UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________FORM 10-K
(Mark(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30,
2002.2003.OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from
______________to______________Commission file number 0-27544
OPEN TEXT CORPORATION
- -------------------------------------------------------------------------------- (Exact(Exact name of Registrant as specified in its charter)
Ontario, Canada 98-0154400 - ------------------------------------------ --------------------------------- (State or other jurisdiction (IRS employer of incorporation or organization) identification no.) 185 Columbia Street West Waterloo, Ontario, Canada N2L 5Z5 - ------------------------------------------ --------------------------------- (Address of principal executive offices) (Zip code) Registrant's
Ontario, Canada 98-0154400 (State or other jurisdiction
of incorporation or organization)
(IRS employer
identification no.)
185 Columbia Street West
Waterloo, Ontario, Canada
N2L 5Z5 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: (519) 888-7111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- None None
Title of each class
Name of each exchange on which registered
None None Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
--------------------------------------------- (Title(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Xx No___ ---¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X]xIndicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2). Yesx No¨
Aggregate market value of the
Registrant'sRegistrant’s Common Shares held by non-affiliates as ofSeptember 17,December 31, 2002 was approximately$339$351 million. The number of theRegistrant'sRegistrant’s Common Shares outstanding as of September17, 200219, 2003 was19,277,795. Page 1 of 84 Exhibit Index Appears at Page i20.008.860. 2PART I
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance or the outcome of litigation (often, but not always, using words or phrases such as
"believes"“believes”,"expects"“expects” or"does“does notexpect"expect”,"is expected"“is expected”,"anticipates"“anticipates” or"does“does notanticipate"anticipate”, or"intends"“intends” or stating that certain actions, events or results"may"“may”,"could"“could”,"would"“would”,"might"“might” or"will"“will” be taken or achieved) are not statements of historical fact,and may be "forward-looking statements"but are “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or developments in theCompany'sCompany’s business or in its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward- looking statements. Any forward-looking statements should be considered in light of the risks and uncertainties discussed in Item 7 under"Cautionary Statements"“Cautionary Statements” beginning on page3236 of this Annual Report on Form 10-K. Readers should not place undue reliance on any such forward-looking statements, which speak only as of the date they are made. Forward-looking statements are based onmanagement'smanagement’s current plans, estimates, opinions and projections, and the Company assumes no obligation to update forward-looking statements if assumptionsofrelated to these plans, estimates, opinions and projections should change.The Company
Open Text Corporation was incorporated on June 26, 1991 pursuant to articles of incorporation under the Business Corporations Act (Ontario). The Company amended its articles on August 1, 1995 and November 16, 1995, respectively, and filed articles of amalgamation on June 30, 1992, December 29, 1995, July 1, 1997, July 1, 1998, July 1, 2000, July 1, 2002, and July 1,
2002.2003. References herein to the"Company"“Company” or"Open Text"“Open Text” refer to Open Text Corporation and its subsidiaries. TheCompany'sCompany’s principal executive offices are located at 185 Columbia Street West, Waterloo, Ontario, Canada N2L 5Z5, and its telephone number at that location is (519) 888-7111. TheCompany'sCompany’s World Wide Web homepage address is www.opentext.com. Throughout this Form 10-K, the term"fiscal 2002"“fiscal 2003” means theCompany'sCompany’s fiscal year beginning on July 1, 2002 and ending on June 30, 2003 and the term “fiscal 2002” means the Company’s fiscal year beginning July 1, 2001 and ending on June 30,20022002. Unless otherwise indicated, all amounts included in this Form 10-K are expressed in U.S. dollars.Access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished to the
term "fiscal 2001" meansSecurities and Exchange Commission may be obtained through theCompany's fiscal year beginning July 1, 2000Investor Relations section of our website atwww.opentext.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to andendingviewing of these reports. Information onJune 30, 2001.our Investor Relations page and our website is not part of this Annual Report on Form 10-K or any other securities filings of the Company unless specifically incorporated herein by reference. In addition, our filings with the Securities and Exchange Commission may be accessed through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval system atwww.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of date of that document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.BUSINESS OF THE COMPANY
Open Text™ is an enterprise content management (ECM) vendor licensing Web-based software that provides a collaborative work environment and an integrated knowledge management system to enable
organizations to capitalize on their collective knowledge, work more effectively across geographies and functional boundaries, and leverage best practices across the enterprise. The Company’s software enables organizations to effectively address a diverse range of business needs including managing information, unifying globally distributed teams, capturing market opportunities, accelerating product cycles, improving customer and partner relationships, and altering business strategies.
Open Text develops, markets, licenses and supports collaboration and knowledge management software for use on intranets, extranets and the
Internet, enablingInternet. The Company’s principal product line is Livelink®, a leading collaboration and knowledge management software product for global enterprises. The software enables users to capture as well as find electronically stored information, work together in creative and collaborative processes, perform group calendaring and scheduling, and distribute or make available to users across networks or the Internet the resulting work product and other information.The Company's softwareThis collaborative environment enablesthousandsad hoc teams to form quickly across functional and organizational boundaries, which enables information to be accessed by employees using any standard Web browser. Fully Web-based with open architecture, Livelink provides rapid out-of-the-box deployment, accelerated adoption, and low cost oforganizations to effectively address a diverse range of business needs including managing information, unifying globally distributed teams, capturing market opportunities, accelerating product cycles, improving customer and partner relationships, and altering business strategies. Open Text(TM) delivers Web-based software that provides a collaborative work environment and an integrated knowledge management system to enable organizations to capitalize on their collective knowledge, work more effectively across geographies and functional boundaries, and leverage best practices across the enterprise.ownership. Open Text provides integrated solutions that enable people to use information and technology more effectively at departmental levels and across enterprises. The Company offers its solutions both as end-user stand-alone products and as fully integrated modules, which together provide a complete solution that is easily incorporated into existing3enterprise business systems. Although most of the Company'sCompany’s technology is proprietary in nature, the Company does on occasion include certain third party software in its products.The Company's principal product line is Livelink(R), a leading collaboration and knowledge management software for global enterprises. By effectively managing people, processes and information, Livelink enables companies to be more efficient and innovative in managing their intellectual property. Livelink integrates several engines including, but not limited to, search, collaboration, workflow, group calendaring and scheduling, and document management. Its tightly integrated functionalities deliver true dynamic collaboration and knowledge sharing between individuals, teams and organizations. This collaborative environment enables ad hoc teams to form quickly across functional and organizational boundaries, which enables information to be accessed by employees using any standard Web browser. Fully Web-based and open-architectured, Livelink provides rapid out-of-the-box deployment, accelerated adoption, and low cost of ownership. Livelink's architecture is three-tiered, standards-based and modular in design, providing organizations with the highest levels of scalability, extensibility, openness and security. A modular backplane architecture in Livelink lets Open Text and third parties add new functionality without having to wait for new releases. New functionality can be added by building a Livelink module with the Livelink SDK(TM), which are easily installed, removed and upgraded. When installed, they dynamically register themselves with Livelink and take on the Livelink look and feel, comply with Livelink structure and behave as part of the inherent feature set of Livelink. Open Text has designed, developed, and tested solutions that provide enterprise scalability based on Livelink's modular architecture.The Company believes
thattwo key factors distinguish Livelink from competing alternatives. First, unlike collaborative software developed for client/server environments, Livelink was designed from the outset to run on the Internet. As Web-based technology, Livelink scales easily and rapidly to thousands of users, gigabytes of data, and millions of documents. Second, unlike solutions offering tools for users to build custom collaborative applications, Livelink is a ready-to-install application. It has open architecture, is easy to customize and requires no special development for project teams to quickly become productive. As a result, time required to deploy the software is shorter than competing alternatives, allowing companiesmayto enhance their ability to realize their return on investment quickly.As an extension to its solutions-based offerings, the Company also provides professional services, training, documentation and technical support services to accelerate its
customerscustomers’ implementation of, and satisfaction with, its products. Open Text believesthatits ability to offer a high level of customer support and service is critical to its success.Most of Open Text's customer support and service activities are provided through telephone support, as most software problems can be serviced remotely.TheCompany'sCompany’s major products are typically licensed with an annual maintenance contract, which for a feegenerally around 18.5%of approximately 20% of the list price of the licensed software system, entitles the customer to remote support, product updates and maintenance releases. For additional fees, Open Text also offers training and consulting services and provides integration services for the purpose of customizing theCompany'sCompany’s software to specific customer needs. Open Text also maintains a"business“business partner supportprogram"program” that provides training and support fororiginal equipment manufacturers ("OEMs"systems integrators, independent software vendors (“ISVs”) and value-added resellers("VARs"(“VARs”).The Company is expanding its customer support and professional services staff. As of June 30, 2002, Open Text employed 333 customer support and professional service personnel.In the
sixseven years since the introduction of the Livelink product line, Livelink has achieved significant market acceptance. Organizations with tens of thousands of users are deploying Livelink for business-critical applications. NumerousVARs,Value Added Resellers (“VARs”), solution providers, technology partners, application service providers("ASPs"(“ASPs”), and systems integrators have joined OpenText'sText’s Livelink Affinity Partner program since its inception. The Affinity Partner program is comprised of a collection of “best of breed” organizations who partner with Open Text to offer value-add services to the Company’s customers and prospects who are implementing Livelink and other of the Company’s products. Business, technical, and marketing relationships have also been formed with industry leaders such asAdobe(TM),Adobe, HewlettPackard(TM), Microsoft(TM), Netscape(TM), Oracle(TM), Sun(TM),Packard, Microsoft, Netscape, Oracle, Sun, Bearing Point, Siemens Business Services, andSAP(TM).SAP. OpenText'sText’s Affinity ASP program offers organizations a cost-effective way to deploy and support mission critical applications. ASP’s provide specialized hosted collaborative applications to inter-company communities under a subscription-based business model. As an ASP, the Company is responsible for demand creation and should have preferential access to target communities.Open Text has consistently sought to broaden its technology base and product offerings and to strengthen its sales and customer support capabilities through acquisitions. Open Text assesses each potential acquisition target with specific emphasis on three main factors. First, the Company seeks to acquire businesses with technologies that
can be integrated with its existing technologies to create new products and enhance the existing product family.
4Second, the Company seeks to acquire businesses with experienced IT development and management personnel that may have specific domain expertise. Third, the Company seeks to acquire businesses that offer a new distribution channel or customer base for Open Text'sText’s products.Products and Technology
In
February 2002,August 2003, Open Text releasedLivelink9.1,9.2, the latest release of theCompany'sCompany’s flagship product. The Livelink Web server runs on a variety of computing platforms, includingMicrosoft(TM)Microsoft™ WindowsNT(TM)NT™, Microsoft Windows2000(TM)2000™, Sun SPARC/Solaris(TM)Solaris™, and Hewlett-PackardHP-UX(TM)HP-UX™ operating systems. Livelink9.1provides a comprehensive combination of collaborative knowledge management services, custom workspaces, and a modular architecture with value-added application modules. This latest release of Livelink includes English, French, German, and Japanese language versions.Livelink9.1is certified with a variety of relational database management systems: Microsoft SQLServer(TM)Server™, Oracle9i(TM)9i™, and Sybase AdaptiveServer(TM)Server™, HTTP servers (iPlanet Web Server EnterpriseEdition(TM)Edition™ and Microsoft Internet InformationServer(TM)Server™), and Web browsers (NetscapeNavigator(TM)Navigator™ and Microsoft InternetExplorer(TM)Explorer™).Livelink 9.2 significantly improves the ease of use of the system by providing an improved look and feel, more personalization of appearance options, new one-click links, one-click “breadcrumbs” that make re-tracing the navigation path obvious, additional wizards that easily guide users through the project creation process, and improved project status and reporting capabilities. Additionally, many other areas of the product, such asLivelink MeetingZone™,received incremental improvements and corrections to identified software deficiencies.
In June 2003, the company released Coreport 6.0, an enterprise portal framework that unifies content from Livelink, other repositories, and a wide range of enterprise systems in a single interface. The technology for Coreport was acquired by Open Text from Corechange Inc., and extends Open Text’s overall ECM and content integration capability.
In June 2003 the company releasedLivelink LaunchForce™ an application that offers closed-loop distribution of critical information to distributed organizations, particularly field-sales groups. This product based on rich-media technology acquired by Open Text from Eloquent, significantly speeds up training for sales forces, provides a training and certification solution for compliance applications, and simultaneously helps large organizations save money.
In February 2003, the company releasedFirstClass 7.1, an integrated suite of messaging and communications software. This product is the latest version of theFirstClass Communications Platform, based on technology acquired from Centrinity Inc., and provides unified email, voice mail and fax mail management.
In November
2001,2002, the Company releasedLivelinkMeetingZone(TM), a product thatMeetingZone™ 2.0 at its annual user conference.Livelink MeetingZone adds real-time collaboration capabilities toLivelink'sLivelink’s already extensive asynchronous collaboration capabilities. It enables members of geographically dispersed teams,including customers, suppliers, consultants, and other trading partners,to attend real-time virtual Web meetings, regardless of their location, using a standard Web browser. During a live meeting session, attendees can view applications shared by the presenter, conduct group chats, have private conversations,usedraw on the whiteboard,tool,and create and view agenda items, notes, tasks, and Web links. When the meeting ends, all of this information, including a meeting summary, is captured inLivelink automatically, becoming a permanent part of anorganization'sorganization’s knowledge capital and providing benefits long after the meeting is over.In April 2001,Additionally, those invitees who missed theCompany releasedmeeting can consult the meeting summary to catch-up on what they missed, and determine the context of new action-items that have been assigned.LivelinkWireless(TM),MeetingZone 2.0 specifically provided more flexibility to improve planning prior to aproduct that delivers one-click accessmeeting and toLivelink's dynamic contentimprove follow-up afterwards. Meeting attendees receive notice prior to the meeting on agenda topics andcollaboration, allowing usersrequired preparation. Additionally, any meeting can be easily reconvened at a later time enabling participants tostay in constant contact with the important events taking place in an organization. This module also allows users to personalize their wireless access. The Livelink Wireless product enables quick and easy configuration of menu items, the set up of shortcuts to favorite Livelinkaddress unfinished agenda items andstoragecarry over all the context of the prior meeting sessions.IT Solutions Based on Livelink
Open Text offers a range of products based on theLivelink software platform. Each of theLivelink products have theLivelink server and repository at its foundation and adds to it a set of specialized capabilities designed to address a particular IT business problem.
• Livelink Enterprise Suite™provides full range of tightly integrated capabilities, including document management, team collaboration, business process automation, records management, content management, learning and skills management and more.
• Livelink for Knowledge Management™ enables companies to gather, capture, organize, and search all of your organization’s explicit and tacit knowledge assets from a central point of access, no matter where they are located.
• Livelink for Collaboration™ enables the best minds in an organization to form virtual teams to work together more efficiently—to share information, create project workspaces, conduct online meetings, coordinate schedules, automate collaborative processes, assign tasks, discuss issues, and much more—enabling an organization to make better decisions faster.
• Livelink for Business Process Management™ provides organizations with powerful tools for automating business processes from end to end, including sophisticated workflow capabilities, electronic signatures, and a complete solution for designing and managing electronic forms.
• Livelink for Content Management™ is a complete, collaborative solution for the authoring, management, and dynamic assembly and delivery of content to the Web. Livelink for Content Management places content creation in the hands of everyday business users, enabling companies to manage any number of corporate sites.
• Livelink for Document Management™ is a secure, Web-based solution for managing any type of electronic document. Livelink for Document Management provides access control, version control and history, full audit trails, compound documents, renditions, workflow for document review and approval, full indexing and searching of content and metadata, and much more. Business Solutions Based on Livelink
Open Text offers a selection of business applications built on the Livelink platform that enables organizations to address particular business needs. The following Livelink-based applications are available:
• Livelink for Corporate Governance™ provides for the creation, maintenance, testing, remediation and automation of organizational processes and their associated risks. The system provides a specialized workspace for managing Sarbanes-Oxley Section 404 compliance, and also integrates employee training and certification to ensure that the latest internal controls, policies, and procedures are followed throughout the organization.
• Livelink for Learning Management™delivers a comprehensive application for training management within Livelink. It allows organizations to provide a virtual classroom and collaborative environment with the advantages of a Web-based training experience.
• Livelink for Program Management™is a Web-based enterprise program management application based on Livelink that integrates all areas of an enterprise-level project into one comprehensive solution.It enables organizations to automate proprietary program management methodologies according to predefined “stages” and corresponding “gate” review cycles.
• Livelink for Regulated Documents™ was originally designed to meet the stringent requirements of the pharmaceutical industry. Livelink for Regulated Documents is a complete solution to securely manage key documents throughout a controlled lifecycle in compliance with all relevant regulatory requirements.
• Livelink for Sales Readiness™ provides a closed loop training system aimed specifically at large and distributed field-sales organizations. Based on rich-media technology this product speeds up training for sales forces and simultaneously helps large sales organizations save money on distributing information to their sales force.
• Livelink for Skills Management™provides the ability within Livelink to catalog, maintain, and assess levels of expertise possessed by employees. It allows an organization to determine where knowledge required to meet business objectives already exists within the organization and identifies where shortfalls exist and training is required. Industry Specific Solutions Based on Livelink
Open Text offers a selection of industry-specific applications built on the Livelink platform that enables organizations to address industry-specific business needs. The following Livelink-based applications are available:
• Livelink for Clinicals™ provides the knowledge management and collaboration infrastructures that enable pharmaceutical employees to share, manage, and analyze clinical trial data throughout the entire clinical trial process.
• Livelink for Construction Management™ is a collaborative Web-based environment that primary contractors on construction and engineering projects can use to coordinate the work of many dispersed sub-contractors and vendors to streamline the design, building, operation, and maintenance of any construction-related project. Livelink Development Tools
Livelink is highly scalable, extensible and customizable through the use of theLivelink SDK™ (Software Development Kit). TheLivelink SDK consists of theLivelink Application Program Interface™ (“LAPI”) and the Livelink Builder™, an object-oriented application development environment designed specifically for building collaborative intranet solutions.Livelink Builder offers customers the ability to customize and extend the features of Livelink to meet their particular needs. Additionally, theLivelink SDK includes LAPI Web Services, which supports application development in Microsoft .NET and J2EE environments.
Livelink Optional and Embedded Modules
Open Text offers a wide selection of modules that allow organizations to easily extend and enhance the functionality ofLivelink to suit their evolving business requirements. The following modules are available separately or bundled as part of a
user's contact file for one-touch dialing and e-mailing from a wireless device. Collaborative Management Services Livelink offers the power of tightly integrated knowledge management services--Knowledge Library Management,solution offering described above:
• Livelink Activator™ for BASIS® enables organizations to integrate their corporate library into a collaborative enterprise knowledge network. This module provides an ideal solution for combining the collaborative features of Livelink with the data collection management features ofBASIS.
• Livelink Activator™ for CORBA® Development Kitenables organizations to create applications that extend Livelink’s functionality and integrate Livelink with external systems using Common Object Request Broker Architecture (CORBA) services.
• Livelink Activator™ for Lotus Notes® makes indexing and retrieving information stored within Lotus Notes quick and easy.
• Livelink Activator™ for SAP/R3® allows users to leverage their existing legacy systems, providing seamless connectivity between the Livelink Server and the R/3 System.
• Livelink Archive™ for SAP® R/3®:Certified by SAP,Livelink Archive for SAP R/3 is based on SAP’s ArchiveLink® interface, which links SAP applications to external storage systems such as Livelink.Livelink Archive for SAP R/3 enables Livelink to be used as the archive for SAP R/3 documents.
• Livelink Brokered Search™ allows users to submit a single search query to multiple data sources and receive a unified set of results.Brokered Search combines results from multiple Livelink repositories, Microsoft® Exchange Public Folders, public and internal search engines, as well as from legacy data sources and other authenticated sites.
• Livelink Cataloged Library™allows organizations to extend the reach of their library and its functionality by making it an integral part of their enterprise knowledge architecture.
• Livelink Classifications™ allows Classification Librarians to define a taxonomy of classifications in Livelink. When documents are added to the Livelink repository, they can be associated with a particular classification by one of the following means: manual, assisted, or automatic.
• Livelink Directory Services™ allows organizations to administer users and groups for each Livelink server from within a central directory. This module synchronizes with a central directory service and provides single logon access for network users.
• Livelink eLink™can be integrated with any standard e-mail application and enables users to participate in Livelink discussions and receive enhanced e-mail notification of Livelink events.
• Livelink eSign™ adds electronic signature capabilities to Livelink and also provides enhanced audit trails for signing events, enhanced security features such as the ability to lock users out after multiple failed log-in attempts, and the ability to initiate a signing approval workflow from a document.
• Livelink Explorer™ provides Livelink users with access to Livelink content and functionality from their Microsoft Windows® desktop. In Microsoft Windows Explorer, users can navigate the Livelink hierarchy and perform all Livelink functions. Users also have direct access to Livelink from popular desktop productivity tools, such as Microsoft Word®, Excel®, and Outlook®. In addition, mobile users can also mark content in Livelink for offline viewing in Microsoft Windows Explorer when they are not connected to the corporate network.
• Livelink MeetingZone™ enables members of geographically dispersed teams, including customers, suppliers, consultants, and other trading partners, to attend real-time virtual Web meetings, regardless of their location, using a standard Web browser, and then save the virtual meeting content in Livelink automatically.
• Livelink OnTime™allows users to schedule group and project team meetings. Fully integrated with Livelink, this module provides users with secure access to other users’ personal calendar information, project team calendars and resources.
• Livelink PDF Forms Professional™enables organizations and users to collaboratively create, manage and track electronic forms and data integrating them into standard corporate business processes by creating an e-form warehouse in Livelink, reducing costs and improving customer satisfaction.
• Livelink Prospectors™allows users to create their own personalized, virtual research assistants. Based on custom user preferences, prospectors scour internal networks and targeted Web sites for information users need to get their jobs done.
• Livelink Records Management™ adds records management functions and capabilities to Livelink, enabling it to become the first comprehensive, Web-based, full lifecycle knowledge management and records management solution for the entire enterprise.
• Livelink Remote Cache™reduces network traffic and improves access speed for remote users by caching documents, HTML renditions and graphical content at remote sites.
• Livelink Secure Connect™secures user communications between the Livelink server and non-Web clients such asLivelink Explorerusing industry-standard cryptographic encryption technology.
• Livelink Spider™ crawls across an organization’s intranet and/or targeted sites on the World Wide Web and automatically finds and indexes new or modified documents, enabling Livelink to maintain an up-to-date, searchable knowledge base.
• Livelink UNITE™ provides users with a unified, personalizable interface to one or more Livelink systems. WithLivelink UNITE, users can filter access to Livelink content and services, including workspaces, documents, meetings, discussions, search, and more, by organizing them into a personalized set of virtual workspaces and context maps arranged on a series of tabbed pages.
• Livelink WebDAV™ provides a standard-based gateway to Livelink via the Web Distributed Authoring and Versioning (WebDAV) protocol. Livelink users can access, create, and manage Livelink folders and documents directly from popular desktop applications that support WebDAV, including Microsoft® Office and WebFolders and Adobe® applications.
• Livelink Wireless™gives mobile professionals access to Livelink’s Web-based collaborative features using a variety of handheld and wireless devices, including a Web-enabled WAP or iMode cellular telephone, Palm OS® device or RIM Blackberry™ pager. Information Retrieval
Virtual Team Collaboration,is PervasiveOpen Text’s heritage is rooted in information retrieval, and
Business Process Automation. Other services including, Enterprise Group Scheduling, Document Collection Management, Library Automation, Records Management, Content Management and High Volume Workflow and Imaging Solutions are available as standalone products, or as fully integrated and comprehensive Livelink solutions. . Knowledge Library Management - Open Text's corporate document management technology provides a secure, central repository where organizations store and manage documents and other objects (workflow maps, discussions, tasks or news) in an organized, hierarchical structure. The Knowledge Librarythat heritage isaccessible from multiple locations, allowing users to access, browse, search, store and manage virtually any type of object in a controlled, secure environment. The Knowledge Library includes support for compound documents, document aliases, version control, audit trails, reserve, check-in/out, and eight levels of permission for each object. The technology also allows organizations to create their own custom document categories and attributes. . Information Retrieval - The Livelink'spervasive throughout theLivelinkproduct.Livelink’s Information Retrieval functionality helps users find and access information from anywhere throughout theenterprise--includingenterprise—including the corporate information repository, corporate Web sites and across the Internet. Authorized users have on-demand access to information even if their knowledge-base spans distributed and diverse network environments. More than full-text search and5retrieval,Livelink provides an integrated set of information retrieval tools, including intelligent agents and sophisticated reports that give users unprecedented insight into the knowledge, actions and activities being developed throughout an organization. Livelink'sLivelink’s Information Retrieval provides high performance and linear scaling, even across millions of documents and terabytes of information. Livelink allows an organization to build searchable databases of virtually any size by indexing documents, files and other objects in any standard format, including XML, HTML, PDF and other popular file formats. It recognizes that documents are often characterized by complex structures. For example, documents often contain titles, headings, sections, subsections and paragraphs. Open
Text'sText’s search engine can search any number of different user-defined document structures. It supports SGML and XML, the key international standards for structured documents.Sophisticated search features include the ability to search a subset of the index
("slices"(“slices”), contextual/proximity searching, an advanced query builder interface, thesaurus support, word stemming,"sounds like"“sounds like” searching, and a powerful end-user query language.Livelink'sLivelink’s Data Flows facilitate moving information between Livelink and other data sources (e.g., a user could create a data flow which crawls a number ofcompetitor'scompetitor’s Web sites, converts all the information to PDF format, and indexes it as different slices for searching).In addition to the information retrieval capabilitiesSpecialized Products and Solutions
Open Text provides a series of specialized collaboration, content, and knowledge-based product technologies that are
partsold independent of, or integrated with, theLivelink platform. Customers of these products have theCompany also offers BRS/Search(TM) and Query Server(TM) from the Company's BRS Products division. BRS/Search is a search engine for publishing large quantitiesconfidence ofdynamic, customized information in all Web-based applications requiring sophisticated functionality and appearance. BRS/Search incorporates flexible filtering and state-of-the-art search, control, and presentation tools for enterprise information retrieval. It has been used by thousands of organizations to quickly design, prototype, and develop applicationsmoving forward with these more specialized products knowing thatprovide real-time access to the organization's islands of information, memos, reports, competitive intelligence, documents, or any other type of unstructured data. Query Server is an advanced meta search tool that broadcastsa singlequery across a set of Web-enabled search engines, unifying access to multiple information sources, including repositories, news feeds, document management systems, intranets, andreliable vendor can deliver comparable functionality integrated into theInternet. .. Virtual Team Collaboration - Livelink's Virtual Team Collaboration enables people who work together to share information and experiences, and to achieve common business objectives. Every project inbroaderLivelinkhas its own secure project workspace, including a home page, knowledge library, workflows, task lists, channels, discussions, participant list and project outline, to give users and workgroups everything they need to coordinate all aspects of a project. Livelink accommodates every type of project--from ongoing processes suchplatform asquality assurance, to short-term events such as joint marketing campaigns with external partners. Livelink projects provide a valuable online focal point for "virtual teams" in either centralized or highly distributed environments worldwide. .. Business Process Automation - Open Text's workflow technology enables users to graphically create, modify, manage and deploy simple or complex business processes. Livelink's Business Process Automation services route a complete work package to appropriate users, providing the information they needtheir requirements evolve to dotheir job and to keep projects and processes on track. Sophisticated workflow features include a graphical Java-based Workflow Designer, serial or parallel routing, rendezvous and loop back conditions, sub-workflows, conditional branching with true/false statements, user dispositions and/or custom workflow attribute values, multiple end points, intelligent electronic forms, milestones, audit trails, and graphical workflow status. For example, Livelink's Workflows can manage standard operating procedures such as travel requests, payroll increases and vacation requests. .. Enterprise Group Scheduling - Open Text also offers group scheduling and calendaring services. Using OnTime(R), anyone with a Web browser can access calendar information, schedule meetings, respond to meeting invitations and view public calendars from anywhere on the Internet. The scheduling technology includes the ability to view, add and modify appointments, group meetings and tasks, notes, attendee lists, RSVP status and meeting frequency, as well as the ability to viewso:
• Advanced Messaging and Communication Solutions—FirstClass® combines voice and fax messages to create a truly unified messaging system that allows users to communicate across a wide range of messaging formats and devices. As a highly scalable and feature-rich messaging and collaboration solution,FirstClass converges powerful features such as, e-mail, voice messaging, fax, shared online work- spaces and instant messaging, enabling users to effectively communicate and collaborate across a wide range of messaging formats and devices. Ideally suited for schools, school districts, higher-education institutions, government agencies, and service providers,FirstClass enables users to securely access and share information anywhere, anytime, using the device that is most appropriate to them at the time. Because it combines award-winning collaborative groupware and unified communications technologies into a single highly scalable message store,FirstClass provides organizations with one of the lowest total costs of ownership in the industry.
• Advanced Information Retrieval—In addition to the information retrieval capabilities that are part of Livelink, the Company also offersBRS/Search™ andQuery Server™ from the Company’s BRS Products division.BRS/Searchis a search engine for publishing large quantities of dynamic, customized information in all Web-based applications requiring sophisticated functionality and appearance.BRS/Search incorporates flexible filtering and state-of-the-art search, other 6people's calendars, event schedules, resource (rooms, rentals, etc.) schedules, or any other schedule "published" to the Web. Daily, weekly and monthly planners provide a detailed listing of a user's appointments and tasks for the selected day, week or month. OnTime is available as an integrated enterprise group scheduling Livelink module. Livelink and OnTime integration adds project and personal calendar capability to Livelink, enabling Livelink users to keep track of critical project milestones and schedule activities with full knowledge of each participant's calendar--considerably enhancing Livelink's virtual team collaboration capabilities. .. Document Collections Management - Open Text also offers the BASIS(R) software product line to support the management of specialized corporate and government document collections. Designed for comprehensive librarycontrol, and presentation tools for enterprise information retrieval. It has been used by thousands of organizations to quickly design, prototype, and develop applications that provide real-time access to the organization’s islands of information, memos, reports, competitive intelligence, documents, or any other type of unstructured data.Query Server is an advanced meta search tool that broadcasts a single query across a set of Web-enabled search engines, unifying access to multiple information sources, including repositories, news feeds, document management systems, intranets, and the Internet.
• Archived Document Collections Management—Open Text also offers theBASIS® software product line to support the management of specialized corporate and government document collections. Designed for comprehensive library control,BASIS provides a solution for companies who need sophisticated searchable access to hybrid document collections consisting of both documents and metadata. Used by information professionals in major commercial and government information centers,BASIS provides library automation, research management, litigation support, intellectual property protection, content management and competitive intelligence. BASIS
provides a solution for companies who need access to hybrid document collections consisting of both documents and metadata. Used by major commercial and government information centers, BASIS provides library automation, research and records management, litigation support, intellectual property protection, content management and competitive intelligence. BASISis available as a stand-alone product or as part of a fully integrated solution with Livelink. TheLivelink Activator forBASIS(TM)BASIS™ integrates the collaborative features of Livelink with the collection management features ofBASIS.BASIS. This module extendsBASIS information management and library automation functionality to fully exploitLivelink'sLivelink’s rich collaborative features, enabling users to easily accessBASIS library objects and incorporate them into the Livelink environment... Library Automation - The Techlib(R) product is a specific
• Certification Management—In order to provide highly effective corporate management and training solutions for the Financial Services sector,EDC® from Open Text gives users the ability to provide corporate learning and training programs that will meet regulatory compliance objectives. TheEDC product suite is designed to address a number of needs, including growth in regulatory reporting requirements, leveraging existing investments in training content and programs, maintaining detailed registration and licensing records for compliance management, and the need to manage all of the detailed records necessary to achieve regulatory compliance.
• Knowledge Delivery -LaunchForce™—an enterprise-class application for certified knowledge delivery— uses rich media and rich tracking to quickly deploy mission-critical information to corporate audiences, whether it be preparing your sales force to sell a new product line, educating employees about new policies and procedures, or certifying compliance with complex regulations.LaunchForce enables closed-loop communication between end users, subject matter experts, and management—allowing management to measure the effectiveness of materials, identify gaps in the preparedness of speakers, drive return on communications investment, and ensure that
utilizes BASIS to automatecorporate initiatives are effective.LaunchForce leverages leading-edge rich media technology andintegrate the main functions of a corporate or government library. Techlib is an integrated, Web-based solution for managing, automatingrevolutionary closed-loop content publishing, tracking, anddelivering a complete range of library services. From access and cataloging to circulation, serials control and acquisitions, Techlib provides users with the abilityremediation capabilities to managedigital collectionsandmakemeasure thecorporate library the focusdelivery ofan organization's knowledge resources.information to globally distributed audiences.
• Library Automation—TheTechlib® product is a specific application that utilizesBASIS to automate and integrate the main functions of a corporate or government library.Techlib is an integrated, Web-based solution for managing, automating and delivering a complete range of library services. From access and cataloging to circulation, serials control and acquisitions,Techlib provides users with the ability to manage digital collections and make the corporate library the focus of an organization’s knowledge resources. Techlib can be implemented as a component ofBASIS, or as an integrated solution with Livelink, as theLivelink Cataloged
Library(TM)Library™ module.Techlib and Livelink integration gives users consolidated access to knowledge resources on the intranet, extranet and in the corporate library, to support decisions, smooth workflow and automate processes.Web browser and JDBC interfaces have madeBASIS applications more economical to deploy since more people can easily access and exploit the available information. Furthermore, as organizations continue to encounter information overload, library science expertise in subject categorization and classification is being deployed to improve the usability of enterprise intranet and extranet applications.
