NOTE 11—LONG-TERM DEBT
| | | | | | | | | | | |
| As of March 31, 2022 | | As of June 30, 2021 |
| Total debt | | | |
| Senior Notes 2031 | $ | 650,000 | | | $ | — | |
| Senior Notes 2030 | 900,000 | | | 900,000 | |
| Senior Notes 2029 | 850,000 | | | — | |
| Senior Notes 2028 | 900,000 | | | 900,000 | |
| Senior Notes 2026 | — | | | 850,000 | |
| Term Loan B | 960,000 | | | 967,500 | |
| Total principal payments due | 4,260,000 | | | 3,617,500 | |
| | | |
Premium on Senior Notes 2026 (1) | — | | | 4,070 | |
Debt issuance costs (1) | (39,418) | | | (32,711) | |
| Total amount outstanding | 4,220,582 | | | 3,588,859 | |
| Less: | | | |
| Current portion of long-term debt | | | |
| Term Loan B | 10,000 | | | 10,000 | |
| Total current portion of long-term debt | 10,000 | | | 10,000 | |
| | | |
| Non-current portion of long-term debt | $ | 4,210,582 | | | $ | 3,578,859 | |
|
(1) During the nine months ended March 31, 2022, we recorded $17.2 million of debt issuance costs relating to the issuance of Senior Notes 2031 and Senior Notes 2029 (both defined below). Additionally, upon redemption of Senior Notes 2026 (defined below), $6.2 million of unamortized debt issuance costs and ($3.8) million of the unamortized premium were included in the loss on debt extinguishment. See note 22 “Other Income (Expense), Net”. |
Senior Unsecured Fixed Rate Notes
Senior Notes 2031
On November 24, 2021, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $650 million in aggregate principal amount of 4.125% Senior Notes due 2031 guaranteed by the Company (Senior Notes 2031) 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 non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2031 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2031 will mature on December 1, 2031, unless earlier redeemed, in accordance with their terms, or repurchased.
For the three and nine months ended March 31, 2022, we recorded interest expense of $6.7 million and $9.4 million, respectively, relating to Senior Notes 2031.
Senior Notes 2030
On February 18, 2020, OpenText Holdings, Inc. a wholly-owned indirect subsidiary of the Company, issued $900 million in aggregate principal amount of 4.125% Senior Notes due 2030 guaranteed by the Company (Senior Notes 2030) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2030 bear interest at a rate of 4.125% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2030 will mature on February 15, 2030, unless earlier redeemed, in accordance with their terms, or repurchased.
For the three and nine months ended March 31, 2022, we recorded interest expense of $9.3 million and $27.9 million, respectively, relating to Senior Notes 2030 (three and nine months ended March 31, 2021—$9.3 million and $27.8 million, respectively).
Senior Notes 2029
On November 24, 2021, we issued $850 million in aggregate principal amount of 3.875% Senior Notes due 2029 (Senior Notes 2029) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2029 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on June 1, 2022. Senior Notes 2029 will mature on December 1, 2029, unless earlier redeemed, in accordance with their terms, or repurchased.
For the three and nine months ended March 31, 2022, we recorded interest expense of $8.2 million and $11.5 million, respectively, relating to Senior Notes 2029.
Senior Notes 2028
On February 18, 2020, we issued $900 million in aggregate principal amount of 3.875% Senior Notes due 2028 (Senior Notes 2028) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2028 bear interest at a rate of 3.875% per annum, payable semi-annually in arrears on February 15 and August 15, commencing on August 15, 2020. Senior Notes 2028 will mature on February 15, 2028, unless earlier redeemed, in accordance with their terms, or repurchased.
For the three and nine months ended March 31, 2022, we recorded interest expense of $8.7 million and $26.1 million, respectively, relating to Senior Notes 2028 (three and nine months ended March 31, 2021—$8.7 million and $26.0 million, respectively).
Senior Notes 2026
On May 31, 2016, we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 would have matured on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.
On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, was $850 million as of December 9, 2021.
On December 9, 2021, we redeemed Senior Notes 2026 in full at a price equal to 102.9375% of the principal amount plus accrued and unpaid interest to, but excluding, the redemption date. A portion of the net proceeds from the offerings of Senior Notes 2029 and Senior Notes 2031 was used to redeem Senior Notes 2026. Upon redemption, Senior Notes 2026 were cancelled and any obligation thereunder was extinguished. The resulting loss of $27.4 million, consisting of $25.0 million relating to the early termination call premium, $6.2 million relating to unamortized debt issuance costs and ($3.8) million relating to unamortized premium, has been recorded as a component of Other income (expense), net in our Condensed Consolidated Statements of Income. See note 22 “Other Income (Expense), Net”.
For the three and nine months ended March 31, 2022, we recorded interest expense of nil and $21.9 million, respectively, relating to Senior Notes 2026 (three and nine months ended March 31, 2021—$12.5 million and $37.5 million, respectively).
Term Loan B
On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $1 billion term loan facility (Term Loan B), whereby we borrowed $1 billion on that day and repaid in full the loans under our prior $800 million term loan facility originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (defined below).
Term Loan B has a seven year term, maturing in May 2025, and repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B currently bear a floating rate of interest equal to 1.75% plus LIBOR. As of March 31, 2022, the outstanding balance on the Term Loan B bears an interest rate of 1.96%. For more information regarding the impact of LIBOR, see “Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against” included within Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2021.
Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of March 31, 2022, our consolidated net leverage ratio was 1.9:1.
For the three and nine months ended March 31, 2022, we recorded interest expense of $4.5 million and $13.6 million, respectively, relating to Term Loan B (three and nine months ended March 31, 2021—$4.6 million and $14.1 million, respectively).
Revolver
On October 31, 2019, we amended our committed revolving credit facility (the Revolver) to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, 2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. For more information regarding the impact of LIBOR, see “Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against” included within Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2021.
As of March 31, 2022, we had no outstanding balance under the Revolver (June 30, 2021—nil). For the three and nine months ended March 31, 2022 we did not record any interest expense relating to the Revolver (three and nine months ended March 31, 2021—nil and $3.6 million, respectively, relating to amounts previously drawn).
Debt Issuance Costs and Premium on Senior Notes
Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our Senior Notes 2026, Senior Notes 2028, Senior Notes 2029, Senior Notes 2030 and Senior Notes 2031 (collectively referred to as the Senior Notes) and are being amortized through interest expense over the respective terms of the Senior Notes and Term Loan B and the Revolver using the effective interest method.
The premium on Senior Notes 2026 represented the excess of the proceeds received over the face value of Senior Notes 2026. This premium was amortized as a reduction to interest expense over the term of Senior Notes 2026 using the effective interest method. The unamortized debt issuance costs and unamortized premium on Senior Notes 2026 were included in the loss on debt extinguishment recognized during our second quarter of Fiscal 2022. See note 22 “Other Income (Expense), Net”.
