existing and new guidance is dependent on contract-specific terms, which can cause variability in the timing and quantum of revenue recognized. We will continue to assess all of the impacts that the application of Topic 606 will have on our Consolidated Financial Statements and, if material, will provide updated disclosures with regard to the expected impact.
ASUs adopted in Fiscal 2017:
During Fiscal 2017 we early adopted the following ASUs, none of which had a material impact to our reported financial position, results of operations or cash flows:
|
|
•
|
ASU 2016-07 "Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to Equity Method of Accounting"
|
|
|
•
|
ASU 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"
|
|
|
•
|
ASU 2017-09 "Stock Compensation (Topic 718): Scope of Modification Accounting"
|
NOTE 3—ALLOWANCE FOR DOUBTFUL ACCOUNTS
|
|
|
|
|
Balance as of June 30, 2014
|
$
|
4,727
|
|
Bad debt expense
|
5,346
|
|
Write-off /adjustments
|
(4,086
|
)
|
Balance as of June 30, 2015
|
5,987
|
|
Bad debt expense
|
5,908
|
|
Write-off /adjustments
|
(5,155
|
)
|
Balance as of June 30, 2016
|
6,740
|
|
Bad debt expense
|
5,929
|
|
Write-off /adjustments
|
(6,350
|
)
|
Balance as of June 30, 2017
|
$
|
6,319
|
|
Included in accounts receivable are unbilled receivables in the amount of
$46.2 million
as of
June 30, 2017
(
June 30, 2016
—
$35.6 million
).
NOTE 4—PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net
|
Furniture and fixtures
|
$
|
23,026
|
|
|
$
|
(14,879
|
)
|
|
$
|
8,147
|
|
Office equipment
|
1,245
|
|
|
(597
|
)
|
|
648
|
|
Computer hardware
|
164,268
|
|
|
(104,572
|
)
|
|
59,696
|
|
Computer software
|
72,835
|
|
|
(33,862
|
)
|
|
38,973
|
|
Capitalized software development costs
|
67,092
|
|
|
(28,430
|
)
|
|
38,662
|
|
Leasehold improvements
|
81,564
|
|
|
(38,642
|
)
|
|
42,922
|
|
Land and buildings
|
48,431
|
|
|
(10,061
|
)
|
|
38,370
|
|
Total
|
$
|
458,461
|
|
|
$
|
(231,043
|
)
|
|
$
|
227,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Net
|
Furniture and fixtures
|
$
|
20,462
|
|
|
$
|
(12,505
|
)
|
|
$
|
7,957
|
|
Office equipment
|
823
|
|
|
(226
|
)
|
|
597
|
|
Computer hardware
|
134,688
|
|
|
(89,351
|
)
|
|
45,337
|
|
Computer software
|
51,991
|
|
|
(25,134
|
)
|
|
26,857
|
|
Capitalized software development costs
|
53,540
|
|
|
(16,830
|
)
|
|
36,710
|
|
Leasehold improvements
|
57,061
|
|
|
(30,743
|
)
|
|
26,318
|
|
Land and buildings
|
48,529
|
|
|
(8,645
|
)
|
|
39,884
|
|
Total
|
$
|
367,094
|
|
|
$
|
(183,434
|
)
|
|
$
|
183,660
|
|
NOTE 5—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, 2015:
|
|
|
|
|
Balance as of June 30, 2015
|
$
|
2,161,592
|
|
Acquisition of Daegis (note 18)
|
8,045
|
|
Acquisition of CEM Business (note 18)
|
90,712
|
|
Acquisition of ANX (note 18)
|
65,237
|
|
Balance as of June 30, 2016
|
2,325,586
|
|
Acquisition of Recommind (note 18)
|
91,405
|
|
Acquisition of CCM Business (note 18)
|
173,198
|
|
Acquisition of ECD Business (note 18)
|
825,142
|
|
Adjustments relating to acquisitions prior to Fiscal 2017 (note 18)
|
(3,334
|
)
|
Adjustments on account of foreign exchange
|
4,752
|
|
Balance as of June 30, 2017
|
$
|
3,416,749
|
|
NOTE 6—ACQUIRED INTANGIBLE ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Technology assets
|
$
|
930,841
|
|
|
$
|
(272,872
|
)
|
|
$
|
657,969
|
|
Customer assets
|
1,230,806
|
|
|
(416,233
|
)
|
|
814,573
|
|
Total
|
$
|
2,161,647
|
|
|
$
|
(689,105
|
)
|
|
$
|
1,472,542
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Cost
|
|
Accumulated Amortization
|
|
Net
|
Technology assets
|
$
|
359,573
|
|
|
$
|
(155,848
|
)
|
|
$
|
203,725
|
|
Customer assets
|
790,506
|
|
|
(347,991
|
)
|
|
442,515
|
|
Total
|
$
|
1,150,079
|
|
|
$
|
(503,839
|
)
|
|
$
|
646,240
|
|
The above balances as of June 30, 2017 have been reduced to reflect the impact of intangible assets relating to acquisitions where the gross cost has become fully amortized during the year ended June 30, 2017. The impact of this resulted in a reduction of
$13.5 million
related to Technology assets and
$82.6 million
related to Customer assets.
The weighted average amortization periods for acquired technology and customer intangible assets are approximately
six
years and
eight
years, respectively.
The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation assumes no future adjustments to acquired intangible assets:
|
|
|
|
|
|
Fiscal years ending
June 30,
|
2018
|
$
|
338,332
|
|
2019
|
310,933
|
|
2020
|
239,419
|
|
2021
|
165,212
|
|
2022
|
158,722
|
|
2023 and beyond
|
259,924
|
|
Total
|
$
|
1,472,542
|
|
NOTE 7—OTHER ASSETS
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Deposits and restricted cash
|
$
|
15,821
|
|
|
$
|
10,715
|
|
Deferred implementation costs
|
28,833
|
|
|
18,116
|
|
Investments
|
27,886
|
|
|
18,062
|
|
Marketable securities
|
3,023
|
|
|
—
|
|
Long-term prepaid expenses and other long-term assets
|
18,200
|
|
|
6,804
|
|
Total
|
$
|
93,763
|
|
|
$
|
53,697
|
|
Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease agreements and cash restricted per the terms of certain contractual-based agreements.
Deferred implementation costs relate to deferred direct and relevant costs on implementation of long-term contracts, to the extent such costs can be recovered through guaranteed contract revenues.
Investments relate to certain non-marketable equity securities in which we are a limited partner. Our interest, individually, in each of these investees range from
4%
to below
20%
. These investments are accounted for using the equity method. Our share of net income or losses based on our interest in these investments is recorded as a component of other income (expense), net in our Consolidated Statements of Income. During the
year ended
June 30, 2017
, our share of income from these investments was
$6.0 million
(
year ended
June 30, 2016
and 2015—
nil
, respectively).
Marketable securities are classified as available for sale securities and are recorded on our Consolidated Balance Sheets at fair value with unrealized gains and losses reported as a separate component of Accumulated Other Comprehensive Income.
Long-term prepaid expenses and other long-term assets primarily relate to advance payments on long-term licenses that are being amortized over the applicable terms of the licenses.
NOTE 8—DEFERRED CHARGES AND CREDITS
Deferred charges and credits relate to cash taxes payable and the elimination of deferred tax balances relating to legal entity consolidations completed as part of internal reorganizations of our international subsidiaries. Deferred charges and credits are amortized to income tax expense over periods of
6
to
15
years.
NOTE 9—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Current liabilities
Accounts payable and accrued liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Accounts payable—trade
|
$
|
43,699
|
|
|
$
|
35,804
|
|
Accrued salaries and commissions
|
121,958
|
|
|
77,813
|
|
Accrued liabilities
|
135,512
|
|
|
113,272
|
|
Accrued interest on Senior Notes
|
24,787
|
|
|
23,562
|
|
Amounts payable in respect of restructuring and other Special charges
|
13,728
|
|
|
5,109
|
|
Asset retirement obligations
|
2,436
|
|
|
1,890
|
|
Total
|
$
|
342,120
|
|
|
$
|
257,450
|
|
Long-term accrued liabilities
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Amounts payable in respect of restructuring and other Special charges
|
$
|
2,686
|
|
|
$
|
3,986
|
|
Other accrued liabilities*
|
36,702
|
|
|
19,138
|
|
Asset retirement obligations
|
10,950
|
|
|
6,724
|
|
Total
|
$
|
50,338
|
|
|
$
|
29,848
|
|
* Other accrued liabilities consist primarily of tenant allowances, deferred rent and lease fair value adjustments relating to certain facilities acquired through business acquisitions.
Asset retirement obligations
We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of
June 30, 2017
, the present value of this obligation was
$13.4 million
(
June 30, 2016
—
$8.6 million
), with an undiscounted value of
$15.0 million
(
June 30, 2016
—
$9.2 million
).
NOTE 10—LONG-TERM DEBT
Long-term debt
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Total debt
|
|
|
|
Senior Notes 2026
|
$
|
850,000
|
|
|
$
|
600,000
|
|
Senior Notes 2023
|
800,000
|
|
|
800,000
|
|
Term Loan B
|
772,120
|
|
|
780,000
|
|
Revolver
|
175,000
|
|
|
—
|
|
Total principal payments due
|
2,597,120
|
|
|
2,180,000
|
|
|
|
|
|
Premium on Senior Notes 2026
|
6,597
|
|
|
—
|
|
Debt issuance costs
|
(33,900
|
)
|
|
(34,013
|
)
|
Total amount outstanding
|
2,569,817
|
|
|
2,145,987
|
|
|
|
|
|
Less:
|
|
|
|
Current portion of long-term debt
|
|
|
|
Term Loan B
|
7,760
|
|
|
8,000
|
|
Revolver
|
175,000
|
|
|
—
|
|
Total current portion of long-term debt
|
182,760
|
|
|
8,000
|
|
|
|
|
|
Non-current portion of long-term debt
|
$
|
2,387,057
|
|
|
$
|
2,137,987
|
|
Senior Unsecured Fixed Rate Notes
Senior Notes 2026
On May 31, 2016, we issued
$600 million
in aggregate principal amount of
5.875%
Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of
5.875%
per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.
On December 20, 2016, we issued an additional
$250 million
in aggregate principal amount by reopening 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, 2017
, we recorded interest expense of
$43.1 million
, relating to Senior Notes 2026 (
year ended
June 30, 2016
and
June 30, 2015
—
$2.9 million
, and
nil
, respectively).