.. Records Management - iRIMS(TM)gives users comprehensive, full lifecycle management of all corporate records and information holdings, in both paper and electronic format. iRIMS allows users to access records management functions from any standard Web browser. By providing a common interface to access all forms of information, such as images, paper records and other physical objects, word processing, spreadsheets, and e-mail, iRIMS provides an automated system that removes the complexities of electronic records management and streamlines processes for end users. iRIMS helps global enterprises to secure critical information, ensure file control, consistency, and collaboration by supporting record classification, retention and disposition rules, searching, reporting, and security access. When integrated with Livelink, iRIMS brings the control of records management into a larger intranet or extranet environment. This integration allows individuals or groups to easily access and share corporate information. As an alternative to the Livelink-iRIMS integration, the Company also offers Livelink Records Management(TM), which embeds records management functionality, from both the user and records manager perspective, in Livelink as a Livelink module. .. Content Management - Developing a Content Management System to manage corporate knowledge assets allows organizations to easily find, use and reuse this content in a way that maximizes its value to the 7organization and minimizes the cost to create, maintain and assemble it for a particular business need. Open Text provides comprehensive services for the conversion of an organization's mainstream publishing system to XML or SGML, an e-business framework using smart XML transactions and forms, and other line-of-business solutions in which XML and SGML play an integral part. Open Text offers comprehensive XML/SGML solutions to provide organizations with the tools needed to create their own Content Management System. .. High-Volume Workflow and Imaging Solutions - Through its Bluebird Systems division, the Company offers ODOC(R)and Open Image(R), which provide high-volume workflow and imaging solutions. ODOC is a powerful, Window NT-based, Web-enabled object management and workflow system designed to give organizations the power to replace labor intensive paper-based work processes with highly efficient PC-based ones. Offering tight integration with PeopleSoft(R)technology, the client/server, multi-tier, open architecture of the ODOC suite enables organizations to achieve the performance and security they demand in mission-critical, high volume, and highly distributed environments. Open Image is a high-volume workflow, imaging and document management solution designed for the financial services industry. Development Tools Livelink is highly scalable, extensible and customizable through the use of the Livelink SDK(TM) (Software Development Kit). The Livelink SDK consists of the Livelink Application Program Interface(TM) ("API") and the Livelink Builder(TM), an object-oriented application development environment designed specifically for building collaborative intranet solutions. Livelink Builder offers customers the ability to customize and extend the features of Livelink to meet their particular needs. Livelink Builder provides OScript, a robust, Java-like extensible scripting language for developing application logic. Advanced Optional Modules Open Text offers a wide selection of optional modules that allow organizations to easily extend and enhance the functionality of Livelink to suit their evolving business requirements. The following modules are available: .. Livelink Activator(TM) for BASIS(R) enables organizations to integrate their corporate library into a collaborative enterprise knowledge network. This module provides an ideal solution for combining the collaborative features of Livelink with the collection management features of BASIS. .. Livelink Activator(TM) for CORBA(R) Development Kit enables organizations to create applications that extend Livelink's functionality and integrate Livelink with external systems using Common Object Request Broker Architecture (CORBA) services. .. Livelink Activator(TM) for Lotus Notes(R) makes indexing and retrieving information stored within Lotus Notes quick and easy. .. Livelink Activator(TM) for SAP/R3(R) allows users to leverage their existing legacy systems, providing seamless connectivity between the Livelink Server and the R/3 System. .. Livelink Archive(TM) for SAP(R) R/3(R): Certified by SAP, Livelink Archive for SAP R/3 is based on SAP's ArchiveLink(R) interface, which links SAP applications to external storage systems such as Livelink. Livelink Archive for SAP R/3 enables Livelink to be used as the archive for SAP R/3 documents. .. Livelink Brokered Search(TM) allows users to submit a single search query to multiple data sources and receive a unified set of results. Brokered Search combines results from multiple Livelink repositories, Microsoft(R) Exchange Public Folders, public and internal search engines, as well as from legacy data sources and other authenticated sites. 8.. Livelink Cataloged Library(TM) allows organizations to extend the reach of their library and its functionality by making it an integral part of their enterprise knowledge architecture. .. Livelink Classifications(TM) allows Classification Librarians to define a taxonomy of classifications in Livelink. When documents are added to the Livelink repository, they can be associated with a particular classification by one of the following means: manual, assisted, or automatic. .. Livelink Directory Services(TM) allows organizations to administer users and groups for each Livelink server from within a central directory. This module synchronizes with a central directory service and provides single logon access for network users. .. Livelink eLink(TM) can be integrated with any standard e-mail application and enables users to participate in Livelink discussions and receive enhanced e-mail notification of Livelink events. .. Livelink eSign(TM) adds electronic signature capabilities to Livelink and also provides enhanced audit trails for signing events, enhanced security features such as the ability to lock users out after multiple failed log-in attempts, and the ability to initiate a signing approval workflow from a document. .. Livelink Explorer(TM) provides Livelink users with access to Livelink content and functionality from their Microsoft Windows(R) desktop. In Microsoft Windows Explorer, users can navigate the Livelink hierarchy and perform all Livelink functions. Users also have direct access to Livelink from popular desktop productivity tools, such as Microsoft Word(R), Excel(R), and Outlook(R). In addition, mobile users can also mark content in Livelink for offline viewing in Microsoft Windows Explorer when they are not connected to the corporate network. .. Livelink MeetingZone(TM) enables members of geographically dispersed teams, including customers, suppliers, consultants, and other trading partners, to attend real-time virtual Web meetings, regardless of their location, using a standard Web browser, and then save the virtual meeting content in Livelink automatically. .. Livelink OnTime(TM) allows users to schedule group and project team meetings. Fully integrated with Livelink, this module provides users with secure access to other users' personal calendar information, project team calendars and resources. .. Livelink PDF Forms Professional(TM) enables organizations and users to collaboratively create, manage and track electronic forms and data integrating them into standard corporate business processes by creating an e-form warehouse in Livelink, reducing costs and improving customer satisfaction. .. Livelink Prospectors(TM) allows users to create their own personalized, virtual research assistants. Based on custom user preferences, prospectors scour internal networks and targeted Web sites for information users need to get their jobs done. .. Livelink Records Management(TM) adds records management functions and capabilities to Livelink, enabling it to become the first comprehensive, Web-based, full lifecycle knowledge management and records management solution for the entire enterprise. .. Livelink Remote Cache(TM) reduces network traffic and improves access speed for remote users by caching documents, HTML renditions and graphical content at remote sites. .. Livelink SDK(TM) is specifically designed for creating scalable, enterprise-wide, collaborative knowledge management solutions and Livelink SDK provides built-in tools for rapid development and deployment. 9.. Livelink Secure Connect(TM) secures user communications between the Livelink server and non-Web clients such as Livelink Explorer using industry-standard cryptographic encryption technology. .. Livelink Spider(TM) crawls across an organization's intranet and/or targeted sites on the World Wide Web and automatically finds and indexes new or modified documents, enabling Livelink to maintain an up-to-date, searchable knowledge base. .. Livelink Transit Central e-Publisher(TM) allows users to repurpose content in Livelink to build Web publications that can be published in Livelink or to their intranet, extranet or the Internet. .. Livelink UNITE(TM) provides users with a unified, personalizable interface to one or more Livelink systems. With Livelink UNITE, users can filter access to Livelink content and services, including workspaces, documents, meetings, discussions, search, and more, by organizing them into a personalized set of virtual workspaces and context maps arranged on a series of tabbed pages. .. Livelink Virtualteams(TM) is a comprehensive team environment built on Livelink that combines a time-tested methodology for virtual teamwork with Livelink's collaboration technology. Tools, utilities, content, and meeting support co-exist in an intuitive environment that encourages people to work together, while capturing the team's work in the Livelink knowledge management system. .. Livelink WebDAV(TM) provides a standard-based gateway to Livelink via the Web Distributed Authoring and Versioning (WebDAV) protocol. Livelink users can access, create, and manage Livelink folders and documents directly from popular desktop applications that support WebDAV, including Microsoft(R) Office and WebFolders and Adobe(R) applications. .. Livelink Wireless(TM) gives mobile professionals access to Livelink's Web-based collaborative features using a variety of handheld and wireless devices, including a Web-enabled WAP or iMode cellular telephone, Palm OS(R) device or RIM Blackberry(TM) pager. Business Applications Based on Livelink Open Text offers a selection of business applications built on the Livelink collaboration and knowledge management software that enable organizations to address particular business needs. The following Livelink-based applications are available: .. Livelink for Learning Management(TM) delivers a comprehensive application for training management within Livelink. It allows organizations to provide a virtual classroom and collaborative environment with the advantages of a Web-based training experience. .. Livelink for Program Management(TM) is a Web-based enterprise program management application based on Livelink that integrates all areas of an enterprise-level project into one comprehensive solution. It enables organizations to automate proprietary program management methodologies according to predefined "stages" and corresponding "gate" review cycles. .. Livelink for Skills Management(TM) provides the ability within Livelink to catalog, maintain, and assess levels of expertise possessed by employees. It allows an organization to determine where knowledge required to meet business objectives already exists within the organization and identifies where shortfalls exist and training is required to meet the requirements of the organization.
• Portal Solutions—Coreport® enables organizations to rapidly deploy a single enterprise integration portal to serve all stakeholders, employees, customers, investors, partners and others, effectively and securely.Coreportprovides a single, open, strategic framework for deployment, integration and management of all your enterprise assets. WithCoreport portals, users can create their own portals, add specialized content, assemble dynamic business processes, and manage online communities.Livelink Unite is used to connect theLivelink environment toCoreportand portal frameworks provided by other vendors.
• Records Management—Livelink for Records Management gives users comprehensive, full lifecycle management of all corporate records and information holdings, in both paper and electronic format.Livelink for Records Managementallows users to access records management functions from any standard Web browser. By providing a common interface to access all forms of information, such as images, paper records and other physical objects, word processing, spreadsheets, and e-mail,Livelink for Records Management provides an automated system that removes the complexities of electronic records management and streamlines processes for end users.Livelink for Records Managementhelps global enterprises to secure critical information, ensure file control, consistency, and collaboration by supporting record classification, retention and disposition rules, searching, reporting, and security access.Livelink for Records Managementbrings the control of records management into a large intranet or extranet environments, allowing individuals or groups to easily access and share corporate information. This records management capability is available on a stand-alone basis (iRIMS™) or fully integrated intoLivelink.
• High-Volume Workflow and Imaging Solutions—Through its Bluebird Systems division, the Company offersODOC® andOpen Image®, which provide high-volume workflow and imaging solutions.ODOC is a powerful, Window NT-based, Web-enabled object management and workflow system designed to give organizations the ability to replace labor intensive paper-based work processes with highly efficient PC-based ones. Offering tight integration with PeopleSoft® technology, the client/server, multi-tier, open architecture of theODOC suite enables organizations to achieve the performance and security they demand in mission-critical, high volume, and highly distributed environments. The product is particularly well suited for Accounts Payable applications.Open Image is a high-volume workflow, imaging and document management solution designed for the financial services industry. Product Development
Open Text intends to pursue its strategy of growing the capabilities of its software offerings through the in-house research and development of new product offerings as well as the addition of technologies and expertise through the acquisition of other companies, technologies
orand products.10During fiscal
2002,2003, the Company developedseveralLivelink 9.2,and all of its associated components. The modular architecture ofLivelink allows for the release of new and improved product components independently of the baseline platform. The modular architecture also supports the Company’s acquisition strategy, allowing new productofferings internally, includingcomponents and technologies to be quickly assimilated intoLivelink.The strategic intent of the Company’s product developments is to allow groups of users to build up a knowledge base as a natural by-product of doing collaborative work, without burdening the end-user to do more. Similarly, it also focuses on improvements whereby the collaborative tools automatically mine and deliver knowledge in context, thereby making collaborative work more effective. As an example, development continues onLivelink MeetingZone, a real-time meeting and collaboration tool, that allows valuable meeting content to be captured, searched, and reused. The Company
also released a completely re-architectured, next generation versionbelieves that treating meeting content and context as reusable knowledge objects continues to differentiate itself from competitor’s products.The product development organization, in coordination with its Professional Services function, partners, and identified lighthouse customers, continues to advance theLivelink platform and technology to support rapid development of knowledge-based applications. During fiscal 2003, the Company introduced several such applications to its
Livelink Explorer module, which tightly integrated features of its previous generation desktop integration offerings. Other new products released during fiscal 2002 included Livelink WebDAV, Livelink Classifications, Livelink eSign,existing application portfolio such asLivelink forLearning Management,Clinicals, Livelink forSkills Management,Regulated Documents, and Livelink forProgram Management, Livelink virtualteams, and Livelink UNITE, all of which are described above. In addition, Open Text continues to develop and release new versions of all of its product offerings. Updates of Livelink, BASIS, Techlib, and iRIMS were all released during fiscal 2002.Sales Readiness.As of June 30,
2002,2003, theCompany'sCompany’s research and development teamincluded 214consisted of 305 employees. During fiscal2001,2003, through the acquisitions ofBluebird, the BRS search assets of LeadingSide, Open Image,Centrinity, Corechange, andBase4,Eloquent, the Company acquired new technologies that have been integrated with itsLivelink technology with the goal of producing a more diverse product offering. Amounts spent on research and development during fiscal 2003, fiscal 2002, and fiscal 2001and fiscal 2000were $29.3 million, $24.1 million, and $24.3 million,and $17.7 million,respectively.Customer Support and Professional Services
Open Text provides most of its customer support activities through telephone support, since it is able to service most software problems remotely. The
Company'sCompany’s major products are typically licensed in conjunction with a twelve-month maintenance contract which renews each yearthereafter.thereafter at the customer’s option. The annual maintenance and support fee is typically18.5%20% of the list price of the licensed software and entitles the customer to remote support as well as product updates and maintenance releases. Customers pay for their annual maintenance contractsup-front,at the beginning of the contract, and the Company recognizes revenues relating to these services ratably over the term of the related contract. As of June 30,2002,2003, theCompany'sCompany’s customer support teamincluded 102consisted of 140 employees.Open Text offers both training and consulting services,
and providesas well as integration services for the purpose ofcustomizingconfiguring and adapting theCompany'sCompany’s software to specific customer needs. Although theCompany'sCompany’s softwareis ready to use "out-of-the-box"can be used “out-of-the-box”, customersoftenmay desire furthercustomizationspecific configurations to their environment or working processes or similarprofessional serviceswork to further tailor theCompany'sCompany’s products to their specifications. Engagements performed by theCompany'sCompany’s professional services organization are typically billed on a time andmaterialmaterials basis. As of June 30,2002,2003, theCompany'sCompany’s professional service groupincluded 231consisted of 229 employees.Competition
Open
Text'sText’s products and services compete in several market segments that are at various stages of maturity and each market has bothat a functional leveldistinct andat a market segment level. As a resultoverlapping competitors. These markets include collaboration and team support software, document management, business process management, content management, learning management, project management, and portals, each ofLivelink's broad spectrumwhich is intensely competitive and subject to rapidtechnological change. A variety of different terms are used to describe these markets including Knowledge Management (KM), Enterprise Content Management (ECM), Smart Enterprise Suites (by Gartner Group), and the Knowledge Worker Infrastructure (by Meta). It is in the integration of functionality in these otherwise distinct market segments that the Company believes it
has a number of competitors for each of its functions.differentiates itself.The Company competes with repository-based collaboration software solutions such as IBM’s Lotus Notes/Domino, iManage and Documentum’s eRoom, collaboration service providers such as WebEx Communications Inc. and Centra Software, and with e-mail-based collaboration solutions from Microsoft Corporation, IBM Corporation, and Groove Networks. In the
market for workflow anddocument managementsoftware,market, the Company competes with vendorsof document management software, includingsuch as Documentum Inc., FileNet Corporation, andPC DOCS Group (a division ofHummingbird CommunicationsLtd.), which offer highly specialized document management technology suitable for building application-specific document management needs.ltd.. Companies likeMicrosoftFileNet Corporation andIBM/LotusStaffware also offere-mail based collaborative messaging applications. Thebusiness process management solutions similar to the forms and workflow capabilities provided by the Company. Content management vendors such as Documentum Inc., Interwoven Inc., Vignette Corporation, and Stellent Inc. compete aggressively with the Companyalsoto manage purpose-built content for web sites. In the learning management market, the Company competes with e-learning point solutions from vendorsof collaboration software solutionssuch asLotus Notes/Domino(R)Saba Software Inc.,iManage(R)Docent Inc., andeRoom(R). Open Text has positioned its products inCentra Software. In thenewportal marketplace, the Company competes with Plumtree andemerging "collaborative commerce" (c-Commerce) and "collaborative knowledge management" (CKM) markets which are intensely competitive and subject to rapid technological change. These markets are becoming fiercely competitive asportal solutions from majorand smaller industry players jockey for position with offerings that fall into several different segments. The c-Commerce and CKM markets are defined by high-end, specialized document management solutions, collaboration and knowledge management applications, and e-mail centric messaging systems.infrastructure providers.The Company expects competition to increase in the future as the markets for Open
Text'sText’s products develop and as additional players enterthe market.these markets. The Company believes that the principal competitive factors inthis marketthese markets include the ability to provide:11.vendor and product reputation;versatility to provide a broad range of business solutions;full support forintranets; .functionalitywith documentrequired for compliance management solutions;.scalable integration of document management,with workflowbusiness process managementapplications(i.e., workflow), and related enabling technologies;. vendor and product reputation; .product quality and performance;. OEM and otherpartner relationships with providers ofdatabaseIT infrastructure and informationsystems to organizations; and osystems;quality of productsupportsupport; andprice.The
Company'sCompany’s competitors can be expected to enhance their existing products or to develop new products that will further integrate workflow, document management and collaborative computing features.Open
Text'sText’s markets are the subject of intense industry interest, and the Company is aware of numerous other major software developers as well as smaller entrepreneurial companies focusing significant resources on developing and marketing software products and services that may compete with Open Text products and services. Numerous releases of products and services that compete with those of Open Text can be expected in the near future. Moreover, certain of theCompany'sCompany’s current and potential competitors may bundle their products with other software in a manner that may discourage users from licensing products offered by Open Text.Many of Open
Text'sText’s current and potential competitors in each of its markets have longer operating histories and significantly greater financial, technical and marketing resources, name recognition and installed product base than the Company. There can be no assurance that the Company will be able to compete effectively with current and future competitors. Increased competition from existing or potential competitors could result in the reduction of prices and revenues, reduced margins, and loss of customers and market share, any one of which would negatively impact theCompany'sCompany’s operating results.Sales and Marketing
Open Text employs multiple distribution channels, including direct sales, distributors,
OEMssystems integrators, independent software vendors (“ISVs”) and VARsin orderto market, license and sell its products andservices.services throughout the world. Given the significant investment and commitment of resources required by an organization in order to implement theCompany'sCompany’s software, theCompany'sCompany’s sales cycle tends to take considerable time to complete.Particularly in the current economic environment of reduced information technology spending, it can take several months, or even quarters, for sales opportunities to translate into revenue. It was the
Company'sCompany’s experience throughout most of fiscal 2002 and 2003 that customers were more hesitant to commit to large, enterprise-wide deployments of theCompany'sCompany’s software and as a result, the Company has experienced a lengthening of its salescycles.cycles and increased demands for return on investment analysis.Direct Sales.The Company employs a direct sales force as the primary method to market, license and sell its products and services. As of June 30,
2002,2003, OpenText'sText’s worldwide sales organization consisted of219271 employees located in107142 cities. Historically, a significant percentage of theCompany'sCompany’s revenues have been generated through its direct sales force. For fiscal 2003, approximately 90% of the Company’s license revenues were generated through its direct sales force.Distributors. Open Text has distribution agreements in Japan with Canon Sales Inc. and
ITXInfocom Corporation, pursuant to which each of them markets, licenses and sells Open Text products and servicesinwithin the country of Japan.OEMs.ISVs.Open Text markets and licenses its products to select
OEMs, includingindependent software vendors, in order to have its products embedded in high-value application products marketed by manufacturers with specific industry or application domain expertise. Such partners generally sell an entire product portfolio into the target market, thereby having better access tospecific target markets or large installed customer bases.that market than Open Text.Livelink Affinity Partners. Open
Text'sText’s Livelink Affinity Partner programhas more than 45includes VARs, solution providers, technology partners, ASPs, and systemsintegrators. Open Text'sintegrators.Open Text’s Livelink Affinity Partnersre- 12sell,license, customize, configure and install theCompany'sCompany’s software products with complementary hardware, software and services. In combining these products and services, the Livelink Affinity Partners are able to deliver completeknowledge managementsolutions to address specific customer needs.Employees
As of June 30,
2002,2003, the Company employed a total of9801,196 individuals. The composition of this employee base is approximately as follows:257322 employees in sales and marketing,214305 employees in product development,231229 employees in professional services,102140 employees in customer support, and176200 employees in general and administrative roles. TheCompany'sCompany’s employees are not subject to a labor union or collective bargaining agreement. The Company is of the opinion that relations with its employees are strong.Intellectual Property Rights
The
Company'sCompany’s success and ability to compete are dependent on our ability to develop and maintain our intellectual property and proprietary technology and to operate without infringing on the proprietary rights of others. OpenText'sText’s software products are generally licensed to customers on a nonexclusive basis for internal use in acustomer'scustomer’s organization. The Company also grants rights in its intellectual property to third parties thatallowsallow them to market certain of theCompany'sCompany’s products on a nonexclusive or limited-scope exclusive basis for a particular application of the product(s) or to a particular geographic area.Open Text relies on a combination of copyright, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain its proprietary rights. Historically, the Company has not sought patent protection for its products, though it may do so in the future. During fiscal 2003 the Company indirectly acquired a patent relating to collaborative technology. The Company is currently exploring opportunities to exploit this patent and these opportunities may include licensing it. Enforcement of the
Company'sCompany’s intellectual property rights may be difficult, particularly in some nations outside of the United States and Canada in which the Company seeks to market its products. Certain of theCompany'sCompany’s license arrangements have required the Company to make a limited confidential disclosure of portions of the source code for its products, or to place such source code into an escrow for the protection of another party. Despite the precautions taken by the Company, it may be possible for unauthorized third parties to copy certain portions of theCompany'sCompany’s products or to reverse engineer or obtain and use information that the Company regards as proprietary. Also,there can be no assurance thattheCompany'sCompany’s competitorswill notcould independently develop technologies that are perceived to be substantially equivalent or superior to theCompany'sCompany’s technologies. TheCompany'sCompany’s competitive position may be affected by its ability to protect itsintellectual
properties.property. Although the Company does not believe it is infringing on the intellectual property rights of others, claims of infringement are becoming increasingly common as the software industry develops and related legal protections, including patents, are applied to software products.Although most of the
Company'sCompany’s technology is proprietary in nature, the Company does include certain third party software in its products. In these cases, this software is licensed from the entity holding its intellectual property rights. Although the Company believes that it has secured proper licenses for all third-party software that has been integrated into its products, third parties may assert infringement claims against the Company in the future, and any such assertion may result in litigation, which may be costly and require the Company to obtain a license for the software. Such licenses may not be available on reasonable terms or at all.The Company leases approximately 82,600 square feet of office space in three facilities in Waterloo, Ontario, Canada including its corporate headquarters pursuant to
two leasesone lease thatterminateterminates on June 30,2003,2008, one that terminates on August 31, 2005, and one that terminates on June 30,2006, and one that terminates on August 24, 2010.2006. The Companyhasalsoleasedleases approximately 36,000 square feet in its operational headquarters in Bannockburn, Illinoisfor its product development, marketing, consulting, support, administration and sales operations untilpursuant to a lease that terminates on April 30, 2004. The Company also leases Canadian field offices inMississauga, Ontario,Richmond Hill, Ontario;; and Ottawa, Ontario; US field offices in Albany, New York; Annapolis, Maryland; Boston, Massachusetts; Boulder, Colorado; Dublin, Ohio; Livonia, Michigan;McLean, Virginia; Redmond, Washington;New York, New York; Los Angeles,13CaliforniaCalifornia; San Mateo, California; and Carlsbad, California; and international field offices in Amsterdam, The Netherlands; Paris, France; Frankfurt, Germany; Munich, Germany; Milan, Italy; Beaconsfield, United Kingdom; Chiswick, United Kingdom; Shannon, Ireland; St. Gallen, Switzerland; Stockholm, Sweden; Dubai, United Arab Emirates; Melbourne, Australia and Sydney, Australia. This space is considered adequate for the Company’s needs. The current annualized total rent for the Company, excluding operating costs, is approximately$4.4$5.54 million.The Harold Tilbury and Yolanda Tilbury Family Trust has brought an action against
Open Text Corporation,the Company, before a single arbitrator, under the Ontario Arbitrations Act. The complaint alleges failure to pay amounts owing under a stock purchaseagreement.agreement relating to the Company’s acquisition of Bluebird Systems Inc (“Bluebird”). The claim is for $10 USD million, plus $5 USD million in punitive damages.Open Text CorporationThe Company was not a party to the stock purchase agreement,andbut hasdefendedbeen held to be thearbitration claiming no amount is owingprincipal behind the transaction by theCompany thereunder. No claim has been madearbitrator so that if Open Text’s subsidiary Bluebird is liable, Open Text would also be liable. Bluebird and Open Text have counterclaimed against theCompany's subsidiary who wasTilburys claiming that not only is no further amount owing for the purchase of shares, but they are entitled to apartyreturn of the money already paid to theagreement.Tilburys, based on misrepresentations at the time of sale. Bluebird has also asked for rescission of the lease assumed on the purchase of the shares located in Carlsbad, California or damages of $7 USD million together with punitive damages of $1 USD million. It is not expected this matter will be heard before the spring of 2004. The Company believesthat thisthe claim made against it is without merit, and intends to defend the action vigorously. The arbitration process is inherently uncertain and unpredictable and accordingly there can be noguaranteeassurances as to the ultimate outcome ofthis pendingthe arbitration.Beginning in July 2001, Eloquent Inc, (“Eloquent”, a company acquired during fiscal 2003) and certain of its officers and directors were named as defendants in several class action shareholder complaints filed in the United States District Court for the Southern District of New York. These actions include (1) Pond Equities v. Eloquent, Inc., et al., Case No. 01-CV-6775; (2) Zitto Investments, Inc. v. Eloquent, Inc., et al., Case No. 01-CV-7591; (3) Bartula v. Eloquent, Inc., et al., Case No. 01-CV-7607; and (4) Holleran v. Eloquent, Inc., et al., Case No. 01-CV-7698. Similar complaints were filed in the same Court against hundreds of other public companies that conducted initial public offerings (“IPOs”) of their common stock in the late 1990s (the “IPO Lawsuits”). In each of these complaints, the
normal courseplaintiffs allege that Eloquent, certain ofbusinessits officers and directors and its IPO underwriters violated the federal securities laws because Eloquent’s IPO registration statement and prospectus contained untrue statements of material fact or omitted material facts regarding the compensation to be received by, and the stock allocation practices of, the IPO underwriters. The plaintiffs sought unspecified monetary damages and other relief.On August 8, 2001, the IPO Lawsuits were consolidated for pretrial purposes before United States Judge Shira Scheindlin of the Southern District of New York. In late 2002 and early 2003 the various plaintiffs and issuer
defendants entered into settlement discussions. In June, 2003, the Company’s Board of Directors agreed in principle to a settlement proposal as described in a Memorandum of Understanding with the plaintiffs and a Issuer-Insurer Agreement with the Company’s insurers (the “Settlement Proposal”). The Company has informed the plaintiffs and insurers that the Company
is subjectintends tovarious other legal matters. Whileexecute and deliver theresultsMemorandum of Understanding and Issuer—Insurer Agreement in the near future and the plaintiffs and insurers have informed the Company that they are prepared to accept such delivery and enter into these agreements with the Company. Under the Settlement Proposal, the issuers (including the Company, as successor to Eloquent) are to be dismissed as parties from the litigation and will be released from all claimscannot be predicted with certainty,by the plaintiffs. Implementation of the Settlement Proposal requires execution and delivery of the Memorandum of Understanding and Issuer-Insurer Agreement by the Company and approval by the court, and is expected to occur in late 2003 or early 2004. The Company believes that these lawsuits are without merit and, if thefinal outcome of these other matters willSettlement Proposals are nothave a materially adverse effect on its consolidated results of operations or financial conditions.implemented, intends to defend against them vigorously.Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for
Registrant'sRegistrant’s Common Equity and Related Stockholder MattersThe Common Shares have traded on the NASDAQ National Market since January 23, 1996 under the symbol
"OTEX"“OTEX”. The Common Shares have traded on the Toronto Stock Exchange("TSX"(“TSX”) since June 26, 1998 under the symbol"OTC"“OTC”. The following table sets forth the high and low sales prices for the Common Shares, as reported by the TSX, and the high and low bid prices, as reported by NASDAQ, for the periods indicated below.On June 30,
2002,2003, the closing price of theCompany'sCompany’s Common Shares on NASDAQ was$19.61$28.25 USD per share. On June 30,2002,2003, the closing price of theCompany'sCompany’s Common Shares on the TSX was$30.10$38.12 CDN per share.
Nasdaq TSX -------------------- --------------------- High Low High Low --------- --------- --------- --------- (in U.S. dollars) (in Canadian dollars)Year Ending June 30, 2002: Fourth Quarter $ 25.44 $ 16.85 $ 39.70 $ 28.00 Third Quarter 30.70 22.64 49.80 32.50 Second Quarter 31.75 20.55 49.23 36.30 First Quarter 25.86 17.85 40.94 26.00 Year Ending June 30, 2001: Fourth Quarter $ 27.00 $ 15.94 $ 41.19 $ 25.00 Third Quarter 38.69 17.19 55.15 27.07 Second Quarter 26.38 15.88 40.25 25.80 First Quarter 29.82 18.06 44.35 27.75
Nasdaq TSX High Low High Low (in U.S. dollars) (in Canadian dollars) Year Ending June 30, 2003:
Fourth Quarter
$ 34.75 $ 26.91 $ 50.24 $ 38.10 Third Quarter
30.04 23.10 44.82 36.37 Second Quarter
27.99 16.97 43.70 27.10 First Quarter
25.93 15.47 40.80 24.49 Year Ending June 30, 2002:
Fourth Quarter
$ 25.44 $ 16.85 $ 39.70 $ 28.00 Third Quarter
30.70 22.64 49.80 32.50 Second Quarter
31.75 20.55 49.23 36.30 First Quarter
25.86 17.85 40.94 26.00 On September
17, 2002,24, 2003, the closing price of theCompany'sCompany’s Common Shares on NASDAQ was$22.26$35.83 USD per share. As at September17, 2002,24, 2003, there were approximately6,2508,154 shareholders of record of theCompany'sCompany’s CommonShares. As at September 17, 2002,24, 2003, there were approximately2,0503,004 U.S. shareholders of record, holding6,944,6648,362,713 Common Shares.Dividend Policy
The Company has never paid cash dividends on its capital stock. The Company currently intends to retain earnings, if any, for use in its business and does not anticipate paying any cash dividends in the foreseeable future.
Exchange Controls and Other Limitations Affecting Holders of Common Shares
Investment Canada Act
Canada has no system of exchange controls. There is no law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of Common Shares, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by the articles or other charter documents of the Company on the right of a non-resident to hold or vote Common Shares or Preferred Shares of the Company with voting rights (collectively,
"Voting Shares"“Voting Shares”), other than as provided in the Investment Canada Act (the"Investment Act"“Investment Act”), as amended by the World Trade Organization Agreement Implementation Act (the"WTOA Act"“WTOA Act”). The Investment Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a"Canadian,"“Canadian,” as defined in the Investment Act (a"non-Canadian"“non-Canadian”), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada. An investment in Voting Shares of the Company by a non-Canadian (other than a"WTO“WTO Investor,"” as defined below) would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of the assets of the Company were $5.0 million or more. Except for certain economic sectors with respect to which the lower threshold would apply, an investment in Voting Shares of the Company by a WTO Investor would be reviewable under the Investment Act if it were an investment to acquire direct control of the Company, and the value of the assets of the Company equaled or exceeded$172 million.$223 million CDN. A non-Canadian, whether a WTO Investor or otherwise, would acquire control of the Company for purposes of the Investment Act if he or she acquired a majority of the Voting Shares of the Company. The acquisition of less than a majority, but at least one-third of the Voting Shares of the Company, would be presumed to be an acquisition of control of the Company, unless it could be established that the Company was not controlled in fact by the acquirer through the ownership of Voting Shares. In general, an individual is a WTO Investor if he or she is a"national"“national” of a country (other than Canada) that is a member of the World Trade Organization("(“WTOMember"Member”) or has a right of permanent residence in a WTO Member. A corporation or other entity will be a WTO investor if it is a"WTO investor-controlled entity"“WTO Investor-controlled entity” pursuant to detailed rules set out in the Investment Act. The United States is a WTO Member.Certain transactions involving Voting Shares of the Company would be exempt from the Investment Act, including: (a) an acquisition of Voting Shares of the Company if the acquisition were made in connection with the
person'sperson’s business as a trader or dealer in securities; (b) an acquisition of control of the Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Act; and (c) an acquisition of control of the Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control of the Company, through the ownership of voting interests, remains unchanged.Canadian Federal Income Tax Considerations
The following summary is based upon the current provisions of theIncome Tax Act (Canada) (the
"ITA"“ITA”) and the regulations thereunder, all proposed amendments to the ITA and the regulations thereunder publicly announced by the Department of Finance, Canada prior to the date hereof, the currentpublishedadministrative policies and15assessing practices of the Canada Customs and Revenue Agency ("CCRA"(“CCRA”), and the Canada-United States Income Tax Convention (1980), as amended by the 1983, 1984, 1995 and 1997 Protocols thereto (the"Convention"“Convention”). Except for the foregoing, this summary does not take into account or anticipate changes in the law or the administrative policies or assessing practices of the CCRA whether by legislative, governmental or judicial actionand does not take into account or anticipate provincial, territorial or foreign tax considerations.