NOTE 12—PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
The following table provides details of our defined benefit pension plans and long-term employee benefit obligations for Open Text Document Technologies GmbH (CDT), GXS GmbH (GXS GER), GXS Philippines, Inc. (GXS PHP) and other plans as of March 31, 2022 and June 30, 2021:
| | | | | | | | | | | | | | | | | |
| As of March 31, 2022 |
| Total benefit
obligation | | Current portion of benefit obligation(1) | | Non-current portion of
benefit obligation |
| CDT defined benefit plan | $ | 27,158 | | | $ | 867 | | | $ | 26,291 | |
| GXS GER defined benefit plan | 19,545 | | | 968 | | | 18,577 | |
| GXS PHP defined benefit plan | 12,071 | | | 86 | | | 11,985 | |
| Other plans | 20,126 | | | 615 | | | 19,511 | |
| Total | $ | 78,900 | | | $ | 2,536 | | | $ | 76,364 | |
| | | | | | | | | | | | | | | | | |
| As of June 30, 2021 |
| Total benefit
obligation | | Current portion of benefit obligation(1) | | Non-current portion of
benefit obligation |
| CDT defined benefit plan | $ | 32,865 | | | $ | 880 | | | $ | 31,985 | |
| GXS GER defined benefit plan | 23,861 | | | 1,058 | | | 22,803 | |
| GXS PHP defined benefit plan | 10,973 | | | 42 | | | 10,931 | |
| Other plans | 9,594 | | | 802 | | | 8,792 | |
| Total | $ | 77,293 | | | $ | 2,782 | | | $ | 74,511 | |
(1) The current portion of the benefit obligation has been included within “Accrued salaries, incentives and commissions”, all within “Accounts payable and accrued liabilities” in the Condensed Consolidated Balance Sheets (see note 10 “Accounts Payable and Accrued Liabilities”).
Defined Benefit Plans
CDT Plan
CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT plan) which provides for old age, disability and survivors’ benefits. Benefits under the CDT plan are generally based on age at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan.
GXS GER Plan
As part of our acquisition of GXS Group, Inc. (GXS) in Fiscal 2014, we assumed an unfunded defined benefit pension plan covering certain German employees which provides for old age, disability and survivors' benefits. The GXS GER plan has been closed to new participants since 2006. Benefits under the GXS GER plan are generally based on a participant’s remuneration, date of hire, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. No contributions have been made since the inception of the plan.
GXS PHP Plan
As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits under the GXS PHP plan are generally based on a participant’s remuneration, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution which has a fair value of $0.03 million as of March 31, 2022, no additional contributions have been made since the inception of the plan.
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 March 31, 2022 | | As of June 30, 2021 |
| CDT | | GXS GER | | GXS PHP | | Total | | CDT | | GXS GER | | GXS PHP | | Total |
| Benefit obligation—beginning of fiscal year | $ | 32,865 | | | $ | 23,861 | | | $ | 10,973 | | | $ | 67,699 | | | $ | 32,851 | | | $ | 24,105 | | | $ | 10,270 | | | $ | 67,226 | |
| Service cost | 273 | | | 126 | | | 1,420 | | | 1,819 | | | 473 | | | 206 | | | 1,822 | | | 2,501 | |
| Interest cost | 326 | | | 232 | | | 457 | | | 1,015 | | | 505 | | | 364 | | | 469 | | | 1,338 | |
| Benefits paid | (625) | | | (743) | | | (183) | | | (1,551) | | | (800) | | | (1,027) | | | (19) | | | (1,846) | |
| Actuarial (gain) loss | (3,110) | | | (2,072) | | | 268 | | | (4,914) | | | (1,976) | | | (1,118) | | | (1,853) | | | (4,947) | |
| Foreign exchange (gain) loss | (2,571) | | | (1,859) | | | (864) | | | (5,294) | | | 1,812 | | | 1,331 | | | 284 | | | 3,427 | |
| Benefit obligation—end of period | 27,158 | | | 19,545 | | | 12,071 | | | 58,774 | | | 32,865 | | | 23,861 | | | 10,973 | | | 67,699 | |
| Less: Current portion | (867) | | | (968) | | | (86) | | | (1,921) | | | (880) | | | (1,058) | | | (42) | | | (1,980) | |
| Non-current portion of benefit obligation | $ | 26,291 | | | $ | 18,577 | | | $ | 11,985 | | | $ | 56,853 | | | $ | 31,985 | | | $ | 22,803 | | | $ | 10,931 | | | $ | 65,719 | |
The following are details of net pension expense relating to the following pension plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | 2022 | | 2021 |
| Pension expense: | CDT | | GXS GER | | GXS PHP | | Total | | CDT | | GXS GER | | GXS PHP | | Total |
| Service cost | $ | 88 | | | $ | 41 | | | $ | 520 | | | $ | 649 | | | $ | 117 | | | $ | 51 | | | $ | 404 | | | $ | 572 | |
| Interest cost | 105 | | | 75 | | | 164 | | | 344 | | | 125 | | | 90 | | | 104 | | | 319 | |
| Amortization of actuarial (gains) losses | 117 | | | 6 | | | (22) | | | 101 | | | 175 | | | 28 | | | — | | | 203 | |
| Net pension expense | $ | 310 | | | $ | 122 | | | $ | 662 | | | $ | 1,094 | | | $ | 417 | | | $ | 169 | | | $ | 508 | | | $ | 1,094 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended March 31, |
| | 2022 | | 2021 |
| Pension expense: | CDT | | GXS GER | | GXS PHP | | Total | | CDT | | GXS GER | | GXS PHP | | Total |
| Service cost | $ | 273 | | | $ | 126 | | | $ | 1,420 | | | $ | 1,819 | | | $ | 354 | | | $ | 155 | | | $ | 1,245 | | | $ | 1,754 | |
| Interest cost | 326 | | | 232 | | | 457 | | | 1,015 | | | 378 | | | 272 | | | 299 | | | 949 | |
| Amortization of actuarial (gains) losses | 363 | | | 18 | | | (68) | | | 313 | | | 529 | | | 85 | | | — | | | 614 | |
| Net pension expense | $ | 962 | | | $ | 376 | | | $ | 1,809 | | | $ | 3,147 | | | $ | 1,261 | | | $ | 512 | | | $ | 1,544 | | | $ | 3,317 | |
Service-related net periodic pension costs are recorded within operating expense and all other non-service related net periodic pension costs are classified under “Interest and other related expense, net” on our Condensed Consolidated Statements of Income.