Senior Notes 2023
On January 15, 2015, we issued
$800 million
in aggregate principal amount of
5.625%
Senior Notes due 2023 (Senior Notes 2023 and together with Senior Notes 2026, Senior Notes) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bear interest at a rate of
5.625%
per annum, payable semi-annually in arrears on January
15 and July 15, commencing on July 15, 2015. Senior Notes 2023 will mature on January 15, 2023, unless earlier redeemed, in accordance with their terms, or repurchased.
For the
year ended
June 30, 2017
, we recorded interest expense of
$45.0 million
, relating to Senior Notes 2023 (year ended
June 30, 2016
and
June 30, 2015
—
$45.0 million
and
$20.6 million
, respectively).
Term Loan B
We entered into a
$800 million
term loan facility (Term Loan B) and borrowed the full amount on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (defined below).
Term Loan B has a
seven
year term and repayments made under Term Loan B are equal to
0.25%
of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Originally, borrowings under Term Loan B were subject to a floating rate of interest at a rate per annum equal to
2.5%
plus the higher of LIBOR or
0.75%
. However, on February 22, 2017, we entered into an amendment of Term Loan B to, among other things, reduce the interest rate margin applicable to the Term Loan B loans that are LIBOR advances from
2.5%
to
2.0%
and reduced the LIBOR floor from
0.75%
to
0.00%
. Thus, interest on the current outstanding balance for Term Loan B is equal to
2.0%
plus LIBOR.
For the
year ended
June 30, 2017
, we recorded interest expense of
$24.8 million
, relating to Term Loan B (
year ended
June 30, 2016
and
June 30, 2015
—
$25.9 million
and
$26.1 million
, respectively).
Revolver
On February 1, 2017, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from
$300 million
to
$450 million
. Additionally, on May 5, 2017, we amended the Revolver to, among other things, (i) extend the maturity from December 22, 2019 to May 5, 2022, and (ii) reduce the interest rate margins by
50 basis points
. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, and on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from
1.25%
to
1.75%
. As of
June 30, 2017
, the outstanding balance on the Revolver bears an interest rate of approximately
2.74%
.
During the
year ended
June 30, 2017
, we drew down
$225 million
from the Revolver, partially to finance the acquisition of ECD Business and for miscellaneous general corporate purposes. During the
year ended
June 30, 2017
, we repaid
$50 million
. As of
June 30, 2017
we have an outstanding balance on the Revolver of
$175 million
(
June 30, 2016
—
nil
).
For the
year ended
June 30, 2017
, we recorded interest expense of
$2.6 million
, relating to amounts drawn on the Revolver (year ended
June 30, 2016
and
June 30, 2015
—
nil
, respectively).
Debt Issuance Costs and Premium on Senior Notes
Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our Senior Notes and are being amortized over the respective terms of the Senior Notes, Term Loan B and the Revolver, using the effective interest method.
For the year ended
June 30, 2017
, in connection with the recent reopening of Senior Notes 2026, we incurred debt issuance costs of approximately
$3.7 million
, which have been substantially paid as of
June 30, 2017
.
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 credit to interest expense over the term of Senior Notes 2026 using the effective interest method.
For the year ended
June 30, 2017
, in connection with the recent amendment of Term Loan B, we incurred debt issuance costs of approximately
$0.8 million
, which have substantially been paid as of
June 30, 2017
. Furthermore, during the
year ended
June 30, 2017
, we wrote off
$0.8 million
, of unamortized debt issuance costs relating to the portion of Term Loan B that was not recommitted by certain lenders under the new terms and was therefore considered extinguished. This amount has been written off to "Interest and other related expense, net" on the
Consolidated Statements of Income
.
For the year ended
June 30, 2017
, in connection with recent amendments made to the Revolver in February and May of 2017, we incurred total debt issuance costs of approximately
$1.5 million
, which have been substantially paid as of
June 30, 2017
.
NOTE 11—PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
The following table provides details of our defined benefit pension plans and long-term employee benefit obligations for Open Text Document Technologies GmbH (CDT), GXS GmbH (
GXS GER
) and GXS Philippines, Inc. (
GXS PHP
) as of
June 30, 2017
and
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
Total benefit
obligation
|
|
Current portion of
benefit obligation*
|
|
Non-current portion of
benefit obligation
|
CDT defined benefit plan
|
$
|
28,881
|
|
|
$
|
583
|
|
|
$
|
28,298
|
|
GXS Germany defined benefit plan
|
23,730
|
|
|
926
|
|
|
22,804
|
|
GXS Philippines defined benefit plan
|
4,495
|
|
|
81
|
|
|
4,414
|
|
Other plans
|
3,256
|
|
|
145
|
|
|
3,111
|
|
Total
|
$
|
60,362
|
|
|
$
|
1,735
|
|
|
$
|
58,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2016
|
|
Total benefit
obligation
|
|
Current portion of
benefit obligation*
|
|
Non-current portion of
benefit obligation
|
CDT defined benefit plan
|
$
|
29,450
|
|
|
$
|
589
|
|
|
$
|
28,861
|
|
GXS Germany defined benefit plan
|
24,729
|
|
|
772
|
|
|
23,957
|
|
GXS Philippines defined benefit plan
|
7,341
|
|
|
30
|
|
|
7,311
|
|
Other plans
|
3,330
|
|
|
1,466
|
|
|
1,864
|
|
Total
|
$
|
64,850
|
|
|
$
|
2,857
|
|
|
$
|
61,993
|
|
*The current portion of the benefit obligation has been included within "Accrued salaries and commissions", all within "Accounts payable and accrued liabilities" in the
Consolidated Balance Sheets
(see note 9 "Accounts Payable and Accrued Liabilities").
Defined Benefit Plans
CDT Plan
CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT pension plan) which provides for old age, disability and survivors’ benefits. Benefits under the CDT pension plan are generally based on age at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs.
No
contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan's active employees. As of
June 30, 2017
, there is approximately
$0.5 million
in accumulated other comprehensive income related to the CDT pension plan that is expected to be recognized as a component of net periodic benefit costs over the next fiscal year.
GXS Germany 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, 2017
, there is approximately
$0.1 million
in accumulated other comprehensive income related to the GXS GER plan that is expected to be recognized as a component of net periodic benefit costs over the next fiscal year.
GXS Philippines Plan
As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits
under the
GXS PHP plan
are generally based on a participant’s remuneration, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution which has a fair value of approximately
$33.3 thousand
as of
June 30, 2017
,
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, 2017
, there is approximately
$0.2 million
in accumulated other comprehensive income related to the
GXS PHP plan
that is expected to be recognized as a component of net periodic benefit costs over the next fiscal year.
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, 2017
|
|
As of June 30, 2016
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
Total
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
Total
|
Benefit obligation—beginning of period
|
$
|
29,450
|
|
|
$
|
24,729
|
|
|
$
|
7,341
|
|
|
$
|
61,520
|
|
|
$
|
26,091
|
|
|
$
|
22,420
|
|
|
$
|
7,025
|
|
|
$
|
55,536
|
|
Service cost
|
467
|
|
|
395
|
|
|
1,051
|
|
|
1,913
|
|
|
422
|
|
|
359
|
|
|
1,628
|
|
|
2,409
|
|
Interest cost
|
456
|
|
|
377
|
|
|
226
|
|
|
1,059
|
|
|
610
|
|
|
543
|
|
|
314
|
|
|
1,467
|
|
Benefits paid
|
(469
|
)
|
|
(807
|
)
|
|
(53
|
)
|
|
(1,329
|
)
|
|
(534
|
)
|
|
(770
|
)
|
|
(190
|
)
|
|
(1,494
|
)
|
Actuarial (gain) loss
|
(1,708
|
)
|
|
(1,548
|
)
|
|
(3,728
|
)
|
|
(6,984
|
)
|
|
3,299
|
|
|
2,564
|
|
|
(1,145
|
)
|
|
4,718
|
|
Foreign exchange (gain) loss
|
685
|
|
|
584
|
|
|
(342
|
)
|
|
927
|
|
|
(438
|
)
|
|
(387
|
)
|
|
(291
|
)
|
|
(1,116
|
)
|
Benefit obligation—end of period
|
28,881
|
|
|
23,730
|
|
|
4,495
|
|
|
57,106
|
|
|
29,450
|
|
|
24,729
|
|
|
7,341
|
|
|
61,520
|
|
Less: Current portion
|
(583
|
)
|
|
(926
|
)
|
|
(81
|
)
|
|
(1,590
|
)
|
|
(589
|
)
|
|
(772
|
)
|
|
(30
|
)
|
|
(1,391
|
)
|
Non-current portion of benefit obligation
|
$
|
28,298
|
|
|
$
|
22,804
|
|
|
$
|
4,414
|
|
|
$
|
55,516
|
|
|
$
|
28,861
|
|
|
$
|
23,957
|
|
|
$
|
7,311
|
|
|
$
|
60,129
|
|
The following are details of net pension expense relating to the following pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
|
2017
|
|
2016
|
|
2015
|
Pension expense:
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
Total
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
Total
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
Total
|
Service cost
|
|
$
|
467
|
|
|
$
|
395
|
|
|
$
|
1,051
|
|
|
$
|
1,913
|
|
|
$
|
422
|
|
|
$
|
359
|
|
|
$
|
1,628
|
|
|
$
|
2,409
|
|
|
$
|
452
|
|
|
$
|
360
|
|
|
$
|
1,518
|
|
|
$
|
2,330
|
|
Interest cost
|
|
456
|
|
|
377
|
|
|
226
|
|
|
1,059
|
|
|
610
|
|
|
543
|
|
|
314
|
|
|
1,467
|
|
|
735
|
|
|
625
|
|
|
289
|
|
|
$
|
1,649
|
|
Amortization of actuarial (gains) and losses
|
|
627
|
|
|
168
|
|
|
(48
|
)
|
|
747
|
|
|
425
|
|
|
23
|
|
|
—
|
|
|
448
|
|
|
403
|
|
|
—
|
|
|
—
|
|
|
$
|
403
|
|
Net pension expense
|
|
$
|
1,550
|
|
|
$
|
940
|
|
|
$
|
1,229
|
|
|
$
|
3,719
|
|
|
$
|
1,457
|
|
|
$
|
925
|
|
|
$
|
1,942
|
|
|
$
|
4,324
|
|
|
$
|
1,590
|
|
|
$
|
985
|
|
|
$
|
1,807
|
|
|
$
|
4,382
|
|
In determining the fair value of the pension plan benefit obligations as of
June 30, 2017
and
June 30, 2016
, respectively, we used the following weighted-average key assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
Salary increases
|
2.00%
|
|
2.00%
|
|
6.20%
|
|
2.00%
|
|
2.00%
|
|
6.20%
|
Pension increases
|
1.75%
|
|
2.00%
|
|
N/A
|
|
1.75%
|
|
2.00%
|
|
N/A
|
Discount rate
|
2.00%
|
|
2.00%
|
|
5.00%
|
|
1.56%
|
|
1.56%
|
|
4.25%
|
Normal retirement age
|
65
|
|
65-67
|
|
60
|
|
65
|
|
65-67
|
|
60
|
Employee fluctuation rate:
|
|
|
|
|
|
|
|
|
|
|
|
to age 20
|
—%
|
|
-
|
|
12.19%
|
|
—%
|
|
-
|
|
7.90%
|
to age 25
|
—%
|
|
-
|
|
16.58%
|
|
—%
|
|
-
|
|
5.70%
|
to age 30
|
1.00%
|
|
-
|
|
13.97%
|
|
1.00%
|
|
-
|
|
4.10%
|
to age 35
|
0.50%
|
|
-
|
|
10.77%
|
|
0.50%
|
|
-
|
|
2.90%
|
to age 40
|
—%
|
|
-
|
|
7.39%
|
|
—%
|
|
-
|
|
1.90%
|
to age 45
|
0.50%
|
|
-
|
|
3.28%
|
|
0.50%
|
|
-
|
|
1.40%
|
to age 50
|
0.50%
|
|
-
|
|
—%
|
|
0.50%
|
|
-
|
|
—%
|
from age 51
|
1.00%
|
|
-
|
|
—%
|
|
1.00%
|
|
-
|
|
—%
|
Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ending June 30,
|
|
CDT
|
|
GXS GER
|
|
GXS PHP
|
2018
|
$
|
583
|
|
|
$
|
926
|
|
|
$
|
81
|
|
2019
|
645
|
|
|
953
|
|
|
150
|
|
2020
|
695
|
|
|
960
|
|
|
116
|
|
2021
|
785
|
|
|
1,001
|
|
|
157
|
|
2022
|
864
|
|
|
1,011
|
|
|
354
|
|
2023 to 2027
|
5,405
|
|
|
5,390
|
|
|
1,645
|
|
Total
|
$
|
8,977
|
|
|
$
|
10,241
|
|
|
$
|
2,503
|
|
Other Plans
Other plans include defined benefit pension plans that are offered by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs.