This summary relates to the principal Canadian federal income tax considerations under the ITA and the regulations thereunder generally applicable to purchasers of Common Shares hereunder who: (i) for purposes of the ITA, are not, have not been and will not be or be deemed to be resident in Canada at any time while they held or hold Common Shares (or other property for which Common Shares were substituted on a tax deferred exchange), deal at
arm'sarm’s length with the Company, will hold their Common Shares as capital property, and do not use or hold, and will not and will not be deemed to use or hold their Common Shares in, or in the course of carrying on a business in Canada through a permanent establishment or in connection with a fixed base in Canada, and (ii) for purposes of the Convention, are residents of the United States and not residents of Canada.Amounts in respect of Common Shares paid or credited or deemed to be paid or credited as, on account or in lieu of payment of, or in satisfaction of, dividends to a non-resident holder will generally be subject to Canadian non-resident withholding tax. Such withholding tax is levied at a basic rate of 25%, which may be reduced pursuant to the terms of an applicable tax treaty between Canada and the country of residence of the non-resident holder. Currently, under the Convention, the rate of Canadian non-resident withholding tax on the gross amount of dividends beneficially owned by a person who is a resident of the United States for the purpose of the Convention and who does not have a
"permanent establishment"“permanent establishment��� or"fixed base"“fixed base” in Canada to which the holding of Common Shares is effectively connected is 15% except where such beneficial owner is a company which owns at least 10% of the voting stock of the Company (in which case the rate of such withholding is 5%).A purchase of Common Shares by the Company (other than a purchase of Common Shares by the Company on the open market in the manner in which shares would be purchased by any member of the public in the open market) will give rise to a deemed dividend under the ITA equal to the difference between the amount paid by the Company on the purchase and the paid-up capital of such shares determined in accordance with the ITA. The paid-up capital of such shares may be less than the non-resident
holder'sholder’s cost of such shares. Any such dividend deemed to have been received by a non-resident holder would be subject to a non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceedsonof disposition of the Common Shares to the non-resident holder for purposes of computing the amount of the non-residentholder'sholder’s capital gain or loss under the ITA.A holder who is not resident in Canada for purposes of the ITA will generally not be subject to tax under the ITA in respect of any capital gain or entitled to deduct any capital loss realized on a disposition of Common Shares unless at the time of such disposition such Common Shares constitute
"taxable“taxable Canadianproperty"property” of the holder for purposes of the ITA and the holder is not entitled to relief under the Convention. If the Common Shares are listed on a prescribed stock exchange (which includes the NASDAQ National Market) at the time they are disposed of, they will generally not constitute"taxable“taxable Canadianproperty"property” of the non-resident holder at the time of a disposition of such shares unless such holder uses or holds or is deemed to use or hold such shares in or in the course of carrying on business in Canada or, at any time during the five year period immediately preceding the disposition of the Common Shares, 25% or more of the issued shares of any class or series of the Company were owned by the non-resident holder, by persons with whom the non-resident holder did not deal atarm'sarm’s length or by the non-resident holder and persons with whom the non-resident holder did not deal atarm'sarm’s length. In any event, under the Convention, gains derived by a resident of the US from the disposition of Common Shares will generally not be taxable in Canada unless such Common Shares form part of the business property of a permanent establishment which such US resident has or had (within the twelve-month period preceding the date of disposition) or pertain to apermanent establishment orfixed base which is or was available (within the twelve-month period preceding the date of disposition) to such US resident in Canada or unless the value of the Common Shares is derived principally from real property situated in Canada.When a non-resident holder dies holding Common Shares, such holder will be deemed to have disposed of such Common Shares for
an amountproceeds equal to the fair market value thereof immediately before suchholder'sholder’s death and will be subject to the tax treatment with respect to dispositions described above. Any person who acquires such Common Shares as a consequence of the death of such holder will be deemed to have acquired such sharesforat a cost equal to their fair market value at that time.16United States Federal Income Taxation
The following discussion summarizes certain US federal income tax considerations relevant to an investment in the Common Shares by individuals and corporations who, for income tax purposes, are resident in the US and not in Canada, hold Common Shares as capital assets, do not use or hold the Common Shares in carrying on a business through a permanent establishment or in connection with a fixed base in Canada and, in the case of individual investors, are also US citizens (collectively,
"Unconnected“Unconnected USShareholders"Shareholders”). The tax consequences of an investment in the Common Shares by investors who are not Unconnected US Shareholders may be expected to differ substantially from the tax consequences discussed herein. Further, this summary is not a comprehensive description of all of the tax considerations that may be relevant to an Unconnected US Shareholder based on suchShareholder'sShareholder’s particular circumstances. In particular, this discussion does not address the potential application of the alternative minimum tax. In addition, this discussion does not address the US federal income tax consequences to Unconnected US Shareholders that are subject to special treatment under US federal income tax laws, including, but not limited to:.broker-dealers;.banks or insurance companies;.taxpayers who have elected mark-to-market accounting;.tax-exempt organizations;.financial institutions;.taxpayers who hold ordinary shares as part of a"straddle"“straddle”,"hedge"“hedge”, or"conversion transaction"“conversion transaction” with other investments;.individual retirement or other tax-deferred accounts;.holders owning directly, indirectly or by attribution at least 10% of our voting power; and.taxpayers whose functional currency is not the US dollar.This discussion does not address any aspect of US federal gift or estate tax, or of state, local or non-U.S. tax laws.
The discussion is based upon the provisions of the US Internal Revenue Code of 1986, as amended (the
"Code"“Code”), the existing and proposed Treasury regulations promulgated thereunder, the Convention, the administrative practices published by the US Internal Revenue Service("IRS"(“IRS”) and US judicial decisions, all of which are subject to change. This discussion does not consider the potential effects, both adverse and beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.Unconnected US Shareholders generally will treat the gross amount of dividends paid by the Company equal to the US dollar value of such dividends on the date the dividends are received or treated as received (based on the exchange rate on such date), without reduction for the Canadian withholding tax, as dividend income for US federal income tax purposes to the extent of the
Company'sCompany’s current and accumulated earnings and profits. However, the amount of Canadian tax withheld (calculated in accordance with U.S. federal income tax principles) generally will give rise to a foreign tax credit or deduction for US federal income tax purposes. Investors should be aware that dividends paid by the Company generally will constitute"passive income"“passive income” for purposes of the foreign tax credit, which could reduce the amount of the foreign tax credit available to a US shareholder. The Code applies various limitations on the amount of foreign tax credit that may be available to a US taxpayer. Investors should consult their own tax advisors with respect to the potential consequences of those limitations. Dividends paid on the Common Shares will not generally be eligible for the"dividends received"“dividends received” deduction. An investor that is a corporation may, under certain circumstances, be entitled to a 70% deduction of the US-source portion of dividends received from the Company if such investor owns shares representing at least 10% of the voting power and value of the Company. To the extent that distributions exceed current and accumulated earnings and profits of the Company, they will be treated first as a return of capital, up to theinvestor'sinvestor’s adjusted basis in Common Shares and thereafter as gain from the sale or exchange of the Common Shares.In the case of foreign currency received as a dividend that is not converted by the recipient into US dollars on the date of receipt, an Unconnected US Shareholder will have a tax basis in the foreign currency equal to its US
17dollar value on the date the dividends are received or treated as received. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency, including an exchange for US dollars, will be ordinary income or loss.
The sale of Common Shares generally will result in the recognition of gain or loss to the holder in an amount equal to the difference between the amount realized and the
holder'sholder’s adjusted basis in the Common Shares. The tax basis will initially equal its cost to the Unconnected US Shareholder, as reduced by any distributions on the shares treated as return of capital. The Unconnected US Shareholder that is an individual will be taxed on the net amount of his or her capital gain at a maximum rate of 20% provided the Common Shares were held for more than 12 months. Such rate for capital gains on shares held for more than five years is generally 18% if the shares are acquired after December 31, 2000 (or, in the case of shares that are acquired pursuant to an option, such shares are acquired pursuant to an option granted after December 31, 2000). Special rules (and generally lower maximum rates) apply to individuals in lower tax brackets.Corporate taxpayers may deduct capital losses to the extent of capital gains. Non-corporate taxpayers may deduct excess capital losses, whether short-term or long-term, up to an additional US$3,000 a year (US$1,500 in the case of a married individual filing separately). Non-corporate taxpayers may carry forward unused capital losses indefinitely. Unused capital losses of a corporation (other than an S corporation) may be carried back three years and carried forward five years.
In general, dividends paid on Common Shares and payments of the proceeds of a sale of Common Shares, paid within the US or through certain US-related financial intermediaries, are subject to information reporting and may be subject to backup withholding at a 30% rate (or lower rate then in effect as established by the Economic Growth and Tax Relief Reconciliation Act of 2001) unless (i) the payor is entitled to, and does in fact, presume that the Unconnected US Shareholder of common shares is a corporation or other exempt recipient or (ii) the Unconnected US Shareholder provides a taxpayer identification number on a properly completed Form W-9 and certifies that no loss of exemption from backup withholding has occurred. The amount of any backup withholding will be allowed as a credit against an Unconnected US
Shareholder'sShareholder’s US federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS.Passive Foreign Investment Company
A non-US corporation will be classified as a passive foreign investment company (a
"PFIC"“PFIC”) for US federal income tax purposes if it satisfies either of the following two tests: (i) 75% or more of its gross income for the taxable year is"passive income"“passive income” (generally, interest, dividends, royalties, rent and similar income, and gains on disposition of assets that generate such income) or (ii) 50% or more of its assets produce or are held for the production of passive income on average for the taxable year (by value or, if the Company so elects, by adjusted basis). If the corporation owns, directly or indirectly, at least 25% by value of the stock of another corporation, it will be treated as if it holds directly its proportionate share of assets, and receives directly its proportionate share of income of such other corporation. Accordingly, the classification of the Company as a PFIC in any taxable year will depend on the character of the income and the assets of the Company and its subsidiaries.The Company does not believe that it is currently a PFIC. If the Company were to be a PFIC for any taxable year, US investors would be required to
do as follows(i) at disposition or when such investor receives an"excess distribution"“excess distribution”,topay a penalty tax equivalent to US federal income tax at ordinary income rates, calculated as if any gain on that sale were realized (or the excess distribution were made) ratably over that holding period, plus an interest charge on taxes that are deemed due during the period that the investor owned that stock, (ii) if a Qualified Electing Fund("QEF")election is made,toinclude currently in their taxable income certain undistributed amounts of theCompany'sCompany’s income, or (iii) if a mark-to-market election is made,toinclude currently an amount of ordinary income or loss (which loss is subject to limitations) each year in an amount equal to the difference between the fair market value of suchinvestor'sinvestor’s shares in the Company and suchinvestor'sinvestor’s adjusted tax basis therein.18Controlled Foreign Corporation
If more than 50% of the voting power of all classes of stock or the total value of the stock of the Company is owned, directly or indirectly, by US persons including citizens or residents of the US, US domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom owns 10% or more of the total combined voting power of all classes of stock of the Company
("(“10% USShareholders"Shareholders”), the Companycouldwould be treated as a"controlled“controlled foreigncorporation"corporation” under Subpart F of the Code. This classification would have many complex results, including the required inclusion by such 10% US Shareholders in income of their pro rata shares of"Subpart“Subpart Fincome"income” (as specifically defined by the Code) of the Company.In addition, under Section 1248 of the Code, gain from the sale or exchange of Common Shares by a holder who is or was a 10% US Shareholder at any time during the five-year period ending with such sale or exchange would be treated as dividend income (treated for US tax purposes as ordinary income rather than capital gain) to the extent of earnings and profits of the Company attributable to the stock sold or exchanged.The Company does not believe that it is currently a controlled foreign corporation.Item
6 -6—Selected Consolidated Financial DataThe following table sets forth selected consolidated financial data of the Company for the periods indicated. The financial data should be read in conjunction with
"Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations,"” and the Consolidated Financial Statements and related notes of the Company appearing elsewhere in this Annual Report on Form 10-K. The selected consolidatedstatementsstatement of operations data set forth below for the fiscal years ended June 30, 2003, 20022001and20002001 and the consolidated balance sheet data as of June 30,20022003 and20012002 are derived from our consolidated financial statements, which have been auditedfor 2002 and 2001by KPMG LLP,and for 2000 by PricewaterhouseCoopers LLP, both of which arean independent publicaccountants,accountant, and which are included elsewhere in this Annual Report on Form 10-K.19
Fiscal Year EndedThe selected consolidated statement of operations data set forth below for the fiscal years ended June 30, 2000 and 1999 and the consolidated balance sheet data as of June 30,2002 2001/(2)/ 2000/(2)/ 1999/(2)/ 1998/(2)/ ---------- ---------- ---------- ---------- ---------- (in thousands, except per share data)Statement of Operations Data: Revenues: License & networking $ 65,984 $ 73,752 $ 57,574 $ 53,657 $ 29,644 Customer support & service 86,493 73,947 55,371 38,880 15,656 ---------------------------------------------------------------------- Total revenues 152,477 147,699 112,945 92,537 45,300 Cost of revenues: License & networking 5,341 5,878 2,685 1,819 1,500 Customer support & service 33,880 32,597 29,951 18,005 7,554 ---------------------------------------------------------------------- Total cost of revenues 39,221 38,475 32,636 19,824 9,054 Gross profit 113,256 109,224 80,309 72,713 36,246 Operating expenses: Research and development 24,071 24,311 17,743 11,373 7,906 Sales and marketing 51,084 51,317 42,928 36,441 21,906 General and administrative 12,498 13,191 19,832 5,921 4,645 Depreciation 5,587 5,178 4,586 4,225 2,374 Amortization of acquired intangible assets 6,506 5,460 2,962 2,194 618 Restructuring costs - - 1,774 329 - ---------------------------------------------------------------------- Total operating expenses 99,746 99,457 89,825 60,483 37,449 ---------------------------------------------------------------------- Income (loss) from operations 13,510 9,767 (9,516) 12,230 (1,203) Other income (loss) 1,613 (2,417) 48,965 427 280 Interest income 1,853 4,736 6,161 2,342 1,745 Interest expense (16) (61) (109) (47) (125) ---------------------------------------------------------------------- Income before income taxes 16,960 12,025 45,501 14,952 697 Provision for (recovery of) income taxes 289 1,229 20,422 (8,637) (1,000) ---------------------------------------------------------------------- Net income for the year $ 16,671 10,796 25,079 23,589 1,697 ====================================================================== Net income per share, basic $ 0.83 $ 0.54 $ 1.12 $ 1.13 $ 0.10 ====================================================================== Net income per share, diluted $ 0.78 $ 0.50 $ 1.03 $ 0.99 $ 0.10 ====================================================================== Weighted average Common Shares outstanding/(1)/, basic 19,979 20,032 22,349 20,914 17,680 ====================================================================== Weighted average Common Shares outstanding/(1)/, diluted 21,239 21,466 24,421 23,729 17,680 ======================================================================June 30, 2002 2001 2000 1999 1998 ---------- ---------- ---------- ---------- ---------- Balance Sheet Data: (in thousands)Cash and cash equivalents $ 109,895 87,526 113,918 140,256 40,390 Working capital 103,897 82,030 98,008 197,595 39,640 Total assets 186,847 175,002 183,250 264,774 100,582 Long-term liabilities - - - - - Shareholders' equity 144,031 133,027 137,983 232,825 73,074Footnotes to Selected Financial Data: (1) See Note 2 of Notes to Consolidated Financial Statements for a description of the calculation of the weighted average number of Common Shares outstanding used in computing net income (loss) per share. (2) Reflects the results of the Acquired Businesses in2001, 2000 and 1999and 1998are derived fromthe time of acquisition. See Note 14 of Notes to Consolidated Financial Statements. 20audited consolidated financial statements that are not included in this Annual Report on Form 10-K.
Fiscal Year Ended June 30, 2003 2002 2001 2000 1999 (in thousands, except per share data) Statement of Operations Data:
Revenues:
License & networking
$ 75,991 $ 65,984 $ 73,752 $ 57,574 $ 53,657 Customer support
63,091 48,707 40,316 26,641 20,411 Service
38,643 39,681 35,709 30,180 18,989 Total revenues
177,725 154,372 149,777 114,395 93,057 Cost of revenues:
License & networking
6,550 5,341 5,878 2,685 1,819 Customer support
10,406 8,364 7,632 5,731 3,151 Service
28,241 27,411 27,043 25,670 15,374 Total cost of revenues
45,197 41,116 40,553 34,086 20,344 Gross profit
132,528 113,256 109,224 80,309 72,713 Operating expenses:
Research and development
29,324 24,071 24,311 17,743 11,373 Sales and marketing
54,532 51,084 51,317 42,928 36,441 General and administrative
13,509 12,498 13,191 19,832 5,921 Depreciation
5,009 5,587 5,178 4,586 4,225 Amortization of acquired intangible assets
3,236 6,506 5,460 2,962 2,194 Acquired in Process Research and Development and write-down of intangible assets
— — — — 3,419 Restructuring costs
— — — 1,774 329 Total operating expenses
105,610 99,746 99,457 89,825 63,902 Income (loss) from operations
26,918 13,510 9,767 (9,516 ) 8,811 Other income (loss)
2,788 1,613 (2,417 ) 48,965 427 Interest income
1,283 1,853 4,736 6,161 2,342 Interest expense
(55 ) (16 ) (61 ) (109 ) (47 ) Income before income taxes
30,934 16,960 12,025 45,501 11,533 Provision for (recovery of) income taxes
3,177 289 1,229 20,422 (8,637 ) Net income for the year
$ 27,757 $ 16,671 $ 10,796 $ 25,079 $ 20,170 Net income per share, basic
$ 1.42 $ 0.83 $ 0.54 $ 1.12 $ .96 Net income per share, diluted
$ 1.34 $ 0.78 $ 0.50 $ 1.03 $ .85 Weighted average Common Shares outstanding, basic
19,525 19,979 20,032 22,349 20,914 Weighted average Common Shares outstanding, diluted
20,697 21,239 21,466 24,421 23,729 June 30, 2003 2002 2001 2000 1999 (in thousands) Balance Sheet Data:
Cash and cash equivalents
$ 116,554 $ 109,895 $ 87,526 $ 113,918 $ 140,256 Working capital
94,440 103,897 82,030 98,008 197,595 Total assets
238,687 186,847 175,002 183,250 264,774 Long-term liabilities
6,608 — — — — �� Item 7.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis should be read together with the
Company's consolidated financial statementsCompany’s Consolidated Financial Statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K, including the following discussion, contains trend analysis and other forward-looking statements within the safe harbour provisions of the Private Securities Litigation Reform Act of 1995. Any statements in this Annual Report on Form 10-K that are not statements of historical fact are forward-looking statements. These forward-looking statements are based on a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or developments in theCompany'sCompany’s business or its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. These risks, uncertainties, and factors include, but are not limited to, those set forth under"Cautionary Statements"“Cautionary Statements” and elsewhere in this Annual Report on Form 10-K. Forward-looking statements are based onmanagement'smanagement’s current plans, estimates, opinions and projections, and the Company assumes no obligation to update forward-looking statements if assumptions or these plans, estimates, opinions or projections should change.Overview
The
Company'sCompany’s Consolidated Financial Statements are prepared in accordance with accounting principles generally acceptedaccounting principlesin the United States("(“USGAAP"GAAP”) and are presented in United States dollars unless otherwise indicated. All references in thisreportAnnual Report on Form 10-K to financial information concerning the Company refer to such information in accordance with US GAAP and all dollar amounts in thisreportAnnual Report on Form 10-K are in United States dollars unless otherwise indicated.Open Text develops, markets, licenses and supports collaboration and knowledge management software for use on intranets, extranets and the
Internet, enablingInternet. The Company’s principal product line is Livelink®, a leading collaboration and knowledge management software product for global enterprises. The software enables users to find electronically stored information, work together in creative and collaborative processes, perform group calendaring and scheduling, and distribute or make available to users across networks or the Internet the resulting work product and other information.The Company's software enables thousands of organizations to effectively address a diverse range of business needs including managing information, unifying globally distributed teams, capturing market opportunities, accelerating product cycles, improving customer and partner relationships, and altering business strategies. The Company's principal product line is its Livelink(R) software, a leading collaboration and knowledge management software for global enterprises. By effectively managing people, processes and information, Livelink enables companies to be more efficient and innovative in managing their intellectual property. Livelink integrates several engines including, but not limited to, search, collaboration, workflow, group calendaring and scheduling, and document management. Its tightly integrated functionalities deliver true dynamic collaboration and knowledge sharing between individuals, teams and organizations.This collaborative environment enables ad hoc teams to form quickly across functional and organizational boundaries, which enables information to be accessed by employees using any standard Web browser. Fully Web-basedand open-architectured,with open architecture, Livelink provides rapid out-of-the-box deployment, accelerated adoption, and low cost of ownership.In fiscalOpen Text provides integrated solutions that enable people to use information and technology more effectively at departmental levels and across enterprises. The Company offers its solutions both as end-user stand-alone products and as fully integrated modules, which together provide a complete solution that is easily incorporated into existing enterprise business systems. Although most of the Company’s technology is proprietary in nature, the Company does include certain third party software in its products.On November 1, 2002, the Company completed the acquisition of all of the issued and outstanding shares of Centrinity Inc. for cash consideration of $20.3 million. The transaction was completed by way of an amalgamation of Centrinity with 3801853 Canada Inc., a wholly-owned subsidiary of Open Text. The results of operations of Centrinity have been consolidated with those of Open Text beginning November 1, 2002.
On February 25, 2003, Open Text Inc. (“OTI”), a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding shares of Corechange through the merger of a wholly-owned subsidiary of OTI, with and into Corechange, with Corechange as the surviving corporation. Consideration for this acquisition is comprised of (1) cash consideration of $3.6 million paid on closing; (2) additional cash consideration of $650,000 to be held in escrow in order to satisfy potential breaches of representations and warranties as provided for in the share purchase agreement; and (3) additional cash consideration to be earned over the one-year period following closing, contingent on Corechange meeting certain revenue targets. The results of operations of Corechange have been consolidated with those of Open Text beginning February 25, 2003.
On March 20, 2003, Open Text completed an acquisition of all of the issued and outstanding shares of Eloquent for cash consideration of $6.7 million, of which $1.0 million will be held in escrow to secure certain
representations, warranties and covenants of Eloquent in the acquisition agreement. The results of operations of Eloquent have been consolidated with those of Open Text beginning March 20, 2003.
In fiscal 2003, the Company recorded total revenues of
$152.5$177.7 million,its largest amounta record for a Company fiscal year, due todate, partially due toa number of factors including an increase in new customers, additional license transactions completed with existing customers, and the acquisitions of Centrinity, Corechange, and Eloquent, as well asstrong additional licenses to existing customers.favorable movement in foreign exchange rates. The Company achieved overall profitability in fiscal20022003 for thefourthfifth straight year, while it achieved profitability from operations for thesecondthird straight year. In addition, cash and cash equivalents increased to$109.9$116.6 millionwith positiveas of June 30, 2003, while cash flow from operationsintotaled $40.0 million for fiscal2002.2003. During fiscal2002,2003, the Companycompleted a buy-back of 620,200repurchased 756,000 Common Shares in the open market for a total purchase price of$13.8$17.3 million. TheCompany'sCompany’s days sales outstanding (DSO) decreasedslightlysignificantly from76 days at June 30, 2001 to72 days at June 30,2002. Geographical2002 to 61 days at June 30, 2003. Geographic segment information regarding the Company is presented in Note1312 to theCompany'sCompany’s Consolidated Financial Statements.21Critical Accounting Policies and Estimates
The
Company'sCompany’s Consolidated Financial Statements are prepared in accordance with US GAAP. The preparation of the Consolidated Financial Statements in accordance with US GAAP necessarily requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, bad debts, investments, intangible assets, income taxes, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed at the time to be reasonable under the circumstances. Under different assumptions or conditions, the actual results will differ, potentially materially, from those previously estimated. Many of the conditions impacting these assumptions and estimates are outside of theCompany'sCompany’s control.The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.
Revenue Recognition.Revenue:The Company
recognizes revenuecurrently derives all of its revenues from licenses of software products and related services. Revenue is recognized in accordance with Statement of Position("SOP")(SOP) 97-2,"SoftwareSoftware RevenueRecognition", issued by the American Institute of Certified Public Accountants ("AICPA") in October 1997 andRecognition, as amended by SOP 98-9,issuedModification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions, and to the extent applicable, Securities and Exchange Commission Staff Accounting Bulletin 101, “Revenue Recognition inDecember 1998. The Company records productFinancial Statements.”Product license revenue
from software licenses and productsis recognized under SOP 97-2 when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) thesoftware product has been shipped, there are no significant uncertainties surrounding product acceptance, the fees arefee is fixedandor determinable, andcollection(iv) collectibility isconsidered probable.probable and supported and the arrangement does not require services that are essential to the functionality of the software.(i) Persuasive Evidence of an Arrangement Exists—The Company
usesdetermines that persuasive evidence of an arrangement exists with respect to a customer under (a) an executed license agreement, which is signed by both theresidual method to recognize revenue whencustomer and the Company, or (b) a purchase order, quote or binding letter-of-intent received from and signed by the customer, in which case the customer has either previously executed a license agreementincludes onewith the Company ormorewill receive a shrink-wrap license agreement with the software. The Company does not offer product return rights to end users or resellers.(ii) Delivery has Occurred—The Company’s software may be either physically or electronically delivered to the customer. The Company determines that delivery has occurred upon shipment of the software pursuant to the billing terms of the arrangement or when the software is made available to the customer through electronic delivery. Customer acceptance generally occurs at shipment.
(iii) The Fee is Fixed or Determinable—If at the outset of the customer arrangement, the Company determines that the arrangement fee is not fixed or determinable, revenue is typically recognized when the arrangement fee becomes due and payable.
(iv) Collectibility is Probable and Supported—The Company determines whether collectibility is probable and supported on a case-by-case basis. The Company may generate a high percentage of its license revenue from its current customer base, for whom there is a history of successful collection. The Company assesses the probability of collection from new customers based upon the number of years the customer has been in business and a credit review process, which evaluates the customer’s financial position and ultimately their ability to pay. If the Company is unable to determine from the outset of an arrangement that collectibility is probable based upon its review process, revenue is recognized as payments are received.
With regard to software arrangements involving multiple elements, the Company allocates revenue to
be delivered at a future date if evidence ofeach element based on the relative fair value ofall undelivered elements exists. If an undeliveredeach element. The Company’s determination of fair value of each elementfor the arrangement exists under the license arrangement, revenue related to the undelivered elementin multiple-element arrangements isdeferredbased on vendor-specific objective evidence("VSOE"(“VSOE”). The Company limits its assessment of VSOE for each element to the price charged when the same element is sold separately. The Company has analyzed all of thefair value of the undelivered element. The Company'selements included in its multiple-elementsalesarrangementsinclude arrangements where software licensesandthe associatedhas determined that it has sufficient VSOE to allocate revenue to consulting services and post-contract customer support("PCS"(“PCS”)are sold together.components of its license arrangements. The Company sells its consulting services separately, and has established VSOEof the fair value of the undelivered PCS element basedfor these services onthe contracted pricethis basis. VSOE forrenewal PCS included in the original multiple element sales arrangement, as substantiated by contractual terms and the Company's significant PCS renewal experience, from its large installed base of over 5 million users worldwide. The Company's multiple element sales arrangements generally include rights for the customer to renew PCS after the bundled term ends. These rights are irrevocable to the customer's benefit, are for specified prices and 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 the Company's experience that customers generally exercise their renewal PCS option. In the renewal transaction,PCS issold on a stand-alone basis todetermined based upon thelicensees one year or more aftercustomer’s annual renewal rates for these elements. Accordingly, assuming all other revenue recognition criteria are met, revenue from perpetual licenses is recognized upon delivery using theoriginal multiple element sales arrangement. The renewalresidual method in accordance with SOP 98-9, and revenue from PCSpriceisconsistent with the renewal price in the original multiple element sales arrangement although an adjustment to reflect consumer price changes are not uncommon. If VSOE of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered. Service revenues consist of revenues from consulting contracts as well as training and integration services contracts. Contract revenues are derived from contracts to develop applications and to provide consulting services. Contract revenues are recognized under the percentage of completion method, using a methodology that accounts for costs incurred under the contract in relation to the total estimated costs under the contract, after providing for any anticipated losses under the contract. Revenues from training and integration services are recognized in the period in which the services are performed. Customer support revenues consist of revenue derived from contracts to provide technical support to license holders. These revenues arerecognized ratably over the respective term of thecontract. 22maintenance contract, typically one year. Services revenue consists of fees from consulting services and PCS. Consulting services include needs assessment, software integration, security analysis, application development and training. The Company generally bills consulting services fees on a time and materials basis. The Company’s consulting services are not essential to the functionality of its software. The Company’s software products are fully functional upon delivery and implementation and generally do not require any significant modification or alteration for customer use. Customers purchase consulting services to facilitate the adoption of the Company’s technology and may dedicate personnel to participate in the services being performed, but they may also decide to use their own resources or appoint other professional service organizations to provide these services. Software products are billed separately from professional services. The Company recognizes revenue from consulting services as services are performed. The Company’s customers typically purchase PCS annually, and the Company prices PCS based on a percentage of the product license fee. Customers purchasing PCS receive product upgrades, Web-based technical support and telephone hot-line support.
Network revenues consist of revenues earned from customers under an application service provider
("ASP"(“ASP”) model. Under this model, customers pay a monthly fee that entitles them to use of theCompany'sCompany’s software on a secure, hosted, third-party server. These revenues are recognized as the services are provided on a monthly basis over the term of thecustomer'scustomer’s contract. With respect to these revenues, theCompany'sCompany’s customers pay exclusively for the right to use thesoftware. The Company's customerssoftware, but do not receive the right to take possession of theCompany'sCompany’s software. Further, it is not possible for customers to either run the software on their own hardware or for them to contract with another party unrelated to the Company to host the software.Customer advances and billed amounts due from customers in excess of revenue recognized are recorded as deferred revenue.
Allowance for Doubtful Accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company performs ongoing credit evaluations of its
customer'scustomer’s financial condition and if the financial condition of theCompany'sCompany’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances would likely be required. Actual collections could differ materially from our estimates.Investments. From time to time the Company may hold minority interests in companies having operations or technology in areas within its strategic focus, some of which are publicly traded and have highly volatile share prices.
The Company records an investment impairment charge when it believes an investment has experienced a decline in value that is other than temporary.Future adverse changes in market conditions or poor operating results of companies in whom the Company has invested could result in losses or an inability to recover the carrying value of the investments that may not be reflected in aninvestment'sinvestment’s current carrying value, thereby possibly requiring an impairment charge in the future.Valuation Allowance.The Company records an investment impairment charge when it believes an investment has experienced a decline in value that is other than temporary.
Income Taxes. The Company records a valuation allowance
to reduce itsagainst deferred income tax assetsto the amount thatwhen management believes it isconsidered to bemore likely than nottothat some portion or all of the deferred income tax assets will not be realized.At June 30, 2002, no netManagement considers factors such as the reversal of deferred income tax liabilities, projected taxable income, the character of the income tax assethas been recognized. The Company considers estimated future taxable income by taxing jurisdictionsandongoingtax planningstrategies in assessingstrategies. A change to these factors could impact theneed forestimated valuation allowance andsize of the valuation allowance. If the Company were to conclude that it was able to realize its deferredincome taxassets in the future in an amount that differs from its net recorded amount, an adjustment to the deferred tax asset would be required with the change generally recognized in the determination of income for the period.expense.Long-Lived
Assets.Assets. TheCompany accounts for the impairment and disposition ofCompany’s long-lived assets consist of property, plant and equipment and other acquired intangibles, excluding goodwill. We periodically review our long-lived assets for impairment in accordance withtheStatement of Financial Accounting Standards("SFAS"(“SFAS”) No.121, "Accounting144Accounting for the Impairment or Disposal of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, long-lived. For assets to be heldare reviewed forand used, the Company initiates its review whenever events or changes in circumstancesthatindicate thattheirthe carryingvalueamount of a long-lived asset may not be recoverable.In August 2001,Recoverability of an asset group is measured by comparison of its carrying amount to theFinancial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for Impairment or Disposalexpected future undiscounted cash flows (without interest charges) that the asset group is expected to generate. If it is determined that an asset group is not recoverable, an impairment loss is recorded in the amount by which the carrying amount ofLong-Lived Assets." This statement addresses financial accounting and reporting fortheimpairmentasset group exceeds its fair value. Assets to be disposed oflong-lived assetsand for which we have a plan to dispose of thedisposalassets, whether through sale or abandonment, are reported at the lower oflong-lived assets. SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. The Company evaluates thetheir carrying amount or fair valueof intangible assets for impairment of value based on undiscounted future cash flows. While the Company has not experienced the impairment of intangible assets in prior periods, the Company cannot guarantee that there will not be impairment in the future.less cost to sell.Litigation.The Company is a party, from time to time, in legal proceedings.
For suchIn these cases,the Companymanagement assesses the likelihood that a loss will result, as well as the amount of such loss and the financial statements provide for theCompany'sCompany’s best estimate of such losses. To the extent that any of these legal proceedings are resolved and result in the Company being required to pay an amount in excess of what has been provided for in the financial statements, the Company would be required to record, against earnings, such excessamountat that time. If the resolution resulted in a gain to the Company, or a loss less than that provided for, such gain is recognized when received or receivable.23Valuation of Intangible Assets.The Company has a history of acquiring other businesses, and expects that this trend will likely continue in the future. As part of the completion of any business combination, the Company is required to value any intangible assets acquired at the date of acquisition. This valuation is inherently subjective, and necessarily involves judgments and estimates regarding future cash flows and other operational variables of the entity acquired. However, there can be no assurance that the judgments and estimates made will reflect future performance of the acquired entity. To assist management with the valuation process, the Company has adopted the practice of using independent valuation experts in the valuation process for intangible assets acquired through material acquisitions. However, if either management or the independent experts make judgments or estimates that differ from actual circumstances, the Company may be required to write-off certain of its intangible assets.
Results of Operations
The following table presents, for the periods indicated, certain components of the selected financial data of the Company as a percentage of total revenues. The historical results are not necessarily indicative of results to be expected for any future period.