In determining the fair value of the pension plan benefit obligations as of March 31, 2022 and June 30, 2021, respectively, we used the following weighted-average key assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | As of June 30, 2021 |
| CDT | | GXS GER | | GXS PHP | | CDT | | GXS GER | | GXS PHP |
| Assumptions: | | | | | | | | | | | |
| Salary increases | 1.50% | | 1.50% | | 6.00% | | 1.50% | | 1.50% | | 5.00% |
| Pension increases | 1.50% | | 1.50% | | N/A | | 1.50% | | 1.50% | | N/A |
| Discount rate | 2.10% | | 2.10% | | 5.50% | | 1.39% | | 1.39% | | 5.00% |
| Normal retirement age | 65-67 | | 65-67 | | 60 | | 65-67 | | 65-67 | | 60 |
| Employee fluctuation rate: | | | | | | | | | | | |
| to age 20 | —% | | —% | | 13.98% | | —% | | —% | | 13.98% |
| to age 25 | —% | | —% | | 7.10% | | —% | | —% | | 7.10% |
| to age 30 | 1.00% | | —% | | 3.00% | | 1.00% | | —% | | 3.00% |
| to age 35 | 0.50% | | —% | | 2.44% | | 0.50% | | —% | | 2.44% |
| to age 40 | —% | | —% | | 2.59% | | —% | | —% | | 2.59% |
| to age 45 | 0.50% | | —% | | 1.15% | | 0.50% | | —% | | 1.15% |
| 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 |
| 2022 (three months ended) | $ | 203 | | | $ | 244 | | | $ | — | |
| 2023 | 886 | | | 965 | | | 116 | |
| 2024 | 959 | | | 966 | | | 130 | |
| 2025 | 1,002 | | | 989 | | | 175 | |
| 2026 | 1,036 | | | 977 | | | 287 | |
| 2027 to 2031 | 5,997 | | | 4,743 | | | 2,894 | |
| Total | $ | 10,083 | | | $ | 8,884 | | | $ | 3,602 | |
Other Plans
Other plans include defined benefit pension plans that are offered or statutorily required by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs.
NOTE 13—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS
Cash Dividends
For the three and nine months ended March 31, 2022, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of $0.2209 and $0.6627 per Common Share, respectively, in the aggregate amount of $59.1 million and $178.6 million, respectively, which we paid during the same period (three and nine months ended March 31, 2021—$0.2008 and $0.5762 per Common Share, respectively, in the aggregate amount of $54.5 million and $156.3 million, respectively).
Share Capital
Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares. No Preference Shares have been issued.
Treasury Stock
From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in connection with the settlement of awards under the Long-Term Incentive Plans (LTIP) or other plans.
During the three and nine months ended March 31, 2022, we repurchased 1,300,000 and 1,700,000 Common Shares, respectively, on the open market at a cost of $56.1 million and $75.7 million, respectively, for potential settlement of awards under “Long-Term Incentive Plans” and “Restricted Share Units” or other plans as described below (three and nine months ended March 31, 2021—489,934 and 1,455,088 Common Shares, respectively, at a cost of $23.0 million and $64.8 million, respectively).
During the three and nine months ended March 31, 2022, we reissued nil and 491,244 Common Shares, respectively, from treasury stock in connection with the settlement of awards and other plans (three and nine months ended March 31, 2021—23,640 and 509,721 Common Shares, respectively).
Share Repurchase Plan
On November 5, 2020, the Board authorized a share repurchase plan (Repurchase Plan), pursuant to which we were authorized to purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2020, up to an aggregate of $350 million of our Common Shares.
On November 4, 2021, the Board authorized a share repurchase plan (Renewed Repurchase Plan), pursuant to which we may purchase in open market transactions, from time to time over the 12 month period commencing November 12, 2021, up to an aggregate of $350 million of our Common Shares.
During the three and nine months ended March 31, 2022, we repurchased and cancelled 1,000,000 and 2,809,559 Common Shares, respectively, for $45.1 million and $136.1 million, respectively (three and nine months ended March 31, 2021—nil, respectively). Share repurchases during the three and nine months ended March 31, 2022 were completed under our share repurchase plans authorized on both November 5, 2020 and November 4, 2021.
Share-Based Payments
Total share-based compensation expense for the periods indicated below is detailed as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Nine Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Stock options | $ | 3,442 | | | $ | 3,460 | | | $ | 12,457 | | | $ | 11,329 | |
| Performance Share Units (issued under LTIP) | 2,980 | | | 2,447 | | | 10,151 | | | 7,486 | |
| Restricted Share Units (issued under LTIP) | 1,694 | | | 1,697 | | | 5,790 | | | 5,655 | |
| Restricted Share Units (other) | 6,482 | | | 2,807 | | | 9,229 | | | 7,877 | |
| Deferred Share Units (directors) | 915 | | | 813 | | | 3,069 | | | 2,626 | |
| Employee Stock Purchase Plan | 1,235 | | | 1,133 | | | 4,395 | | | 3,646 | |
| Total share-based compensation expense | $ | 16,748 | | | $ | 12,357 | | | $ | 45,091 | | | $ | 38,619 | |
Summary of Outstanding Stock Options
As of March 31, 2022, an aggregate of 9,009,585 options to purchase Common Shares were outstanding and an additional 9,450,921 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 nine months ended March 31, 2022 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Options | | Weighted-
Average Exercise
Price | | Weighted-
Average
Remaining
Contractual Term
(years) | | Aggregate Intrinsic Value
($’000's) |
Outstanding at June 30, 2021 | 8,113,574 | | | $ | 40.16 | | | 4.88 | | $ | 86,297 | |
| Granted | 2,427,510 | | | 48.69 | | | | | |
| Exercised | (904,645) | | | 34.41 | | | | | |
| Forfeited or expired | (626,854) | | | 44.60 | | | | | |
Outstanding at March 31, 2022 | 9,009,585 | | | $ | 42.73 | | | 4.88 | | $ | 21,827 | |
Exercisable at March 31, 2022 | 2,580,100 | | | $ | 36.87 | | | 3.27 | | $ | 15,360 | |
We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo pricing model, 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 estimated under the Black-Scholes option-pricing model were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Nine Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Weighted–average fair value of options granted | $ | 8.31 | | | $ | 8.86 | | | $ | 9.08 | | | $ | 8.41 | |
| Weighted-average assumptions used: | | | | | | | |
| Expected volatility | 26.06 | % | | 26.59 | % | | 26.37 | % | | 26.20 | % |
| Risk–free interest rate | 1.54 | % | | 0.32 | % | | 1.06 | % | | 0.21 | % |
| Expected dividend yield | 1.94 | % | | 1.54 | % | | 1.75 | % | | 1.54 | % |
| Expected life (in years) | 4.14 | | 4.14 | | 4.15 | | 4.63 |
| Forfeiture rate (based on historical rates) | 7 | % | | 7 | % | | 7 | % | | 7 | % |
| Average exercise share price | $ | 44.45 | | | $ | 48.74 | | | $ | 48.69 | | | $ | 45.57 | |
As of March 31, 2022, the total compensation cost related to the unvested stock option awards not yet recognized was $44.2 million, which will be recognized over a weighted-average period of 2.9 years.
No cash was used by us to settle equity instruments granted under share-based compensation arrangements in any of the periods presented.
We have not capitalized any share-based compensation costs as part of the cost of an asset in any of the periods presented.
The aggregate intrinsic value of options exercised during the three and nine months ended March 31, 2022 was $0.4 million and $16.7 million, respectively (three and nine months ended March 31, 2021—$2.1 million and $9.8 million, respectively).