NOTE 12—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS
Share Split
On December 21, 2016, we announced that our board of directors (the Board) approved a
two
-for-one share split of our outstanding Common Shares. The
two
-for-one share split was implemented by way of a share sub-division whereby shareholders of record on the record date received
one
additional Common Share for each Common Share held. The record date for the share split was January 9, 2017 and the distribution date was January 24, 2017. In connection with the share split, the Company’s articles were amended on December 22, 2016 to change the number of Common Shares, whether issued or unissued, on a
two
-for-one basis, such that each Common Share became
two
Common Shares.
As a result of the
two
-for-one share split, all current and historical period per share data, number of Common Shares outstanding and share-based compensation awards are presented on a post share split basis.
Cash Dividends
For the
year ended
June 30, 2017
, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of
$0.4770
, per Common Share in the aggregate amount of
$120.6 million
, which we paid during the same period.
For the
year ended
June 30, 2016
, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of
$0.4150
, per Common Share in the aggregate amount of
$99.3 million
.
For the
year ended
June 30, 2015
, pursuant to the Company's dividend policy, we paid total non-cumulative dividends of
$0.3588
, per Common Share in the aggregate amount of
$87.6 million
.
Share Capital
Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares.
No
Preference Shares have been issued.
Treasury Stock
Repurchase
During the
year ended
June 30, 2017
, we repurchased
244,240
Common Shares, in the amount of
$8.2 million
, for potential reissuance under our Long Term Incentive Plans (LTIP) or other plans. (
June 30, 2016
—repurchased
450,000
Common Shares for
$10.6 million
;
June 30, 2015
—repurchased
480,444
Common Shares for
$10.6 million
). See below for more details on our various plans.
Reissuance
During the
year ended
June 30, 2017
, we reissued
409,922
Common Shares, from treasury stock (
June 30, 2016
—
434,156
Common Shares;
June 30, 2015
—
755,550
Common Shares), in connection with the settlement of our LTIP and other awards.
Share Repurchase Plan
On July 26, 2016, the Board authorized the repurchase of up to
$200 million
of Common Shares pursuant to a normal course issuer bid (Share Repurchase Plan). Shares may be repurchased from time to time in the open market, private purchases through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise.
During the
year ended
June 30, 2017
, we did
no
t repurchase any of our Common Shares under the Share Repurchase Plan. (
June 30, 2016
—
2,952,496
Common Shares;
June 30, 2015
—
nil
under our previous share repurchase plan).
Option Plans
A summary of stock options outstanding under our various stock option plans 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.
|
|
|
|
2004 Stock Option Plan
|
Date of inception
|
Oct-04
|
Eligibility
|
Eligible employees and directors, as determined by the Board of Directors
|
Options granted to date
|
29,205,738
|
Options exercised to date
|
(13,321,448)
|
Options cancelled to date
|
(6,906,460)
|
Options outstanding
|
8,977,830
|
Termination grace periods
|
Immediately “for cause”; 90 days for any other reason; 180 days due to death
|
Vesting schedule
|
25% per year, unless otherwise specified
|
Exercise price range
|
$11.68 - $33.49
|
Expiration dates
|
8/12/2018 to 6/1/2024
|
The following table summarizes information regarding stock options outstanding at
June 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise
Prices
|
|
Number of options
Outstanding as of
June 30, 2017
|
Weighted
Average
Remaining
Contractual
Life (years)
|
Weighted
Average
Exercise
Price
|
|
Number of options
Exercisable as of
June 30, 2017
|
Weighted
Average
Exercise
Price
|
$
|
11.68
|
|
-
|
$
|
14.82
|
|
|
650,198
|
|
1.97
|
$
|
13.08
|
|
|
650,198
|
|
$
|
13.08
|
|
15.09
|
|
-
|
15.10
|
|
|
1,330,246
|
|
1.60
|
15.09
|
|
|
1,330,246
|
|
15.09
|
|
15.88
|
|
-
|
22.87
|
|
|
916,774
|
|
4.48
|
20.96
|
|
|
309,776
|
|
18.72
|
|
23.51
|
|
-
|
24.52
|
|
|
128,000
|
|
4.43
|
24.18
|
|
|
58,750
|
|
24.48
|
|
25.04
|
|
-
|
25.05
|
|
|
1,239,500
|
|
3.54
|
25.04
|
|
|
829,500
|
|
25.04
|
|
25.58
|
|
-
|
27.56
|
|
|
1,641,640
|
|
4.57
|
26.92
|
|
|
191,100
|
|
26.57
|
|
27.83
|
|
-
|
28.65
|
|
|
915,908
|
|
4.70
|
28.17
|
|
|
366,610
|
|
28.23
|
|
29.75
|
|
-
|
30.37
|
|
|
813,564
|
|
6.12
|
29.83
|
|
|
—
|
|
—
|
|
32.63
|
|
-
|
32.86
|
|
|
702,500
|
|
6.91
|
32.66
|
|
|
—
|
|
—
|
|
33.48
|
|
-
|
33.49
|
|
|
639,500
|
|
6.66
|
33.48
|
|
|
—
|
|
—
|
|
$
|
11.68
|
|
-
|
$
|
33.49
|
|
|
8,977,830
|
|
4.27
|
$
|
24.57
|
|
|
3,736,180
|
|
$
|
19.27
|
|
Share-Based Payments
Total share-based compensation expense for the periods indicated below is detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Stock options
|
$
|
12,196
|
|
|
$
|
13,202
|
|
|
$
|
12,193
|
|
Performance Share Units (issued under LTIP)
|
3,624
|
|
|
2,688
|
|
|
2,287
|
|
Restricted Share Units (issued under LTIP)
|
6,452
|
|
|
5,086
|
|
|
4,574
|
|
Restricted Share Units (other)
|
2,804
|
|
|
1,573
|
|
|
955
|
|
Deferred Share Units (directors)
|
2,849
|
|
|
2,764
|
|
|
2,038
|
|
Employee Share Purchase Plan
|
2,582
|
|
|
665
|
|
|
—
|
|
Total share-based compensation expense
|
$
|
30,507
|
|
|
$
|
25,978
|
|
|
$
|
22,047
|
|
Summary of Outstanding Stock Options
As of
June 30, 2017
, an aggregate of
8,977,830
options to purchase Common Shares were outstanding and an additional
11,864,002
options to purchase Common Shares were available for issuance under our stock option plans. Our stock options generally vest over
four years
and expire between
seven
and
ten years
from the date of the grant. Currently we also have options outstanding that vest over
five years
, as well as options outstanding that vest based on meeting certain market conditions. The exercise price of all our options is set at an amount that is not less than the closing price of our Common Shares on the NASDAQ on the trading day immediately preceding the applicable grant date.
A summary of activity under our stock option plans for the years ended
June 30, 2017
and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Term
(years)
|
|
Aggregate Intrinsic Value
($’000s)
|
Outstanding at June 30, 2016
|
8,354,816
|
|
|
$
|
21.94
|
|
|
|
|
|
Granted
|
2,278,974
|
|
|
31.75
|
|
|
|
|
|
Exercised
|
(1,012,644
|
)
|
|
20.47
|
|
|
|
|
|
Forfeited or expired
|
(643,316
|
)
|
|
22.30
|
|
|
|
|
|
Outstanding at June 30, 2017
|
8,977,830
|
|
|
$
|
24.57
|
|
|
4.27
|
|
$
|
64,707
|
|
Exercisable at June 30, 2017
|
3,736,180
|
|
|
$
|
19.27
|
|
|
2.74
|
|
$
|
45,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted-
Average Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual Term
(years)
|
|
Aggregate Intrinsic Value
($’000s)
|
Outstanding at June 30, 2015
|
8,750,730
|
|
|
$
|
21.13
|
|
|
|
|
|
Granted
|
1,475,280
|
|
|
24.09
|
|
|
|
|
|
Exercised
|
(936,590
|
)
|
|
15.57
|
|
|
|
|
|
Forfeited or expired
|
(934,604
|
)
|
|
24.17
|
|
|
|
|
|
Outstanding at June 30, 2016
|
8,354,816
|
|
|
$
|
21.94
|
|
|
4.56
|
|
$
|
63,862
|
|
Exercisable at June 30, 2016
|
3,214,376
|
|
|
$
|
18.02
|
|
|
3.41
|
|
$
|
37,167
|
|
We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo Valuation Method, consistent with the provisions of ASC Topic 718, "Compensation—Stock Compensation" (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data.