Year Ended June 30, -------------------------------- 2002 2001 2000 -------- -------- --------Revenues: License & networking 43.3% 50.0% 51.0% Customer support 31.9 27.3 23.6 Service 24.8 22.7 25.4 -------- -------- -------- Total revenues 100.0 100.0 100.0 Cost of revenues: License & networking 3.5 4.0 2.4 Customer support 5.5 5.2 5.1 Service 16.7 16.8 21.4 -------- -------- -------- Total cost of revenues 25.7 26.0 28.9 -------- -------- -------- Gross profit 74.3 74.0 71.1 Operating expenses: Research and development 15.8 16.5 15.7 Sales and marketing 33.5 34.8 38.1 General and administrative 8.2 8.9 17.5 Depreciation 3.7 3.5 4.1 Amortization of acquired intangible assets 4.3 3.7 2.6 Restructuring costs - - 1.6 -------- -------- -------- Total operating expenses 65.5 67.4 79.6 -------- -------- -------- Income (loss) from operations 8.8 6.6 (8.5) Other income (loss) 1.1 (1.6) 43.4 Interest income 1.2 3.2 5.5 Interest expense - - (0.1) -------- -------- -------- Income before income taxes 11.1 8.2 40.3 Provision for income taxes 0.2 0.8 18.1 -------- -------- -------- Net income 10.9% 7.4% 22.2% ======== ======== ========
Year Ended June 30, 2003 2002 2001 Revenues:
License & networking
42.8 % 43.3 % 50.0 % Customer support
35.5 31.9 27.3 Service
21.7 24.8 22.7 Total revenues
100.0 100.0 100.0 Cost of revenues:
License & networking
3.7 3.5 4.0 Customer support
5.9 5.5 5.2 Service
15.9 16.7 16.8 Total cost of revenues
25.5 25.7 26.0 Gross profit
74.5 74.3 74.0 Operating expenses:
Research and development
16.5 15.8 16.5 Sales and marketing
30.7 33.5 34.8 General and administrative
7.6 8.2 8.9 Depreciation
2.8 3.7 3.5 Amortization of acquired intangible assets
1.8 4.3 3.7 Total operating expenses
59.4 65.5 67.4 Income from operations
15.1 8.8 6.6 Other income (loss)
1.6 1.1 (1.6 ) Interest income
0.7 1.2 3.2 Interest expense
— — — Income before income taxes
17.4 11.1 8.2 Provision for income taxes
1.8 0.2 0.8 Net income for the year
15.6 % 10.9 % 7.4 % Fiscal
20022003 Compared with Fiscal20012002Revenues. Total revenues included license and networking revenues, customer support revenues, and service revenues. Total revenues increased 15% from $154.4 million in fiscal 2002 to $177.7 million in fiscal 2003. Revenues from license and networking increased 15% from $66.0 million in fiscal 2002 to $76.0 million fiscal 2003. The
Company recognizedincrease in license and networking revenues was a result of several factors, including the Company’s focus on certain industry verticals for its solution offerings. In particular, the emergence of strong performance in the pharmaceutical, government, and financial services sectors contributed to the Company’s fiscal 2003 license and networking revenue growth. Also contributing to license and networking revenue growth were the acquisitions completed during fiscal 2003. Specifically, approximately $5.6 million of license revenue was recorded during the fiscal year relating to the fiscal 2003 acquisitions. Additionally, the introduction of packaged services offerings (“PSO’s”), which are small components of code licensed as point solutions designed to address very specific issues faced by customers further contributed to the Company’s growth inaccordancelicense revenues. PSO revenue totaled approximately $1.0 million during fiscal 2003. During fiscal 2003, the Company also saw the continued return of large license transactions, a trend that began during the fourth quarter of fiscal 2002. Networking revenues during fiscal 2003 totaled $5.0 million, as compared withStatement$4.8 million during fiscal 2002. As has been the case with many companies in the networking sector, the Company has found this to be a continued difficult business in which to achieve revenue growth.Customer support revenues increased 30% from $48.7 million in fiscal 2002 to $63.1 million in fiscal 2003. The increase in customer support revenues resulted from several factors. The increase in the number of
Position ("SOP") 97-2, "Software Revenue Recognition", issued bylicenses granted in fiscal 2003, as well as strong renewal rates for maintenance contracts for existing customers, had a positive impact on customer support revenues. Over theAmerican Institutepast year, the Company has effectively implemented price increases in all regions for its customer support services and those increases have contributed to the revenue growth achieved in fiscal 2003. Additionally, the Company’s customer support organization began to offer to customers in fiscal 2003 a number ofCertified Public Accountants ("AICPA")value added support programs. The acquisitions inOctober 1997 and SOP 98-9 issuedfiscal 2003 also contributed to the growth inDecember 1998. The Company recorded product revenue from software licenses and products when persuasive evidence of an arrangement existed, the software product had been shipped, there were no significant uncertainties surrounding product acceptance, the fees were fixed and determinable and collection was considered probable. Software maintenancecustomer support revenues,were deferred and recognized ratably over the life of the service contract, which is typically one year. Service revenue consistedsince fiscal 2003’s customer support revenues include a partial year of revenues from these acquisitions, while fiscal 2002 doesn’t include any customer support revenues for these newly acquired businesses. Approximately 11% of the growth in customer support revenues relates to the fiscal 2003 acquisitions, while the remaining 19% growth relates to the Company’s organic business. Renewal rate of maintenance contracts for the Company’s products is in excess of 90%.Service revenues decreased 3% from $39.7 million in fiscal 2002 to $38.6 million in fiscal 2003. The decrease in service revenues was primarily attributable to the continued challenging market for services engagements globally. Although in aggregate the Company’s service revenue decreased slightly from fiscal 2002 to fiscal 2003, the Company experienced an increase in Livelink-related service engagements. The Company also generated consulting
contracts,and integration revenues relating to customers of the acquired companies totaling approximately $600,000 during fiscal 2003. These increases were more than offset, however, by a decrease in services revenue relating to certain of the Company’s older products. Given the difficult service environment, the Company is currently focusing on delivering services solutions which have been effective for other customers as opposed to trying to deliver unique consulting solutions to each customer. Also included in services revenues for each of fiscal 2003 and fiscal 2002 was approximately $2.0 million relating to the Company’s user’s conferences hosted each year.Cost of revenues. Cost of license and networking revenues consisted primarily of the costs associated with the royalties payable to third parties whose software is bundled in the Company’s products, as well as
trainingproduct media, duplication, manuals, packaging expenses, andintegration services contracts. Servicefinder’s fees. Cost of license and networking revenueswere derivedincreased 23% fromservice contracts$5.3 million in fiscal 2002 todevelop applications and to provide consulting services. Service revenues were recognized under the 24$6.6 million in fiscal 2003. As a percentage of completion method, usinglicense and networking revenues, the cost of license and networking revenues increased slightly from 8% during fiscal 2002 to 9% during fiscal 2003. The increase in cost of license and networking revenues in absolute dollars is amethodology that accounts forreflection of the increase in license and networking revenues. The increase in cost of license and networking revenues as a percentage of license and networking revenues is due to higher third party product costsincurred in relationship to total estimated costs under the contract after providing for any anticipated losses under the contract. Revenues from training and integration services were recognizedincluded in theperiodlicenses during fiscal 2003 associated largely with the acquired companies’ products. Cost of networking revenues was $128,000 in fiscal 2003 compared with $277,000 in fiscal 2002.Cost of customer support revenues is comprised primarily of technical support personnel and their related costs. Cost of customer support revenues increased 24% from $8.4 million in fiscal 2002 to $10.4 million in fiscal 2003, primarily as a result of increased personnel costs in fiscal 2003 as compared with fiscal 2002. Increased personnel costs relating to the Company’s core operations increased approximately $1.1 million, while the impact of the Company’s fiscal 2003 acquisitions totaled approximately $900,000, the most significant component of which were personnel costs. As a percentage of customer support revenues, customer support costs decreased slightly from 17% in fiscal 2002 to 16% in fiscal 2003, reflective of the fact that the Company has effectively restructured the acquired companies’ cost structures and that the Company is realizing some economies of scale as its support organization continues to grow.
Cost of service revenues consisted primarily of the costs of providing integration, customization and training. Cost of service revenues increased 3% from $27.4 million in fiscal 2002 to $28.2 million in fiscal 2003. Cost of service revenues as a percentage of service revenues increased from 69% in fiscal 2002 to 73% in fiscal, 2003. Additional costs assumed as a result of the fiscal 2003 acquisitions accounted for approximately $500,000 of the increase in absolute dollars in costs of service revenues compared with fiscal 2002. Also impacting costs of service revenues is the fact that in fiscal 2003 the Company recorded approximately $700,000 less of investment tax credits through its services organization, due to the fact that the amount of investment tax credits recorded during fiscal 2002 was an atypically high amount. Investment tax credits are recorded as a credit to cost of service revenues. Consequently, once the impact of the 2003 acquisitions and investment tax credits are removed, the Company’s core services organization actually realized a decrease in costs in fiscal 2003 as compared with fiscal
2002. This decrease in core cost of services is a result of both a slight decrease in personnel costs related to lower personnel in the Company’s services organization during fiscal 2003, as well as lower expenses incurred with respect to the Company’s 2003 user’s conferences as compared with fiscal 2002.
Research and development expenses.Research and development expenses consisted primarily of engineering personnel expenses, contracted research and development expenses, and facilities and equipment costs. To date the Company has expensed all research and development costs as incurred. Research and development expenses increased 22% from $24.1 million in fiscal 2002 to $29.3 million in fiscal 2003 and, as a percentage of total revenues, remained relatively consistent at 16% in both fiscal 2002 and 2003. The increase in research and developments expenses in absolute dollars in fiscal 2003 primarily resulted from approximately $4.0 million of additional expenses added as part of the integration of the acquired companies development organizations. The increase in research and development expense in fiscal 2003 as compared with fiscal 2002 also resulted from the fact that in fiscal 2003 the Company recorded approximately $750,000 less in investment tax credits, which are recorded as a reduction to research and development expenses. The investment tax credits recorded during fiscal 2002 were an atypically high amount, and are not considered to be indicative of claims expected to be made in the foreseeable future.
Sales and marketing expenses. Sales and marketing expenses consisted primarily of compensation of sales and marketing personnel, as well as expenses associated with advertising, trade shows, facilities and other expenses related to the sales and marketing of the Company’s products and services. Sales and marketing expenses increased from $51.1 million fiscal 2002 to $54.5 million in fiscal 2003. Sales and marketing expenses decreased as a percentage of total revenues from 33% in fiscal 2002 to 31% in fiscal 2003. Of the increase in sales and marketing expense in absolute dollars, $1.0 million relates to additional marketing initiatives, approximately half of which relate to the recently acquired companies. Additionally, sales costs assumed as part of the Company’s 2003 acquisitions accounted for an additional $5.4 million of sales and marketing expenses during fiscal 2003. Consequently, sales expenses actually decreased by approximately $1.4 million within the Company’s core business operations during fiscal 2003, the majority of which relates to approximately $900,000 less of severance costs during fiscal 2003 compared to fiscal 2002, when the Company underwent an internal resizing program aimed at reducing costs throughout the organization.
General and administrative expenses.General and administrative expenses consisted primarily of the salaries of administrative personnel and related overhead and facilities expenses. General and administrative expenses increased 8% from $12.5 million in fiscal 2002 to $13.5 million in fiscal 2003 but remained consistent as a percentage of total revenues at 8% in both fiscal 2002 and 2003. Of the $1.0 million increase in general and administrative expenses, approximately half relates to the 2003 acquisitions, most notably Centrinity. The balance of the increase in general and administrative expenses relates to increases in a number of administrative areas, the majority of which were driven by a higher volume of business activity in fiscal 2003 as compared with fiscal 2002.
Depreciation expenses. Depreciation expense decreased 10% from $5.6 million in fiscal 2002 to $5.0 million in fiscal 2003. The decrease in depreciation expense is a result of the fact the Company did not make significant capital expenditures in fiscal 2003. Depreciation relating to the capital assets added as part of the fiscal 2003 acquisitions was only recorded for a partial year, and as a result this additional depreciation did not offset the reduction realized from the Company’s core base of capital assets during the year.
Amortization of acquired intangible assets.Amortization of acquired intangible assets includes amortization of both acquired technology and customer assets. Additionally, during fiscal 2002 amortization of acquired intangible assets included amortization of goodwill on acquisitions. At the beginning of fiscal 2003, the Company discontinued its amortization of goodwill consistent with new accounting pronouncements. As a result, amortization of acquired intangible assets decreased 50% from $6.5 million for fiscal 2002 to $3.2 million for fiscal 2003. This decrease was principally the result of the discontinued amortization of goodwill, which was partially offset by additional amortization on the intangible assets recorded as part of the fiscal 2003 acquisitions.
Other income (loss). Other income increased 73% from $1.6 million for fiscal 2002, compared to $2.8 million for fiscal 2003. During fiscal 2002, the gain of $1.6 million related primarily to the Company’s attempted acquisition of Accelio Corporation, a software company located in Ottawa, Ontario. The gain that the Company realized on this attempted acquisition arose from the sale of shares of Accelio common stock owned by the
Company and in connection with certain lock-up agreements in connection with the attempted acquisition, partially offset by the costs incurred. The $2.8 million gain in fiscal 2003 is primarily comprised of foreign exchange gains realized during the year, the most significant cause of which was the appreciation of the Euro against the U.S. dollar.
Interest.Interest income decreased 33% from $1.9 million in fiscal 2002, compared to $1.2 million in fiscal 2003. The decrease was due to lower interest rates realized during fiscal 2003 as compared with fiscal 2002.
Income taxes.During fiscal 2003, the Company recorded a tax provision of $3.2 million compared to $289,000 during fiscal 2002. The increase in the Company’s tax provision is due to the fact that during fiscal 2003, the Company became taxable in certain taxing jurisdictions where it was previously able to use loss carryforwards. The net deferred income tax asset as at June 30, 2003 of $16.4 million arises from available income tax losses and future income tax deductions. The Company’s ability to use these income tax losses and future income tax deductions is dependent upon the operations of the Company in the tax jurisdictions in which such losses or deductions arose. Management records a valuation allowance against deferred income tax assets when management believes it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Based on the reversal of deferred income tax liabilities, projected future taxable income, the character of the income tax asset and tax planning strategies, management has determined that a valuation allowance of $5.7 million is required in respect of its deferred income tax assets as at June 30, 2003. A valuation allowance of $9.2 million was required for the deferred income tax assets as at June 30, 2002. In order to fully utilize the net deferred income tax assets of $16.4 million, the Company will need to generate aggregate future taxable income in applicable jurisdictions of approximately $46.8 million. Based on the Company’s current projection of taxable income for the periods in which the
services were performed.deferred income tax assets are deductible, it is more likely than not that the Company will realize the benefit of the net deferred income tax assets as at June 30, 2003. During fiscal 2003, the Company recorded deferred tax assets in connection with its acquisition of Centrinity, Corechange and Eloquent. Specifically, the Company recorded deferred tax assets of $12.4 million, $0.6 million, and $1.0 million in respect of Centrinity, Corechange and Eloquent, respectively.Fiscal 2002 Compared with Fiscal 2001
Revenues. Total revenues included license and networking revenues, customer support revenues, and service revenues. Total revenues increased 3% from
$147.7$149.8 million in the year ended June 30, 2001 to$152.5$154.4 million in the year ended June 30, 2002. Revenues from licenses and networking decreased 11% from $73.8 million in the year ended June 30, 2001 to $66.0 million in the year ended June 30, 2002. The decrease in license and networking revenues was a result of the overall slowdown in information technology spending which was, in part, accelerated by the September11th11th terrorist activities which then continued throughout fiscal 2002. Though all aspects of theCompany'sCompany’s revenues were affected by this overall economic slowdown, revenues relating to theCompany'sCompany’s licenses were most strongly impacted. It was theCompany'sCompany’s experience throughout most of fiscal 2002 that customers were more hesitant to commit to large, enterprise-wide deployments of theCompany'sCompany’s software and as a result, the Companyhasexperienced a lengthening of its sales cycles. Some potentially larger deals were replaced by smaller deals, while other large deals were simply deferred by customers. Several of these large deals were ultimately completed during the fourth quarter of fiscal 2002, when certain customer opportunities that had been worked on throughout the year finally closed.At this point, the Company is uncertain as to whether the increased license activity experienced in the fourth quarter of fiscal 2002 is indicative of license revenue activity that will continue into fiscal 2003.Also during fiscal 2001, the Company began actively promoting the rental of Livelink to customers through anApplication Service Provider (ASP)ASP model. Under this model, users are granted use of Livelink on a secure, hosted third-party server, for which they pay a monthly fee on a per user basis. Revenues earned from this service have been classified asNetworking Revenues.networking revenues. During fiscal 2002, networking revenues totaled$1.7$4.8 million, as compared with$0.6$3.8 million in fiscal 2001.Customer support revenues increased 21% from $40.3 million in the year ended June 30, 2001 to $48.7 million in the year ended June 30, 2002. The increase in customer support revenues resulted from several factors. The licenses granted throughout fiscal 2002, as well as strong renewal rates for maintenance contracts for existing accounts, had a positive impact on customer support revenues. Also, in fiscal 2001, the Company completed a number of acquisitions during the middle of the year. As a result, fiscal
2001's2001’s customer support revenue includes only a partial year of revenues from these acquisitions, while fiscal 2002 contains a fullyear'syear’s customer support revenues for the acquired businesses. The impact on fiscal 2002 customer service revenues of having a full year of revenue relating to these acquired businesses as opposed to a partial year in fiscal 2001 was approximately $1.5 million.Service revenues increased
13%11% from$33.6$35.7 million in the year ended June 30, 2001 to$37.8$39.7 million in the year ended June 30, 2002. The increase in service revenues was primarily attributable to an increase in consulting and integration services provided to new license customers. Additionally, a fullyear'syear’s inclusion of service revenues relating to fiscal 2001 acquisitions had a positive impact on service revenues during fiscal 2002. During fiscal 2001, approximately 6 months of revenues were recognized as a result of the timing of theCompany'sCompany’s acquisitions, whereas fiscal 2002 included a fullyear'syear’s revenue from these businesses. The impact on fiscal 2002 customer service revenues of having a full year of revenue relating to these acquired businesses as opposed to a partial year in fiscal 2001 was approximately$2$2.0 million.Cost of revenues. Cost of license and networking revenues consisted primarily of the costs associated with the royalties payable to third parties whose software is bundled in the
Company'sCompany’s products, as well as product media, duplication, manuals and packaging expenses. Cost of license and networking revenues decreased 10% from $5.9 million in the year ended June 30, 2001 to $5.3 million in the year ended June 30, 2002. As a percentage of license and networking revenues, the cost of license and networking revenues remained constant at 8% for both fiscal 2001 and fiscal 2002. The decrease in cost of license and networking revenues in total dollars was partially due to a third-party product cost of approximately $400,000 associated with a large license transaction that was recordedinduring fiscal 2001. Typically, license transactions entered into by the Company do not involve large amounts of third-party product cost, thus this particular transaction caused an increase in cost of license and networking revenues in fiscal 2001. This decrease in cost of license and networking revenues from fiscal 2001 is also due to the fact that license revenue has decreased since the prior year. The decrease in cost of license and networking revenues is generally consistent with the decrease in license revenue. Cost of networking revenues were $277,000 in fiscal 2002 compared with $300,000 in fiscal 2001.25Cost of customer support revenues is comprised primarily of technical support personnel and their related costs. Cost of customer support revenues increased 11% from $7.6 million in the year ended June 30, 2001 to $8.4 million in the year ended June 30, 2002, mostly as a result of increased headcount costs in fiscal 2002 as compared with fiscal 2001. As a percentage of customer support revenues, customer support costs decreased from 19% in the year ended June 30, 2001 to 17% in the year ended June 30, 2002. This decrease as a percentage of customer support revenues resulted from certain cost reduction and efficiency measures that were taken during fiscal 2002, which provided for the rationalization of certain roles within the
Company'sCompany’s support organization.Cost of service revenues consisted primarily of the costs of providing integration, customization and training. Cost of service revenues increased 2% from
$25.0$27.0 million in the year ended June 30, 2001 to$25.5$27.4 million in the year ended June 30, 2002. This slight increase is primarily due to some additional headcount costs incurred during fiscal 2002 to support the expanded activities of the integration and consulting departments. Cost of service revenues as a percentage of service revenues decreased from 74% in the year ended June 30, 2001 to 68% in the year ended June 30, 2002, as a result of improved utilization rates experienced over the past year.Research and development expenses.Research and development expenses consisted primarily of engineering personnel expenses, contracted research and development expenses, and facilities and equipment costs. To date the Company has expensed all research and development costs as incurred.
See Note 2 of Notes to Consolidated Financial Statements.Research and development expenses decreased by 1% from $24.3 million in the year ended June 30, 2001 to $24.1 million in the year ended June 30, 2002 and, as a percentage of total revenues, decreased slightly from 17% in fiscal 2001 to 16% in fiscal 2002. Although the total dollars spent on research and development activities decreased slightly since the prior year, the amount spent onlabourlabor costs actually increased slightly. This was a result of the Company entering into fewer subcontracting arrangements during fiscal 2002, as well as using fewer consultants. Both of these initiatives were part of Company-wide cost containment measures regarding discretionary spending undertaken during the year. This increase inlabourlabor costs was offset by lower spending on travel and training, as well as the recognition of investment tax credits recorded as a reduction to research and development expenses.Sales and marketing expenses. Sales and marketing expenses consisted primarily of compensation of sales and marketing personnel, as well as expenses associated with advertising, trade shows, facilities and other expenses related to the sales and marketing of the
Company'sCompany’s products and services. Sales and marketing expenses remained relatively constant at $51.3 million in the year ended June 30, 2001 compared with $51.1 million in the year ended June 30, 2002. Sales and marketing expenses decreased as a percentage of total revenues from 35% in the yearended June 30, 2001 to 34% in the year ended June 30, 2002. Although the total dollars spent on sales and marketing activities were about the same in both fiscal 2001 and fiscal 2002, the allocation of those costs varied slightly between years. In fiscal 2002, the Company experienced a slight increase in labor costs, mostly attributable to annual remuneration increases for the
Company'sCompany’s sales and marketing personnel. This increase though, was more than offset by decreases in a number of discretionary areas, specifically recruiting costs, consulting expenses, and external marketing spending.General and administrative expenses.General and administrative expenses consisted primarily of the salaries of administrative personnel and related overhead and facilities expenses. General and administrative expenses decreased 5% from $13.2 million in the year ended June 30, 2001 to $12.5 million in the year ended June 30, 2002 and decreased as a percentage of total revenues from 9% in the year ended June 30, 2001 to 8% in the year ended June 30, 2002. During fiscal 2002, the Company initiated a series of cost reduction measures affecting a number of discretionary and controllable areas. Specifically, the Company realized cost savings with respect to travel, consulting, and legal expenses that totaled approximately $1.9 million during fiscal 2002 as compared with fiscal 2001.
Depreciation
expenses.expenses. Depreciation expense increased 8% from $5.2 million in the year ended June 30, 2001 to $5.6 million in the year ended June 30, 2002. This increase was the result of new capital expenditures during fiscal 2002 as well as a fullyear'syear’s depreciation on assets purchased or acquired in fiscal 2001.26Amortization of acquired intangible assets.Included in amortization of acquired intangible assets is amortization of core technology, purchased software and goodwill on the acquisitions of Bluebird, LeadingSide, Open Image, Base4, OnTime, Information Dimensions, Lava, PS Software and Microstar. Amortization of acquired intangible assets increased 18% from $5.5 million for the year ended June 30, 2001 to $6.5 million for the year ended June 30, 2002. The increase in amortization was due to the
Company'sCompany’s acquisition activity in fiscal 2001. During fiscal 2001, only a partial year of amortization expenses was recorded on the intangible assets acquired during that year, whereas a fullyear'syear’s amortizationexpensesexpense was recorded for those same intangible assets during fiscal 2002.Other income (loss). Other income represented a loss of $2.4 million for the year ended June 30, 2001, compared to income of $1.6 million for the year ended June 30, 2002. During fiscal 2002, the gain of $1.6 million related primarily to the
Company'sCompany’s attempted acquisition of Accelio Corporation, a software company located in Ottawa, Ontario. The gain that the Company realized on this attempted acquisition arose from the sale of shares of Accelio common stock owned by the Company, and gains realized in connection with certain lock-up agreements in connection with the attempted acquisition, partially offset by the costs incurred. The $2.4 million loss in fiscal 2001 included $3.0 million of write-offs of certain Internet industry investments and was partially offset by a recovery of an acquisition accrual relating to the favorable settlement of certain claims totaling $734,000, as well as a gain on the sale of shares of About.com of $52,000. This gain was the result of the Company realizing $154,000 on the sale of these shares, net of its cost of $102,000 on the related securities.Interest.Interest income was $4.7 million in the year ended June 30, 2001, compared to $1.9 million in the year ended June 30, 2002. The decrease was due to lower interest rates realized during fiscal 2002 as compared with fiscal 2001.
Income taxes.The provision for income taxes was $0.3 million in fiscal 2002 compared with
$1.3$1.2 million in fiscal 2001. The net deferred tax asset as of June 30, 2002 and June 30, 2001 wasnil.zero. During fiscal 2002, the Company utilized $7.7 million of deferred tax assets, of which $7.2 million were used to offset current income with losses from prior years. In accordance with US GAAP, a valuation allowance of $9.3 millioniswas recorded against the deferred tax asset, as itiswas not considered to be more likely than not that the benefit of the asset will be realized. The decrease of $7.8 million from the valuation allowance as at June 30, 2001 of $17.1 million mainly represented the utilization of prioryears'years’ losses against the currentyear'syear’s taxable income.The Company continues to evaluate its taxable position quarterly and considers factors such as estimated taxable income, the history of losses for tax purposes and the growth of the Company, among others. Please see Note 12 in Notes to Consolidated Financial Statements. Fiscal 2001 Compared with Fiscal 2000 Revenues. Total revenues included license revenues and service revenues, which consisted of consulting contracts, customer support agreements and training revenues, and integration services contracts. The Company recognized revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue Recognition", issued by the American Institute of Certified Public Accountants ("AICPA") in October 1997 and SOP 98-9 issued in December 1998. The Company recorded product revenue from software licenses and products when persuasive evidence of an arrangement existed, the software product had been shipped, there were no significant uncertainties surrounding product acceptance, the fees were fixed and determinable and collection was considered probable. Service revenue consisted of revenues from consulting contracts, customer support agreements, and training and integration services contracts. Contract revenues were derived from contracts to develop applications and to provide consulting services. Contract revenues were recognized under the percentage of completion method, using a methodology that accounts for costs incurred in relationship to total estimated costs under the contract after providing for any anticipated losses under the contract. Software maintenance revenues were deferred and recognized ratably over the life of the service contract. Revenues from training and integration services were recognized in the period in which the services were performed. 27Total revenues increased 31% from $112.9 million in the year ended June 30, 2000 to $147.7 million in the year ended June 30, 2001. Revenues from licenses and networking increased 28% from $57.6 million in the year ended June 30, 2000 to $73.8 million in the year ended June 30, 2001. Customer support revenues increased 51% from $26.6 million in the year ended June 30, 2000 to $40.3 million in the year ended June 30, 2001. Service revenues increased 17% from $28.7 million in the year ended June 30, 2000 to $33.6 million in the year ended June 30, 2001. In fiscal 2001 the Company achieved what was at the time its highest license revenue in its history, fueled by a large increase in new accounts, as well as strong additional sales to existing accounts. There were no price declines as a result of new accounts. Furthermore, during fiscal 2001 the Company began actively promoting the rental of Livelink to customers through an Application Service Provider (ASP) model. Under this model, customers pay a monthly fee per user that grants them use of Livelink on a secure, hosted third-party server. Revenues earned from this service have been classified as Networking Revenues. This line of business is still in its infancy, but is an area that management feels has the potential to grow significantly in subsequent years. The increase in customer support revenue was a direct result of continued strong license sales, as well as strong renewal rates for maintenance contracts for existing accounts. The increase in service revenues was primarily attributable to an increase in consulting and integration services provided to new license customers. Cost of revenues. Cost of license and networking revenues consists primarily of the costs associated with the royalties payable to third parties whose software is bundled in the Company's products, as well as product media, duplication, manuals and packaging expenses. Cost of license and networking revenues increased 119% from $2.7 million in the year ended June 30, 2001 to $5.9 million in the year ended June 30, 2000. Costs of revenues increased as a percentage of license revenue from 5% to 8%. This increase was primarily due to a one-time third party software charge associated with a large license transaction that was incurred in during fiscal 2001. Typically, license transactions entered into by the Company do not involve large amounts of third party product cost, and as a result this particular transaction represents caused an increase in cost of license revenues in fiscal 2001. Costs of networking revenues were $300,000 during fiscal 2001, the first year that the Company began marketing its networking offering. As a result, there was no cost of networking revenues during fiscal 2000. Cost of support revenues increased 33% from $5.7 million in the year ended June 30, 2000 to $7.6 million in the year ended June 30, 2001. Cost of support revenues is comprised primarily of technical support personnel. As a percentage of customer support revenues, customer support costs decreased from 22% in the year ended June 30, 2000 to 19% in the year ended June 30, 2001. Cost of service revenues consisted primarily of the costs of integration, product support and training. Cost of service revenues increased 3% from $24.2 million in the year ended June 30, 2000 to $25.0 million in the year ended June 30, 2001, primarily due to the additional personnel hired to support the expanded activities of the integration and consulting departments. Cost of service revenues as a percentage of service revenues decreased from 84% in the year ended June 30, 2000 to 74% in the year ended June 30, 2001, as a result of improved utilization rates. The Company believes that it must continue to enhance its integration and consulting capabilities as its customer base expands. Research and development expenses. Research and development expenses consisted primarily of engineering personnel expenses, contracted research and development expenses and facilities and equipment costs. The Company presently expenses all research and development costs as incurred. See Note 2 of Notes to Consolidated Financial Statements. Research and development costs increased by 37% from $17.7 million in the year ended June 30, 2000 to $24.3 million in the year ended June 30, 2001 and, as a percentage of revenue, remained constant between the two years at 16%. The increase of $6.6 million in fiscal 2001 was primarily the result of the increased labor costs that resulted from the hiring of additional employees in the Company's research and development facilities, as well as the additional personnel added as a result of acquisitions in 2001. The fiscal 2000 amount includes a one-time expense of $475,000 relating to the purchase of audio technology from Communities.com. Sales and marketing expenses. Sales and marketing expenses consisted primarily of compensation of sales and marketing personnel, as well as expenses associated with advertising, trade shows, facilities and other expenses related to the sales and marketing of the Company's products and services. Sales and marketing expenses increased 2820% from $42.9 million in the year ended June 30, 2000 to $51.3 million in the year ended June 30, 2001. Sales and marketing expenses decreased as a percentage of total revenues from 38% in the year ended June 30, 2000 to 35% in the year ended June 30, 2001. The increase in absolute dollars was due principally to expenses associated with increases in the number of sales and marketing personnel and related salaries and commissions, as well as expenses related to marketing, public relations activities, marketing materials, advertising and trade shows. General and administrative expenses. General and administrative expenses consisted primarily of the salaries of administrative personnel and related overhead and facilities expenses. General and administrative expenses decreased 33% from $19.8 million in the year ended June 30, 2000 to $13.2 million in the year ended June 30, 2001 and decreased as a percentage of total revenues from 18% in the year ended June 30, 2000 to 9% in the year ended June 30, 2001. During fiscal 2001, the Company expanded its administration staff and continued to invest in its infrastructure, resulting in an increase in salaries and communication costs. In fiscal 2000, the Company's non-recurring Year 2000 legal, testing and compliance costs significantly impacted that year's general and administrative expenditures. Also during fiscal 2000 the Company wrote-off a significant amount of accounts receivable that were determined not to be collectible. Generally, these bad debts were a result of the Company's determining that its respective customers did not have the capacity to pay their respective amounts due. In addition, the Company incurred non-recurring legal costs from its NetSys legal proceedings during fiscal 2000. The Netsys legal proceeding relates to an arbitration action launched by the Company against one of its distributors in which the Company claimed that the distributor has made sales outside of its territory. In March 2000, the Company was awarded hosting and arbitration cost compensation from Netsys, but to date no recovery has been accrued in the Company's Consolidated Financial Statements due to the lack of collection assurance. Depreciation expenses. Depreciation expense was $4.6 million in the year ended June 30, 2000 and increased to $5.2 million in the year ended June 30, 2001. This increase was the result of increased capital expenditures during fiscal 2001 as well as increased capital equipment acquired through acquisitions. Amortization of acquired intangible assets. Amortization of acquired intangible assets was $3.0 million for the year ended June 30, 2000 and $5.5 million for the year ended June 30, 2001. Included in amortization of acquired intangible assets is amortization of core technology, purchased software and goodwill on the acquisition of Bluebird, LeadingSide, Open Image, Base4, OnTime, Information Dimensions and Lava, PS Software and Microstar. The increase in amortization was due to the Company's acquisition activity in fiscal 2001. Restructuring costs. During fiscal 2000, the Company recorded a restructuring charge of $1.8 million. The restructuring charges reflect the closure of the Company's Toronto, Ontario office and the London, UK office. In addition, in connection therewith, 45 employees were terminated: 31 in North America and 14 in Europe. At June 30, 2000, two employee severance amounts, totaling $201,000 remained outstanding. These amounts were settled during the first and second quarters of fiscal 2001. Other income (loss). Other income was $49 million for the year ended June 30, 2000, compared to a $2.4 million loss for the year ended June 30, 2001. Fiscal 2000 included a $49 million gain on the sale of investments and net expenditures of $51,000 comprised mainly of gains and losses on the disposal of fixed assets and foreign exchange. The $49 million gain related to the Company's disposition of most of its investment in About.com. This gain was a result of the Company having realized proceeds of $49.2 million on this investment, which had a cost of $200,000. The $2.4 million loss in fiscal 2001 included $3.0 million of write-offs of certain dot-com investments which was partially offset by a recovery of an acquisition accrual relating to the favorable settlement of certain claims totaling $734,000, as well as a gain on the sale of shares of About.com of $52,000. This gain was the result of the Company realizing $154,000 on the sale of these shares, net of its cost of $102,000 on the related securities. Interest. Interest income was $6.2 million in the year ended June 30, 2000, compared to $4.7 million in the year ended June 30, 2001. The decrease was due to lower average cash balances held by the Company during fiscal 2001, largely a result of the repurchase of its common stock during the year. Income taxes. A total net deferred tax asset of $2.1 million was recorded as of June 30, 2000 and no deferred tax asset was recorded at June 30, 2001. During fiscal 2001, the Company utilized $6 million of deferred tax assets, mainly by offsetting current income with losses from prior years. In accordance with US GAAP, a 29valuation allowance of $17.1 million is recorded against the deferred tax asset as reasonable assurance on the use of the remaining portion of the asset has not been obtained. The increase of $4.8 million from the valuation allowance as at June 30, 2000 of $12.3 million mainly represented the unrealized benefit of prior years losses acquired on acquisitions (see Note 15 in Notes to Consolidated Financial Statements).Quarterly Results
The following table summarizes selected unaudited quarterly financial data over the past two fiscal years:
Fiscal 2002 -------------------------------------------------------------------- Fourth Quarter Third Quarter Second Quarter First Quarter ---------------- --------------- ---------------- --------------- (in thousands, except per share data)Total Revenues $41,192 $36,797 $39,173 $35,315 ---------------- --------------- ---------------- --------------- Gross Profit 31,190 27,723 28,720 25,623 ---------------- --------------- ---------------- --------------- Net income $ 7,255 $ 4,282 $ 3,493 $ 1,641 ================ =============== ================ =============== Net income per share Basic $ 0.36 $ 0.21 $ 0.18 $ 0.08 ---------------- --------------- ---------------- --------------- Diluted $ 0.34 $ 0.20 $ 0.16 $ 0.08 ---------------- --------------- ---------------- ---------------Fiscal 2001 -------------------------------------------------------------------- Fourth Quarter Third Quarter Second Quarter First Quarter ---------------- --------------- ---------------- --------------- (in thousands, except per share data)Total Revenues $40,523 $39,300 $37,826 $30,050 ---------------- --------------- ---------------- --------------- Gross Profit 30,424 29,572 27,523 21,705 ---------------- --------------- ---------------- --------------- Net income $ 3,462 $ 2,007 $ 3,182 $ 2,145 ================ =============== ================ =============== Net income per share Basic $ 0.17 $ 0.10 $ 0.16 $ 0.11 ---------------- --------------- ---------------- --------------- Diluted $ 0.16 $ 0.09 $ 0.15 $ 0.10 ---------------- --------------- ---------------- ---------------
Fiscal 2003 Fourth
QuarterThird
QuarterSecond
QuarterFirst
Quarter(in thousands, except per share data) Total revenues
$ 53,097 $ 43,959 $ 43,014 $ 37,655 Gross profit
40,509 33,018 31,548 27,454 Net income
$ 9,385 $ 6,792 $ 6,218 $ 5,362 Net income per share
Basic
$ 0.48 $ 0.35 $ 0.32 $ 0.27 Diluted
$ 0.45 $ 0.33 $ 0.31 $ 0.26
Fiscal 2002 Fourth
QuarterThird
QuarterSecond
QuarterFirst
Quarter(in thousands, except per share data) Total revenues
$ 41,589 $ 37,354 $ 39,658 $ 35,771 Gross profit
31,190 27,723 28,720 25,628 Net income
$ 7,255 $ 4,282 $ 3,493 $ 1,641 Net income per share
Basic
$ 0.36 $ 0.21 $ 0.18 $ 0.08 Diluted
$ 0.34 $ 0.20 $ 0.16 $ 0.08 The Company has experienced, and is likely to continue to experience, significant fluctuations in quarterly results that have been caused by many factors, including changes in demand for the
Company'sCompany’s products, the introduction or enhancement of products by the Company and its competitors or delays thereof, market acceptance of products or enhancements,delays in the introduction of products or enhancements by the Company or its competitors,customer order deferrals in anticipation of upgrades and new products, changes in theCompany'sCompany’s pricing policies or those of its competitors, delays involved in installing products with customers, the mix of distribution channels through which products are licensed or sold, the mix of products and services sold, the mix of international and North American revenues, foreign currency exchange rates and general economic conditions. As a result, the Company believes that period-to-period comparisons of its results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In addition, like many other software companies, the Company has generally recognized a substantial portion of its revenues in the last weeks of each quarter. TheCompany'sCompany’s revenues for the quarter ended September 30 of each fiscal year generally have been lower than revenues for other quarters, however, it is uncertain whether this trend will continue in current or future periods. Due to all of the foregoing factors, theCompany'sCompany’s operating results in a particular quarter may fail to meet market expectations, which could result in a decrease in the price of Common Shares and a loss to shareholders.30Liquidity and Capital Resources
Other than the cash generated through its operations, the Company has traditionally financed its cash needs primarily through the issuance of the
Company'sCompany’s Common Shares and Special Warrants. At June 30,2002,2003, the Company had working capital of$103.9$94.4 million compared to working capital of$82.0$103.9 million at June 30,2001,2002. This decrease in working capital was primarily as a result ofincreases incash used to purchase the acquired companies andcash equivalents that resulted from profits earned duringtorepurchase the
pastCompany’s Common Stock, offset partially by fiscalyear.2003 net income. Cash and cash equivalents increased from$87.5 million at June 30, 2001 to$109.9 million at June 30, 2002 to $116.6 million at June 30, 2003, primarilydue to cash provided by operating activities.for the same reasons including changes in the components of working capital.The Company has a CDN $10.0 million
(USD$6.6(USD $7.4 million) line of credit with a Canadian chartered bank, under which no borrowings were outstanding at June 30,2002,2003, the entire amount of which was available for use. The line of credit bears interest at thelender'slender’s prime rate plus 0.5%. The Company has pledged all of its assets including an assignment of accounts receivable as collateral for outstanding amounts under this line of credit.On November 1, 2002, the Company completed the acquisition of all of the issued and outstanding shares of capital stock of Centrinity for cash consideration of $20.3 million. The results of operations of Centrinity have been consolidated with those of Open Text beginning November 1, 2002.