For the three and nine months ended March 31, 2022, cash in the amount of $1.9 million and $31.1 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements (three and nine months ended March 31, 2021—$8.3 million and $23.8 million, respectively).
The tax benefit realized by us during the three and nine months ended March 31, 2022 from the exercise of options eligible for a tax deduction was $0.1 million and $1.6 million, respectively (three and nine months ended March 31, 2021—$0.3 million and $1.4 million, respectively).
Long-Term Incentive Plans
We incentivize certain eligible employees, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling three year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. Target RSUs become vested when an eligible employee remains employed throughout the vesting period.
PSUs and RSUs granted under the LTIP have been measured at fair value as of the effective date, consistent with Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value. Stock options granted under the LTIP have been measured using the Black-Scholes option-pricing model, consistent with Topic 718.
As of March 31, 2022, the total expected compensation cost related to the unvested LTIP awards not yet recognized was $41.3 million, which is expected to be recognized over a weighted average period of 1.9 years.
LTIP grants that have recently vested, or have yet to vest, are described below. LTIP grants are referred to in this Quarterly Report on Form 10-Q based upon the year in which the grants are expected to vest.
LTIP 2021
Grants made in Fiscal 2019 under the LTIP (collectively referred to as LTIP 2021), consisting of PSUs and RSUs, took effect in Fiscal 2019 starting on August 6, 2018. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the LTIP 2021. We settled the LTIP 2021 awards by issuing 349,792 Common Shares from treasury stock during our second quarter in Fiscal 2022, at a cost of $15.1 million.
LTIP 2022
Grants made in Fiscal 2020 under the LTIP (collectively referred to as LTIP 2022), consisting of PSUs and RSUs, took effect in Fiscal 2020 starting on August 5, 2019. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the LTIP 2022. We expect to settle the LTIP 2022 awards in stock.
LTIP 2023
Grants made in Fiscal 2021 under the LTIP (collectively referred to as LTIP 2023), consisting of PSUs and RSUs, took effect in Fiscal 2021 starting on August 10, 2020. 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 LTIP 2023. We expect to settle the LTIP 2023 awards in stock.
LTIP 2024
Grants made in Fiscal 2022 under the LTIP (collectively referred to as LTIP 2024), consisting of PSUs and RSUs, took effect in Fiscal 2022 starting on August 9, 2021. 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 LTIP 2024. We expect to settle the LTIP 2024 awards in stock.
Restricted Share Units
In addition to the grants made in connection with the LTIP plans discussed above, from time to time, we may grant RSUs to certain employees in accordance with employment and other non-LTIP related agreements. During the three months ended March 31, 2022, we granted RSUs through a special one-time grant for development, engagement and long-term retention to certain of our non-executive employees. During the three and nine months ended March 31, 2022, we granted 2,459,929 RSUs, respectively, to employees (three and nine months ended March 31, 2021— nil and 484,956 RSUs, respectively). RSUs vest over a specified contract date, typically three years from the respective date of grants.
As of March 31, 2022, the total expected compensation cost related to the unvested RSU awards not yet recognized was $106.9 million, which is expected to be recognized over a weighted average period of 2.1 years. We expect to settle RSU awards in stock.
During the three and nine months ended March 31, 2022, we issued nil and 141,452 Common Shares, respectively, from treasury stock in connection with the settlement of vested RSUs, at a cost of nil and $5.9 million, respectively (three and nine months ended March 31, 2021—nil).
Deferred Share Units (DSUs)
During the three and nine months ended March 31, 2022, we granted 5,058 and 78,705 DSUs, respectively, to certain non-employee directors (three and nine months ended March 31, 2021—5,015 and 81,585 DSUs, respectively). The DSUs were issued under our Deferred Share Unit Plan. DSUs granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board.
During the three and nine months ended March 31, 2022, respectively, we did not issue any of our Common Shares from treasury stock in connection with the settlement of vested DSUs (three and nine months ended March 31, 2021— 23,640 Common Shares, respectively, at a cost of $1.1 million, respectively).
Employee Stock Purchase Plan (ESPP)
Our ESPP offers employees the opportunity to purchase our Common Shares at a purchase price discount of 15%.
During the three and nine months ended March 31, 2022, 246,473 and 644,986 Common Shares, respectively, were eligible for issuance to employees enrolled in the ESPP (three and nine months ended March 31, 2021—204,812 and 572,219 Common Shares, respectively).
During the three and nine months ended March 31, 2022, cash in the amount of $8.9 million and $25.3 million, respectively, was received from employees relating to the ESPP (three and nine months ended March 31, 2021—$8.3 million and $22.0 million, respectively).
NOTE 14—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 | | April 1, 2022 -
June 30, 2022 | | July 1, 2022 -
June 30, 2024 | | July 1, 2024 -
June 30, 2026 | | July 1, 2026
and beyond |
Long-term debt obligations (1) | $ | 5,358,547 | | | $ | 38,290 | | | $ | 321,232 | | | $ | 1,218,025 | | | $ | 3,781,000 | |
Purchase obligations for contracts not accounted for as lease obligations (2) | 70,931 | | | 28,555 | | | 42,376 | | | — | | | — | |
| $ | 5,429,478 | | | $ | 66,845 | | | $ | 363,608 | | | $ | 1,218,025 | | | $ | 3,781,000 | |
(1) Includes interest up to maturity and principal payments. Please see note 11 “Long-Term Debt” for more details.
(2) For contractual obligations relating to leases and purchase obligations accounted for under Topic 842, please see note 6 “Leases”.
Guarantees and Indemnifications
We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed 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 Quarterly Report on Form 10-Q, the aggregate of such accrued liabilities was not material to our consolidated financial position or results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.
Contingencies
CRA Matter
As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of March 31, 2022, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, to be limited to penalties, interest and provincial taxes that may be due of approximately $75 million. As of March 31, 2022, we have provisionally paid approximately $34 million in order to fully preserve our rights to object to the CRA's audit positions, being the minimum payment required under Canadian legislation while the matter is in dispute. This amount is recorded within “Long-term income taxes recoverable” on the Condensed Consolidated Balance Sheets as of March 31, 2022.
The notices of reassessment for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 would, as drafted, increase our taxable income by approximately $90 million to $100 million for each of those years, as well as impose a 10% penalty on the proposed adjustment to income. 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.
We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016 (including any penalties) are without merit. We have filed notices of objection for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016. We are currently seeking competent authority consideration under applicable international treaties in respect of these reassessments.
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013, Fiscal 2014, Fiscal 2015 and Fiscal 2016, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.