We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards.
For the periods indicated, the weighted-average fair value of options and weighted-average assumptions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Weighted–average fair value of options granted
|
$
|
7.06
|
|
|
$
|
5.69
|
|
|
$
|
6.73
|
|
Weighted-average assumptions used:
|
|
|
|
|
|
Expected volatility
|
28.32
|
%
|
|
31.76
|
%
|
|
31.74
|
%
|
Risk–free interest rate
|
1.46
|
%
|
|
1.31
|
%
|
|
1.41
|
%
|
Expected dividend yield
|
1.43
|
%
|
|
1.62
|
%
|
|
1.23
|
%
|
Expected life (in years)
|
4.51
|
|
|
4.33
|
|
|
4.33
|
|
Forfeiture rate (based on historical rates)
|
5
|
%
|
|
5
|
%
|
|
5
|
%
|
Average exercise share price
|
$
|
31.75
|
|
|
$
|
24.09
|
|
|
$
|
27.17
|
|
Derived service period (in years)*
|
1.79
|
|
|
N/A
|
|
|
2.07
|
|
*Options valued using Monte Carlo Valuation Method
As of
June 30, 2017
, the total compensation cost related to the unvested stock option awards not yet recognized was approximately
$23.8 million
, which will be recognized over a weighted-average period of approximately
2.4 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
no
t 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, 2017
, cash in the amount of
$20.8 million
was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the
year ended
June 30, 2017
from the exercise of options eligible for a tax deduction was
$2.2 million
.
For the
year ended
June 30, 2016
, cash in the amount of
$14.6 million
was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the
year ended
June 30, 2016
from the exercise of options eligible for a tax deduction was
$0.8 million
.
For the
year ended
June 30, 2015
, cash in the amount of
$12.2 million
was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the
year ended
June 30, 2015
from the exercise of options eligible for a tax deduction was
$1.0 million
.
Long-Term Incentive Plans
We incentivize our executive officers, in part, with long term compensation pursuant to our LTIP. The LTIP is a rolling
three
year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. Target RSUs become vested when an eligible employee remains employed throughout the vesting period. 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 2016 LTIP
Grants made in Fiscal 2014 under the LTIP (collectively referred to as Fiscal 2016 LTIP) consisting of PSUs and RSUs, took effect in Fiscal 2014 starting on November 1, 2013. We settled the Fiscal 2016 LTIP by issuing
339,922
Common Shares from our treasury stock during the
quarter ended
December 31, 2016, with a cost of
$4.4 million
.
Fiscal 2017 LTIP
Grants made in Fiscal 2015 under the LTIP (collectively referred to as Fiscal 2017 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2015 starting on September 4, 2014. 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 2017 LTIP. We expect to settle the Fiscal 2017 LTIP awards in stock.
Fiscal 2018 LTIP
Grants made in Fiscal 2016 under the LTIP (collectively referred to as Fiscal 2018 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2016 starting on August 23, 2015. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2018 LTIP. We expect to settle the Fiscal 2018 LTIP awards in stock.
Fiscal 2019 LTIP
Grants made in Fiscal 2017 under the LTIP (collectively referred to as Fiscal 2019 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2017 starting on August 14, 2016. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2019 LTIP. We expect to settle the Fiscal 2019 LTIP awards in stock.
PSUs and RSUs granted under the LTIPs have been measured at fair value as of the effective date, consistent with Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. Stock options granted under the LTIPs have been measured using the Black-Scholes option-pricing model, consistent with Topic 718. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value.
As of
June 30, 2017
, the total expected compensation cost related to the unvested LTIP awards not yet recognized was
$12.6 million
, which is expected to be recognized over a weighted average period of
1.8 years
.
Restricted Share Units (RSUs)
During the
year ended
June 30, 2017
, we granted
19,300
RSUs to employees in accordance with employment and other agreements (
June 30, 2016
—
122,072
,
June 30, 2015
—
90,000
). The RSUs vest over a specified contract date, typically
three years
from the respective date of grants. We expect to settle the awards in stock.
During the
year ended
June 30, 2017
, we issued
70,000
Common Shares from treasury stock, with a cost of
$1.5 million
, in connection with the settlement of these vested RSUs (
June 30, 2016
—
30,000
with a cost of
$0.3 million
;
June 30, 2015
—
44,444
with a cost of
$1.3 million
).
Deferred Stock Units (DSUs)
During the
year ended
June 30, 2017
, we granted
91,680
DSUs to certain non-employee directors (
June 30, 2016
—
111,716
;
June 30, 2015
—
76,104
). 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.
Employee Share Purchase Plan (ESPP)
Beginning January 1, 2016, our ESPP offers employees a purchase price discount of
15%
. Any Common Shares that were issued under the ESPP prior to January 1, 2016 were issued at a purchase price discount of
5%
.
During the
year ended
June 30, 2017
,
530,170
Common Shares were eligible for issuance to employees enrolled in the ESPP (
June 30, 2016
—
160,546
;
June 30, 2015
—
148,138
).
During the
year ended
June 30, 2017
, cash in the amount of approximately
$14.8 million
was received from employees relating to the ESPP (
June 30, 2016
—
$5.5 million
;
June 30, 2015
—
$3.1 million
).
NOTE 13—GUARANTEES AND CONTINGENCIES
We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due between
|
|
Total
|
|
July 1, 2017—
June 30, 2018
|
|
July 1, 2018—
June 30, 2020
|
|
July 1, 2020—
June 30, 2022
|
|
July 1, 2022
and beyond
|
Long term debt obligations
(1)
|
$
|
3,406,707
|
|
|
$
|
304,928
|
|
|
$
|
254,990
|
|
|
$
|
952,039
|
|
|
$
|
1,894,750
|
|
Operating lease obligations
(2)
|
294,576
|
|
|
66,950
|
|
|
92,947
|
|
|
61,022
|
|
|
73,657
|
|
Purchase obligations
|
21,194
|
|
|
9,079
|
|
|
11,689
|
|
|
426
|
|
|
—
|
|
|
$
|
3,722,477
|
|
|
$
|
380,957
|
|
|
$
|
359,626
|
|
|
$
|
1,013,487
|
|
|
$
|
1,968,407
|
|
(1)
Includes interest and principal payments. We currently have borrowings outstanding under the Revolver, which we expect to repay by the end of Fiscal 2018. Please see note 10 "Long-Term Debt" for more details.
(2)
Net of
$6.7 million
of sublease income to be received from properties which we have subleased to third parties.
Guarantees and Indemnifications
We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our
Consolidated Financial Statements
.
Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows.
Litigation
We are currently involved in various claims and legal proceedings.
Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.
If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this
Annual Report
on Form
10-K
, the aggregate of such estimated losses was not material to our consolidated financial position or result of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations.
Contingencies
IRS Matter
As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in
connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our
Consolidated Financial Statements
.
As part of these examinations, which are ongoing, on July 17, 2015 we received from the IRS a Notice of Proposed Adjustment (NOPA) in draft form proposing a one-time approximately
$280 million
increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 and proposing penalties equal to
20%
of the additional taxes, plus interest at the applicable statutory rate (which will continue to accrue until the matter is resolved and may be substantial). A NOPA is an IRS position and does not impose an obligation to pay tax. The draft NOPA may be changed before the final NOPA is issued, including because the IRS reserved the right in the draft NOPA to increase the adjustment. Based on discussions with the IRS, we expect we will receive an additional NOPA proposing an approximately
$80 million
increase to our U.S. federal taxes for Fiscal 2012 arising from the integration of Global 360 Holding Corp. into the structure that resulted from the reorganization, accompanied by proposed penalties and interest (although there can be no assurance that this will be the amount reflected in the NOPA when received, including because the IRS may assign a higher value to our intellectual property). Depending upon the outcome of these matters, additional state income taxes plus penalties and interest may be due. We currently estimate that, as of
June 30, 2017
, adjustments under the draft NOPA in its present form and the anticipated additional NOPA could result in an aggregate liability of approximately
$585 million
, inclusive of U.S. federal and state taxes, penalties and interest. The increase from the initially disclosed estimated aggregate liability is solely due to an estimate of interest that has accrued.
We strongly disagree with the IRS’ position and intend to vigorously contest the proposed adjustments to our taxable income. We are examining various alternatives available to taxpayers to contest the proposed adjustments. Any such alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this
Annual Report
on Form
10-K
, we have not recorded any material accruals in respect of these examinations in our
Consolidated Financial Statements
. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.
CRA Matter
As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries. On June 28, 2017, the CRA issued a notice of reassessment for Fiscal 2012 that would, as currently proposed, increase our taxable income for that year by approximately
$90 million
(offset by the tax attributes referred to below). We strongly disagree with the CRA position, believe the reassessment of Fiscal 2012 is without merit, and intend to vigorously contest the proposed adjustments to our taxable income. We will be filing a notice of objection and will also seek competent authority consideration under applicable international treaties in respect of this reassessment. As of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of this reassessment in our Consolidated Financial Statements.
Even if we are unsuccessful in challenging the CRA’s reassessment to increase our taxable income for Fiscal 2012, we have elective deductions available in Fiscal 2012 that would offset such increased amount so that no additional cash tax would be payable for Fiscal 2012. 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.
GXS Brazil Matter
As part of our acquisition of GXS, we have inherited a tax dispute in Brazil between the Company’s subsidiary, GXS Tecnologia da Informação (Brasil) Ltda. (GXS Brazil), and the municipality of São Paulo, in connection with GXS Brazil’s judicial appeal of a tax claim in the amount of
$2.7 million
as of
June 30, 2017
. We currently have in place a bank guarantee in the amount of
$4.2 million
in recognition of this dispute. However, we believe that the position of the São Paulo tax authorities is not consistent with the relevant facts and based on information available on the case and other similar matters provided by local counsel, we believe that we can defend our position and that no tax is owed. Although we believe that the facts support our position, the ultimate outcome of this matter could result in a loss of up to the claim amount discussed above, plus future interest or penalties that may accrue.