On February 25, 2003, Open Text Inc. (“OTI”), a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding shares of capital stock of Corechange. Consideration for this acquisition is comprised of (i) cash consideration of $3.6 million paid on closing; (ii) additional cash consideration of $650,000 to be held in escrow in order to satisfy potential breaches of representations and warranties as provided for in the share purchase agreement; and (iii) additional cash consideration to be earned over the one-year period following closing, contingent on Corechange meeting certain revenue targets. The results of operations of Corechange have been consolidated with those of Open Text beginning February 25, 2003.
On March 20, 2003, Open Text completed an acquisition of all of the issued and outstanding shares of capital stock of Eloquent for cash consideration of $6.7 million, of which $1.0 million will be held in escrow to secure certain representations, warranties and covenants of Eloquent in the acquisition agreement. The results of operations of Eloquent have been consolidated with those of Open Text beginning March 20, 2003.
Cash provided by operations during
the year ended June 30, 2002fiscal 2003 was$28.5$40.0 million, compared to$11.8$28.5 million forthe year ended June 30, 2001.fiscal 2002. This increase islargely a function ofdue to higher net income during fiscal2002,2003, as well as cash generated from a number ofoperating asset and liabilityworking capital accounts.Net cash used
forin investment activities was $23.9 million of which $18.2 million relates to the acquisitions of Centrinity, Corechange and Eloquent. The other significant investment activity during fiscal 2003 was the purchase of capital assets, which totaled $3.6 million. Net cash used in investment activities was $467,000 for fiscal 2002, consisting primarily of acquisitions of furniture and equipment totaling $2.2 million, offset by proceeds on the sale of other investments of $2.7 million.This compares to $22.3 millionNet cash used in
investmentfinancing activitiesforwas $10.1 million during fiscal2001, consisting primarily2003. This amount was comprised ofacquisitionsproceeds offurniture$7.3 million received by the Company related to the exercise of stock options andequipment totaling $5.8the purchases made under the employee stock purchase plan, offset by $17.3 million spent on repurchasing 756,000 Common Shares of which $7.7 million has been charged to share capital and$15.6$9.6 millionfor the purchase of the following companies: Bluebird, LeadingSide, Open Image, and Base4.has been charged to accumulated deficit. Net cash used in financing activities was $6.3 million in fiscal 2002, primarily resulting from the repurchasefor cancellationof 620,200 Common Shares on the open market at a cost of $13.8 million, of which $6.3 million has been charged to share capital and $7.5 million has been charged to accumulated deficit, partially offset by proceeds of $7.5 million from the sale of Common Shares related to the exercise of Company stockoptions. During fiscal 2001, net cash used in financing activities was $15.3 million, primarily resulting fromoptions and therepurchase for cancellation of 886,000 Common Shares on the open market at a cost of $21.3 million, of which $9.1 million has been charged to share capital and $12.2 million has been charged to deficit, partially offset by proceeds of $6.0 million from the sale of Common Shares related to the exercise of the Company'semployee stockoptions.purchase plan.The Company earns interest on its cash and cash equivalents, which consist of highly liquid investments with an original maturity of three months or less at the date of acquisition. Interest
incomeearned from these investments totaled $1.3 million during fiscal 2003 and $1.9 million during fiscal 2002,and $4.7 million during fiscal 2001,due to lower interest rates in fiscal 2003 as compared to fiscal 2002.The Company’s capital asset balance increased from $8.4 million as at June 30, 2002 to $10.0 million as at June 30, 2003. This increase is primarily due to the addition of capital assets acquired through the Company’s three acquisitions completed during fiscal 2003 that totaled over $2.0 million and regular acquisitions totaling $3.6 million as well the impact of foreign exchange revaluations.
The increase in the Company’s goodwill from $24.6 million as at June 30, 2002 to $32.3 million as at June 30, 2003 is due to additional goodwill recorded in connection with the fiscal 2003 acquisitions (see note 14 to the consolidated financial statements).
The Company’s other assets totaled $7.1 million as at June 30, 2002 as compared to $23.6 million as at June 30, 2003. Other assets are primarily comprised of specifically identifiable intangible assets acquired through previous acquisitions. During fiscal 2003, the Company added $15.7 million of intangible assets as a result of the acquisitions. These assets, along with the Company’s other specifically identifiable intangible assets, are being amortized over varying periods generally ranging from four to seven years.
The Company currently anticipates that its operating expenses for the year ending June 30,
20032004 will be relatively consistent, as a percentage of revenue, with those incurred in fiscal2002.2003. Similarly, the Company currently anticipates that amounts expended on capital assets for the year ending June 30,20032004 will be generally consistent with those incurred during fiscal2002.2003. These expectations, however, are subject to change based on a number of factors, including the possibility of completing acquisitions and other strategic transactions.As of June 30, 2002, the Company had future commitments and contractual obligations as summarized in the following table (in millions). These commitments are principally comprised of operating leases for the Company's leased premises. 312003 $ 4.7 2004 3.1 2005 2.1 2006 2.0 Thereafter 4.9 ----------- $ 16.8 ===========The Company anticipates that its cash and cash equivalents and available credit facilities will be sufficient to fund its anticipated cash requirements for working capital and capital expenditures for at least the next 12 months. The Company may need to raise additional funds, however, in order to fund more rapid expansion of its business, develop new and enhance existing products and services, or acquire complementary products, businesses or technologies. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the
Company'sCompany’s shareholders may be reduced, theCompany'sCompany’s shareholders may experience additional dilution, and such securities may have rights, preferences, and privileges senior to those ofit'stheCompany'sCompany’s current shareholders. Additional financing may not be available on terms favorable to the Company, or at all. If adequate funds are not available or are not available on acceptable terms, theCompany'sCompany’s ability to fund its expansion, take advantage of unanticipated opportunities or develop or enhance theCompany'sCompany’s services or products would be significantly limited.Commitments and Contractual Obligations
As of June 30, 2003, the Company had future commitments and contractual obligations as summarized in the following table (in millions). These commitments are principally comprised of operating leases for the Company’s leased premises.
Fiscal Year
2004
$ 6.8 2005
5.7 2006
4.5 2007
4.4 Thereafter
20.5 $ 41.9 The Company does not enter into off-balance sheet financing as a matter of practice except for the use of operating leases for office space, computer equipment, and vehicles. In accordance with GAAP, neither the lease liability nor the underlying asset is carried on the balance sheet, as the terms of the leases do not meet the criteria for capitalization.
The Company typically agrees in its sales contracts to indemnify its customers for any expenses or liability resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of these indemnification agreements are generally perpetual any time after execution of the agreement. The maximum amount of potential future indemnification is unlimited. To date the Company has not paid any amounts to settle claims or defend lawsuits.
Cautionary Statements
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in the following cautionary statements and elsewhere in this Annual Report on Form 10-K, that may cause the actual results, performance or achievements of the Company, or developments in the
Company'sCompany’s industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. The following factors, as well as all of the other information set forth herein, should be considered carefully in evaluating Open Text and its business. If any of the following risks were to occur, theCompany'sCompany’s business, financial condition and results of operations would likely suffer. In that event, the trading price of theCompany'sCompany’s Common Shares would likelydecline.decline.If the Company does not continue to develop new technologically advanced products, future revenues will be negatively affected
Open
Text'sText’s success will depend on its ability to design, develop, test, market, license and support new software products and enhancements of current products on a timely basis in response to both competitive products and evolving demands of the marketplace. In addition, new software products and enhancements must remain compatible with standard platforms and file formats. Presently, Open Text is continuing to enhance the capability of its Livelink software to enable users to form workgroups and collaborate on intranets and the Internet. The Company increasingly must integrate software licensed from third parties with its own software to create or improve intranet and Internet products. These products are key to the success of theCompany'sCompany’s strategy, and the Company may not be successful in developing and marketing these and other new software products and enhancements. If the Company is unable to successfully integrate the technologies licensed from third parties, to develop new software products and enhancements to existing products, or to complete products currently under development, or if such integrated or new products or enhancements do not achieve market acceptance, theCompany'sCompany’s operating results will materially suffer. In addition, if new industry standards emerge that the Company does not anticipate or adapt to, theCompany'sCompany’s software products could be rendered obsolete and its business would be materially harmed.32If the
Company'sCompany’s products and services do not gain market acceptance, the Company may not be able to increase its revenuesOpen Text is continually working on the development of, and improvements to, new versions of Livelink and other products. In
November 2001,June 2003 theCompanycompany released LivelinkMeetingZone(TM),LaunchForce an application that offers closed-loop distribution of critical information to a distributed field-sales organization. This product based on rich-media technology acquired by Open Text from Eloquent, significantly speeds up training for sales forces andin April 2001,simultaneously helps large sales organizations save money. In August 2003 theCompanycompany released LivelinkWireless(TM). In February 2002, Open Text released Livelink 9.1,9.2 that significantly advances thelatest releaseease of use of theCompany's flagship product.system and added significant capabilities to support team collaboration. In addition the company continues to improve Meeting Zone based on customer feedback. The primary market for OpenText'sText’s software and services is rapidly evolving. As is typical in the case of a new and rapidly evolving industry, demand for and market acceptance of products and services that have been released recently or that are planned for future release are subject to a high level of uncertainty. If the markets for theCompany'sCompany’s products and services fail to develop, develop more slowly than expected or become saturated with competitors, theCompany'sCompany’s business will suffer. The Company may be unable to successfully market its current products and services, develop new software products, services and enhancements to current products and services, complete customer installations on a timely basis, or complete products and services currently under development. If theCompany'sCompany’s products and services or enhancements do not achieve and sustain market acceptance, theCompany'sCompany’s business and operating results will be materially harmed.Current and future competitors could have a significant impact on the Company’s ability to generate future revenue and profits
The
Company'smarkets for the Company’s products are new, intensely competitive, subject to rapid technological change and are evolving rapidly. The Company expects competition to increase and intensify in the future as the markets for the Company’s products continue to develop and as additional companies enter each of its markets. Numerous releases of products and services that compete with those of the Company can be expected in the near future. The Company may not be able to compete effectively with current and future competitors. If competitors were to engage in aggressive pricing policies with respect to competing products, or significant price competition were to otherwise develop, the Company would likely be forced to lower its prices. This could result in lower revenues, reduced margins, loss of customers, or loss of market share for the Company.Acquisitions, investments, joint ventures and other business initiatives may negatively affect our operating results
Open Text acquired three companies in fiscal 2003 and continues to seek out opportunities to acquire or invest in businesses, products and technologies that expand, complement or are otherwise related to the Company’s current business or products. The Company also considers from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. These activities, including the fiscal 2003 acquisitions, create risks such as the need to integrate and manage the businesses acquired with the business of the Company, additional demands on the Company’s management, resources, systems, procedures and controls, disruption of the Company’s ongoing business, and diversion of management’s attention from other business concerns. Moreover, these transactions could involve substantial investment of funds and/or technology transfers and the acquisition or disposition of product lines or businesses. Also, such activities could result in one-times charges and expenses and have the potential to either dilute existing shareholders or result in the assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of the Company. Any such activity may not be successful in generating revenue, income or other returns to the Company, and the financial or other resources committed to such activities will not be available to the Company for other purposes. The Company’s inability to address these risks could negatively affect the Company’s operating results.
A reduction in the number or sales efforts by distributors could materially impact the Company’s revenues
A portion of the Company’s revenue is derived from the license of its products through third parties. The Company’s success will depend, in part, upon its ability to maintain access to existing channels of distribution and to gain access to new channels if and when they develop. The Company may not be able to retain a sufficient number of its existing or future distributors. Distributors may also give higher priority to the sale of other products (which could include products of competitors) or may not devote sufficient resources to marketing the Company’s products. The performance of third party distributors is largely outside the control of the Company and the Company is unable to predict the extent to which these distributors will be successful in marketing and licensing the Company’s products. A reduction in sales efforts, or a decline in the number of distributors, or the discontinuance of sales of the Company’s products by its distributors could lead to reduced revenue.
The Company’s international operations expose the Company to business risks that could cause the Company’s operating results to suffer
Open Text intends to continue to make efforts to increase its international operations and anticipates that international sales will continue to account for a significant portion of its revenue. Revenues derived outside of North America represented 42%, 40% and 41% of total revenues for fiscal 2003, fiscal 2002 and fiscal 2001 respectively. These international operations are subject to certain risks and costs, including the difficulty and expense of administering business abroad, compliance with foreign laws, compliance with domestic and international import and export laws and regulations, costs related to localizing products for foreign markets, and costs related to translating and distributing products in a timely manner. International operations also tend to expose the Company to a longer sales and collection cycle, as well as potential losses arising from currency fluctuations, and limitations regarding the repatriation of earnings. Significant international sales may also expose the Company to greater risk from political and economic instability, unexpected changes in Canadian, US or other governmental policies concerning import and export of goods and technology, and other regulatory requirements and tariffs and other trade barriers. In addition, international earnings may be subject to taxation by more than one jurisdiction, which could also materially adversely affect the Company’s results of operations. Moreover, international
expansion may be more difficult, time consuming, and costly. As a result, if revenues from international operations do not offset the expenses of establishing and maintaining foreign operations, the Company’s operating results will suffer.
The Company’s products may contain defects that could harm the
Company'sCompany’s reputation, be costly to correct, delay revenues, and expose the Company to litigationThe
Company'sCompany’s products are highly complex and sophisticated and, from time to time, may contain design defects or software errors that are difficult to detect and correct. Errors may be found in new software products or improvements to existing products after commencement of commercial shipments, or, if discovered, the Company may not be able to successfully correct such errors in a timely manner, or at all. In addition, despite tests carried out by the Company on all its products, the Company may not be able to fully simulate the environment in which its products will operate and, as a result, the Company may be unable to adequately detect design defects or software errors inherent in its products and which only become apparent when the products are installed in anend-user'send-user’s network. The occurrence of errors and failures in theCompany'sCompany’s products could result in loss of or delay in market acceptance of theCompany'sCompany’s products, and alleviating such errors and failures in theCompany'sCompany’s products could require significant expenditure of capital and other resources by the Company. Because theCompany'sCompany’s end-user base consists of a limited number of end-users, the harm to theCompany'sCompany’s reputation resulting from product errors and failures would be damaging to the Company. The Company regularly provides a warranty with its products and the financial impact of these warranty obligations may be significant in the future. TheCompany'sCompany’s agreements with its strategic partners and end-users typically contain provisions designed to limit theCompany'sCompany’s exposure to claims, such as exclusions of all implied warranties and limitations on damage remedies and the availability of consequential or incidental damages. However, such provisions may not effectively protect the Company against claims and related liabilities and costs. Although the Company maintains errors and omissions insurance coverage and comprehensive liability insurance coverage, such coverage may not be adequate and all claims may not be covered. Accordingly, any such claim could negatively affect theCompany'sCompany’s financial condition.Other companies may claim that the Company’s intellectual property violates their patents, which could result in significant costs to defend and if the Company is not successful could have a significant impact on the Company’s ability to generate future revenue and profits
Although the Company does not currently believe that it is infringing on the intellectual property of other companies, as software patents become more prevalent, it is possible that certain parties will claim that the Company’s products violate their patents. Such claims could be disruptive to the Company’s ability to generate revenue and may result in significantly increased costs as the Company attempts to license the patents or rework its products to ensure that they are not in violation of the claimant’s patents or dispute the claims.
The Company currently depends on certain third-party software, the loss of which could result in increased costs of, or delays in, licenses of the
Company'sCompany’s productsTheFor a limited number of product modules, the Company relies on certain software that it licenses from third parties, including software that is integrated with internally developed software and which is used in its products to perform key functions. These third-party software licenses may not continue to be available to us on commercially reasonable terms, and the related software may not continue to be appropriately supported, maintained, or enhanced by the licensors. The loss of license to use, or the inability of licensors to support, maintain, and enhance any of such software, could result in increased costs, delays, or reductions in product shipments until equivalent software is developed or licensed, if at all, and integrated.
Current and future competitors could have a significant impact on the
Company'sCompany’s ability to generate future revenue and profitsThe markets for the
Company'sCompany’s products are new, intensely competitive, subject to rapid technological change and are evolving rapidly. The Company expects competition to increase and intensify in the future as the markets for theCompany'sCompany’s products continue to develop and as additional companies enter each of its markets.33Numerous releases of products and services that compete with those of the Company can be expected in the near future. The Company may not be able to compete effectively with current and future competitors. If competitors were to engage in aggressive pricing policies with respect to competing products, or significant price competition were to otherwise develop, the Company would likely be forced to lower its prices. This could result in lower revenues, reduced margins, loss of customers, or loss of market share for the Company.
The length of the
Company'sCompany’s sales cycle can fluctuate significantly which could result in significant fluctuations in license revenue being recognized from quarter to quarterBecause the decision by a customer to purchase the
Company'sCompany’s products often involves relatively large-scale implementation across thecustomer'scustomer’s network or networks, licenses of these products may entail a significant commitment of resources by prospective customers, accompanied by the attendant risks and delays frequently associated with significant expenditures and lengthy sales cycle and implementation procedures. Given the significant investment and commitment of resources required by an organization in order to implement theCompany'sCompany’s software, theCompany'sCompany’s sales cycle tends to take considerable time to complete. Particularly in the current economic environment of reduced information technology spending, it can take several months, or even quarters, for sales opportunities to translate into revenue. If installation of theCompany'sCompany’s products in one or more customers takes longer than originally anticipated, the date on which revenue from these licenses could be recognized would be delayed. Such delays could cause theCompany'sCompany’s revenues to be lower than expected in a particular period.The Company may not achieve its anticipated revenues if it does not expand its product line
Substantially all of Open
Text'sText’s revenues are currently derived from its Livelink and related products and services offered by the Company in the Internet, intranet and extranet markets. Accordingly, theCompany'sCompany’s future results of operations will depend, in part, on expanding its product-line and related services. To achieve its revenue goals, the Company must also continue to enhance these products and services to meet the evolving needs of its customers. A reduction in demand or increase in competition in the market for Internet or intranet applications, or a decline in licenses of Livelink and related services, would significantly harm theCompany'sCompany’s business.The Company must continue to manage its growth or its operating results could be adversely affected
Over the past several years, Open Text has experienced growth in revenues, operating expenses, and product distribution channels. In addition, Open
Text'sText’s markets have continued to evolve at a rapid pace. The total number of employees of the Company has grown from 292 as of September 1, 1996 to980,1,196, excluding contractors, as of June 30,2002.2003. The Company believes that continued growth in the breadth of its product lines and services and in the number of personnel will be required in order to establish and maintain theCompany'sCompany’s competitive position. Moreover, the Company has grown significantly through acquisitions in the past and continues to review acquisition opportunities as a means of increasing the size and scope of its business. OpenText'sText’s growth, coupled with the rapid evolution of theCompany'sCompany’s markets, has placed, and is likely to continue to place, significant strains on its administrative and operational resources and increased demands on its internal systems, procedures and controls. TheCompany'sCompany’s administrative infrastructure, systems, procedures and controls may not adequately support theCompany'sCompany’s operations and theCompany'sCompany’s management may not be able to achieve the rapid, effective execution of the product and business initiatives necessary to successfully penetrate the markets for theCompany'sCompany’s products and services and to successfully integrate any business acquisitions in the future. If the Company is unable to manage growth effectively, theCompany'sCompany’s operating results will likely suffer.Future acquisitions, investments, joint ventures and other business initiatives may negatively affect our operating results Open Text continues to seek out opportunities to acquire or invest in businesses, products and technologies that expand, complement or are otherwise related to the Company's current business or products.The
Company also considers from time to time, opportunities to engage in joint ventures or other business collaborations with third parties to address particular market segments. These activities create risks such as the need to integrate and manage the business acquired with the business of the Company, additional demands on the Company's management, resources, systems, procedures and controls, disruption of the Company's ongoing business, and diversion of 34management's attention from other business concerns. Moreover, these transactions could involve substantial investment of funds and/or technology transfers, the acquisition or disposition of product lines or businesses. Also, such activities could result in one-times charges and expenses and have the potential to either dilute existing shareholders or result in the assumption of debt. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of the Company. Any such activity may not be successful in generating revenue, income or other returns to the Company, and the financial or other resources committed to such activities will not be available to the Company for other purposes. The Company's inability to address these risks could negatively affect the Company's operating results. The Company'sCompany’s products rely on the stability of various infrastructure software which, if not stable, could negatively impact the effectiveness of theCompany'sCompany’s products, resulting in harm to the reputation and business of the CompanyDevelopments of internet and intranet applications by Open Text depends on the stability, functionality and scalability of the infrastructure software of the underlying intranet, such as that of
Netscape,Sun, HP, Oracle, Microsoft and others. If weaknesses in such infrastructure software exist, the Company may not be able to correct or compensate for such weaknesses. If the Company is unable to address weaknesses resulting from problems in the infrastructure software such that theCompany'sCompany’s products do not meet customer needs or expectations, theCompany'sCompany’s business and reputation may be significantly harmed.The
Company'sCompany’s quarterly revenues and operating results are likely to fluctuate which could impact the price of theCompany'sCompany’s Common SharesThe Company has experienced, and is likely to continue to experience, significant fluctuations in quarterly revenues and operating results caused by many factors, including changes in the demand for the
Company'sCompany’s products, the introduction or enhancement of products by the Company and its competitors, market acceptance of enhancements or products, delays in the introduction of products or enhancements by the Company or its competitors, customer order deferrals in anticipation of upgrades and new products, changes in theCompany'sCompany’s pricing policies or those of its competitors, delays involved in installing products with customers, the mix of distribution channels through which products are licensed, the mix of products and services sold, the mix of international and North American revenues, foreign currency exchange rates and general economic conditions.Like many other software companies, the Company has generally recognized a substantial portion of its revenues in the last weeks of each quarter. Accordingly, the cancellation or deferrals of even a small number of licenses or delays in installations of the
Company'sCompany’s products could have a material adverse effect on theCompany'sCompany’s results of operations in any particular quarter. The Company also has noted historically lower sales in July and August than in other months, which has resulted in proportionately lower revenues recorded in the quarter ended September 30 than in other quarters. Because of the impact of the timing of product introductions and the rapid evolution of theCompany'sCompany’s business and the markets it serves, the Company cannot predict whether seasonal patterns experienced in the past will continue. For these reasons, no one should rely on period-to-period comparisons of theCompany'sCompany’s financial results to forecast future performance. It is likely that theCompany'sCompany’s quarterly revenue and operating results will vary significantly in the future and if a shortfall in revenue occurs or if operating costs increase significantly, the market price of our Common Shares could decline.Failure to protect our intellectual property could harm our ability to compete effectively
The Company is highly dependent on its ability to protect its proprietary technology. The
Company'sCompany’s efforts to protect its intellectual property rights may not be successful. The Company relies on a combination of copyright, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain its proprietary rights. The Company has not sought patent protection for its products. While US and Canadian copyright laws, international conventions and international treaties may provide meaningful protection against unauthorized duplication of software, the laws of some foreign jurisdictions may not protect proprietary rights to the same extent as the laws of Canada or the United States. Software piracy has been, and can be expected to be, a persistent problem for the software industry. Enforcement of theCompany'sCompany’s intellectual property rights may be difficult, particularly in some nations outside of the United States and Canada in which the Company seeks to market its products. Despite the precautions taken by the Company, it may be possible for unauthorized third parties,35including competitors, to copy certain portions of the Company'sCompany’s products or to reverse engineer or obtain and use information that the Company regards as proprietary. Although the Company does not believe that its products infringe on the rights of third parties, third parties may assert infringement claims against the Company in the future, and any such assertions may result in costly litigation or require the Company to obtain a license for the intellectual property rights of third parties, such licenses may not be available on reasonable terms, or at all.If the Company is not able to attract and retain top employees, the
Company'sCompany’s ability to compete may be harmedThe
Company'sCompany’s performance is substantially dependent on the performance of its executive officers and key employees. The loss of the services of any of its executive officers or other key employees could significantly harm theCompany'sCompany’s business. The Company does not maintain"key person"“key person” life insurance policies on any of its employees. TheCompany'sCompany’s success is also highly dependent on its continuing ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel, including recently hired officers and other employees. Specifically, the recruitment of top research developers, along with experienced salespeople, remains critical to theCompany'sCompany’s success. Competition for such personnel is intense, and the Company may not be able to attract, integrate or retain highly qualified technical and managerial personnel in the future.The volatility of the
Company'sCompany’s stock price could lead to losses by shareholdersThe market price of the Common Shares has been highly volatile and subject to wide fluctuations. Such fluctuations in market price may continue in response to quarterly variations in operating results, announcements of technological innovations or new products by the Company or its competitors, changes in financial estimates by securities analysts or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of many high technology companies and that often have been unrelated to the operating performance of such companies or have resulted from the failure of the operating results of such companies to meet market expectations in a particular quarter. Broad market fluctuations or any failure of the
Company'sCompany’s operating results in a particular quarter to meet market expectations may adversely affect the market price of the Common Shares, resulting in losses to shareholders. In the past, following periods of volatility in the market price of acompany'scompany’s securities, securities class action litigation has often been instituted against such a company. Due to the volatility of our stock price, the Company could be the target of securities litigation in the future. Such litigation could result in substantial costs and a diversion ofmanagement'smanagement’s attention and resources, which would have a material adverse effect on theCompany'sCompany’s business and operating results.A reduction in the number or sales efforts by distributors could materially impact the Company's revenues A portion of the Company's revenue is derived from the license of its products through third parties. The Company's success will depend, in part, upon its ability to maintain access to existing channels of distribution and to gain access to new channels if and when they develop. The Company may not be able to retain a sufficient number of its existing or future distributors. Distributors may also give higher priority to the sale of other products (which could include products of competitors) or may not devote sufficient resources to marketing the Company's products. The performance of third party distributors is largely outside the control of the Company and the Company is unable to predict the extent to which these distributors will be successful in marketing and licensing the Company's products. A reduction in sales efforts, or a decline in the number of distributors, or the discontinuance of sales of the Company's products by its distributors could lead to reduced revenue. The Company's international operations expose the Company to business risks that could cause the Company's operating results to suffer Open Text intends to continue to make efforts to increase its international operations and anticipates that international sales will continue to account for a significant portion of its revenue. Revenues derived outside of North America represented 40%, 41%, and 39% of total revenues for fiscal 2002, fiscal 2001, and fiscal 2000, respectively. These international operations are subject to certain risks and costs, including the difficulty and expense of administering business abroad, compliance with foreign laws, compliance with domestic and international import and export laws and regulations, costs related to localizing products for foreign markets, and costs related to translating and distributing products in a timely manner. International operations also tend to expose 36the Company to a longer sales and collection cycle, as well as potential losses arising from currency fluctuations, and limitations regarding the repatriation of earnings. Significant international sales may also expose the Company to greater risk from political and economic instability, unexpected changes in Canadian, US or other governmental policies concerning import and export of goods and technology, and other regulatory requirements and tariffs and other trade barriers. In addition, international earnings may be subject to taxation by more than one jurisdiction, which could also materially adversely affect the Company's results of operations. Moreover, international expansion may be more difficult, time consuming, and costly. As a result, if revenues from international operations do not offset the expenses of establishing and maintaining foreign operations, the Company's operating results will suffer.Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is primarily exposed to market risks associated with fluctuations in interest rates and foreign currency exchange rates.
Interest rate risks
The
Company'sCompany’s exposure to interest rate fluctuations relates primarily to its investment portfolio, since the Company had no borrowings outstanding under its line of credit at June 30,2002.2003. The Company primarily invests its cash in short-term high-quality securities with reputable financial institutions. The primary objective of theCompany'sCompany’s investment activities is to preserve principal while at the same time maximizing the income the Company receives from its investments without significantly increasing risk. The Company does not use derivative financial instruments in its investment portfolio. The interest income from theCompany'sCompany’s investments is subject to interest rate fluctuations, which the Company believes would not have a material impact on the financial position of the Company.All highly liquid investments with a maturity of less than three months at the date of purchase are considered to be cash
equivalent.equivalents. All investments with maturities of three months or greater are classified as available-for-sale and considered to be short-term investments. Some of the securities that the Company has invested in may be subject to market risk. This means that a change in the prevailing interest rates may cause the principal amount of the investment to fluctuate. The impact on net interest income of a 100 basis point adverse change in interest rates for the fiscal year ended June 30,20022003 would have been a decrease of approximately $1.0 million.Foreign currency risk
The Company has net monetary asset and liability balances in foreign currencies other than the U.S. Dollar, including the Canadian Dollar
("CDN"(“CDN”), the Pound Sterling("GBP"(“GBP”), the Australian dollar("AUD"(“AUD”), the Swiss Franc("CHF"(“CHF”), the German Mark("DEM"(“DEM”), the French Franc("FRF"(“FRF”), the Dutch Guilder("NLG"(“NLG”), the Danish Kroner("DKK"(“DKK”), the Arabian Durham("AED"(“AED”), and the Euro("EUR"(“EUR”). TheCompany'sCompany’s cash and cash equivalents are primarily held in U.S. Dollars.The
Company'sCompany’s net income is affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of transactions in foreign markets. Approximately40%42%,41%40%, and39%41% of theCompany'sCompany’s total revenues in fiscal 2003, 2002,2001,and2000,2001, respectively, were derived from operations outside of North America. Approximately45%46%,42%45%, and44%42% of theCompany'sCompany’s operating expenses in fiscal 2003, 20022001and2000,2001, respectively, were incurred from operations outside of North America. The Company does not currently usefinancial instruments to hedge operating expenses in foreign currencies. The Company intends to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis.