The CRA has also been auditing Fiscal 2017 on a basis that we strongly disagree with and will vigorously contest. The focus of the CRA audit has been the valuation of certain intellectual property and goodwill when one of our subsidiaries continued into Canada from Luxembourg in July 2016. In accordance with applicable rules, these assets were recognized for tax purposes at fair market value as of that time, which value was supported by an expert valuation prepared by an independent leading accounting and advisory firm. In conjunction with the Fiscal 2017 audit, the CRA issued a proposal letter dated April 7, 2021 (Proposal Letter) indicating to us that it proposes to reassess our Fiscal 2017 tax year to reduce the depreciable basis of these assets. We have made extensive submissions in support of our position. CRA’s position for Fiscal 2017 relies in significant part on the application of its positions regarding our transfer pricing methodology that are the basis for its reassessment of our fiscal years 2012 to 2016 described above, and that we believe are without merit. Other aspects of CRA’s position for Fiscal 2017 conflict with the expert valuation prepared by the independent leading accounting and advisory firm that was used to support our original filing position. On January 27, 2022, the CRA issued a notice of reassessment in respect of Fiscal 2017 on the basis of its position set forth in the Proposal Letter. On April 19, 2022, we filed our notice of objection regarding the reassessment in respect of Fiscal 2017. If we are ultimately unsuccessful in defending our position, the estimated impact of the proposed adjustment could result in us recording an income tax expense, with no immediate cash payment, to reduce the stated value of our deferred tax assets of up to approximately $470 million. Any such income tax expense could also have a corresponding cash tax impact that would primarily occur over a period of several future years based upon annual income realization in Canada. We strongly disagree with the CRA’s position for Fiscal 2017 and intend to vigorously defend our original filing position.
We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments, as well as any proposed reduction to the basis of our depreciable property. We are confident that our original tax filing positions were appropriate. Accordingly, as of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of these reassessments or proposed reassessment in our Condensed Consolidated Financial Statements. The CRA is currently in preliminary stages of auditing Fiscal 2018 and Fiscal 2019.
Carbonite Class Action Complaint
On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the “Securities Actions”). On November 21, 2019, the court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants moved to dismiss the Securities Actions on March 10, 2020. The motion was fully briefed in June 2020 and a hearing on the motion to dismiss the Securities Actions was held on October 15, 2020. Following the hearing, on October 22, 2020, the court granted with prejudice the defendants’ motion to dismiss the Securities Actions. On November 20, 2020, the lead plaintiff filed a notice of appeal to the Court of Appeals for the First Circuit. On December 21, 2021, the First Circuit issued a decision reversing and remanding the Securities Actions to the district court for further proceedings. The defendants remain confident in their position, believe the Securities Actions are without merit, and will continue to vigorously defend the matter.
Carbonite vs Realtime Data
On February 27, 2017, before our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (Realtime Data) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas “Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL).” Therein, it alleged that certain of Carbonite’s cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S. District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the same asserted patents against other companies. After a stay pending appeal in one of those suits, on January 21, 2021, the Court held a hearing to construe the claims of the asserted patents. As to the fourth patent asserted against Carbonite, on September 24, 2019, the U.S. Patent & Trademark Office Patent Trial and Appeal Board invalidated certain claims of that patent, including certain claims that had been asserted against Carbonite. The parties then jointly stipulated to dismiss that patent from this action. On August 23, 2021, in one of the suits against other companies, the District of Delaware (No. 1:17-cv-800), held all of the patents asserted against Carbonite to be invalid. Realtime Data has appealed that decision to the U.S. Court of Appeals for the Federal Circuit. We continue to vigorously defend the matter, and the U.S. District Court for the District of Massachusetts has issued a claim construction order. We anticipate motion practice based upon the result of that order. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.
Please also see Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for Fiscal 2021.
NOTE 15—INCOME TAXES
Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a wide range of income tax rates.
The effective tax rate increased to a provision of 35.5% for the three months ended March 31, 2022, compared to a provision of 25.8% for the three months ended March 31, 2021. Tax expense increased from $31.8 million during the three months ended March 31, 2021 to $41.0 million during the three months ended March 31, 2022. This was primarily due to (i) an increase of $10.6 million related to the US Base Erosion and Anti-Abuse Tax (US BEAT) and (ii) an increase of $4.4 million relating to tax impacts of legal entity rationalization. These were partially offset by (i) a net decrease of $2.9 million related to Foreign Accrual Property Income and (ii) a net increase of $2.1 million benefit related to the 50% exclusion on gains in certain investment funds in which we are a limited partner. The remainder of the difference was due to normal course movements and non-material items.
The effective tax rate decreased to a provision of 29.6% for the nine months ended March 31, 2022, compared to a provision of 72.5% for the nine months ended March 31, 2021. Tax expense decreased from $342.1 million during the nine months ended March 31, 2021 to $123.8 million during the nine months ended March 31, 2022. This was primarily due to (i) a decrease of $300.6 million related to Internal Revenue Service (IRS) settlements in Fiscal 2021, (ii) a decrease of $11.3 million related to differences in tax filings, (iii) a net decrease of $5.9 million for related Subpart F and (iv) an increase of $5.2 million benefit related to the 50% exclusion on gains in certain investment funds in which we are a limited partner. These were partially offset by (i) an increase of $90.6 million for changes in unrecognized tax benefits, (ii) a net increase of $17.0 million related to internal reorganizations and (iii) a decrease of $4.4 million in share-based compensation benefits. The remainder of the difference was due to normal course movements and non-material items.
We recognize interest expense and penalties related to income tax matters in income tax expense. For the three and nine months ended March 31, 2022 and 2021, respectively, we recognized the following amounts as income tax-related interest expense and penalties:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Interest expense | $ | 336 | | | $ | 1,315 | | | $ | 803 | | | $ | 45,422 | |
| Penalties expense | 245 | | | 506 | | | 418 | | | 889 | |
| Total | $ | 581 | | | $ | 1,821 | | | $ | 1,221 | | | $ | 46,311 | |
The following amounts have been accrued on account of income tax-related interest expense and penalties:
| | | | | | | | | | | |
| As of March 31, 2022 | | As of June 30, 2021 |
Interest expense accrued (1) | $ | 5,751 | | | $ | 5,166 | |
Penalties accrued (1) | $ | 2,553 | | | $ | 2,605 | |
(1) These balances are primarily included within “Long-term income taxes payable” within the Condensed Consolidated Balance Sheets.We believe that it is reasonably possible that the gross unrecognized tax benefits, as of March 31, 2022, could decrease tax expense in the next 12 months by $3.1 million, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions.
Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The earliest fiscal years open for examination are 2012 for Canada, 2016 for the United States and 2012 for Germany. As of December 31, 2021, the Fiscal 2015 and Fiscal 2016 tax years for Luxembourg became statute barred.
We are subject to income tax audits in all major taxing jurisdictions in which we operate and currently have income tax audits open in Canada, the United States, Germany, India and France. 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 Canada audits are included in note 14 “Guarantees and Contingencies”.
The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain income tax audits, please refer to note 14 “Guarantees and Contingencies”.
As of March 31, 2022, we have recognized a provision of $29.2 million (June 30, 2021—$27.5 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain German subsidiaries, that will be subject to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.
NOTE 16—FAIR VALUE MEASUREMENT
ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk.