Historically, prior to our acquisition of GXS, GXS would charge certain costs to its subsidiaries, including GXS Brazil, primarily based on historical transfer pricing studies that were intended to reflect the costs incurred by subsidiaries in relation to services provided by the parent company to the subject subsidiary. GXS recorded taxes on amounts billed, that were considered to be due based on the intercompany charges. GXS subsequently re-evaluated its intercompany charges to GXS Brazil and related taxes and, upon taking into consideration the current environment and judicial proceedings in Brazil, concluded that it was probable that certain indirect taxes would be assessable and payable based upon the accrual of such intercompany charges
and has approximately
$3.8 million
accrued for the probable amount of a settlement related to the indirect taxes, interest and penalties.
GXS India Matter
Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax advisors, we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have filed appeals and anticipate an eventual settlement with the Indian tax authorities. We have accrued
$1.4 million
to cover our anticipated financial exposure in this matter.
Please also see "Risk Factors" elsewhere in this
Annual Report
on Form
10-K
.
NOTE 14—INCOME TAXES
Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a wide range of income tax rates.
The following is a geographical breakdown of income before the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Domestic income (loss)
|
$
|
110,562
|
|
|
$
|
(80,066
|
)
|
|
$
|
(26,927
|
)
|
Foreign income
|
138,989
|
|
|
370,843
|
|
|
292,971
|
|
Income before income taxes
|
$
|
249,551
|
|
|
$
|
290,777
|
|
|
$
|
266,044
|
|
The provision for (recovery of) income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Current income taxes (recoveries):
|
|
|
|
|
|
Domestic
|
$
|
12,238
|
|
|
$
|
(3,119
|
)
|
|
$
|
(839
|
)
|
Foreign
|
82,593
|
|
|
63,862
|
|
|
47,055
|
|
|
94,831
|
|
|
60,743
|
|
|
46,216
|
|
Deferred income taxes (recoveries):
|
|
|
|
|
|
|
|
|
Domestic
|
(851,683
|
)
|
|
(44,569
|
)
|
|
3,390
|
|
Foreign
|
(19,512
|
)
|
|
(9,892
|
)
|
|
(17,968
|
)
|
|
(871,195
|
)
|
|
(54,461
|
)
|
|
(14,578
|
)
|
Provision for (recovery of) income taxes
|
$
|
(776,364
|
)
|
|
$
|
6,282
|
|
|
$
|
31,638
|
|
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,
|
|
2017
|
|
2016
|
|
2015
|
Expected statutory rate
|
26.5
|
%
|
|
26.5
|
%
|
|
26.5
|
%
|
Expected provision for income taxes
|
$
|
66,131
|
|
|
$
|
77,056
|
|
|
$
|
70,501
|
|
Effect of foreign tax rate differences
|
8,647
|
|
|
(71,478
|
)
|
|
(57,017
|
)
|
Change in valuation allowance
|
520
|
|
|
(34,999
|
)
|
|
6,617
|
|
Amortization of deferred charges
|
6,298
|
|
|
11,316
|
|
|
10,525
|
|
Effect of permanent differences
|
3,673
|
|
|
10,711
|
|
|
1,321
|
|
Effect of changes in unrecognized tax benefits
|
14,427
|
|
|
(264
|
)
|
|
(1,800
|
)
|
Effect of withholding taxes
|
3,845
|
|
|
3,457
|
|
|
3,045
|
|
Difference in tax filings from provision
|
(7,836
|
)
|
|
8,959
|
|
|
1,657
|
|
Other Items
|
4,045
|
|
|
1,524
|
|
|
(3,211
|
)
|
Impact of internal reorganization of subsidiaries
|
(876,114
|
)
|
|
—
|
|
|
—
|
|
|
$
|
(776,364
|
)
|
|
$
|
6,282
|
|
|
$
|
31,638
|
|
In Fiscal 2017, substantially all the tax rate differential for international jurisdictions was driven by earnings in the United States. In Fiscal 2016 and Fiscal 2015, respectively, this differential was driven by earnings in Luxembourg.
The effective tax rate decreased to a recovery of
311.1%
for Fiscal 2017, compared to a provision of
2.2%
for Fiscal 2016. The decrease in tax expense of
$782.6 million
was primarily due to (i) a significant tax benefit of
$876.1 million
resulting from an internal reorganization as described below, (ii) a decrease of
$16.8 million
relating to differences in tax filings from provisions, (iii) a decrease of
$10.9 million
on account of the Company having lower income before taxes, (iv) a decrease of
$7.0 million
resulting from the effects of permanent differences and (v) a decrease of
$5.0 million
relating to a decrease in amortization of deferred charges. These decreases were partially offset by (i) an increase of
$80.1 million
resulting from the impact of foreign tax rates as it relates to changes in the proportion of income earned in domestic jurisdictions compared to foreign jurisdictions with different statutory rates, (ii) an increase of
$35.5 million
relating to the release of a valuation allowance that occurred in Fiscal 2016 but did not reoccur in Fiscal 2017, and (iii) an increase of
$14.7 million
primarily related to the reversal of reserves in Fiscal 2016 that did not reoccur in Fiscal 2017. The remainder of the difference was due to normal course movements and non-material items.
In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operating legal entity in each jurisdiction. We believe our reorganization also reduces our exposure to global political and tax uncertainties, particularly in Europe. We believe that further consolidating our IP in Canada will continue to ensure appropriate legal protections for our consolidated IP, simplify legal, accounting and tax compliance, and improve our global cash management. A significant tax benefit of
$876.1 million
, associated primarily with the recognition of a net deferred tax asset arising from the entry of the IP into Canada, was recognized in the first quarter of Fiscal 2017. We believe it is more likely than not that the deferred tax asset will be realized and therefore no valuation allowance was required. We continue to evaluate our taxable position quarterly and consider factors by taxing jurisdiction, including but not limited to factors such as estimated taxable income, any historical experience of losses for tax purposes and the future growth of OpenText.
As of June 30, 2017, we have approximately
$83.4 million
of domestic non-capital loss carryforwards. In addition, we have
$294.0 million
of foreign non-capital loss carryforwards of which
$68.6 million
have no expiry date. The remainder of the domestic and foreign losses expires between 2018 and 2037. In addition, investment tax credits of
$49.1 million
will expire between 2027 and 2037.
The primary components of the deferred tax assets and liabilities are as follows, for the periods indicated below:
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
|
Non-capital loss carryforwards
|
$
|
109,060
|
|
|
$
|
230,936
|
|
Capital loss carryforwards
|
246
|
|
|
473
|
|
Undeducted scientific research and development expenses
|
101,998
|
|
|
92,595
|
|
Depreciation and amortization
|
887,735
|
|
|
20,977
|
|
Restructuring costs and other reserves
|
22,956
|
|
|
16,008
|
|
Deferred revenue
|
75,248
|
|
|
72,537
|
|
Other
|
74,668
|
|
|
41,985
|
|
Total deferred tax asset
|
$
|
1,271,911
|
|
|
$
|
475,511
|
|
Valuation Allowance
|
$
|
(58,925
|
)
|
|
$
|
(88,208
|
)
|
Deferred tax liabilities
|
|
|
|
Scientific research and development tax credits
|
$
|
(12,070
|
)
|
|
$
|
(11,478
|
)
|
Acquired intangibles
|
—
|
|
|
(145,891
|
)
|
Other
|
(79,928
|
)
|
|
(68,004
|
)
|
Deferred tax liabilities
|
$
|
(91,998
|
)
|
|
$
|
(225,373
|
)
|
Net deferred tax asset
|
$
|
1,120,988
|
|
|
$
|
161,930
|
|
Comprised of:
|
|
|
|
Long-term assets
|
1,215,712
|
|
|
241,161
|
|
Long-term liabilities
|
(94,724
|
)
|
|
(79,231
|
)
|
|
$
|
1,120,988
|
|
|
$
|
161,930
|
|
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, 2015
|
$
|
180,249
|
|
Increases on account of current year positions
|
4,669
|
|
Increases on account of prior year positions
|
8,366
|
|
Decreases due to settlements with tax authorities
|
(1,147
|
)
|
Decreases due to lapses of statutes of limitations
|
(17,652
|
)
|
Unrecognized tax benefits as of July 1, 2016
|
$
|
174,485
|
|
Increases on account of current year positions
|
5,675
|
|
Increases on account of prior year positions
|
18,938
|
|
Decreases due to settlements with tax authorities
|
(16,332
|
)
|
Decreases due to lapses of statutes of limitations
|
(8,236
|
)
|
Unrecognized tax benefits as of June 30, 2017
|
$
|
174,530
|
|
Included in the above tabular reconciliation are unrecognized tax benefits of
$11.6 million
relating to deferred tax assets in jurisdictions in which these deferred tax assets are offset with valuation allowances. The net unrecognized tax benefit excluding these deferred tax assets is approximately
$163.0 million
as of
June 30, 2017
(
June 30, 2016
—
$150.9 million
). Increases on account of prior year positions includes
$9.4 million
that is subject to recovery as an indemnified asset (June 30, 2016—
nil
).
We recognize interest expense and penalties related to income tax matters in income tax expense.
For the years ended
June 30, 2017
,
2016
and
2015
, we recognized the following amounts as income tax-related interest expense and penalties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Interest expense
|
$
|
13,028
|
|
|
$
|
6,534
|
|
|
$
|
4,451
|
|
Penalties expense (recoveries)
|
438
|
|
|
(2,761
|
)
|
|
(2,032
|
)
|
Total
|
$
|
13,466
|
|
|
$
|
3,773
|
|
|
$
|
2,419
|
|
As of
June 30, 2017
and
2016
, the following amounts have been accrued on account of income tax-related interest expense and penalties:
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Interest expense accrued *
|
$
|
47,402
|
|
|
$
|
34,476
|
|
Penalties accrued *
|
$
|
2,160
|
|
|
$
|
1,615
|
|
|
|
*
|
These balances have been included within "Long-term income taxes payable" within the
Consolidated Balance Sheets
.
|
We believe that it is reasonably possible that the gross unrecognized tax benefits, as of
June 30, 2017
, could decrease tax expense in the next 12 months by
$1.9 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 2009 for Germany, 2010 for the United States, 2011 for Luxembourg, and 2012 for Canada.
We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in Canada, the United States, France, Germany, India, Italy, Malaysia, and the United Kingdom. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the United States and Canada audits are included in note 13 "Guarantees and Contingencies".
The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain tax audits, please refer to note 13 "Guarantees and Contingencies".
As at
June 30, 2017
, we have provided
$22.1 million
(
June 30, 2016
—
$15.9 million
) in respect of both additional foreign withholding taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries, or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.