The following tables provide a sensitivity analysis on the
Company'sCompany’s exposure to changes in foreign exchange rates. For foreign currencies where the Company engages in material transactions, the following table quantifies the impact that a 10% decrease against the U.S. dollar would have had on theCompany'sCompany’s total revenues, operating expenses, and net income for the year ended June 30,2002.2003. This analysis is presented in both functional37and transactional currency. Functional currency represents the currency of measurement for each of an entity’s domestic and foreign operations. Transactional currency represents the currency the underlying transactions take place in. The impact of changes in foreign exchange rates for those foreign currencies not presented in these tables is not material. 10% Change in Functional Currency ------------------------------------------------- Total Operating Net Revenue Expenses Income ------------- ------------- ------------- Euro $ 2,602 $ 1,880 $ 722 British Pound 1,989 1,228 761 Canadian Dollar 479 1,154 (675) Swiss Franc 868 635 233 10% Change in Transactional Currency ------------------------------------------------- Total Operating Net Revenue Expenses Income ------------- ------------- ------------- Euro $ 2,090 $ 1,270 $ 820 British Pound 1,837 1,210 627 Canadian Dollar 994 2,345 (1,351) Swiss Franc 405 644 (239) 38
10% Change in Functional Currency Total
RevenueOperating
ExpensesNet
IncomeEuro
$ (3,525 ) $ 1,866 $ (1,659 ) British Pound
(2,201 ) 1,476 (725 ) Swiss Franc
(849 ) 667 (182 ) 10% Change in Transactional Currency Total
RevenueOperating
ExpensesNet
IncomeEuro
$ (3,314 ) $ 1,813 $ (1,501 ) British Pound
(2,056 ) 1,416 (640 ) Canadian Dollar
(1,307 ) 3,291 1,984 Swiss Franc
(403 ) 652 249 Item
8. Financial8.Financial Statements and Supplementary Data
Page Number Index to Financial Statements and Supplementary Data
Page NumberManagement's44 45 Consolidated Balance Sheets at June 30,
20022003 and2001 43200246 47 48 49 50 39Management'sManagement is responsible for all the information and representations contained in the consolidated financial statements and other sections of this Form 10-K. Management believes that the consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and appropriate in the circumstances to reflect in all material respects the substance of events and transactions that should be included, and that the other information in this Form 10-K is consistent with those statements. In preparing the consolidated financial statements, management makes informed judgments and estimates of the expected effects of events and transactions that are currently being accounted for.
In meeting its responsibility for the reliability of the consolidated financial statements, management depends on the
Company'sCompany’s system of internalaccounting control.controls. This system is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance withmanagement'smanagement’s authorization, and are recorded properly to permit the preparation of consolidated financial statements in accordance with accounting principles generally acceptedaccounting principles.in the United States of America. In designing control procedures, management recognizes that errors or irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of the controls. Management believes that theCompany'sCompany’s accounting controls provide reasonable assurance that errors or irregularities that could be material to the consolidated financial statements are prevented or would be detected within a timely period by employees in the normal course of performing their assigned functions.The Board of Directors pursues its oversight role for these consolidated financial statements through the Audit Committee, which is comprised solely of Directors who are not officers or employees of the Company. The Audit Committee meets with management periodically to review their work and to monitor the discharge of each of their responsibilities. The Audit Committee also meets periodically with KPMG LLP, the independent auditors, who have free access to the Audit Committee of the Board of Directors, without management present, to discuss internal
accounting control,controls, auditing, and financial reporting matters.KPMG LLP is engaged to express an opinion on our consolidated financial statements. Their opinion is based on procedures believed by them to be sufficient to provide reasonable assurance that the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America.
/s/P. Thomas Jenkins /s/Alan Hoverd P. Thomas Jenkins Alan Hoverd Chief Executive Officer Chief Financial Officer July 29, 2002 40[LETTERHEAD OF KPMG]
/s/P. Thomas Jenkins
/s/Alan Hoverd P. Thomas Jenkins
Chief Executive Officer
Alan Hoverd
Chief Financial Officer
August 8, 2003 except as to Note 16
which is as of September 19, 2003
KPMG LLP
Telephone
(416) 228-7000 Chartered Accountants
Telefax
(416) 228-7123 Yonge Corporate Centre
www.kpmg.ca 4120 Yonge Street Suite 500
North York ON M2P 2B8
Canada
INDEPENDENT
AUDITORS'AUDITORS’ REPORTTo the Shareholders of Open Text Corporation
We have audited the accompanying consolidated balance sheets of Open Text Corporation as of June 30,
20022003 and20012002 and the related consolidated statements of income,shareholders'shareholders’ equity and cash flows for each of the years in thetwo-yearthree-year period ended June 30,2002.2003. These consolidated financial statements are the responsibility of theCompany'scompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.The consolidated financial statements as at June 30, 2000 and for the year then ended were audited by other auditors who expressed an opinion without reservation on those statements in their report dated August 4, 2000.We conducted our
auditaudits in accordance with auditing standards generally accepted in the UnitedStates.States of America. Those standards require that we plan and performanthe 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 financial position of the company as at June 30,
20022003 and20012002 and the results of its operations and its cash flows for each of the years in thetwo-yearthree-year period ended June 30,2002,2003, in conformity with accounting principles generally accepted in the United States of America.As discussed in Note 2 to the consolidated financial statements, effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” and certain provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” as required for goodwill and intangible assets resulting from business combinations consummated after June 30, 2001.
On
July 29, 2002,August 8, 2003, except as to Note 16, which is as of September 19, 2003, we reported separately to the shareholders of the company on the consolidated financial statements for the same period, prepared in accordance with Canadian generally accepted accounting principles./s/ KPMG LLP
Chartered Accountants
Toronto, Canada
July 29, 2002 41[LETTERHEAD OF PRICEWATERHOUSECOOPERS] Auditors' Report To the ShareholdersAugust 8, 2003 except as to Note 16,
which is as of
Open Text Corporation We have audited the consolidated statements of operations, shareholders' equity and cash flows of Open Text Corporation for the year ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the company for the year ended June 30, 2000 in accordance with United States generally accepted accounting principles. On August 4, 2000, we reported separately to the shareholders of Open Text Corporation on the consolidated financial statements for the same period, prepared in accordance with accounting principles generally accepted in Canada. PricewaterhouseCoopers LLP Chartered Accountants Ottawa, Canada August 4, 2000 PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization. 42September 19, 2003 CONSOLIDATED BALANCE SHEETS
(In(In thousands of US Dollars, except share data)
June 30, ------------------------ 2002 2001 ---------- ---------- ASSETSCurrent assets: Cash and cash equivalents $ 109,895 $ 87,526 Accounts receivable trade, net of allowance for doubtful accounts of $1,458 as at June 30, 2002 and June 30, 2001 33,094 34,212 Income taxes recoverable 1,194 - Prepaid expenses and other current assets 2,530 2,267 ---------- --------- Total current assets 146,713 124,005 Capital assets (note 3) 8,401 11,815 Goodwill, net of accumulated amortization of $12,807 at June 30, 2002 and $8,096 at June 30, 2001 24,587 29,112 Other assets (note 4) 7,146 10,070 ---------- ---------- Total assets $ 186,847 $ 175,002 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade and accrued liabilities (note 6) $ 18,889 $ 18,535 Deferred revenues 23,927 21,622 Income taxes payable - 1,818 ---------- ---------- Total current liabilities 42,816 41,975 Shareholders' equity: Share capital (note 7) 19,875,872 and 19,937,968 Common Shares issued and outstanding at June 30, 2001 and June 30, 2002 respectively 204,815 203,636 Accumulated other comprehensive income: Cumulative translation adjustment (780) (1,396) Accumulated deficit (60,004) (69,213) ---------- ---------- Total shareholders' equity 144,031 133,027 ---------- ---------- Commitments and contingencies (notes 9) $ 186,847 $ 175,002 ========== ==========
June 30, 2003 2002 ASSETS Current assets:
Cash and cash equivalents
$ 116,554 $ 109,895 Accounts receivable trade, net of allowance for doubtful accounts of $1,933 as at June 30, 2003 and $1,458 as at June 30, 2002
35,855 33,094 Income taxes recoverable
484 1,194 Prepaid expenses and other current assets
3,541 2,530 Deferred tax asset (note 11)
7,688 — Total current assets
164,122 146,713 Capital assets (note 3)
10,011 8,401 Goodwill, net of accumulated amortization of $12,807 at June 30, 2003 and 2002
32,301 24,587 Deferred tax asset (note 11)
8,674 — Other assets (note 4)
23,579 7,146 Total assets
$ 238,687 $ 186,847 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities:
Accounts payable—trade and accrued liabilities (note 6)
$ 31,596 $ 18,889 Deferred revenues
38,086 23,927 Total current liabilities
69,682 42,816 Long-term liabilities:
Deferred revenues
1,696 — Accrued liabilities
4,912 — Total long-term liabilities
6,608 — Shareholders’ equity:
Share capital (note 7) 19,568,259 and 19,875,872 Common Shares issued and outstanding at June 30, 2003 and June 30, 2002 respectively
204,343 204,815 Accumulated other comprehensive income:
Cumulative translation adjustment
(119 ) (780 ) Accumulated deficit
(41,827 ) (60,004 ) Total shareholders’ equity
162,397 144,031 Commitments and contingencies (note 9)
Subsequent Event (note 16)
$ 238,687 $ 186,847 See accompanying notes to consolidated financial statements
43CONSOLIDATED STATEMENTS OF INCOME
(In(In thousands of US Dollars, except share and per share data)
2002 2001 2000 -------------- ------------- --------------Revenues: License & networking $ 65,984 $ 73,752 $ 57,574 Customer support 48,707 40,316 26,641 Service 37,786 33,631 28,730 ------------- ------------- -------------- Total revenues 152,477 147,699 112,945 Cost of revenues: License & networking 5,341 5,878 2,685 Customer support 8,364 7,632 5,731 Service 25,516 24,965 24,220 ------------- ------------- -------------- Total cost of revenues 39,221 38,475 32,636 ------------- ------------- -------------- 113,256 109,224 80,309 Operating expenses: Research and development 24,071 24,311 17,743 Sales and marketing 51,084 51,317 42,928 General and administrative 12,498 13,191 19,832 Depreciation 5,587 5,178 4,586 Amortization of acquired intangible assets 6,506 5,460 2,962 Restructuring costs (note 16) - - 1,774 ------------- ------------- -------------- Total operating expenses 99,746 99,457 89,825 ------------- ------------- -------------- Income (loss) from operations 13,510 9,767 (9,516) Other income (loss) (note 10) 1,613 (2,417) 48,965 Interest income 1,853 4,736 6,161 Interest expense (16) (61) (109) ------------- ------------- -------------- Income before income taxes 16,960 12,025 45,501 Provision for income taxes (note 11) 289 1,229 20,422 ------------- ------------- -------------- Net income for the year $ 16,671 $ 10,796 $ 25,079 ============= ============= ============== Net income per share - basic (note 15) $ 0.83 $ 0.54 $ 1.12 ============= ============= ============== Net income per share - diluted (note 15) $ 0.78 $ 0.50 $ 1.03 ============= ============= ============== Weighted average number of Common Shares outstanding - basic 19,978,719 20,032,092 22,349,268 ============= ============= ============== Weighted average number of Common Shares outstanding - diluted 21,238,965 21,465,645 24,421,322 ============= ============= ==============
2003 2002 2001 Revenues:
License & networking
$ 75,991 $ 65,984 $ 73,752 Customer support
63,091 48,707 40,316 Service
38,643 39,681 35,709 Total revenues
177,725 154,372 149,777 Cost of revenues:
License & networking
6,550 5,341 5,878 Customer support
10,406 8,364 7,632 Service
28,241 27,411 27,043 Total cost of revenues
45,197 41,116 40,553 132,528 113,256 109,224 Operating expenses:
Research and development
29,324 24,071 24,311 Sales and marketing
54,532 51,084 51,317 General and administrative
13,509 12,498 13,191 Depreciation
5,009 5,587 5,178 Amortization of acquired intangible assets
3,236 6,506 5,460 Total operating expenses
105,610 99,746 99,457 Income from operations
26,918 13,510 9,767 Other income (loss) (note 10)
2,788 1,613 (2,417 ) Interest income
1,283 1,853 4,736 Interest expense
(55 ) (16 ) (61 ) Income before income taxes
30,934 16,960 12,025 Provision for income taxes (note 11)
3,177 289 1,229 Net income for the year
$ 27,757 $ 16,671 $ 10,796 Net income per share—basic (note 15)
$ 1.42 $ 0.83 $ 0.54 Net income per share—diluted (note 15)
$ 1.34 $ 0.78 $ 0.50 Weighted average number of Common Shares outstanding—basic
19,525,278 19,978,719 20,032,092 Weighted average number of Common Shares outstanding—diluted
20,696,554 21,238,965 21,465,645 See accompanying notes to consolidated financial statements
44CONSOLIDATED STATEMENTS OF
SHAREHOLDERS'SHAREHOLDERS’ EQUITY(In(In thousands)
Common Shares Special Warrants Capital Accumualted -------------------- ------------------- Shares Amount Shares Amount Amount Deficit -------- ---------- -------- --------- ------- -----------Balance as of June 30, 1999 21,281 150,252 3,000 97,420 64 (45,875) Issuance of Common Shares Under employee stock option plans 768 5,659 - - - - On acquisitions 40 1,015 - - - - Conversion of special warrants 3,000 97,420 (3,000) (97,420) - - Under employee stock purchase plans 111 1,961 - - Repurchase and cancellation of shares (4,970) (49,704) - - - (47,000) Reallocation of other capital - 64 - - (64) - Comprehensive income: Unrealized gain on available for sale securities (net of tax of $54) - - - - - - Realized gain on available for sale securities (net of tax of $14,022) - - - - - - Foreign currency translation adjustment - - - - - - Net income for the year - - - - - 25,079 Total comprehensive income (loss) - - - - - - ------- ---------- -------- --------- ------ ----------- Balance as of June 30, 2000 20,230 $ 206,667 - $ - $ - $ (67,796) Issuance of Common Shares Under employee stock option plans 462 3,785 - - - - Under employee stock purchase plans 132 2,237 - - - - Repurchase and cancellation of shares (886) (9,053) - - - (12,213) Comprehensive income: Realized gain on available for sale securities (net of tax of $54) Foreign currency translation adjustment - - - - - - Net income for the year - - - - - 10,796 Total comprehensive income (loss) - - - - - - ------- ---------- -------- --------- ------ ----------- Balance as of June 30, 2001 19,938 $ 203,636 - $ - $ - $ (69,213) Issuance of Common Shares Under employee stock option plans 419 2,600 - - - - Under employee stock purchase plans 139 4,917 - - - - Repurchase and cancellation of shares (620) (6,338) - - - (7,462) Comprehensive income: Foreign currency translation adjustment - - - - - Net income for the year - - - - 16,671 Total comprehensive income (loss) - - - - - ------- ---------- -------- --------- ------ ----------- Balance as of June 30, 2002 19,876 204,815 - $ - $ - $ (60,004) ======= ========== ======== ========= ====== ===========Comprehensive Income (loss) Total ------------- ----------Balance as of June 30, 1999 30,964 232,825 Issuance of Common Shares Under employee stock option plans - 5,659 On acquisitions - 1,015 Conversion of special warrants - 1,961 Under employee stock purchase plans Repurchase and cancellation of shares - (96,704) Reallocation of other capital - - Comprehensive income: Unrealized gain on available for sale securities (net of tax of $54) 130 130 Realized gain on available for sale securities (net of tax of $14,022) (31,699) (31,699) Foreign currency translation adjustment (283) (283) Net income for the year - 25,079 ---------- Total comprehensive income (loss) - (6,773) ------------- ---------- Balance as of June 30, 2000 $ (888) $ 137,983 Issuance of Common Shares Under employee stock option plans - 3,785 Under employee stock purchase plans - 2,237 Repurchase and cancellation of shares - (21,266) Comprehensive income: Realized gain on available for sale securities (net of tax of $54) (130) (130) Foreign currency translation adjustment (378) (378) Net income for the year - 10,796 ---------- Total comprehensive income (loss) - 10,288 ------------- ---------- Balance as of June 30, 2001 $ (1,396) $ 133,027 Issuance of Common Shares Under employee stock option plans - 2,600 Under employee stock purchase plans - 4,917 Repurchase and cancellation of shares - (13,800) Comprehensive income: Foreign currency translation adjustment 616 616 Net income for the year - 16,671 ---------- Total comprehensive income (loss) - 17,287 ------------- ---------- Balance as of June 30, 2002 $ (780) $ 144,031 ============= ==========
Common Shares Accumulated
DeficitAccumulated
Comprehensive
Income (loss)Total Shares Amount Balance as of June 30, 2000
20,230 $ 206,667 $ (67,796 ) $ (888 ) $ 137,983 Issuance of Common Shares
Under employee stock option plans
462 3,785 — — 3,785 Under employee stock purchase plans
132 2,237 — — 2,237 Repurchase and cancellation of shares
(886 ) (9,053 ) (12,213 ) — (21,266 ) Comprehensive income:
Realized gain on available for sale securities
— — — (130 ) (130 ) Foreign currency translation adjustment
— — — (378 ) (378 ) Net income for the year
— — 10,796 — 10,796 Total comprehensive income (loss)
— — — — 10,288 Balance as of June 30, 2001
19,938 $ 203,636 $ (69,213 ) $ (1,396 ) $ 133,027 Issuance of Common Shares
Under employee stock option plans
419 2,600 — — 2,600 Under employee stock purchase plans
139 4,917 — — 4,917 Repurchase and cancellation of shares
(620 ) (6,338 ) (7,462 ) — (13,800 ) Comprehensive income:
Foreign currency translation adjustment
— — — 616 616 Net income for the year
— — 16,671 — 16,671 Total comprehensive income (loss)
— — — — 17,287 Balance as of June 30, 2002
19,876 $ 204,815 $ (60,004 ) $ (780 ) $ 144,031 Issuance of Common Shares
Under employee stock option plans
291 4,445 — — 4,445 Under employee stock purchase plans
157 2,562 — — 2,562 Repurchase and cancellation of shares
(756 ) (7,722 ) (9,580 ) — (17,302 ) Income tax effect related to stock options
— 243 243 Comprehensive income:
Foreign currency translation adjustment
— — 661 661 Net income for the year
— — 27,757 — 27,757 Total comprehensive income (loss)
— — — — 28,418 Balance as of June 30, 2003
19,568 $ 204,343 $ (41,827 ) $ (119 ) $ 162,397 See accompanying notes to consolidated financial statements
45CONSOLIDATED STATEMENTS OF CASH FLOWS
(In(In thousands of US Dollars)
Year ended June 30, 2002 2001 2000 ----------- ------------ ------------Cash flows from operating activities: Net income for the year $ 16,671 $ 10,796 $ 25,079 Adjustments to reconcile net income to net
Year ended June 30, 2003 2002 2001 Cash flows from operating activities:
Net income for the year
$ 27,757 $ 16,671 $ 10,796 Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization
8,245 12,093 10,638 Deferred taxes
— — 2,146 (Gain) loss on sale of other investments
(152 ) (1,012 ) 2,237 Unrealized foreign exchange (gain) loss
(3,883 ) 389 (2,172 ) Other
— — 772 Changes in operating assets and liabilities:
Accounts receivable
2,286 4,462 13 Prepaid expenses and other current assets
543 (439 ) 459 Income taxes payable
(177 ) (1,934 ) (8,481 ) Income taxes recoverable
428 (949 ) — Accounts payable and deferred revenues
4,855 (783 ) (3,499 ) Other
117 — (1,147 ) Net cash provided by operating activities
40,019 28,498 11,762 Cash flows from investing activities:
Acquisitions of capital assets
(3,615 ) (2,248 ) (5,781 ) Purchase of Centrinity Inc., net of cash acquired
(11,369 ) — — Purchase of Corechange Inc., net of cash acquired
(2,695 ) — — Purchase of Eloquent Inc., net of cash acquired
(2,674 ) — — Purchase of patent
(1,246 ) — — Purchase of other investments
— (709 ) (938 ) Proceeds from sale of other investments
— 2,702 — Acquisitions of companies
— — (15,621 ) Payments against acquisition accruals
(1,455 ) (212 ) Proceeds from available for sale securities
287 — — Other
(1,171 ) — — Net cash used in investment activities
(23,938 ) (467 ) (22,340 ) Cash flow from financing activities:
Payment of obligations under capital leases
— (12 ) (55 ) Proceeds from issuance of Common Shares
7,007 7,517 6,022 Repurchase of Common Shares
(17,302 ) (13,800 ) (21,266 ) Other
243 — — Net cash used in financing activities
(10,052 ) (6,295 ) (15,299 ) Foreign exchange gain (loss) on cash held in foreign currency
630 633 (515 ) Increase (decrease) in cash and cash equivalents during the year
6,659 22,369 (26,392 ) Cash and cash equivalents at beginning of the year
109,895 87,526 113,918 Cash and cash equivalents at end of the year
$ 116,554 $ 109,895 $ 87,526 Supplementary cash
used in operating activities: Depreciation and amortization 12,093 10,638 7,942 Deferred taxes - 2,146 7,400 (Gain) loss on sale of other investments (1,012) 2,237 (48,130) Other - 772 (126) Changes in operating assets and liabilities: Accounts receivable 4,462 13 5,463 Prepaid expenses and other assets (439) 459 6,330 Income tax payable (1,934) (8,481) 12,813 Income taxes recoverable (949) - - Accounts payable and deferred revenues (783) (3,499) 9,606 Unrealized foreign exchange (gain) loss 389 (2,172) - Other - (1,147) - ----------- ------------ ------------ Net cash provided by operating activities 28,498 11,762 26,377 Cash flows from investing activities: Acquisitions of capital assets (2,248) (5,781) (7,055) Purchase of other investments (709) (938) (1,775) Proceeds from sale of other investments 2,702 - 1,762 Acquisitions of companies - (15,621) (6,611) Payments against acquisition accruals (212) - - Proceeds from available for sale securities - - 48,322 Sale of other assets - - 790 ----------- ------------ ------------ Net cash provided by (used in) investment activities (467) (22,340) 35,433 Cashflowfrom financing activities: Payment of obligations under capital leases (12) (55) (79) Proceeds from issuance of Common Shares 7,517 6,022 9,157 Repurchase of Common Shares (13,800) (21,266) (97,226) ----------- ------------ ------------ Net cash used in financing activities (6,295) (15,299) (88,148) Foreign exchange gain (loss) on cash held in foreign currency 633 (515) - Increase(decrease) in cash and cash equivalents during the year 22,369 (26,392) (26,338) Cash and cash equivalents at beginning of the year 87,526 113,918 140,256 ----------- ------------ ------------ Cash and cash equivalents at end of the year $ 109,895 $ 87,526 $ 113,918 =========== ============ ============Supplementaryinformation (note 13)See accompanying notes to consolidated financial statements
46OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE
1--NATURE1—NATURE OF OPERATIONSThe CompanyOpen Text develops, markets, licenses and supports
collaborativecollaboration and knowledge managementapplicationsoftware for use on intranets, extranets and theInternet, enablingInternet. The Company’s principal product line is Livelink®, a leading collaboration and knowledge management software product for global enterprises. The software enables users to capture as well as find electronically stored information, work together in creative and collaborative processes,engage inperform group calendaring and scheduling, and distribute or make available to users across networks or the Internet the resulting work product and other information. This collaborative environment enables ad hoc teams to form quickly across functional and organizational boundaries, which enables information to be accessed by employees using any standard Web browser. Fully Web-based with open architecture, Livelink provides rapid out-of-the-box deployment, accelerated adoption, and low cost of ownership. Open Text provides integrated solutions that enable people to use information and technology more effectively at departmental levels and across enterprises. TheCompany'sCompany offers its solutions both as end-user stand-alone productsare licensed primarily to Global 2000 customers.and as fully integrated modules, which together provide a complete solution that is easily incorporated into existing enterprise business systems. Although most of the Company’s technology is proprietary in nature, the Company does include certain third party software in its products. TheCompany'sCompany’s shares trade publicly on the NASDAQ StockMarket -Market—National market("NASDAQ"(“NASDAQ”), under the symbol OTEX and on the Toronto Stock Exchange, under the symbol OTC.NOTE
2--SIGNIFICANT2—SIGNIFICANT ACCOUNTING POLICIESBasis of presentation
These consolidated financial statements are expressed in US dollars and are prepared in accordance with
generally acceptedaccounting principlesingenerally accepted the United States("(“USGAAP"GAAP”). Certain prior year amounts have been reclassified to conform to current year presentation.Basis of consolidation
The consolidated financial statements include the accounts of Open Text Corporation and its subsidiaries, all of which are wholly-owned. All material intercompany balances and transactions have been eliminated.
Use of estimates
The Company’s Consolidated Financial Statements are prepared in accordance with US GAAP. The preparation of
financial statementsthe Consolidated Financial Statements inconformityaccordance with US GAAP necessarily requiresmanagementthe Company to make estimates andassumptionsjudgments that affect the reported amounts of assets, liabilities, revenues andliabilitiesexpenses, and related disclosure of contingent assets andliabilitiesliabilities. On an on-going basis, the Company evaluates its estimates, including those related to revenues, bad debts, investments, goodwill and other intangible assets, income taxes, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed at thedatetime to be reasonable under the circumstances. Under different assumptions or conditions, the actual results will differ, potentially materially, from those previously estimated. Many of thefinancial statementsconditions impacting these assumptions and estimates are outside of thereported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.Company’s control.Cash and cash equivalents
All highly liquid investments with an original maturity of three months or less at the date of acquisition are classified as cash equivalents.
Capital assets
Capital assets are stated at cost and are depreciated on a straight-line basis over the estimated useful lives of the related assets, generally three to five years. Gains and losses upon asset
disposaldisposals are taken into income in the year of disposition.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Impairment of long-lived
assets The Company evaluates its long-lived assets, including goodwillcapital andcertain identifiable intangibles, in accordance withintangible assetsIn August 2001, the
provisions ofFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialStandardAccounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets”. This Statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121,("SFAS 121"), "Accounting“Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assetsto be Disposed Of”, and the accounting and reporting requirements of"Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations forimpairment whenever events or changes in circumstances indicate that the carrying amounta Disposal ofsuch assets or intangibles may not be recoverable.a Segment of a Business.” The Company adopted SFAS 144 beginning July 1, 2002. The Company considers factors such as significant changes in the business climate and projected discounted cash flows from the respective asset. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds its fair market value. Adopting the provisions of SFAS 144 did not have a material impact on the Company’s financial condition or results of operations.In July 2001, the
Financial Accounting Standards Board ("FASB")FASB issued Statement of Financial Accounting Standards No. 142("(“SFAS142"142”),"Goodwill“Goodwill and Other Intangible Assets."” SFAS 142 requires goodwill to be tested for impairment at least annually, and written off when impaired, rather than being amortized as previous standards required. The Companywill adoptadopted SFAS 142 beginningin its fiscal year 2003. 47OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share dataJuly 1, 2002. The Companyis currently assessinghas assessed the impact of SFAS 142 on its operating results and financialcondition. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement addresses financial accountingcondition, andreporting for thehas determined that there currently exists no impairmentor disposal of long-lived assets and supercedes SFAS no. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", and the accounting and reporting requirements of ABP No 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company will adopt SFAS 144 beginningin itsfiscal year 2003. The Company does not expectgoodwill.Adjusted net income and per share amounts presented as if the
adoption ofprinciples in SFAS144 to have a material impact on its financial position or results of operations.142 had been applied in all periods would be as follows:
Year ended June 30, 2003 2002 2001 Net income for the period
$ 27,757 $ 16,671 $ 10,796 Add back: goodwill amortization
— 4,711 3,686 Adjusted net income for the period
$ 27,757 $ 21,382 $ 14,482 Adjusted net income per share
Basic
$ 1.42 $ 1.07 $ 0.72 Diluted
$ 1.34 $ 1.01 $ 0.67 Revenue recognition
a) License revenues
The Company recognizes revenue in accordance with Statement of Position
("SOP"(“SOP”) 97-2,"Software“Software RevenueRecognition"Recognition”, issued by the American Institute of Certified Public Accountants("AICPA"(“AICPA”) in October 1997andas amended by SOP 98-9 issued in December 1998.The Company records product revenue 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, the fees are fixed and determinable and collection is considered probable. The Company uses the residual method to recognize revenue 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, revenue related to the undelivered element is deferred based on vendor-specific objective evidence
("VSOE"(“VSOE”) of the fair value of the undelivered element.The
Company'sCompany’s multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support("PCS"(“PCS”) are sold together. The Company has established VSOE of the fairOPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
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 the
Company'sCompany’s significant PCS renewal experience, from its large installed base of over 5 million users worldwide. TheCompany'sCompany’s multiple element sales arrangements generally include rights for the customer to renew PCS after the bundled term ends. These rights are irrevocable to thecustomer'scustomer’s benefit, are for specified prices and 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 the
Company'sCompany’s 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 renewal PCS price is consistent with the renewal price in the original multiple element sales arrangement although an adjustment to reflect consumer price changesareis not uncommon.If VSOE of fair value does not exist for all undelivered elements, all revenue is deferred until sufficient evidence exists or all elements have been delivered.
The Company assesses whether payment terms are customary or extended
payment termsin accordance with normal practice relative to the market in which the sale is occurring. TheCompany'sCompany’s 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. The only time exceptions are made to these standard terms is on certain sales in parts of the world where local practice differs. In these jurisdictions, theCompany'sCompany’s customary payment terms are in line with local practice.b) Service revenues
Service revenues consist of revenues from consulting contracts, customer support agreements, and training and integration services contracts. Contract revenues are derived from contracts to develop applications and to provide consulting services. Contract revenues are recognized under the percentage of completion method, using a
48OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share datamethodology that accounts for costs incurred under the contract in relation to the total estimated costs under the contract, after providing for any anticipated losses under the contract. Revenues from training and integration services are recognized in the period in which the services are performed.c) Customer support revenues
Customer support revenues consist of revenue derived from contracts to provide post contract support to license holders. These revenues are recognized ratably over the term of the contract.
d) Network revenues
Network revenues consist of revenues earned from customers under an application service provider
("ASP"(“ASP”) model. Under this model, customers pay a monthly fee that entitles them to use theCompany'sCompany’s software on a secure, hosted, third-party server. These revenues are recognized as the services are provided on a monthly basis over the term of thecustomer'scustomer’s contract. With respect to these revenues, theCompany'sCompany’s customers pay exclusively for the right to use the software. TheCompany'sCompany’s customers do not receive the right to take possession of theCompany'sCompany’s software. Further, it is not possible for customers to either run the software on their own hardware or for them to contract with another party unrelated to the Company to host the software.Deferred
RevenuerevenueDeferred revenue primarily relates to support agreements which have been paid for by customers prior to the performance of those services. Generally, the services will be provided in the next twelve months.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Research and development costs
Costs related to research, design and development of products are charged to research and development expense as incurred. Software development costs are capitalized beginning at the time when a
product'sproduct’s technological feasibility has been established, and ending when a product is available for general release to customers. To date, completing a working model of theCompany'sCompany’s products, and general release of such products have substantially coincided. As a result, to date the Company has not capitalized any software development costs since such costs have not been significant.Income taxes
The Company accounts for income taxes under the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax basis of assets and liabilities. Effects of changes in tax rates are recognized in the period that includes the enactment date. The Company provides a valuation allowance on net deferred tax assets when it is not more likely than not that such assets will be realized.
Concentrations of credit risk
The Company maintains the majority of its cash and cash equivalents in US dollar denominated Canadian federal government securities or short-term, interest-bearing, investment-grade securities and demand accounts of a major Canadian chartered bank or commercial paper.
The Company performs ongoing credit evaluations of its
customers'customers’ financial condition and generally does not require collateral. The Company maintains allowances for potential losses, and to date, such actual losses have been withinmanagement'smanagement’s expectations. No single customer accounted for more than 10% of the accounts receivable balance at June 30,20022003 and June 30,2001. 49OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data2002.Fair value of financial instruments
Carrying amounts of certain of the
Company'sCompany’s financial instruments including cash and cash equivalents, accounts receivable, accounts payable-trade and accrued liabilities and income taxes payable approximate fair value due to their short maturities.Available for saleAvailable-for-sale securities are valued atthe tradingfair market value of the securities on the balance sheet date.Foreign currency translation
Assets and liabilities of certain foreign subsidiaries, whose functional currency is the local currency, are translated from their respective functional currencies to US dollars at year-end exchange rates. Income and expense items are translated at the average rates of exchange prevailing during the year. Realized foreign exchange gains and losses are included in income or loss in the year in which they occur. Unrealized foreign currency translation gains and losses are included in other comprehensive income or loss in the year in which they
occur. Theoccur.The adjustment resulting from translating the financial statements of such foreign subsidiaries is reflected as a separate component ofshareholders'shareholders’ equity.Employee stock option plans
The Company has elected to continue to follow Accounting Principles Board Opinion No. 25,
"Accounting“Accounting for Stock Issued toEmployees" ("Employees” (“APB25"25”), and to present theproformapro forma information (see note 8) that is required by SFAS No.123--"123—”Accounting for Stock-BasedCompensation" ("Compensation” (“SFAS123"123”). APB 25 requires compensation cost for stock-based employee compensation plans to be recognized over the vesting period based on the difference, if any, on the grant date between the quoted market price of thecompany'sCompany’s stock and the amount an employee must pay to acquire the stock.The Company applies the intrinsic value method prescribed in APB No 25, Accounting for Stock Issued to Employees in accounting for its stock-based compensation plans. Had compensation cost for the Company’s stock-
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
based compensation plans and the employee stock purchase plan have been determined using the fair value approach set forth in SFAS No. 123, Accounting for Stock-Based Compensation, the Company’s net income for the year and net income per share would have been in accordance with the pro forma amounts indicated below:
2003 2002 �� 2001 (in thousands, except per share amounts) Net income for the year
As reported
$ 27,757 $ 16,671 $ 10,796 Pro forma
$ 19,397 $ 7,663 $ 5,801 Net income per share—basic
As reported
$ 1.42 $ 0.83 $ 0.54 Pro forma
$ 0.99 $ 0.38 $ 0.29 Net income per share—diluted
As reported
$ 1.34 $ 0.78 $ 0.50 Pro forma
$ 0.94 $ 0.36 $ 0.27 The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for the stock-based compensation plans:
Year ended June 30, 2003 2002 2001 Volatility
80 % 80 % 71 % Risk-free interest rate
6 % 6 % 6 % Dividend yield
— — — Expected lives (in years)
5.5 5.5 5.5 Weighted average fair value (in dollars)
$ 17.78 $ 12.63 $ 12.97 Earnings per share
Basic earnings per share are computed using the weighted average number of common shares outstanding including contingently issuable shares where the contingency has been resolved. Diluted earnings per share are computed using the weighted average number of common shares and stock options (using the treasury stock method) outstanding during the
period. 50year. Recently Issued Accounting Pronouncements
Accounting for Asset Retirement Obligations
In August 2001, the FASB issued SFAS No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations.” SFAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The Company adopted SFAS No. 143 on July 1, 2002. Adopting the provisions of SFAS 143 did not have a material impact on the Company’s financial condition or results of operations.
Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections
In May 2002, the FASB issued SFAS No. 145 (“SFAS 145”), “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections”. Among other things, SFAS 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 3--CAPITAL ASSETS
June 30, 2002 ------------------------------------------------ Accumulated Cost Depreciation Net -------------- ---------------- --------------Furniture and fixtures $ 5,478 $ 4,223 $ 1,255 Office equipment 1,077 815 262 Computer hardware 27,784 22,885 4,899 Computer software 5,579 4,489 1,090 Leasehold improvements 2,418 1,523 895 -------------- ---------------- -------------- $ 42,336 $ 33,935 $ 8,401 ============== ================ ==============
June 30, 2001 ------------------------------------------------ Accumulated Cost Depreciation Net -------------- ---------------- --------------Furniture and fixtures $ 5,258 $ 3,638 $ 1,620 Office equipment 983 718 265 Computer hardware 25,844 19,156 6,688 Computer software 5,995 3,723 2,272 Leasehold improvements 2,230 1,260 970 -------------- ---------------- -------------- $ 40,310 $ 28,495 $ 11,815 ============== ================ ==============NOTE 4--OTHER ASSETS
June 30, -------------------------- 2002 2001 ------------ ------------Available for sale securities $ 134 $ 1,086 Purchased software (net of accumulated amortization of $3,925; 2001 - $1,680) 3,098 4,713 Core technology (net of accumulated amortization of $1,726; 2001 - $1,079) 2,282 2,929 Other 1,632 1,342 ------------ ------------ $ 7,146 $ 10,070 ============ ============51Occurring Events and Transaction”, are met. The Company adopted the provisions of SFAS 145 regarding early extinguishment of debt during the second fiscal quarter of 2003, the provisions of which did not have a material impact on its financial condition or results of operations.
Accounting for Costs Associated with Exit or Disposal Activities
In July 2002, the FASB issued SFAS No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities,” which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS 146 requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS 146 also establishes that the liability should initially be measured and recorded at fair value. Adopting the provisions of SFAS 146 during the year ended June 30, 2003 did not have a material impact on the Company’s financial condition as of June 30, 2003 or its results of operations for the fiscal year ended June 30, 2003.
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”), which requires certain disclosures of obligations under guarantees. The disclosure requirements of FIN 45 were effective for the Company’s interim period ended December 31, 2002. Effective for 2003, FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees entered into or modified after December 31, 2002, based on the fair value of the guarantee. The Company has adopted the disclosure requirements, and has determined that arrangements that have been entered subsequent to December 31, 2002 have been accounted for in accordance with the measurement requirements of FIN 45.
Consolidation of Variable Interest Entities
In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). The consolidation provisions of FIN 46 are effective for all newly created entities created after January 31, 2003, and are applicable to existing entities as of the quarter beginning July 1, 2003. The Company has determined that the impact of the requirements of FIN 46 will not have a material impact on its financial condition or results of operations.
Stock-Based Compensation
In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123 (“SFAS 148”). SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE
5--BANK3—CAPITAL ASSETS
June 30, 2003 Cost Accumulated
DepreciationNet Furniture and fixtures
$ 5,821 $ 4,638 $ 1,183 Office equipment
1,650 1,000 650 Computer hardware
31,143 25,579 5,564 Computer software
6,556 5,071 1,485 Leasehold improvements
2,970 1,841 1,129 $ 48,140 $ 38,129 $ 10,011
June 30, 2002 Cost Accumulated
DepreciationNet Furniture and fixtures
$ 5,478 $ 4,223 $ 1,255 Office equipment
1,077 815 262 Computer hardware
27,784 22,885 4,899 Computer software
5,579 4,489 1,090 Leasehold improvements
2,418 1,523 895 $ 42,336 $ 33,935 $ 8,401 NOTE 4—OTHER ASSETS
June 30, 2003 2002 Available for sale securities
$ — $ 134 Purchased software (net of accumulated amortization of $4,909; 2002 - $3,925)
2,114 3,098 Acquired technology (net of accumulated amortization of $3,111; 2002 - $1,726)
12,343 2,282 Acquired customer assets (net of accumulated amortization of $468; 2002 - nil)
4,925 — Patent (net of accumulated amortization of $111; 2002 nil)
1,135 — Other
3,062 1,632 $ 23,579 $ 7,146 NOTE 5—BANK INDEBTEDNESS
The Company has a CDN $10.0 million (USD
$6.6$7.4 million) line of credit with a Canadian chartered bank, under which no borrowings were outstanding at June 30,20022003 and2001.2002. The line of credit bears interest at thelender'slender’s prime rate plus 0.5%. The Company has provided all of its assets including an assignment of accounts receivable as collateral for this line of credit. During 2003, 2002,2001,and20002001 borrowings and interest cost on bank indebtedness were insignificant.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE
6--ACCOUNTS PAYABLE -6—ACCOUNTS PAYABLE—TRADE AND ACCRUED LIABILITIES
June 30, ------------------------ 2002 2001 ------------------------Accounts payable - trade $ 2,288 $ 3,266 Accrued trade liabilities 8,300 6,637 Accrued liabilities related to acquisitions 871 1,425 Accrued salaries and commissions 7,376 7,087 Other liabilities 54 120 ------------------------ $ 18,889 $ 18,535 ========================
June 30, 2003 2002 Accounts payable—trade
$ 4,035 $ 2,288 Accrued trade liabilities
12,693 8,300 Accrued liabilities related to acquisitions
3,443 871 Accrued salaries and commissions
10,403 7,376 Other liabilities
1,022 54 $ 31,596 $ 18,889 NOTE
7--SHARE7—SHARE CAPITALThe authorized share capital of the Company includes an unlimited number of Common Shares and an unlimited number of first preference shares. No preference shares are issued.
During fiscal 2003, the Company repurchased for cancellation 755,700 common shares at a cost of $17.3 million, of which $7.7 million has been charged to share capital and $9.6 million has been charged to accumulated deficit.
During fiscal 2002, the Company repurchased for cancellation 620,200 common shares at a cost of $13.8 million, of which $6.3 million has been charged to share capital and $7.5 million has been charged to accumulated deficit.
During fiscal 2001, the Company repurchased for cancellation 886,000 common shares at a cost of $21.3 million, of which $9.1 million has been charged to share capital and $12.2 million has been charged to accumulated deficit.
During fiscal 2000, the Company repurchased for cancellation 4,849,300 common shares at a cost of $96.7 million, of which $49.7 million has been charged to share capital and $47 million has been charged to accumulated deficit. NOTE 8--OPTION PLANS 1995 "Restated" Flexible Stock Incentive Plan In June 1995, the Company adopted the 1995 Flexible Stock Incentive Plan (the "Incentive Plan") for employees, officers, directors and consultants. The plan allowed the grant of options to purchase an aggregate of 782,500 Common Shares at an exercise price of $0.15 per share. 52OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Options granted underNOTE 8—OPTION PLANS
A summary of the
Incentive Plan vest over a four or five year period. Under the Incentive Plan, options are exercisable for a period of up to seven years from the grant date. Vested options terminate immediately upon an optionee's termination "for cause" and 90 days after termination for any other reason. Unvested options terminate immediately upon the termination of an optionee's employment or service to the Company. During fiscal 1997, additional new options to purchase 3,902,514 Common Shares were granted under the Incentive Plan at exercise prices between $4.25 and $10.25. During fiscal 1998, additional new options to purchase 1,568,057 Common Shares were granted under the Incentive Plan at exercise prices between $9.25 and $21.00. The Board of Directors increased the number of Common Shares available under the Incentive Plan to accommodate these grants. 1995 ReplacementCompany’s various Stock OptionPlan In October 1995, the Company adopted the 1995 Replacement Stock Option Plan (the "Replacement Plan"). The Replacement Plan provides for the granting of options to purchase an aggregate of 548,255 Common Shares to directors, officers, employees and consultants of Odesta who held options under Odesta's stock option plan. Options to purchase 548,255 Common Shares have been issued at an exercise price of $0.0005 per share and vested immediately. Under the Replacement Plan, options are exercisable for a period of ten years from the grant date. Replacement Options terminate immediately upon the termination of an optionee's employment or service to the Company "for cause" and 90 days after termination for any other reason. 1995 Supplementary Stock Option Plan In October 1995, the Company adopted the 1995 Supplementary Stock Option Plan. This plan provides for the granting of options to purchase an aggregate of 357,500 Common Shares to eligible former directors and employees of Odesta. Options to purchase 357,500 Common Shares have been issued at an exercise price of $14.00 per share. Options granted under the Supplementary Plan vest over a two-year period. Under the Supplementary Plan, options are exercisable for a period of ten years from the grant date. Vested options terminate 90 days after termination of an optionee's employment or service to the Company for any reason. 1995 Directors Stock Option Plan The Directors Stock Option Plan (the "Directors Plan") provides for the granting of options to purchase an aggregate of 50,000 Common Shares to eligible non-employee directors of the Company. This was subsequently increased by 500,000. In accordance with the Directors Plan, the Plan Administrator determines the non-employee directors of the Company to whom options are granted, the number of Common Shares subject to each option, the exercise price and vesting schedule of each option. At June 30, 2002, 524,000 options had been granted to date and 143,000 had been cancelled to date under the Directors Plan of which 149,500 options in total are outstanding and eligible to purchase Common Shares as follows: 19,000 options at an exercise price of $11.18 vesting over four years from the date of grant; 44,000 options at an exercise price of $12.90 vesting over four years from the date of grant and 86,500 options at an exercise price of $14.81 vesting over four years from the date of grant.Plans is set forth below:
1995 “Restated”
Flexible Stock
Incentive Plan1995 Replacement
Stock Option
Plan1995
Supplementary
Stock OptionPlan
1995 Directors
Stock Option Plan1998 Stock
Option Plan
Centrinity
Stock Option
PlanDate of Inception
June-95 October-95 October-95 October-95 June-98 January-03 Eligibility
Employees,
officers,
directors, and
consultants
Employees,
officers,
directors, andconsultants of
Odesta
Former
employees
and directors
of Odesta
Eligible non-
employee
directors (1)
Eligible
employees and
directors, as
determined by
the Board of
Directors
Eligible
employees,
consultants
and directors,
as determined
by the Board
of Directors
Shares granted to date
6,389,375 548,249 357,500 524,000 3,472,745 207,484 Shares cancelled to date
(1,917,699 ) (1,209 ) (88,875 ) (143,000 ) (1,009,805 ) (1,000 ) Shares exercised to date
(3,606,303 ) (547,040 ) (214,825 ) (242,000 ) (500,699 ) — Options outstanding
865,373 — 53,800 139,000 1,962,241 206,484 Termination grace periods
Immediately
“for cause”;
90 days for
any other
reason
Immediately
“for cause”;
90 days for
any other
reason
1 year due to
death; 90
days for any
other reason
Immediately
“for cause”; 3
months for any
other reason
Immediately
“for cause”; 90
days for any
other reason
Immediately
“for cause”;
90 days for
any other
reason; 180
days due to
death
Vesting schedule
Over a 4 or 5
year period;
options
exercisable up
to 7 years
from grant
date
Exercisable
up to 10 years
from grant
date
Vest over a
2 year
period;
options
exercisable
up to 10
years from
grant date
Determined
by Plan
Administrator
(2)
Determined
by Plan
Administrator
(2)
Over a 4 year
period, unless
otherwise
specified
Exercise price range (average)
$0.15 - $20.25
$ (8.06
)N/A $4.25 $11.18 - $14.81
$ (13.92
)$12.19 - $40.00
$(20.82
)$24.17 - 27.00
$(24.81
)
Expiration dates
6/30/2005 to
3/6/2008
N/A 9/17/2006 9/17/2007 to
3/5/2008
7/13/2008 to
4/28/2013
11/1/2012 to
1/28/2013
(1) The Plan Administrator determined the non-employee directors of the Company to whom options are granted, the number of Common Shares subject to each option, the exercise price and vesting schedule of each option.
(2) Representing the board of directors of the Company or, if established and duly authorized to act, the Executive Committee of the board of directors of the Company. Option Exchange Program
On September 10, 1996, the Board of Directors authorized an option exchange program (the
"Program"“Program”) whereby employees who have been granted options to acquire Common Shares of the Company under the 1995 Flexible Stock Incentive Plan (the"Flexible Plan"“Flexible Plan”) and the 1995 Supplementary Stock Option Plan (the"Supplementary Plan"OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
“Supplementary Plan”) were permitted to exchange those options on a one-for-one basis, for an option to acquire Common Shares of the Company with an exercise price of $4.25 (the
"Exchange Options"“Exchange Options”). This was subsequently approved by the shareholders. The Exchange Options vest and become exercisable, as to 10% of the Common Shares subject to option, the later of six months after the date of grant or the date the original option was scheduled53OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share datato first vest (the"initial“initial vestingdate"date”), as to the next 10% of the Common Shares subject to option, six months after the initial vesting date, and as to the remainder of the Common Shares subject to option, 5% at the end of each quarter following one year after the initial vesting date.A total of 510,452 options to acquire Common Shares of the Company from the Flexible and Supplementary plans were eligible for exchange under the Program with an average exercise price of $12.89. A total of 140,830 options under the Flexible Plan with a weighted average exercise price of $10.90 were exchanged for 140,830 Exchange Options and 335,000 options under the Supplementary Plan with an exercise price of $14.00 were exchanged for 335,000 Exchange Options.
1998 Stock Option Plan On June 23, 1998, the Board of Directors adopted the Company's 1998 Stock Option Plan (the "New Option Plan"). Under the New Option Plan, non-transferable options to purchase Common Shares may be granted to employees and directors of, and persons providing services to, the Company and its subsidiaries based on eligibility criteria set forth in the New Option Plan. The exercise price of any option to be granted under the New Option Plan is to be determined by the Board of Directors of the Company but shall not be less than the closing price of the Common Shares on the day immediately preceding the date of grant on the quotation system or stock exchange which had the greatest volume of trading of Common Shares. The maximum number of Common Shares issuable pursuant to the New Option Plan is 2,800,000 and the aggregate number of Common Shares reserved for issuance to any one person pursuant to the options granted under the New Option Plan or any other share compensation arrangement shall not exceed five percent (5%) of the outstanding Common Shares. The number of Common Shares reserved for issuance pursuant to all options granted to insiders under the New Option Plan and other share compensation arrangements shall not exceed fifteen percent (15%) of the outstanding Common Shares. In addition, the issuance to any one insider and such insider's associates, within a one-year period, of Common Shares issued pursuant to all share compensation arrangements may not exceed five percent (5%) of the outstanding Common Shares and the issuance to all insiders, within a one-year period, of Common Shares issued pursuant to all share compensation arrangements may not exceed ten percent (10%) of the outstanding Common Shares. The New Option Plan provides that the Company may make loans, the repayment of which shall be secured by the Common Shares purchased with the proceeds of such loans, or provide guarantees for loans to assist option holders to purchase Common Shares upon exercise of options granted pursuant to the New Option Plan or to assist option holders in payment of taxes eligible upon exercise of options granted pursuant to the New Option Plan. The terms of any option granted under the New Option Plan will not be permitted to exceed ten years. Under the New Option Plan, the options for directors and senior officers will vest over a period specified by the Board of Directors at the time of grant. If an option holder resigns or ceases to be an employee or director of the Company or ceases to be engaged by the Company other than for cause or breach of duty, options held by such holder may be exercised prior to the 90th day following such occurrence. If an option holder ceases to be an employee or director of the Company or ceases to be engaged by the Company for cause or breach of duty, no options held by such holder may be exercised, and the option holder shall have no rights to any Common Shares in respect of such options following the date of notice of such cessation or termination, except in accordance with a written agreement with the Company. The New Option Plan is administered by the Board of Directors, which has the authority, subject to the terms of the New Option Plan, to determine the persons to whom options may be granted, the exercise price and number of shares subject to each option, the time or times at which all or a portion of each option may be exercised and certain other provisions of each option, including vesting provisions. With the approval of the New Option Plan on June 23, 1998 by the Board, no further options will be issued under any of the previous option plans. During fiscal 2000, additional new options to purchase 561,386 Common Shares were granted under the New Option Plan at an average exercise price of $19.83. 54OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data During fiscal 2001, additional new options to purchase 184,750 Common Shares were granted under the New Option Plan at an average exercise price of $19.71. During fiscal 2002, additional new options to purchase 1,019,750 Common Shares were granted under the New Option Plan at an average exercise price of $23.23.Summary of Outstanding Stock Options
As of June 30,
2002,2003, options to purchase an aggregate of3,173,4053,226,898 Common Shares were outstanding under all of theCompany'sCompany’s stock option plans out of an allowable pool of options totaling10,007,424.10,307,424. There were exercisable options outstanding to purchase 2,301,228 shares at an average price of $14.51. At June 30, 2002, there were exercisable options outstanding to purchase 2,082,164 shares at an average price of $13.08. At June 30, 2001, exercisable options to purchase 1,806,840 shares had an average price of $11.19.At June 30, 2000, exercisable optionsOPEN TEXT CORPORATION
Notes to
purchase 1,475,324 shares had an average price of $9.54.Consolidated Financial StatementsTabular amounts in thousands, except per share data
A summary of option activity since June 30,
19992000 is set forth below:
Options Outstanding ---------------------------------- Weighted Average Number Exercise Price ----------------- -----------------Options outstanding at June 30, 1999 4,415,046 $ 11.35 Granted during fiscal 2000 561,386 19.83 Cancelled (839,230) 14.55 Exercised (768,402) 7.36 ----------------- Options outstanding at June 30, 2000 3,368,800 12.86 Granted during fiscal 2001 184,750 19.71 Cancelled (210,122) 19.91 Exercised (462,314) 8.19 ----------------- Options outstanding at June 30, 2001 2,881,114 13.54 Granted during fiscal 2002 1,019,750 23.23 Cancelled (308,411) 21.38 Exercised (419,048) 11.73 ----------------- Options outstanding at June 30, 2002 3,173,405 $ 16.15 =================55OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data
Options Outstanding Number Weighted
Average
Exercise PriceOptions outstanding at June 30, 2000
3,368,800 $ 12.86 Granted during fiscal 2001
184,750 19.71 Cancelled
(210,122 ) 19.91 Exercised
(462,314 ) 8.19 Options outstanding at June 30, 2001
2,881,114 $ 13.54 Granted during fiscal 2002
1,019,750 23.23 Cancelled
(308,411 ) 21.38 Exercised
(419,048 ) 11.73 Options outstanding at June 30, 2002
3,173,405 $ 16.15 Granted during fiscal 2003
428,345 23.73 Cancelled
(83,675 ) 22.49 Exercised
(291,177 ) 15.25 Options outstanding at June 30, 2003
3,226,898 $ 17.08 The following table summarizes information regarding stock options outstanding at June 30,
2002:2003:
Options Outstanding Options Exercisable ---------------------------------------------------- ---------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Outstanding Exercise Prices at June 30, 2002 Life Price at June 30, 2002 Price - -------------------------- ------------------ -------------- ------------ ------------------ -------------- (years)$ 0.15 - $ 6.63 359,481 4.18 $ 5.16 359,481 $ 5.16 7.88 - 11.88 652,508 5.11 9.34 649,613 9.34 12.19 - 18.50 924,235 6.52 14.37 648,931 14.12 18.56 - 25.50 832,675 8.06 21.69 305,052 21.46 25.69 - 29.13 234,776 8.87 28.14 41,945 28.68 30.00 - 40.00 169,730 7.74 31.59 77,142 31.21 ------------------ -------------- ------------ ------------------ -------------- $ 0.15 - $ 40.00 3,173,405 6.61 $ 16.15 52,082,164 $ 13.08 ================== ============== ============ ================== ==============
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
Number
Outstanding
at June 30, 2003Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Number
Outstanding
at June 30, 2003Weighted
Average
Exercise
Price
$ 0.15 - $ 8.00
471,973 3.42 $ 6.04 471,973 $ 6.04 9.25 - 12.90
528,262 4.29 10.10 516,138 10.06 13.25 - 18.19
674,224 5.42 14.16 639,599 13.99 18.31 - 21.50
595,875 7.53 20.61 272,125 20.24 21.51 - 27.94
594,359 8.28 23.99 174,938 22.87 28.20 - 40.00
362,205 7.34 29.89 226,455 30.40 $ 0.15 - $ 40.00
3,226,898 6.07 $17.08 2,301,228 $ 14.51 Employee Stock Purchase Plan
On March 5, 1998, the shareholders of the Company approved an Employee Stock Purchase Plan
("ESPP"(“ESPP”) whereby employees of the Company can subscribe to purchase Common Shares through payroll withholdings from the treasury of the Company at 85% of the lessor of: (1) the average of the last five days of the last ESPP period or (2) the average price of the last five days of the current ESPP period. An aggregate 1,000,000 Common Shares have been reserved for purchase under the ESPP, subject to adjustments in the event of stock dividends, stock splits,OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
combinations of shares, or other similar changes in capitalization of the Company. During fiscal 2003, a total of 157,000 Common Shares were issued under the ESPP. During fiscal 2002, a total of 139,056 Common Shares were issued under the ESPP, and during fiscal 2001, a total of 131,732 Common Shares were issued under the
ESPP, and during fiscal 2000, a total of 111,057 Common Shares were issued under theESPP.Pro Forma Information The Company applies the intrinsic value method prescribed in APB No 25, Accounting for Stock Issued to Employees in accounting for its stock-based compensation plans. Had compensation cost for the Company's stock-based compensation plans and the employee stock purchase plan have been determined using the fair value approach set forth in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's net income for the year and net income per share would have been in accordance with the pro forma amounts indicated below:
Year ended June 30, ------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- (in thousands, except per share amounts)Net income for the year As reported $ 16,671 $ 10,796 $ 25,079 Pro forma $ 7,663 $ 5,801 $ 17,663 Net income per share - basic As reported $ 0.83 $ 0.54 $ 1.12 Pro forma $ 0.38 $ 0.29 $ 0.79 Net income per share - diluted As reported $ 0.78 $ 0.50 $ 1.03 Pro forma $ 0.36 $ 0.27 $ 0.7556OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data The fair value of each stock option grant on the date of grant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for the stock-based compensation plans:
Year ended June 30, ------------------------------------------- 2002 2001 2000 ------------ ------------ -------------Volatility 80% 71% 100% Risk-free interest rate 6% 6% 6% Dividend yield - - - Expected lives (in years) 5.5 5.5 5.5 Weighted average fair value (in dollars) $ 12.63 $ 12.97 $ 15.78NOTE
9--COMMITMENTS9—COMMITMENTS AND CONTINGENCIESThe Company has entered into operating leases for premises and vehicles with minimum annual payments as follows:
2003 $ 4,712 2004 3,107 2005 2,115 2006 2,030 Thereafter 4,942 ---------------- $ 16,906 ================
2004
$ 6,819 2005
5,684 2006
4,539 2007
4,356 Thereafter
20,497 $ 41,895 Rent expense amounted to $7.2 million in 2003, $5.9 million in 2002, and $5.1 million in
2001,2001.The Company is subject to legal proceedings and
$4.2 millionclaims, either asserted or unasserted, that arise in2000.the ordinary course of business. While the outcome of these proceedings and claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on its consolidated financial position, results of operations or cash flows.NOTE
10--OTHER10—OTHER INCOME (LOSS)
Year ended June 30, ------------------------------------- 2002 2001 2000 ----------- ----------- -----------Gain (loss) on sale of investments, net of disposal costs $ 1,012 $ (2,971) $ 49,016 Recovery of acquisition accrual - 734 - ----------- ----------- ----------- Gain on sale of investments 1,012 (2,237) 49,016 Balance of other income (expense) 601 (180) (51) ----------- ----------- ----------- Other income (loss) $ 1,613 $ (2,417) $ 48,965 =========== =========== ===========
Year ended June 30, 2003 2002 2001 Gain (loss) on sale of investments, net of disposal costs
$ 152 $ 1,012 $ (2,971 ) Recovery of acquisition accrual
— — 734 Gain (loss) on sale of investments
152 1,012 (2,237 ) Balance of other income (expense)
2,636 601 (180 ) Other income (loss)
$ 2,788 $ 1,613 $ (2,417 ) During fiscal 2001,
and 2000,the Company sold 8,900and 876,301sharesrespectively,of its investment in Primedia,representingcompleting its disposition of its entire interest in this investment.During fiscal 2002, the Company realized a gain of $1.0 million related to the
Company'sCompany’s attempted acquisition of Accelio Corporation("Accelio"(“Accelio”), a software company located in Ottawa, Ontario. The gain that the Company realized on this attempted acquisition arose from the sale of shares of Accelio common stock owned by the Company, and gains realized in connection with certain lock-up agreements in connection with the attempted acquisition, partially offset by the costs incurred.57During fiscal 2003, the Company realized a gain of $152,000 relating to a small equity investment it disposed of during the year. The majority of the balance of other income during fiscal 2003 relates to realized foreign exchange gains recorded during the year. The strong appreciation of the Euro as compared to the U.S. dollar accounted for the majority of this amount.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE
11--INCOME11—INCOME TAXESThe Company operates in several tax jurisdictions. Its income is subject to varying rates of tax and losses incurred in one jurisdiction cannot be used to offset income taxes payable in another.
The income (loss) before income taxes consisted of the following:
Year Ended June 30, ---------------------------------------------- 2002 2001 2000 -------------- -------------- --------------Domestic income (loss) 3,931 (1,297) 46,486 Foreign income (loss) 13,029 13,322 (985) -------------- -------------- -------------- Income before income taxes $ 16,960 $ 12,025 $ 45,501 ============== ============== ==============
Year Ended June 30, 2003 2002 2001 Domestic income (loss)
$ 7,549 $ 3,931 $ (1,297 ) Foreign income
23,385 13,029 13,322 Income before income taxes
$ 30,934 $ 16,960 $ 12,025 A reconciliation of the combined Canadian federal and provincial income tax rate with the
Company'sCompany’s effective income tax rate is as follows:
Year Ended June 30, 2003 2002 2001 Expected statutory rate
37.6 % 40.0 % 43.0 % Expected provision for income taxes
$ 11,631 $ 6,784 $ 5,171 Effect of permanent differences
1,316 2,694 1,435 Effect of foreign tax rate differences
(234 ) (453 ) (1,035 ) Non-taxable portion of capital gain
— (202 ) — Tax incentive for research and development
(1,854 ) (368 ) — Benefit of losses*
(3,633 ) — (6,300 ) Future benefit of losses acquired on acquisitions
— — (3,400 ) Change in valuation allowance
(3,548 ) (7,850 ) 4,800 Other items
(501 ) (316 ) 558 $ 3,177 $ 289 $ 1,229
Year Ended June 30, -------------------------------------------- 2002 2001 2000 ------------- ------------- --------------Expected statutory rate 40.0% 43.0% 44.5% Expected provision for income taxes $ 6,784 $ 5,171 $ 20,249 Effect* The operating tax loss carryforwards (net of permanent differences 2,694 1,435 - Effect of foreign tax rate differences (453) (1,035) 360 Non-taxable portion of capital gain (202) - (5,050) Tax incentive for research and development (368) - (78) Benefit of losses carried forward and back - (6,300) - Future benefit of lossesvaluation allowance) acquired onacquisitions - (3,400) Changethe purchases of Centrinity, Eloquent, and Corechange do not affect the income statement as amounts are allocated to these operating tax loss carryforwards invaluation allowance (7,850) 4,800 4,604 Other items (316) 558 337 ------------- ------------- -------------- $ 289 $ 1,229 $ 20,422 ============= ============= ==============the purchase price allocation.58OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The provision (recovery) for income taxes consisted of the following:
Year Ended June 30, ----------------------------------------------- 2002 2001 2000 -------------- -------------- --------------Domestic: Current income taxes $ - $ (600) $ 10,490 Deferred income taxes - 450 7,000 -------------- -------------- -------------- $ - $ (150) $ 17,490 -------------- -------------- -------------- Foreign: Current income taxes $ 289 $ (371) $ 420 Deferred income taxes - 1,750 2,512 -------------- -------------- -------------- $ 289 $ 1,379 $ 2,932 -------------- -------------- -------------- Provision for income taxes $ 289 $ 1,229 $ 20,422 ============== ============== ==============
Year Ended June 30, 2003 2002 2001 Domestic:
Current income taxes
$ 460 $ — $ (600 ) Deferred income taxes
(272 ) — 450 $ 188 $ — $ (150 ) Foreign:
Current income taxes
$ 3,493 $ 289 $ (371 ) Deferred income taxes
(504 ) — 1,750 $ 2,989 $ 289 $ 1,379 Provision for income taxes
$ 3,177 $ 289 $ 1,229 The Company has approximately
$15.1$35.6 million of domestic non-capital loss carryforwards which expire between 2004 and 2008. In addition, the Company has $25.5 million of foreign non-capital loss carry forwards of which$7.9$16.3 million have no expiry date.Additionally, $2.8$9.2 million of these foreign losses are restricted and can only be used against the profits of a previously acquired company in accordance with a statutory formula. The remainder ofthesethe foreign losses expire between20042008 and2011.2022. The Company also has$1.9$1.8 million of foreign capital loss carryforwards that have no expiry date.The primary temporary differences which gave rise to net deferred
taxestax assets at June 30, 2003 and 2002and 2001are:
Year Ended June 30, ------------------------------------- 2002 2001 --------------- ---------------Deferred tax assets Non-capital loss carryforwards $ 5,447 $ 12,600 Capital loss carryforwards 770 - Employee stock options 113 900 Scientific research and development tax credits 600 1,500 Depreciation and amortization 2,410 1,900 Share issue costs 50 200 --------------- --------------- Total deferred tax asset 9,390 17,100 Less, valuation allowance (9,250) (17,100) --------------- --------------- 140 - --------------- --------------- Deferred tax liabilities Scientific research and development tax credits 140 - --------------- --------------- --------------- --------------- Net deferred tax asset $ - $ - =============== ===============
Year Ended June 30, 2003 2002 Deferred tax assets
Non-capital loss carryforwards
$ 19,668 $ 5,447 Capital loss carryforwards
710 770 Employee stock options
— 113 Scientific research and development tax credits
684 600 Depreciation and amortization
1,062 2,410 Share issue costs
167 50 Total deferred tax asset
22,291 9,390 Less, valuation allowance
(5,669 ) (9,250 ) 16,622 140 Deferred tax liabilities
Scientific research and development tax credits
260 140 Net deferred tax asset
$ 16,362 $ — Comprised of:
Current asset
$ 7,688 $ — Long-term asset
8,674 — $ 16,362 $ — The Company believes that sufficient uncertainty exists regarding the realization of certain deferred tax assets that a valuation allowance is required. The Company continues to evaluate its taxable position quarterly and considers
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
factors by taxing jurisdiction such as estimated taxable income, the history of losses for tax purposes and the growth of the Company, among others.
59OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share dataNOTE
13--SEGMENT12—SEGMENT INFORMATIONSFAS No. 131,
"Disclosures“Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131” establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method of determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance.The Company has two reportable segments: North America and Europe. The Company evaluates operating segment performance based on total revenues and operating costs of the segment. The accounting policies of the operating segments are the same as those described in the summary of accounting policies. No segments have been aggregated.
Information about reported segments is as follows:
North America Europe Other Total -------------- ------------ ------------ ---------------2002 ---- Total Revenues $ 91,176 $ 55,874 $ 5,427 $ 152,477 Operating costs 69,321 52,186 5,367 126,874 -------------- ------------ ------------ --------------- Contribution margin $ 21,855 $ 3,688 $ 60 $ 25,603 ============== ============ ============ =============== Segment assets $ 52,577 $ 31,428 $ 2,235 $ 86,240 ============== ============ ============ =============== 2001 ---- Total Revenues $ 86,471 $ 54,778 $ 6,450 $ 147,699 Operating costs 73,483 50,127 3,684 127,294 -------------- ------------ ------------ --------------- Contribution margin $ 12,988 $ 4,651 $ 2,766 $ 20,405 ============== ============ ============ =============== Segment assets $ 63,276 $ 30,244 $ 1,787 $ 95,307 ============== ============ ============ =============== 2000 ---- Total Revenues $ 68,351 $ 40,531 $ 4,063 $ 112,945 Operating costs 65,000 46,680 3,233 114,913 -------------- ------------ ------------ --------------- Contribution margin $ 5,860 $ (6,149) $ 830 $ (1,968) ============== ============ ============ =============== Segment assets $ 50,690 $ 28,841 $ 713 $ 80,244 ============== ============ ============ ===============
North
AmericaEurope Other Total 2003
Total revenues
$ 102,221 $ 70,805 $ 4,699 $ 177,725 Operating costs
77,595 60,403 4,564 142,562 Contribution margin
$ 24,626 $ 10,402 $ 135 $ 35,163 Segment assets
$ 98,769 $ 38,618 $ 2,106 $ 139,493 �� 2002
Total revenues
$ 92,410 $ 56,467 $ 5,495 $ 154,372 Operating costs
70,454 52,880 5,435 128,769 Contribution margin
$ 21,956 $ 3,587 $ 60 $ 25,603 Segment assets
$ 52,577 $ 31,428 $ 2,235 $ 86,240 2001
Total revenues
$ 86,471 $ 54,778 $ 6,450 $ 147,699 Operating costs
73,483 50,127 3,684 127,294 Contribution margin
$ 12,988 $ 4,651 $ 2,766 $ 20,405 Segment assets
$ 63,276 $ 30,244 $ 1,787 $ 95,307 Included in the above operating results are allocations of certain operating costs which are incurred in one reporting segment but which relate to all reporting segments. The allocations of these common operating costs are consistent with the manner in which they are allocated for presentation to, and analysis by, the chief operating decision maker of the Company. For the year ended June 30, 2003, 2002 and 2001,
and 2000,the"Other"“Other” category consists of geographic regions other than North America and Europe.60OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements for the years ended June 30, 2003, 2002,
2001,and20002001 is as follows:
Year Ended June 30, 2002 2001 2000 ----------- ----------- ----------Total contribution margin from operating segments above $ 25,603 $ 20,405 $ (1,968) Amortization and depreciation (12,093) (10,638) (7,548) ----------- ----------- ---------- Total operating income (loss) 13,510 9,767 (9,516) Interest, other income (loss) and income taxes 3,161 1,029 34,595 ----------- ----------- ---------- Net income for the year $ 16,671 $ 10,796 $ 25,079 =========== =========== ==========As of June 30, 2002 2001 ------------ ------------ Segment assets $ 86,240 $ 95,307 Investments 134 1,086 Cash and cash equivalents 100,473 78,609 ------------ ------------ Total corporate assets $ 186,847 $175,002 ============ ============
Year Ended June 30, 2003 2002 2001 Total contribution margin from operating segments above
$ 35,163 $ 25,603 $ 20,405 Amortization and depreciation
(8,245 ) (12,093 ) (10,638 ) Total operating income (loss)
26,918 13,510 9,767 Interest, other income (loss) and income taxes
839 3,161 1,029 Net income for the year
$ 27,757 $ 16,671 $ 10,796
As of June 30, 2003 2002 Segment assets
$ 139,493 $ 86,240 Investments
— 134 Cash and cash equivalents (corporate)
99,194 100,473 Total corporate assets
$ 238,687 $ 186,847 Contribution margin from operating segments does not include amortization of intangible assets, acquired in-process research and development and restructuring costs. Goodwill and intangibles have been assigned in segment assets based on the location of the acquired business operations to which they relate. These allocations have been made on a consistent basis.