In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair 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 March 31, 2022 and June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | June 30, 2021 |
| | | | Fair Market Measurements using: | | | | Fair Market Measurements using: |
| | March 31, 2022 | | Quoted prices
in active
markets for
identical
assets/
(liabilities) | | Significant
other
observable
inputs | | Significant
unobservable
inputs | | June 30, 2021 | | 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 (Liabilities): | | | | | | | | | | | | | | |
| Foreign currency forward contracts designated as cash flow hedges (note 17) | $ | 559 | | | $ | — | | | $ | 559 | | | $ | — | | | $ | 1,131 | | | $ | — | | | $ | 1,131 | | | $ | — | |
| Total | $ | 559 | | | $ | — | | | $ | 559 | | | $ | — | | | $ | 1,131 | | | $ | — | | | $ | 1,131 | | | $ | — | |
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 Condensed Consolidated Financial Statements at an amount that approximates the fair value (a Level 2 measurement) due to their short maturities.
The fair value of our Senior Notes is determined based on observable market prices and categorized as a Level 2 measurement. As of March 31, 2022, the fair value was $3.1 billion (June 30, 2021—$2.7 billion). The carrying value of our other long-term debt facilities approximates the fair value since the interest rate is at market. Please see note 11 “Long-Term Debt” for further details.
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 three and nine months ended March 31, 2022 and 2021, respectively, 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 three and nine months ended March 31, 2022 and 2021, respectively, no indications of impairments were identified and therefore no fair value measurements were required.
NOTE 17—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Foreign Currency Forward Contracts
We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between one and twelve months. We do not use foreign currency forward contracts for speculative purposes.
We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (Topic 815). As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within “Other Comprehensive Income (Loss) - net”. The fair value of the contracts, as of March 31, 2022, is recorded within “Prepaid expenses and other current assets” and represents the net gain before tax effect that is expected to be reclassified from accumulated other comprehensive income into earnings with the next twelve months.
As of March 31, 2022, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was $67.0 million (June 30, 2021—$66.9 million).
Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance
The effect of these derivative instruments on our Condensed 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 Condensed Consolidated Balance Sheets (see note 16 “Fair Value Measurement”)
| | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of June 30, 2021 |
| 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 (Accounts payable and accrued liabilities) | $ | 559 | | | $ | 1,131 | |
Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI) (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three and Nine Months Ended March 31, 2022 |
| Derivatives in Cash Flow Hedging Relationship | Amount of Gain or (Loss) Recognized in OCI (Loss) on Derivatives (Effective Portion) | | Location of Gain or (Loss)
Reclassified from Accumulated OCI into Income (Loss)
(Effective Portion) | | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Loss)
(Effective Portion) |
| Three Months Ended March 31, 2022 | | Nine Months Ended March 31, 2022 | | | | Three Months Ended March 31, 2022 | | Nine Months Ended March 31, 2022 |
| Foreign currency forward contracts | $ | 881 | | | $ | (455) | | | Operating expenses | | $ | (298) | | | $ | 117 | |
| | | | | | | | | |
Three and Nine Months Ended March 31, 2021 |
| Derivatives in Cash Flow Hedging Relationship | Amount of Gain or (Loss) Recognized in OCI (Loss) on Derivatives (Effective Portion) | | Location of Gain or (Loss)
Reclassified from Accumulated OCI into Income (Loss)
(Effective Portion) | | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Loss)
(Effective Portion) |
| Three Months Ended March 31, 2021 | | Nine Months Ended March 31, 2021 | | | | Three Months Ended March 31, 2021 | | Nine Months Ended March 31, 2021 |
| Foreign currency forward contracts | $ | 927 | | | $ | 4,910 | | | Operating expenses | | $ | 1,507 | | | $ | 2,574 | |
NOTE 18—SPECIAL CHARGES (RECOVERIES)
Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Fiscal 2022 Restructuring Plan | $ | 464 | | | $ | — | | | $ | 464 | | | $ | — | |
| COVID-19 Restructuring Plan | (495) | | | 153 | | | (1,310) | | | (7,581) | |
| Fiscal 2020 Restructuring Plan | 3 | | | (727) | | | (145) | | | 475 | |
| Restructuring Plans prior to Fiscal 2020 Restructuring Plan | 15 | | | 10 | | | (64) | | | 11 | |
| Acquisition-related costs | 1,302 | | | 3,145 | | | 5,967 | | | 4,593 | |
| Other charges (recoveries) | 9,742 | | | 265 | | | 15,680 | | | 1,098 | |
| Total | $ | 11,031 | | | $ | 2,846 | | | $ | 20,592 | | | $ | (1,404) | |
Fiscal 2022 Restructuring Plan
During the third quarter of Fiscal 2022, as part of our return to office planning, we made a strategic decision to implement restructuring activities to streamline our operations and further reduce our real estate footprint around the world (Fiscal 2022 Restructuring Plan). The Fiscal 2022 Restructuring Plan charges will relate to facility costs and workforce reductions. Facility costs will include the accelerated amortization associated with the abandonment of ROU assets, the write-off of fixed assets and other related variable lease and exit 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.
During the three and nine months ended March 31, 2022, we recorded charges of $0.5 million, respectively, related to workforce reductions.
As of March 31, 2022, we expect total costs to be incurred in connection with the Fiscal 2022 Restructuring Plan to be approximately $30.0 million to $35.0 million, of which $0.5 million has been recorded within “Special charges (recoveries)” to date.
A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” in our Condensed Consolidated Balance Sheets, for the nine months ended March 31, 2022 is shown below.
| | | | | | | | | | | | | |
| Fiscal 2022 Restructuring Plan | Workforce reduction | | | | Total |
Balance payable as of June 30, 2021 | $ | — | | | | | $ | — | |
| Accruals and adjustments | 464 | | | | | 464 | |
| Cash payments | (111) | | | | | (111) | |
| Foreign exchange and other non-cash adjustments | 2 | | | | | 2 | |
Balance payable as of March 31, 2022 | $ | 355 | | | | | $ | 355 | |
COVID-19 Restructuring Plan
During the fourth quarter of Fiscal 2020, in response to the COVID-19 pandemic, we made a strategic decision to move towards a significant work from home model. We began to implement restructuring activities to streamline our operations and significantly reduce our real estate footprint around the world (COVID-19 Restructuring Plan). The COVID-19 Restructuring Plan charges relate to workforce reductions and facility costs, including the accelerated amortization associated with the abandonment of ROU assets, the write-off of fixed assets and other related variable lease and exit costs. 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. With respect to the COVID-19 Restructuring Plan, at the time of initial abandonment we assumed there would be no additional sublease income, lease assignments or early terminations from vacated facilities.
During the three and nine months ended March 31, 2022, we recorded net recoveries of $0.5 million and $1.3 million, respectively, related to abandoned facilities and workforce reductions.
During the three and nine months ended March 31, 2021, we recorded net recoveries of $1.5 million and $15.4 million, respectively, related to office space that was abandoned during the fourth quarter of Fiscal 2020 and has since been early terminated or assigned to a third party. Included in these recoveries are $2.2 million and $12.3 million, respectively, related to the reversal of lease liabilities (see note 6 “Leases”), with the remainder related to other facility charges and recoveries. Additionally, during the three and nine months ended March 31, 2021, we incurred $1.6 million and $7.8 million, respectively, of charges related to abandoned facilities, workforce reductions and the write-off of fixed assets.