NOTE 15—FAIR VALUE MEASUREMENT
ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk.
In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
|
|
•
|
Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
|
|
|
•
|
Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
•
|
Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
|
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
Our financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of
June 30, 2017
and
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
|
|
Fair Market Measurements using:
|
|
|
|
Fair Market Measurements using:
|
|
June 30, 2017
|
|
Quoted prices
in active
markets for
identical
assets/
(liabilities)
|
|
Significant
other
observable
inputs
|
|
Significant
unobservable
inputs
|
|
June 30, 2016
|
|
Quoted prices
in active
markets for
identical
assets/
(liabilities)
|
|
Significant
other
observable
inputs
|
|
Significant
unobservable
inputs
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities*
|
$
|
3,023
|
|
|
N/A
|
|
$
|
3,023
|
|
|
N/A
|
|
$
|
11,839
|
|
|
N/A
|
|
$
|
11,839
|
|
|
N/A
|
Derivative financial instrument asset (note 16)
|
1,174
|
|
|
N/A
|
|
1,174
|
|
|
N/A
|
|
792
|
|
|
N/A
|
|
792
|
|
|
N/A
|
|
$
|
4,197
|
|
|
N/A
|
|
$
|
4,197
|
|
|
N/A
|
|
$
|
12,631
|
|
|
N/A
|
|
$
|
12,631
|
|
|
N/A
|
*These assets in the table above are classified as Level 2 as certain specific assets included within may not have quoted prices that are readily accessible in an active market or we may have relied on alternative pricing methods that do not rely exclusively on quoted prices to determine the fair value of the investments.
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 years ended
June 30, 2017
and
2016
, 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 years ended
June 30, 2017
and
2016
, no indications of impairment were identified and therefore no fair value measurements were required.
Marketable Securities
Marketable securities are classified as available for sale securities and are recorded either within "Short-term investments" or within "Other assets" on our
Consolidated Balance Sheets
at fair value with unrealized gains or losses reported as a separate component of Accumulated other comprehensive income.
A summary of our marketable securities outstanding as of
June 30, 2017
and
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
|
Cost
|
|
Gross Unrealized Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
Marketable securities
|
$
|
2,406
|
|
|
$
|
617
|
|
|
$
|
—
|
|
|
$
|
3,023
|
|
|
$
|
11,406
|
|
|
$
|
436
|
|
|
$
|
(3
|
)
|
|
$
|
11,839
|
|
NOTE 16—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Foreign Currency Forward Contracts
We are engaged in hedging programs with relationship banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between
one
and
twelve months
. We do not use derivatives for speculative purposes.
We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (Topic 815). As the critical terms of the hedging instrument, and of the entire hedged forecasted transaction, are the same, in accordance with Topic 815 we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within other comprehensive income. The fair value of the contracts, as of
June 30, 2017
, is recorded within "Prepaid expenses and other current assets”.
As of
June 30, 2017
, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was
$39.0 million
(
June 30, 2016
—
$33.2 million
).
Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance
The effect of these derivative instruments on our
Consolidated Financial Statements
for the periods indicated below were as follows (amounts presented do not include any income tax effects).
Fair Value of Derivative Instruments in the
Consolidated Balance Sheets
(see note 15 "Fair Value Measurement")
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
As of June 30, 2016
|
Derivatives
|
Balance Sheet Location
|
Fair Value
Asset (Liability)
|
|
Fair Value
Asset (Liability)
|
Foreign currency forward contracts designated as cash flow hedges
|
Prepaid expenses and other current assets
|
$
|
1,174
|
|
|
$
|
792
|
|
Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2017
|
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)
|
|
Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
|
|
Amount of Gain or (Loss) Recognized in
Income on Derivatives
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
|
Foreign currency forward contracts
|
$
|
129
|
|
|
Operating
expenses
|
|
$
|
(253
|
)
|
|
N/A
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30, 2016
|
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)
|
|
Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
|
|
Amount of Gain or (Loss) Recognized in
Income on Derivatives
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
|
Foreign currency forward contracts
|
$
|
(3,502
|
)
|
|
Operating
expenses
|
|
$
|
(4,021
|
)
|
|
N/A
|
|
$
|
—
|
|
NOTE 17—SPECIAL CHARGES (RECOVERIES)
Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Fiscal 2017 Restructuring Plan
|
$
|
33,827
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fiscal 2015 Restructuring Plan
|
(1,517
|
)
|
|
22,179
|
|
|
8,218
|
|
OpenText/GXS Restructuring Plan
|
1,191
|
|
|
(3,427
|
)
|
|
8,163
|
|
Restructuring Plans prior to OpenText/GXS Restructuring Plan
|
(14
|
)
|
|
(108
|
)
|
|
(1,809
|
)
|
Acquisition-related costs
|
15,938
|
|
|
7,710
|
|
|
4,462
|
|
Other charges (recoveries)
|
14,193
|
|
|
8,492
|
|
|
(6,211
|
)
|
Total
|
$
|
63,618
|
|
|
$
|
34,846
|
|
|
$
|
12,823
|
|
Fiscal 2017 Restructuring Plan
During Fiscal 2017 and in the context of our acquisition of Recommind, CCM Business and ECD Business, we began to implement restructuring activities to streamline our operations (collectively referred to as the
Fiscal 2017 Restructuring Plan
). The
Fiscal 2017 Restructuring Plan
charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.
As of
June 30, 2017
, we expect total costs to be incurred in conjunction with the
Fiscal 2017 Restructuring Plan
to be approximately
$45.0 million
, of which
$33.8 million
has already been recorded within "Special charges (recoveries)" to date.
A reconciliation of the beginning and ending liability for the
year ended
June 30, 2017
is shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017 Restructuring Plan
|
Workforce
reduction
|
|
Facility costs
|
|
Total
|
Balance payable as at June 30, 2016
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accruals and adjustments
|
31,595
|
|
|
2,232
|
|
|
33,827
|
|
Cash payments
|
(16,156
|
)
|
|
(456
|
)
|
|
(16,612
|
)
|
Foreign exchange and other non-cash adjustments
|
(5,394
|
)
|
|
(407
|
)
|
|
(5,801
|
)
|
Balance payable as at June 30, 2017
|
$
|
10,045
|
|
|
$
|
1,369
|
|
|
$
|
11,414
|
|
Fiscal 2015 Restructuring Plan
In the third quarter of Fiscal 2015 and in the context of the acquisition of Actuate Corporation (Actuate), we began to implement restructuring activities to streamline our operations (OpenText/Actuate Restructuring Plan). We subsequently announced, on May 20, 2015 that we were initiating a restructuring program in conjunction with organizational changes to support our cloud strategy and drive further operational efficiencies. These charges are combined with the OpenText/Actuate Restructuring Plan (collectively referred to as the
Fiscal 2015 Restructuring Plan
) and are presented below. The
Fiscal 2015 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,
$28.9 million
has been recorded within "Special charges (recoveries)" to date. We do not expect to incur any further significant charges related to this plan.
A reconciliation of the beginning and ending liability for the years ended
June 30, 2017
and
2016
are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Restructuring Plan
|
Workforce
reduction
|
|
Facility costs
|
|
Total
|
Balance payable as at June 30, 2016
|
$
|
3,145
|
|
|
$
|
5,046
|
|
|
$
|
8,191
|
|
Accruals and adjustments
|
(1,161
|
)
|
|
(357
|
)
|
|
(1,518
|
)
|
Cash payments
|
(1,694
|
)
|
|
(1,358
|
)
|
|
(3,052
|
)
|
Foreign exchange and other non-cash adjustments
|
(83
|
)
|
|
(40
|
)
|
|
(123
|
)
|
Balance payable as at June 30, 2017
|
$
|
207
|
|
|
$
|
3,291
|
|
|
$
|
3,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2015 Restructuring Plan
|
Workforce
reduction
|
|
Facility costs
|
|
Total
|
Balance payable as at June 30, 2015
|
$
|
3,842
|
|
|
$
|
2,126
|
|
|
$
|
5,968
|
|
Accruals and adjustments
|
17,249
|
|
|
4,930
|
|
|
22,179
|
|
Cash payments
|
(17,290
|
)
|
|
(2,361
|
)
|
|
(19,651
|
)
|
Foreign exchange
|
(656
|
)
|
|
351
|
|
|
(305
|
)
|
Balance payable as of June 30, 2016
|
$
|
3,145
|
|
|
$
|
5,046
|
|
|
$
|
8,191
|
|
OpenText/GXS Restructuring Plan
In the third quarter of Fiscal 2014 and in the context of the acquisition of GXS, we began to implement restructuring activities to streamline our operations (
OpenText/GXS Restructuring Plan
). These charges relate to workforce reductions, facility consolidations and other miscellaneous direct costs. 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,
$24.9 million
has been recorded within "Special charges (recoveries)". We do not expect to incur any further significant charges related to this plan.
A reconciliation of the beginning and ending liability for the years ended
June 30, 2017
and
2016
are shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
OpenText/GXS Restructuring Plan
|
Workforce
reduction
|
|
Facility costs
|
|
Total
|
Balance payable as at June 30, 2016
|
$
|
115
|
|
|
$
|
606
|
|
|
$
|
721
|
|
Accruals and adjustments
|
74
|
|
|
1,117
|
|
|
1,191
|
|
Cash payments
|
—
|
|
|
(530
|
)
|
|
(530
|
)
|
Foreign exchange and other non-cash adjustments
|
(92
|
)
|
|
63
|
|
|
(29
|
)
|
Balance payable as at June 30, 2017
|
$
|
97
|
|
|
$
|
1,256
|
|
|
$
|
1,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OpenText/GXS Restructuring Plan
|
Workforce
reduction
|
|
Facility costs
|
|
Total
|
Balance as of June 30, 2015
|
$
|
2,846
|
|
|
$
|
4,436
|
|
|
$
|
7,282
|
|
Accruals and adjustments
|
(1,878
|
)
|
|
(1,549
|
)
|
|
(3,427
|
)
|
Cash payments
|
(648
|
)
|
|
(1,715
|
)
|
|
(2,363
|
)
|
Foreign exchange
|
(205
|
)
|
|
(566
|
)
|
|
(771
|
)
|
Balance payable as at June 30, 2016
|
$
|
115
|
|
|
$
|
606
|
|
|
$
|
721
|
|
Acquisition-related costs
Included within "Special charges (recoveries)" for the
year ended
June 30, 2017
are costs incurred directly in relation to acquisitions in the amount of
$15.9 million
(
June 30, 2016
—
$7.7 million
;
June 30, 2015
—
$4.5 million
).
Other charges (recoveries)
ERP Implementation Costs
We are currently involved in a one-time project to implement a broad enterprise resource planning (ERP) system.
For the
year ended
June 30, 2017
, we incurred costs of
$11.0 million
relating to the implementation of this project (
June 30, 2016
—
$8.5 million
;
June 30, 2015
—
nil
).
Other charges (recoveries)
For the
year ended
June 30, 2017
, "Other charges" primarily include (i) a net charge of
$6.5 million
relating to commitment fees, (ii)
$1.4 million
relating to post-acquisition integration costs necessary to streamline an acquired company into our operations and (iii)
$0.8 million
relating to assets disposed in connection with a restructured facility. These charges were partially offset by (i) a recovery of
$4.5 million
relating to certain pre-acquisition sales and use tax liabilities being released upon becoming statute barred and (ii)
$1.3 million
relating to a recovery on certain interest on pre-acquisition liabilities becoming statute barred. The remaining amounts relate to miscellaneous other charges.
For the
year ended
June 30, 2016
, "Other charges" primarily include (i) a charge of
$4.8 million
relating to post-acquisition integration costs necessary to streamline an acquired company into our operations and costs incurred to reorganize certain legal entities including consolidation of intellectual property, (ii)
$1.1 million
relating to assets disposed in connection with a restructured facility and (iii)
$0.3 million
of other miscellaneous charges. These charges were offset by (i) a recovery of
$5.7 million
relating to certain pre-acquisition sales and use tax liabilities being released upon settlement or becoming statute barred, and (ii) a recovery of
$0.5 million
relating to interest and pre-acquisition liabilities being released on becoming statute barred.
Included within "Other recoveries" for the
year ended
June 30, 2015 is (i) a recovery of
$11.5 million
relating to certain pre-acquisition sales and use tax liabilities being released upon settlement or becoming statute barred and (ii) a recovery of
$1.4 million
relating to interest released on certain pre-acquisition liabilities. These recoveries were offset by (i)
$2.9 million
relating to the write-off of unamortized debt issuance costs associated with the repayment of a
$600 million
term loan facility, (ii)
$2.1 million
relating to post-business combination compensation obligations associated with the acquisition of Actuate Corporation and (iii)
$1.2 million
relating to a reduction in leasehold improvements associated with a restructured facility. The remaining amounts relate to miscellaneous other charges.
NOTE 18—ACQUISITIONS
Fiscal 2017 Acquisitions
Purchase of an Asset Group Constituting a Business - ECD Business
On
January 23, 2017
, we acquired certain assets and assumed certain liabilities of the enterprise content division of EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred to as
Dell-EMC
(ECD Business) for approximately
$1.62 billion
. In accordance with Topic 805 "Business Combinations" (Topic 805), this acquisition was accounted for as a business combination. ECD Business offers OpenText a suite of leading Enterprise Content Management solutions with deep industry focus, including the Documentum
TM
, InfoArchive
TM
, and LEAP
TM
product families. We believe this acquisition complements and extends our EIM portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning January 23, 2017.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of January 23, 2017, are set forth below:
|
|
|
|
|
Current assets
|
$
|
9,681
|
|
Non-current tangible assets
|
103,822
|
|
Intangible customer assets
|
407,000
|
|
Intangible technology assets
|
459,000
|
|
Liabilities assumed
|
(182,251
|
)
|
Total identifiable net assets
|
797,252
|
|
Goodwill
|
825,142
|
|
Net assets acquired
|
$
|
1,622,394
|
|
The goodwill of
$825.1 million
is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately
$377.1 million
is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue which represents advance payments from customers related to various revenue contracts. We estimated our obligation related to the deferred revenue using the cost build-up approach. The cost build-up approach determines fair value by estimating the costs relating to supporting the obligation plus an assumed profit. The sum of the costs and assumed profit approximates, in theory, the amount that we would be required to pay a third party to assume the obligation. The estimated costs to fulfill the obligation were based on the near-term projected cost structure for various revenue contracts. As a result, we recorded an adjustment to reduce ECD Business' carrying value of deferred revenue by
$52.0 million
, which represents our estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. The net deferred revenues included in the liabilities assumed above is
$163.6 million
, after the impact of this adjustment.
Further, included within total identifiable net assets are also certain contract assets which represent revenue earned by Dell-EMC on long-term projects for which billings had not yet occurred as of
January 23, 2017
. As these long-term projects have now been inherited by OpenText, we will be responsible for billing and collecting cash on these projects at the appropriate time, yet we will not recognize revenue for these billings. The fair value assigned to these contract assets as of
January 23, 2017
was
$6.4 million
.
The finalization of the purchase price allocation is pending the finalization of the valuation of fair value for assets acquired and liabilities assumed, including tax balances. We expect to finalize this determination on or before December 31, 2017.
Acquisition-related costs for ECD Business included in "Special charges" in the
Consolidated Statements of Income
for the
year ended
June 30, 2017
were
$10.5 million
.
The amount of ECD Business’ revenues and net loss included in our Consolidated Statements of Income for the
year ended
June 30, 2017
is set forth below:
|
|
|
|
|
|
January 23, 2017 - June 30, 2017
|
Revenues
|
$
|
193,179
|
|
Net loss*
|
$
|
(23,616
|
)
|
*Net loss includes one-time fees of approximately
$13.9 million
on account of special charges and
$52.6 million
of amortization charges relating to acquired intangible assets. These losses were partially offset by a tax recovery of
$10.7 million
. Net loss includes certain expenses that have been allocated to ECD Business, as separately identifiable expenses are not available because of our continued efforts at fully integrating ECD Business within our combined company.
The unaudited pro forma revenues and net income of the combined entity for the years ended
June 30, 2017
and
2016
, had the acquisition been consummated as of July 1, 2015, are set forth below:
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
Supplemental Unaudited Pro forma Information
|
2017
|
|
2016
|
Total revenues
|
$
|
2,625,644
|
|
|
$
|
2,404,279
|
|
Net income
(1)(2)
|
$
|
1,022,109
|
|
|
$
|
348,728
|
|
(1)
Included in pro forma net income for the periods above are estimated amortization charges relating to the allocated values of acquired intangible assets of
$119.3 million
each, respectively, for the year ended June 30, 2017 and 2016.
(2)
Included in net income for the
year ended
June 30, 2017
is a significant tax benefit of
$876.1 million
associated with the recognition of a net deferred tax asset ensuing from the Company’s internal reorganization that occurred in July 2016. See note 14 "Income Taxes" for more details.
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.
Purchase of an Asset Group Constituting a Business - CCM Business
On
July 31, 2016
, we acquired certain customer communications management software and services assets and liabilities from HP Inc. (CCM Business) for approximately
$315.0 million
. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our current software portfolio, and allows us to better serve our customers by offering a wider set of CCM capabilities.
The results of operations of this acquisition have been consolidated with those of OpenText beginning July 31, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 31, 2016, are set forth below:
|
|
|
|
|
Current assets
|
$
|
683
|
|
Non-current deferred tax asset
|
11,861
|
|
Non-current tangible assets
|
2,348
|
|
Intangible customer assets
|
64,000
|
|
Intangible technology assets
|
101,000
|
|
Liabilities assumed
|
(38,090
|
)
|
Total identifiable net assets
|
141,802
|
|
Goodwill
|
173,198
|
|
Net assets acquired
|
$
|
315,000
|
|
The goodwill of
$173.2 million
is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately
$105.1 million
is expected to be deductible for tax purposes.
Acquisition-related costs for CCM Business included in "Special charges" in the
Consolidated Statements of Income
for the
year ended
June 30, 2017
were
$0.9 million
.
The acquisition had no significant impact on revenues and net earnings for the
year ended
June 30, 2017
, since the date of acquisition.
Pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated results of operations reported.
Acquisition of Recommind, Inc.
O
n July 20, 2016, we acquired all of the equity interest in Recommind, Inc. (Recommind), a leading provider of eDiscovery and information analytics, for approximately
$170.1 million
. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our EIM solutions, and through eDiscovery and analytics, provides increased visibility into structured and unstructured data.
The results of operations of Recommind, have been consolidated with those of OpenText beginning July 20, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 20, 2016, are set forth below:
|
|
|
|
|
Current assets
|
$
|
30,034
|
|
Non-current tangible assets
|
1,245
|
|
Intangible customer assets
|
51,900
|
|
Intangible technology assets
|
24,800
|
|
Long-term deferred tax liabilities
|
(1,780
|
)
|
Other liabilities assumed
|
(27,497
|
)
|
Total identifiable net assets
|
78,702
|
|
Goodwill
|
91,405
|
|
Net assets acquired
|
$
|
170,107
|
|
The goodwill of
$91.4 million
is primarily attributable to the synergies expected to arise after the acquisition.
No
portion of this goodwill is expected to be deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of
$28.7 million
. The gross amount receivable was
$29.6 million
of which
$0.9 million
of this receivable was expected to be uncollectible.
Acquisition-related costs for Recommind included in "Special charges (recoveries)" in the
Consolidated Statements of Income
for the
year ended
June 30, 2017
were
$1.1 million
.
The acquisition had no significant impact on revenues and net earnings for the
year ended
June 30, 2017
, since the date of acquisition.
Pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated results of operations reported.
Fiscal 2016 Acquisitions
Acquisition of ANXe Business Corporation
O
n May 1, 2016, we acquired all of the equity interest in ANXe Business Corporation (ANX), a leading provider of cloud-based information exchange services to the automotive and healthcare industries, for approximately
$104.4 million
. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition strengthens our industry presence and reach in the automotive and healthcare industries through strong customer relationships and targeted business partner collaboration solutions.
The results of operations of ANX were consolidated with those of OpenText beginning May 1, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of May 1, 2016, are set forth below:
|
|
|
|
|
Current assets
|
$
|
9,712
|
|
Non-current tangible assets
|
511
|
|
Intangible customer assets
|
49,700
|
|
Intangible technology assets
|
5,600
|
|
Liabilities assumed
|
(26,204
|
)
|
Total identifiable net assets
|
39,319
|
|
Goodwill
|
65,108
|
|
Net assets acquired
|
$
|
104,427
|
|
The goodwill of
$65.1 million
is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately
$7.0 million
is expected to be deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of
$5.7 million
. The gross amount receivable was
$5.8 million
of which
$0.1 million
of this receivable was expected to be uncollectible.