Since the inception of the COVID-19 Restructuring Plan, $43.4 million has been recorded within “Special charges (recoveries)” to date. We do not expect to incur any further significant charges relating to the COVID-19 Restructuring Plan.
A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” and “Long-term accrued liabilities” in our Condensed Consolidated Balance Sheets, for the nine months ended March 31, 2022 is shown below.
| | | | | | | | | | | | | | | | | |
| COVID-19 Restructuring Plan | Workforce reduction | | Facility charges | | Total |
Balance payable as of June 30, 2021 | $ | 255 | | | $ | 4,010 | | | $ | 4,265 | |
| Accruals and adjustments | (101) | | | (1,462) | | | (1,563) | |
| Cash payments | (144) | | | 318 | | | 174 | |
| Foreign exchange and other non-cash adjustments | (10) | | | (302) | | | (312) | |
Balance payable as of March 31, 2022 | $ | — | | | $ | 2,564 | | | $ | 2,564 | |
Fiscal 2020 Restructuring Plan
During Fiscal 2020, we began to implement restructuring activities to streamline our operations (Fiscal 2020 Restructuring Plan), including in connection with our acquisitions of Carbonite and XMedius, to take further steps to improve our operational efficiency. The Fiscal 2020 Restructuring Plan charges relate to workforce reductions and facility costs, including the accelerated amortization associated with the abandonment of ROU assets, the write-off of fixed assets and other related variable lease and exit costs. 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. With respect to the Fiscal 2020 Restructuring Plan, at the time of the initial abandonment we assumed there would be no additional sublease income, lease assignments or early terminations from vacated facilities.
During the three and nine months ended March 31, 2022, we recorded immaterial charges and net recoveries of $0.1 million respectively, related to abandoned facilities and workforce reductions.
During the three and nine months ended March 31, 2021, we recorded net recoveries of $0.6 million and $13.6 million, respectively, related to office space that was abandoned during the fourth quarter of Fiscal 2020 and has since been early terminated or assigned to a third party. Included in these recoveries are $1.0 million and $10.0 million, respectively, related to the reversal of lease liabilities (see note 6 “Leases”), with the remainder related to other facility charges and recoveries. Additionally, during the three and nine months ended March 31, 2021, we recognized a net recovery of $0.1 million and charges of $14.1 million, respectively, related to abandoned facilities, workforce reductions and the write-off of fixed assets.
Since the inception of the Fiscal 2020 Restructuring Plan, $30.2 million has been recorded within “Special charges (recoveries)” to date. We do not expect to incur any further significant charges relating to the Fiscal 2020 Restructuring Plan.
A reconciliation of the beginning and ending restructuring liability, which is included within “Accounts payable and accrued liabilities” and “Long-term accrued liabilities” in our Condensed Consolidated Balance Sheets, for the nine months ended March 31, 2022 is shown below.
| | | | | | | | | | | | | | | | | |
| Fiscal 2020 Restructuring Plan | Workforce reduction | | Facility charges | | Total |
Balance payable as of June 30, 2021 | $ | 2,217 | | | $ | 1,866 | | | $ | 4,083 | |
| Accruals and adjustments | (226) | | | 44 | | | (182) | |
| Cash payments | (1,864) | | | (264) | | | (2,128) | |
| Foreign exchange and other non-cash adjustments | (127) | | | 7 | | | (120) | |
Balance payable as of March 31, 2022 | $ | — | | | $ | 1,653 | | | $ | 1,653 | |
Acquisition-related costs
Acquisition-related costs, recorded within “Special charges (recoveries)” include direct costs of potential and completed acquisitions. Acquisition-related costs for the three and nine months ended March 31, 2022 were $1.3 million and $6.0 million, respectively (three and nine months ended March 31, 2021—$3.1 million and $4.6 million, respectively).
Other charges (recoveries)
For the three and nine months ended March 31, 2022, “Other charges” includes $9.6 million and $11.6 million, respectively, related to pre-acquisition equity incentives, which upon acquisition were replaced by equivalent value cash settlements (see note 19 “Acquisitions”) and $0.1 million and $4.1 million, respectively, related to other miscellaneous charges.
For the three and nine months ended March 31, 2021, “Other charges” includes $0.3 million and $1.1 million, respectively, related to other miscellaneous charges.
NOTE 19—ACQUISITIONS
Fiscal 2022 Acquisitions
Acquisition of Zix Corporation
On December 23, 2021, we acquired all of the equity interest in Zix Corporation (Zix), a leader in software as a service (SaaS) based email encryption, threat protection and compliance cloud solutions for small and medium-sized businesses (SMB). Total consideration for Zix was $894.5 million paid in cash, inclusive of cash acquired and $18.6 million relating to the cash settlement of pre-acquisition vested share-based compensation that was previously accrued but since paid as of March 31, 2022. In accordance with ASC Topic 805 “Business Combinations” (Topic 805), this acquisition was accounted for as a business combination. We believe the acquisition increases our position in the data protection, threat management, email security and compliance solutions spaces.
The results of operations of Zix have been consolidated with those of OpenText beginning December 23, 2021.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based on their preliminary fair values as of December 23, 2021, are set forth below:
| | | | | |
Current assets (inclusive of cash acquired of $38.3 million) | $ | 76,170 | |
| Non-current tangible assets | 13,736 | |
| Intangible customer assets | 213,600 | |
| Intangible technology assets | 92,050 | |
| Liabilities assumed | (86,539) | |
| Total identifiable net assets | 309,017 | |
| Goodwill | 585,443 | |
| Net assets acquired | $ | 894,460 | |
The goodwill of $585.4 million is primarily attributable to the synergies expected to arise after the acquisition. There is $103.7 million of goodwill that is deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of $30.1 million. The gross amount receivable was $32.7 million, of which $2.6 million is expected to be uncollectible.
Acquisition-related costs for Zix included in “Special charges (recoveries)” in the Condensed Consolidated Financial Statements for the three and nine months ended March 31, 2022 were $0.6 million and $2.7 million, respectively.
Pre-acquisition equity incentives of $26.6 million were replaced upon acquisition by equivalent value cash settlements to be settled in accordance with the original vesting dates, primarily over the next two years. Of these equity incentives, $9.6 million and $11.6 million for the three and nine months ended March 31, 2022, respectively, were included in “Special charges (recoveries).”
The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities. We expect to finalize this determination on or before our quarter ending December 31, 2022.
Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the three and nine months ended March 31, 2022. Pro forma results of operations for this acquisition have not been presented because they are not material to our consolidated results of operations.
Acquisition of Bricata Inc.
On November 24, 2021, we acquired all of the equity interest in Bricata Inc. (Bricata) for $17.8 million. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe the acquisition strengthens our OpenText Security and Protection Cloud with Network Detection and Response technologies.
The results of operations of Bricata have been consolidated with those of OpenText beginning November 24, 2021.
Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the three and nine months ended March 31, 2022. Pro forma results of operations for this acquisition have not been presented because they are not material to our consolidated results of operations.
NOTE 20—ACCUMULATED OTHER COMPREHENSIVE INCOME
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
| | Foreign Currency Translation Adjustments | | Cash Flow Hedges | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Income |
Balance as of December 31, 2021 | | $ | 43,969 | | | $ | (457) | | | $ | (12,163) | | | $ | 31,349 | |
| Other comprehensive income (loss) before reclassifications, net of tax | | (13,073) | | | 648 | | | (2,033) | | | (14,458) | |
| Amounts reclassified into net income, net of tax | | — | | | 219 | | | 156 | | | 375 | |
| Total other comprehensive income (loss) net, for the period | | (13,073) | | | 867 | | | (1,877) | | | (14,083) | |
Balance as of March 31, 2022 | | $ | 30,896 | | | $ | 410 | | | $ | (14,040) | | | $ | 17,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended March 31, 2022 |
| | Foreign Currency Translation Adjustments | | Cash Flow Hedges | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Income |
Balance as of June 30, 2021 | | $ | 75,408 | | | $ | 830 | | | $ | (10,000) | | | $ | 66,238 | |
| Other comprehensive income (loss) before reclassifications, net of tax | | (44,512) | | | (334) | | | (4,517) | | | (49,363) | |
| Amounts reclassified into net income, net of tax | | — | | | (86) | | | 477 | | | 391 | |
| Total other comprehensive income (loss) net, for the period | | (44,512) | | | (420) | | | (4,040) | | | (48,972) | |
Balance as of March 31, 2022 | | $ | 30,896 | | | $ | 410 | | | $ | (14,040) | | | $ | 17,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
| | Foreign Currency Translation Adjustments | | Cash Flow Hedges | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Income |
Balance as of December 31, 2020 | | $ | 81,678 | | | $ | 2,007 | | | $ | (17,209) | | | $ | 66,476 | |
| Other comprehensive income (loss) before reclassifications, net of tax | | (12,568) | | | 681 | | | 344 | | | (11,543) | |
| Amounts reclassified into net income, net of tax | | — | | | (1,108) | | | 249 | | | (859) | |
| Total other comprehensive income (loss) net, for the period | | (12,568) | | | (427) | | | 593 | | | (12,402) | |
Balance as of March 31, 2021 | | $ | 69,110 | | | $ | 1,580 | | | $ | (16,616) | | | $ | 54,074 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended March 31, 2021 |
| | Foreign Currency Translation Adjustments | | Cash Flow Hedges | | Defined Benefit Pension Plans | | Accumulated Other Comprehensive Income |
Balance as of June 30, 2020 | | $ | 32,968 | | | $ | (136) | | | $ | (15,007) | | | $ | 17,825 | |
| Other comprehensive income (loss) before reclassifications, net of tax | | 36,142 | | | 3,608 | | | (2,342) | | | 37,408 | |
| Amounts reclassified into net income, net of tax | | — | | | (1,892) | | | 733 | | | (1,159) | |
| Total other comprehensive income (loss) net, for the period | | 36,142 | | | 1,716 | | | (1,609) | | | 36,249 | |
Balance as of March 31, 2021 | | $ | 69,110 | | | $ | 1,580 | | | $ | (16,616) | | | $ | 54,074 | |
NOTE 21—SUPPLEMENTAL CASH FLOW DISCLOSURES
| | | | | | | | | | | |
| | Nine Months Ended March 31, |
| | 2022 | | 2021 |
| Cash paid during the period for interest | $ | 115,097 | | | $ | 117,359 | |
| Cash received during the period for interest | $ | 2,382 | | | $ | 3,116 | |
Cash paid during the period for income taxes (1) | $ | 88,259 | | | $ | 369,246 | |
|
(1) Included for the nine months ended March 31, 2021 is cash paid of $290.0 million relating to settlements with the IRS. |
NOTE 22—OTHER INCOME (EXPENSE), NET
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Nine Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Foreign exchange gains (losses) | $ | (3,443) | | | $ | (3,248) | | | $ | (2,900) | | | $ | (3,258) | |
OpenText share in net income of equity investees (1) | 27,746 | | | 11,765 | | | 59,103 | | | 20,020 | |
Loss on debt extinguishment (2) | — | | | — | | | (27,413) | | | — | |
| Other miscellaneous income (expense) | 89 | | | (234) | | | 347 | | | (345) | |
| Total other income (expense), net | $ | 24,392 | | | $ | 8,283 | | | $ | 29,137 | | | $ | 16,417 | |
|
(1) Represents our share in net income of equity investees, which approximates fair value and subject to volatility based on market trends and business conditions, based on our interest in certain investment funds in which we are a limited partner. Our interests in each of these investees range from 4% to below 20% and these investments are accounted for using the equity method (see note 9 “Prepaid Expenses and Other Assets” for more details). |
(2) On December 9, 2021, we redeemed Senior Notes 2026 in full, which resulted in a loss on debt extinguishment of $27.4 million. Of this, $25.0 million related to the early termination call premium, $6.2 million related to unamortized debt issuance costs and ($3.8) million related to unamortized premium (see note 11 “Long-Term Debt” for more details). |
NOTE 23—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.
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, | | Nine Months Ended March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| Basic earnings per share | | | | | | | |
| Net income attributable to OpenText | $ | 74,681 | | | $ | 91,490 | | | $ | 294,894 | | | $ | 129,389 | |
| Basic earnings per share attributable to OpenText | $ | 0.28 | | | $ | 0.34 | | | $ | 1.09 | | | $ | 0.47 | |
| Diluted earnings per share | | | | | | | |
| Net income attributable to OpenText | $ | 74,681 | | | $ | 91,490 | | | $ | 294,894 | | | $ | 129,389 | |
| Diluted earnings per share attributable to OpenText | $ | 0.28 | | | $ | 0.33 | | | $ | 1.08 | | | $ | 0.47 | |
| Weighted-average number of shares outstanding (in '000's) | | | | | | | |
| Basic | 270,693 | | | 272,832 | | | 271,623 | | | 272,414 | |
| Effect of dilutive securities | 518 | | | 1,092 | | | 816 | | | 898 | |
| Diluted | 271,211 | | | 273,924 | | | 272,439 | | | 273,312 | |
Excluded as anti-dilutive (1) | 5,271 | | | 3,691 | | | 4,264 | | | 4,222 | |
(1) Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period.
NOTE 24—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 nine months ended March 31, 2022, Mr. Stephen Sadler, a member of the Board of Directors, earned $0.4 million (nine months ended March 31, 2021—$32 thousand) in consulting fees from OpenText for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.
NOTE 25—SUBSEQUENT EVENT
Cash Dividends
As part of our quarterly, non-cumulative cash dividend program, we declared, on May 3, 2022, a dividend of $0.2209 per Common Share. The record date for this dividend is June 3, 2022 and the payment date is June 24, 2022. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board.