Purchase of an Asset Group Constituting a Business - CEM Business
On
April 30, 2016
, we acquired certain customer experience software and services assets and liabilities from HP Inc. (CEM Business) for approximately
$160.0 million
. Previously,
$7.3 million
was held back and unpaid in accordance with the terms of the purchase agreement. This amount was released and paid during the
quarter ended
September 30, 2016. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our current software portfolio, particularly our Customer Experience Management and Cloud offerings.
The results of operations of this acquisition were consolidated with those of OpenText beginning
April 30, 2016
.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
April 30, 2016
, are set forth below:
|
|
|
|
|
Current assets
|
$
|
3,078
|
|
Non-current tangible assets
|
14,302
|
|
Intangible customer assets
|
33,000
|
|
Intangible technology assets
|
47,000
|
|
Liabilities assumed
|
(24,887
|
)
|
Total identifiable net assets
|
72,493
|
|
Goodwill
|
87,507
|
|
Net assets acquired
|
$
|
160,000
|
|
The goodwill of
$87.5 million
is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately
$31.8 million
is expected to be deductible for tax purposes.
Acquisition of Daegis Inc.
On November 23, 2015, we acquired all of the equity interest in Daegis Inc. (Daegis), a global information governance, data migration solutions and development company, based in Texas, United States. Total consideration for Daegis was
$23.3 million
(
$22.1 million
- net of cash acquired). In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition enables OpenText to strengthen our current information governance capabilities.
We recognized
$8.0 million
of goodwill associated with this acquisition, which is primarily attributable to the synergies that are expected to arise after the acquisition. This goodwill is expected to be deductible for tax purposes.
Acquisition-related costs for Daegis included in "Special charges (recoveries)" in the Consolidated Statements of Income for the year ended June 30, 2016 was
$1.1 million
.
The results of operations of Daegis were consolidated with those of OpenText beginning November 23, 2015.
Fiscal 2015 Acquisitions
Acquisition of Actuate Corporation
On January 16, 2015, we acquired all of the outstanding common stock of Actuate, based in San Francisco, California, United States. Actuate was a leader in personalized analytics and insights and we believe the acquisition complements our OpenText EIM Suite. In accordance with Topic 805, this acquisition was accounted for as a business combination.
The results of operations of Actuate were consolidated with those of OpenText beginning January 16, 2015.
The following tables summarize the consideration paid for Actuate and the amount of the assets acquired and liabilities assumed, as well as the goodwill recorded as of the acquisition date:
|
|
|
|
|
Cash consideration
|
$
|
322,417
|
|
Fair value, at date of acquisition, on shares of Actuate already owned through open market purchases
|
9,539
|
|
Purchase consideration
|
$
|
331,956
|
|
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of January 16, 2015, are set forth below:
|
|
|
|
|
Current assets (inclusive of cash acquired of $22,463)
|
$
|
78,150
|
|
Non-current tangible assets
|
13,540
|
|
Intangible customer assets
|
62,600
|
|
Intangible technology assets
|
60,000
|
|
Liabilities assumed
|
(79,686
|
)
|
Total identifiable net assets
|
134,604
|
|
Goodwill
|
197,352
|
|
Net assets acquired
|
$
|
331,956
|
|
No
portion of the goodwill recorded upon the acquisition of Actuate is expected to be deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of
$23.4 million
. The gross amount receivable was
$23.6 million
of which
$0.2 million
of this receivable was expected to be uncollectible.
We recognized a gain of
$3.1 million
as a result of remeasuring to fair value our investment in Actuate held before the date of acquisition. The gain was included in "Other income" in our Consolidated Financial Statements during the year ended June 30, 2015.
Acquisition of Informative Graphics Corporation
On January 2, 2015, we acquired all of the equity interest in Informative Graphics Corporation (IGC), based in Scottsdale, Arizona, United States. IGC was a leading developer of viewing, annotation, redaction and publishing commercial software. Total consideration for IGC was
$40.0 million
(
$38.7 million
- net of cash acquired). In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition enables OpenText to engineer solutions that further increase a user's experience within our OpenText EIM Suite.
The results of operations of IGC were consolidated with those of OpenText beginning January 2, 2015.
No
portion of the goodwill recorded upon the acquisition of IGC is expected to be deductible for tax purposes.
NOTE 19—SEGMENT INFORMATION
ASC Topic 280, “Segment Reporting” (Topic 280), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas, and major customers. The method of determining what information, under Topic 280, to report is based on the way that an entity organizes operating segments for making operational decisions and how the entity’s management and chief operating decision maker (CODM) assess an entity’s financial performance. Our operations are analyzed by management and our CODM as being part of a single industry segment: the design, development, marketing and sales of Enterprise Information Management software and solutions.
The following table sets forth the distribution of revenues, by significant geographic area, for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
Canada
|
$
|
227,115
|
|
|
$
|
107,217
|
|
|
$
|
113,780
|
|
United States
|
1,090,049
|
|
|
915,615
|
|
|
887,895
|
|
United Kingdom
|
159,817
|
|
|
185,631
|
|
|
201,059
|
|
Germany
|
166,611
|
|
|
155,201
|
|
|
169,538
|
|
Rest of Europe
|
394,132
|
|
|
270,114
|
|
|
267,702
|
|
All other countries
|
253,333
|
|
|
190,450
|
|
|
211,943
|
|
Total revenues
|
$
|
2,291,057
|
|
|
$
|
1,824,228
|
|
|
$
|
1,851,917
|
|
The following table sets forth the distribution of long-lived assets, representing property and equipment and intangible assets, by significant geographic area, as of the periods indicated below.
|
|
|
|
|
|
|
|
|
|
As of June 30,
2017
|
|
As of June 30,
2016
|
Long-lived assets:
|
|
|
|
Canada*
|
$
|
1,283,589
|
|
|
$
|
145,927
|
|
United States
|
339,246
|
|
|
546,788
|
|
United Kingdom
|
11,583
|
|
|
20,042
|
|
Germany
|
6,694
|
|
|
4,878
|
|
Rest of Europe
|
21,360
|
|
|
76,560
|
|
All other countries
|
37,488
|
|
|
35,705
|
|
Total
|
$
|
1,699,960
|
|
|
$
|
829,900
|
|
*In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continue to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada. For additional details, please see note 14 "Income Taxes".
NOTE 20—SUPPLEMENTAL CASH FLOW DISCLOSURES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Cash paid during the period for interest
(1)
|
$
|
115,117
|
|
|
$
|
72,058
|
|
|
$
|
34,658
|
|
Cash received during the period for interest
|
$
|
3,115
|
|
|
$
|
3,659
|
|
|
$
|
3,905
|
|
Cash paid during the period for income taxes
(2)
|
$
|
83,086
|
|
|
$
|
40,431
|
|
|
$
|
25,870
|
|
(1)
Includes interest owing on Senior Notes 2026, which was first issued in May 2016 with additional notes issued in December 2016. See note 10 "Long Term Debt" for additional details. Cash paid during the
year ended
June 30, 2017
relating to Senior Notes 2026 was
$41.9 million
(year ended June 30, 2016 and June 30, 2015—
nil
, respectively).
(2)
Included for the
year ended
June 30, 2017
is cash paid of approximately
$26.8 million
, primarily relating to a one-time gain recognized arising from our recent IP reorganization.
NOTE 21—EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income, attributable to OpenText, by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share are computed by dividing net income, attributable to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the computation of diluted earnings per share if their effect is anti-dilutive. Per share data and number of Common Shares included in the table below are presented on a post share split basis. See note 12 "Share Capital, Option Plans and Share-based Payments" for additional information about the share split.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended June 30,
|
|
2017
|
|
2016
|
|
2015
|
Basic earnings per share
|
|
|
|
|
|
Net income attributable to OpenText
|
$
|
1,025,659
|
|
(1)
|
$
|
284,477
|
|
|
$
|
234,327
|
|
Basic earnings per share attributable to OpenText
|
$
|
4.04
|
|
|
$
|
1.17
|
|
|
$
|
0.96
|
|
Diluted earnings per share
|
|
|
|
|
|
Net income attributable to OpenText
|
$
|
1,025,659
|
|
(1)
|
$
|
284,477
|
|
|
$
|
234,327
|
|
Diluted earnings per share attributable to OpenText
|
$
|
4.01
|
|
|
$
|
1.17
|
|
|
$
|
0.95
|
|
Weighted-average number of shares outstanding
|
|
|
|
|
|
Basic
|
253,879
|
|
|
242,926
|
|
|
244,184
|
|
Effect of dilutive securities
|
1,926
|
|
|
1,150
|
|
|
1,730
|
|
Diluted
|
255,805
|
|
|
244,076
|
|
|
245,914
|
|
Excluded as anti-dilutive
(2)
|
1,371
|
|
|
5,458
|
|
|
3,718
|
|
(1)
Please also see note 14 "Income Taxes" for details relating to a one-time tax benefit of
$876.1 million
recorded during the
quarter ended
September 30, 2016 in connection with an internal reorganization of our subsidiaries.
(2)
Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period.
NOTE 22—RELATED PARTY TRANSACTIONS
Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other sources of comparable services or products.
During the
year ended
June 30, 2017
, Mr. Stephen Sadler, a director, earned
$0.8 million
(
June 30, 2016
—
$0.8 million
,
June 30, 2015
—
$0.5 million
) 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. All fees are entirely paid as of the end of each fiscal year.
NOTE 23—SUBSEQUENT EVENTS
Cash Dividends
As part of our quarterly, non-cumulative cash dividend program, we declared, on
August 2, 2017
, a dividend of
$0.1320
per Common Share. The record date for this dividend is
September 1, 2017
and the payment date is
September 22, 2017
. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board.
Acquisition of Covisint Corporation
On July 26, 2017, we closed our previously announced acquisition of Covisint Corporation, a leading cloud platform for building Identity, Automotive, and Internet of Things (IoT) applications, for approximately
$103.0 million
. Given that this acquisition has only recently closed, as of the date of our filing of this Annual Report on Form 10-K, we are still evaluating the impact of this acquisition on our Consolidated Financial Statements. The results of this evaluation along with this acquisition's financial results will be consolidated from the closing date in our financial statements for the first quarter of Fiscal 2018.
Definitive Agreement to acquire Guidance Software Inc.
On July 26, 2017, we announced that we entered into a definitive agreement to acquire Guidance Software Inc. (Guidance), a leading provider of forensic security solutions, for approximately
$240.0 million
. The acquisition of Guidance is expected to complement our Discovery portfolio of software and services. The acquisition is expected to close during the first quarter of Fiscal 2018, subject to customary closing conditions.