The distribution of net revenues determined by location of customer, and identifiable assets greater than 10%, by geographic areas for the years ended June 30, 2003, 2002
2001and20002001 are as follows:Year Ended June 30, 2002 2001 2000 ------------ ------------- ------------ Total revenues: Canada $ 12,167 $ 11,594 $ 10,717 United States 79,009 78,712 58,331 United Kingdom 19,915 19,905 15,746 Other 41,386 37,488 28,151 ------------ ------------- ------------ Total revenues $ 152,477 $ 147,699 $ 112,945 ============ ============= ============ 61
Year Ended June 30, 2003 2002 2001 Total revenues:
Canada
$ 13,500 $ 12,190 $ 11,650 United States
88,721 80,220 80,106 United Kingdom
22,042 20,320 20,328 Other
53,462 41,642 37,393 Total revenues
$ 177,725 $ 154,372 $ 149,477 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
As of June 30, 2003 2002 Segment assets:
Canada
$ 43,725 $ 16,472 United States
55,044 36,105 United Kingdom
13,733 9,556 Other
26,991 24,107 Total segment assets
$ 139,493 $ 86,240 NOTE 13—SUPPLEMENTAL CASH FLOW DISCLOSURES
Year Ended June 30, 2003 2002 2001 Supplemental disclosure of cash flow information:
Cash paid during the period for interest
$ 55 $ 19 $ 56 Cash paid during the period for taxes
590 495 7,626 NOTE 14—ACQUISITIONS
Fiscal 2003
Corechange Inc.
On February 25, 2003, Open Text Inc. (“OTI”) a wholly-owned subsidiary of the Company, acquired all of the issued and outstanding shares of Corechange Inc. (“Corechange”). Consideration for this acquisition was comprised of (1) cash consideration of $3.6 million paid on closing; (2) additional cash consideration of $650,000 to be held in escrow in order to satisfy potential breaches of representations and warranties as provided for in the share purchase agreement; and (3) additional cash consideration to be payable over the one-year period following closing, calculated as a fixed percentage of certain revenues of Corechange. The results of operations of Corechange have been consolidated with those of Open Text beginning February 25, 2003. Boston-based Corechange delivers infrastructure software to develop, deploy and manage enterprise portals on a global scale.
The following table summarizes the purchase price allocation:
Current assets
$ 2,968 Capital assets
753 Deferred tax assets
596 Technology assets
4,600 Customer assets
2,000 Goodwill
1,989 Total assets acquired
12,906 Current liabilities
(8,656 ) Net assets acquired
$ 4,250 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The total purchase price allocated to goodwill of $2.0 million was assigned entirely to the Company’s North American geographic segment. In accordance with SFAS 142, the goodwill will not be amortized but will be reviewed for impairment on an annual basis.
The customer assets of $2.0 million were assigned a useful life of 7 years. The technology assets of $4.6 million have also been assigned a useful life of 7 years.
As part of the purchase price allocation, the Company recognized liabilities in connection with the acquisition of Corechange totaling $4.1 million. The liabilities recognized include severance and related charges in connection with a worldwide reduction in the Corechange workforce, in addition to transaction costs, costs relating to provisioning for excessive facilities, and certain pre-acquisition contingencies. Of the total liabilities recognized in connection with the acquisition, $2.1 million remains accrued at June 30, 2003. The Company expects that the majority of these remaining costs will be paid in fiscal 2004; however, certain amounts such as the provision for excessive facilities and pre-acquisition contingencies may take longer.
Eloquent, Inc.
On March 20, 2003, Open Text completed an acquisition of all of the issued and outstanding shares of Eloquent Inc. (“Eloquent”) for cash consideration of $6.7 million, of which $1.0 million is being held in escrow to secure certain representations, warranties and covenants of Eloquent in the acquisition agreement. The results of operations of Eloquent have been consolidated with those of Open Text beginning March 20, 2003. San Mateo-based Eloquent’s closed-loop “sales readiness” solution, LaunchForce(TM), is built on a scaleable technology platform designed to deploy corporate knowledge to front-line employees and partners.
The following table summarizes the current purchase price allocation:
Current assets
$ 4,229 Other assets
132 Deferred tax assets
1,020 Technology assets
2,300 Customer assets
800 Goodwill
582 Total assets acquired
9,063 Current liabilities
(2,350 ) Net assets acquired
$ 6,713 The total purchase price allocated to goodwill of $0.6 million was assigned entirely to the Company’s North American geographic segment. In accordance with SFAS 142, the goodwill will not be amortized but will be reviewed for impairment on an annual basis.
The customer assets of $0.8 million were assigned a useful life of 7 years. The technology assets of $2.3 million have also been assigned a useful life of 7 years.
As part of the purchase price allocation, the Company recognized liabilities in connection with the acquisition of Eloquent totaling $1.2 million. The liabilities recognized include severance and related charges in connection with a reduction in the Eloquent workforce, in addition to transaction costs and pre-acquisition contingencies. Of the total liabilities recognized in connection with the acquisition, $0.7 million remains accrued at June 30, 2003. The majority of this remaining accrual relates to pre-acquisition contingencies which the Company anticipates will be resolved during fiscal 2004.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Centrinity, Inc.
On November 1, 2002,
2001 ----------- ----------- Segment assets: Canada $16,472 $ 17,211 United States 36,105 46,065 United Kingdom 9,556 10,266 Other 24,107 21,765 ----------- ----------- Total segment assets $86,240 $ 95,307 =========== =========== NOTE 13--SUPPLEMENTAL CASH FLOW DISCLOSURES
Year Ended June 30, 2002 2001 2000 ---------- ---------- ----------Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 19 $ 56 $ 97 Cash paid during the period for taxes 495 7,626 306 Supplemental schedule of non cash investing and financing activities: Conversion of special warrants to Common Shares - - 97,420NOTE 14--ACQUISITIONSthe Company completed the acquisition of all of the issued and outstanding shares of Centrinity Inc. (“Centrinity”) for cash consideration of $20.3 million. The results of operations of Centrinity have been consolidated with those of Open Text beginning November 1, 2002. Toronto-based Centrinity, which has developed a communications and messaging platform, has over 8 million users worldwide. Open Text intends on further developing this technology, and plans for it to be integrated into its flagship product, Livelink.The following table summarizes the purchase price allocation:
Net working capital items
$ 552 Capital assets
1,655 Deferred tax assets
12,413 Customer assets
2,400 Technology assets
4,000 Goodwill
5,311 Liabilities recognized in connection with the business combination
(6,031 ) Net assets acquired
$ 20,300 The total purchase price allocated to goodwill of $5.3 million was assigned to the Company’s reportable geographic segments as follows:
North America
$ 2,921 Europe
2,390 $ 5,311 In accordance with SFAS 142, the goodwill will not be amortized but will be reviewed for impairment on an annual basis.
The customer contracts of $1.0 million were assigned a useful life of 3 years, while the customer relationships of $1.4 million were assigned a useful life of 7 years. The purchased technology of $4.0 million has been separated into subcomponents, whose useful lives have been assigned as either 5 or 7 years.
As part of the purchase price allocation, the Company recognized liabilities in connection with the acquisition of Centrinity totaling $6.0 million. The liabilities recognized include severance and related charges in connection with a worldwide reduction in the Centrinity workforce, in addition to transaction costs, costs relating to provisioning for excessive facilities, and pre-acquisition contingencies. Of the total liabilities recognized in connection with the acquisition, $3.6 million remains accrued at June 30, 2003. The majority of the remaining accrual relates to provisioning for excessive facilities and pre-acquisition contingencies. The Company anticipates that with the exception of those components, the majority of these acquisition accruals will be paid during fiscal 2004.
The following pro forma results of operations reflect the combined results of Open Text, Centrinity and Corechange for the years ended June 30, 2003 and 2002, as if the business combination occurred as of the beginning of Open Text’s fiscal year. The information used for this pro forma disclosure was obtained from unaudited financial statements filed with either the Ontario Securities Commission or the Securities and Exchange Commission, as well as internal unaudited financial statements prepared by the respective companies.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Year ended June 30,
2003June 30,
2002Revenue
$ 191,560 $ 184,590 Net loss
$ (3,115 ) $ (27,759 ) Basic net loss per share
$ (0.16 ) $ (1.39 ) Shares used in computing basic net loss per share (in thousands)
19,525 19,979 Diluted net loss per share
$ (0.16 ) $ (1.39 ) Shares used in computing diluted net loss per share (in thousands)
19,525 19,979 Fiscal 2001
Bluebird Systems
In October 2000, Open Text acquired all of the issued and outstanding share capital of Bluebird Systems
("Bluebird"(“Bluebird”), of Carlsbad, California. Consideration for this acquisitioniswas comprised of (1) cash of $8 million paid on closing; and (2) additional cash consideration to be earned over the eight subsequent three-month periods following the closing, contingent upon Bluebird meeting certain revenue and net income targets.The Company allocated the total purchase price to the assets and liabilities acquired as follows:
62OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data Tangible net liabilities $ (114) Current software products 2,346 Core technology 1,156 Goodwill 4,612 --------------- $ 8,000 ===============
Tangible net liabilities
$ (114 ) Current software products
2,346 Core technology
1,156 Goodwill
4,612 $ 8,000 Included in tangible net liabilities is an amount of $646 representing direct acquisition costs, involuntary terminations, and office closure costs. The liabilities included $504 of direct acquisition costs, $75 for involuntary terminations, and $67 for office closures. An acquisition accrual of
$188$11 remains on the balance sheet at June 30,2002, which relates to certain direct acquisition costs.2003. It is theCompany'sCompany’s expectation that this accrual will be substantially utilized in the coming fiscal year.The acquired software technology was valued using a stage of completion model. Projected revenue net of operating expenses and income taxes were discounted to a present value using a risk-adjusted rate of return. Software technology was divided into two categories:
· current software products
· core technology
Current software products include products currently in the marketplace as of the acquisition date. The fair market value of the purchased current software products was determined to be $2.3 million. This amount was recorded as an asset and is being amortized on a straight-line basis over four years. The fair market value of core technology was determined to be $1.2 million. This amount was recorded as an asset and is being amortized on a straight-line basis over seven years.
The excess of the purchase price over the fair market value of the acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $4.6
million which is being amortized on a straight-line basis over ten years.million. Any additional consideration earned by the former shareholders of Bluebird will be accounted for as part of the purchase price, and consequently will be recorded as additional goodwill. As of June 30,2002,2003, no additional consideration has been earned under the stock purchase agreement.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
LeadingSide
In November 2000, Open Text acquired the product business of LeadingSide Inc.
("LeadingSide"(“LeadingSide”) of Cambridge, Massachusetts, for cash consideration of $3 million. LeadingSide is an e-business solution provider that designs, develops and deploys knowledge driven solutions to Global 2000 companies.The Company allocated the total purchase price to the assets acquired as follows:
Tangible net liabilities $(1,869) Current software products 2,654 Goodwill 2,215 ----------- $ 3,000 ===========
Tangible net liabilities
$ (1,869 ) Current software products
2,654 Goodwill
2,215 $ 3,000 Included in tangible net liabilities is an amount of $1.8 million representing direct acquisition costs, office closure costs, and certain contingencies. The liabilities included $543 of direct acquisition costs, $80 for office closures, and $1.2 million for potential legal disputes.
An acquisition accrualAs of$334 remains on the balance sheet atJune 30,2002, which relates to potential legal disputes that the Company expects will be substantially utilized2003, there are amounts remained accrued inthe coming fiscal year. 63OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share datarespect of direct acquisition costs.The acquired software products were valued using a stage of completion model. Projected revenue net of operating expenses and income taxes were discounted to a present value using a risk-adjusted rate of return.
Current software products include products currently in the marketplace as of the acquisition date. The fair market value of the purchased current software products was determined to be $2.7 million. This amount was recorded as an asset and is being amortized on a straight-line basis over four years. The excess of the purchase price over the fair market value of the acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $2.2
million which is being amortized on a straight-line basis over seven years.million.Open Image
In November 2000, Open Text acquired all of the outstanding shares of Open Image Systems Inc.
("(“OpenImage"Image”) of Toronto, Ontario for cash consideration of $2.1 million.The Company allocated the total purchase price to the net assets acquired as follows:
Tangible net liabilities $ (239) Current products 302 Goodwill 1,992 ----------- $ 2,055 ===========
Tangible net liabilities
$ (239 ) Current products
302 Goodwill
1,992 $ 2,055 Included in tangible net liabilities is an amount of $204 representing direct acquisition costs, office closure costs, and certain contingencies. The liabilities included $68 of direct acquisition costs, $38 for office closures, and $98 for potential legal disputes. An acquisition accrual of $96 remains on the balance sheet at June 30,
2002, relating to a potential legal dispute.2003. It is theCompany'sCompany’s expectation that this accrual will besubstantiallyutilized in the coming fiscal year.The acquired software products were valued using a stage of completion model. Projected revenue net of operating expenses and income taxes were discounted to a present value using a risk-adjusted rate of return.
Current software products include products currently in the marketplace as of the acquisition date. The fair market value of the purchased current software products was determined to be $302. This amount was recorded as an asset and is being amortized on a straight-line basis over four years. The excess of the purchase price over the fair market value of the acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $2
million which is being amortized on a straight-line basis over five years.million.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Base 4
In January 2001, Open Text acquired all of the outstanding shares of Base 4 Inc.
("(“Base4"4”) of Toronto, Ontario for cash consideration of $529. Base4's4’s PharMatrix product is designed to facilitate the capture, storage and dissemination of knowledge generated during the complete project lifecycle of the pharmaceutical discovery process.The Company allocated the total purchase price to the net assets acquired as follows:
Tangible net liabilities $ (701) Goodwill 1,240 ----------- $ 539 =========== 64OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data
Tangible net liabilities
$ (701 ) Goodwill
1,240 $ 539 Included in tangible net liabilities is an amount of $335 representing direct acquisition costs, office closure costs, involuntary termination costs and acquired commitments. The liabilities included $70 of direct acquisition costs, $75 for office closures, $100 for involuntary terminations and $90 for certain contingencies.
The excess of the purchase price over the fair market value of the acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $1.2
million which is being amortized on a straight-line basis over five years. Fiscal 2000 PS Software In August 1999, Open Text acquired all the outstanding shares of PS Software Solutions Ltd. ") for approximately $2.0 million in cash paid at closing and 40,000 shares, valued at $1.0million.The Company allocated the total purchase price to the assets acquired as follows: Goodwill $ 3,201 Tangible net liabilities (201) --------- $ 3,000 ========= Included in tangible net liabilities is an amount of $655,000 for direct acquisition costs, involuntary terminations, costs to exit certain activities and certain contingencies. The liabilities included $215,000 for direct acquisition costs, $100,000 for involuntary terminations of management and certain development, sales and administrative staff, $340,000 for lease terminations and office closures. During fiscal 2000, the Company subleased the vacated premises of PS Software for a portion of the outstanding lease term; consequently, there is an adjustment to goodwill of $76,000. Management assessed the reasonability of direct acquisition and involuntary terminations and adjusted goodwill by $39,000 and $35,000 respectively. As at June 30, 2002, no balance remains with respect to PS Software's acquisition costs. The excess of the purchase price over the fair value of acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $3.2 million which is being amortized on a straight-line basis over ten years. Microstar In September 1999, 3557855 Canada Inc., a wholly owned subsidiary of Open Text Corporation acquired 92.87% of Microstar Software Ltd.'s issued and outstanding share capital for approximately $4.6 million in cash paid at closing. The Company allocated the total purchase price to the assets acquired as follows: Goodwill $ 4,763 Tangible net liabilities (159) --------- $ 4,604 ========= Included in tangible net liabilities is an amount of $882,000 for direct acquisition costs, involuntary terminations, costs to exit certain activities and certain contingencies. The liabilities included $854,000 for direct acquisition costs, $16,000 for involuntary terminations of management and certain development, sales and administrative staff, 65OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
and $12,000NOTE 15—NET INCOME PER SHARE
Year Ended June 30, 2003 2002 2001 (in thousands, except per share data) Basic income per share
Net income
$ 27,757 $ 16,671 $ 10,796 Weighted average number of shares outstanding
19,525 19,979 20,032 Basic income per share
$ 1.42 $ 0.83 $ 0.54 Diluted income per share
Net income
$ 27,757 $ 16,671 $ 10,796 Weighted average number of shares outstanding
19,525 19,979 20,032 Dilutive effect of stock options *
1,172 1,260 1,434 Adjusted weighted average number of shares outstanding
20,697 21,239 21,466 Diluted income per share
$ 1.34 $ 0.78 $ 0.50
* anti-dilutive options of 453,904 have been excluded for fiscal 2003 (fiscal 2002 - 423,283; fiscal 2001 - 322,529) NOTE 16—SUBSEQUENT EVENT
On August 27, 2003, the Company announced that it intended to acquire the common shares of Gauss Interprise (Deutsch Bourse: GSOGa.de) for
office closures. Ascash by way of agreement with certain of the shareholders, who will hold 73 percent of the shares atJune 30, 2002, $78 remains accrued relatingclosing after conversion of indebtedness. In addition, on September 19, 2003 a tender offer was made for the balance of the shares. Total cash consideration for the shares is expected todirect acquisition costsbe approximately US $11 million. Open Text expects that theCompany expectstransaction willbe substantively utilizedclose, subject to certain conditions, inthe coming fiscal year. The excess of the purchase price over the fair value of acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $4.8 million that is being amortized on a straight-line basis over ten years. NOTE 15--NET INCOME PER SHARE
Year Ended June 30, ---------------------------------------- 2002 2001 2000 ---------- ----------- ------------ (in thousands, except per share data)Basic income per share Net income $ 16,671 $ 10,796 $ 25,079 ========== =========== ============ Weighted average number of shares outstanding 19,979 20,032 21,791 Weighted average of special warrants - - 557 ---------- ----------- ------------ Adjusted weighted average number of shares outstanding 19,979 20,032 22,348 ========== =========== ============ Basic income per share $ 0.83 $ 0.54 $ 1.12 ========== =========== ============ Diluted income per share Net income $ 16,671 $ 10,796 $ 25,079 ========== =========== ============ Weighted average number of shares outstanding 19,979 20,032 22,348 Dilutive effect of stock options * 1,260 1,434 2,073 ---------- ----------- ------------ Adjusted weighted average number of shares outstanding 21,239 21,466 24,421 ========== =========== ============ Diluted income per share $ 0.78 $ 0.50 $ 1.03 ========== =========== ============* anti-dilutive options of 423,283 have been excluded (fiscal 2001 - 322,529; fiscal 2000 - 382,570) NOTE 16--RESTRUCTURING COSTS During the year ended June 30, 2000, the Company recorded a restructuring charge of $1.8 million. The restructuring charge resulted from the closure of the Company's Toronto, Ontario office and the London, UK office. In addition, 45 employees were terminated: 31 in North America and 14 in Europe. At June 30, 2000 severance amounts relating to two employees remained outstanding. These amounts were paid as salary continuance in the first and second quarters of fiscal 2001. 66OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data
Severance & Facilities Related Costs Closure Total ------------- ---------- ----------Charge during the year ended June 30, 2000 1,603 171 1,774 Paid during fiscal 2000 (1,382) (171) (1,553) ------------- ---------- ---------- Balance of the accrual as at June 30, 2000 221 - 221 Paid during fiscal 2001 (221) - (221) ------------- ---------- ---------- Balance of the accrual as at June 30, 2001 $ - $ - $ - ============= ========== ==========NOTE 17--RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 141, "Business Combinations", ("SFAS No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting be used for all business combinations. SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment periodically. The Company will adopt the provisions of SFAS No. 141 as of July 1, 2002, and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets determined to have an indefinite useful life acquired in a purchase business combination completed after June 30, 2001, but before SFAS No. 142 is adopted in full, are not amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 continued to be amortized and tested for impairment prior to the full adoption of SFAS No. 142. Upon adoption of SFAS No. 142, the Company is required to evaluate its existing intangible assets and goodwill that were acquired in purchase business combinations, and to make any necessary reclassifications in order to conform with the new classification criteria in SFAS No. 141 for recognition separate from goodwill. The Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. If an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Impairment is measured as the excess of carrying value over the fair value of an intangible asset with an indefinite life. Any impairment loss will be measured as of the date of adoption and recognized as a cumulative effect of a change in accounting principle in the first interim period of 2002. The Company is currently evaluating whether an impairment exists under the provisions of SFAS No. 142. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The Company will adopt SFAS No. 143 on July 1, 2002. The Company does not expect that the provisions of SFAS No. 143 will have a material impact on its financial condition or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company will adopt SFAS No. 144 on July 1, 2002. The Company does not expect that the provisions of SFAS No. 143 will have a material impact on its financial condition or results of operations. In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections". Among other things, SFAS 145 rescinds various pronouncements regarding early extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations- 67OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transaction", are met. The Company adopted the provisions of SFAS 145 regarding early extinguishment of debt duringthe second quarter of2002, and does not expect that its provisions will have a material impact on its financial condition or results of operations. In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 146, Accounting for Restructuring Costs (SFAS 146). SFAS 146 applies to costs associated with an exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating plant facilities or personnel. Under SFAS 146, a company will record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. SFAS 146 will require a company to disclose information about its exit and disposal activities, the related costs, and changes in those costs in the notes to the interim and annual financial statements that include the period in which an exit activity is initiated and in any subsequent period until the activity is completed. SFAS 146 is effective prospectively for exit or disposal activities initiated afterFiscal Year 2004 (the quarter ending December 31,2002, with earlier adoption encouraged. Under SFAS 146, a company may not restate its previously issued financial statements and the new Statement grandfathers the accounting for liabilities that a company had previously recorded under EITF Issue 94-3. 682003). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
As of June 30, 2003, our Chief Executive Office and Chief Financial Officer performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15(b) and 15d-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date our disclosure controls and procedures are effective in ensuring the reporting of material information required to be included in our periodic filings with the Securities and Exchange Commission. There were no changes in our internal controls over financial reporting during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information as to the directors and executive officers of the Company as of June 30,
2002.2003.
Name
Age Position with Company
Principal Occupation
- ---- --- --------------------- --------------------P. Thomas Jenkins
42Waterloo, Ontario, Canada
43 Director and Chief Executive Officer
Chairman and Chief Executive Officer of the Company Waterloo, Ontario, CanadaJohn Shackleton
55Burr Ridge, Illinois, USA
56 President and Director
President of the Company Burr Ridge, IL, USARichard C.
Black/(1)/(2)/ 33BlackToronto, Ontario, Canada
35 Director
Managing Partner of RBC Capital Partners, Toronto,a private equity firmRandy Fowlie(1)(2)(3)
Waterloo, Ontario, Canada
Randy Fowlie/(2)/ 4243 Director
Chief Operating Officer and Chief Waterloo, Ontario,Financial Officer of Inscriber TechnologyCanadaCorporation,(a computera private softwarecompany)companyPeter Hoult(2)
Hillsborough, North Carolina, USA
59 Director
Strategic Business Consultant with Peter Hoult Management Consultants, a private consulting firm Brian Jackman(1)
Barrington Hills, Illinois, USA
62 Director
Retired, Director of various public companies David Johnston(1)(3)
St. Clements, Ontario, Canada
62 Director
President, Vice-Chancellor and Professor of University of Waterloo Ken
Olisa/(1)/ 50Olisa(2)London, UK
51 Director
Managing Director,Chairman and Chief Executive Officer of Interregnum Venture Surrey, UK Marketing Limited (an Information Technology venture marketing company)Plc.,a public IT investment and advisory corporation
Stephen J.
Sadler/(2)/ 51 Director Chairman and CEO, Enghouse SystemsSadlerAurora, Ontario, Canada
Limited (a software engineering company) Michael Slaunwhite/(1)(2)(3)/ 4152 Director Chairman and CEO,Chief Executive Officer of Enghouse Systems Limited, a publicly traded Canadian software and services companyMichael Slaunwhite(2)(3)
Gloucester, Ontario, Canada
42 Director Chairman and Chief Executive Officer of Halogen Software Inc. Gloucester, Ontario, (a services and, a private softwarecompany) Canada Paul J. Stoyan/(3)/ 43 Director Partner, Gardiner Roberts (a law firm)company.Alan Hoverd
Toronto, Ontario, Canada
Alan Hoverd 5455 Chief Financial Officer Chief Financial Officer of the Company Toronto, Ontario, CanadaAnik Ganguly
43Northville, Michigan, USA
44 Executive Vice President, ProductProductsExecutive Vice President, Product Northville, Michigan, Management ManagementProducts of the CompanyUSA69
Bill Forquer
44 Senior Vice President, Business Senior Vice President, BusinessDublin, Ohio,
Development Development of the CompanyUSAMichael Farrell 4845 Executive Vice President, WorldwideMarketingExecutive Vice President, Worldwide SalesMarketing of the CompanyMichael Farrell
Santa Rosa, California, USA
49 Executive Vice President, Sales & Marketing Executive Vice President, Sales & Marketing of the Company USA(1) Member of the Compensation Committee. (2) Member of the Audit Committee. (3) Member of the Corporate Governance Committee.
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Corporate Governance Committee. P. Thomas Jenkins has served as a director of the Company since December 1994 and as Chief Executive Officer of the Company from July 1997. From
March 1995December 1994 to July 1997,he served as the President of the Company. From January 1995 until March 1995, he served as the acting President of the Company. From July 1994 to June 1996,Mr. Jenkinsalso served as the Chief Operating Officer ofheld progressive executive positions within the Company. From August 1993 until June 1994, he served as the Senior Vice President, Sales and Marketing, of DALSA, Inc., an electronic imagingmanufacturer. ("DALSA"). Frommanufacturer and from December 1989 until August 1993, Mr. Jenkins served as the Vice President/General Managerof DALSA.thereof.John Shackletonhas served as director of the Company since January 1999 and as the President of the Company since November 1998. From July 1996 to 1998. Mr. Shackleton served as President of the Platinum Solution division for Platinum Technology
Inc.Inc. Prior to that he served as Vice President of Professional Services for the Central U.S. and South America at Sybase, Inc., as Vice President of Worldwide Consulting at ViewStar Corp., a document management imaging company, and he directed several consulting practices for Oracle Systems Corp.Richard C. Black has served as a director of the Company since December 1993. From 1993 to the present, Mr. Black has served as a Vice President of Helix Investments (Canada) Inc., a venture capital company. Mr. Black also serves as a director of LogicVision Inc. and numerous private companies. From March 2001 to the present Mr. Black has been a Managing Partner of RBC Capital Partners, a private equity firm.
Randy Fowlie has served as a director of the Company since March 1998. From June 1999 to present, Mr. Fowlie has held the position of Chief Operating Officer and Chief Financial Officer of Inscriber Technology
Corporation. FromCorporation, a computer software company, and from February 1998 to June 1999, Mr. Fowlie was the Chief Financial Officerof Inscriber Technology, a computer software company.thereof. Priorto that,thereto, Mr. Fowlie worked with KPMG Chartered Accountants since 1984 and was a tax partner since1995 and the head of the firm's Information, Communication and Entertainment practice in the Kitchener/Waterloo, Cambridge and Guelph offices.1995. Mr. Fowlie is currently a member of the board of Inscriber Technology Corporation and CTT Communitech TechnologyAssociationAssociation.Peter Hoult has served as a director of the Company since December 2002. Mr. Hoult is a strategic business consultant with Peter Hoult Management Consultants, a firm he founded in 1993. He acts as a director of various public and
isprivate companies. From 1996 to 2000, Mr. Hoult was a Visiting Professor of Strategic Marketing atBabcock (Wake Forest University) and Fuqua (Duke University) Post-Graduate Business Schools. From 1972 to 1990, Mr. Hoult held various senior executive management positions with RJ Reynolds Industries.
Brian J. Jackman has served as a director of the Company since December 2002 and currently serves as a director of several public companies. 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, President, Global Systems and Technologies and as a member of the
Canadian Tax Foundation.board of directors of the company.David Johnston has served as a director of the Company since December 2002. Mr. Johnston has been the President and Vice-Chancellor and Professor, University of Waterloo since 1999. Prior thereto, Mr. Johnston was a Professor at the Faculty of Law at McGill University from 1994 to 1999 and Principal and Vice-Chancellor and Professor of Law at McGill University from 1979 to 1994. Mr. Johnston acts as a director to various public and private companies.
Ken Olisa has served as a director of the Company since January 1998. Mr. Olisa has been Chairman & CEO of Interregnum Plc., an information technology advisory and investment company since 1992. From 1981 to 1992, Mr. Olisa held various positions with Wang Laboratories Inc., lastly that of Senior Vice President and General Manager, Europe, Africa and Middle East. Mr. Olisa is a director of several privately held information technology companies and serves as a Commissioner for the UK Postal Services Commission.
Stephen J. Sadler has served as a director of the Company since September 1997. From April 2000 to present, Mr. Sadler has served as the Chairman and CEO of Enghouse Systems Limited, a software engineering company that develops GIS (Geographic Information Systems) as well as IVR (Interactive Voice Response Systems). Mr. Sadler was previously the Executive Vice President and Chief Financial Officer of GEAC from 1987 to 1990, was President and Chief Executive Officer of GEAC from 1990 to 1996, was Vice Chairman of GEAC from 1996 to 1998, and was a Senior Advisor to GEAC on acquisitions until May 1999. Prior to Mr.
Sadler'sSadler’s involvement with GEAC, he held executive positions with Phillips Electronics Limited and Loblaws Companies Limited. Currently Mr. Sadler is Chairman of Helix Investments, a position he has held since early 1998.Mr. Sadler is also currently a director of Enghouse Systems Limited and Cyberplex Inc., as well as being a director of several private companies in the high tech industry. 70Michael Slaunwhite has served as a director of the Company since March 1998. Mr. Slaunwhite has served as CEO and Chairman of Halogen Software Inc., a leading vendor of products and services to the groupware marketplace, from 2000 to present, 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 Chief Financial Officer of Corel Corporation from 1988 to 1993.
Paul J. Stoyan has served as a director of the Company since January 1998. Mr. Stoyan has been a partner in the law firm of Gardiner Roberts since 1993 specializing in the areas of corporate/commercial and finance law with an emphasis on mergers and acquisitions. Mr. Stoyan has acted as legal counsel to a number of large and medium-sized corporations in Canada and abroad and has also worked extensively with various venture capitalists and start-up companies.Alan Hoverdwas appointed Chief Financial Officer of Open Text Corporation in April 2000. He joined the Company as the Vice President of Finance in July 1999. Mr. Hoverd has over
twenty-threetwenty-seven years of high tech experience, including five years as Vice President of Finance, Chief Financial Officer and a Director of Digital Equipment of Canada. He was also Manager of Business Planning for ten years at Digital Equipment of Canada. Mr. Hoverd has held several financial positions with IBM Canada, including Manager of Finance for the Storage and Peripherals division, and five years as Controller of Gulf Minerals of Canada.Anik Ganguly was appointed Executive Vice President,
Product ManagementProducts in September 1999. He has been with Open Text since December of 1997, when the Company acquired Campbell Services Inc. where Mr. Ganguly was President and CEO. From 1991 to 1997, he has been involved in Enterprise Software development and, in particular, the application of Internet standards to facilitate collaboration and communication across corporate boundaries. Mr. Ganguly has chaired an Internet Engineering Task Force working group and continues to be a strong proponent of open standards. Mr. Ganguly has a Bachelor of Engineering degree in Mechanical Engineering and received his MBA from the University of Wisconsin, Madison.Bill Forquer was appointed Executive Vice President, Marketing in 2003. From 2001 to 2003, he served as Senior Vice President, Business Development
in 2001.of the Company. Mr. Forquer has been involved with knowledge management systems his entire career. He has been with Open Text since June 1998, when the Company acquired Information Dimensions, Inc. (IDI) where Mr. Forquer was President. Prior tobebeing named President of IDI in 1996, Mr. Forquer held other executive management positions at IDI. Mr. Forquer began his career in 1981 atBattelle Laboratories developing software that subsequently was spun-off into IDI. Mr. Forquer has a B.S. in Mathematics Education and a M.S. in Computer and Information Science, both from The Ohio State University.
Michael Farrell has been with Open Text since 1992 and
haswas appointed Executive Vice President, Sales & Marketing in 2003. From 2000 to 2003, he served as Executive VP, WorldwideSales since January 2000.Sales. Previously, he served as Executive Vice President, Global Business Development, based in the San Francisco, California office, since October of 1994. After a number of years in software consulting, marketing and sales, he foundedInterleaf'sInterleaf’s Canadian-based operation in 1985, using CanadianVenture Capitalventure capital funding. As President of Interleaf Canada, Mr. Farrell expanded the operation to four offices and fifty-five employees. Mr. Farrell graduated with an honors degree in Computer Science in 1976.71Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation earned in the
Company'sCompany’s last three fiscal years by the Chief Executive Officer of the Company and the four most highly compensated executive officers of the Company (collectively, the"Named“Named ExecutiveOfficers"Officers”):
=============================================================================================================== Annual Compensation Long Term Compensation/(2)/ - --------------------------------------------------------------------------------------------------------------- Awards -------------------- Other Annual Securities Under All OtherName and Principal
Position
Annual Compensation Long Term
Compensation(2)Awards
All Other
Compensation($)
Year Salary
($)
Bonus
Compensation/($)
Other Annual
Compensation(1)/($)
Securities Under
Options/SARs GrantedCompensation Position Year ($) ($) ($)(#)
($) - ---------------------------------------------------------------------------------------------------------------P. Thomas Jenkins
2002 288,093 287,969 8,892 150,000 -Chief Executive Officer
2003
2002
2001
287,570
288,093
229,385
232,220
287,969
197,462
8,871
8,892
14,752
- - Officer 2000 195,602 98,731 19,558 - - - ---------------------------------------------------------------------------------------------------------------100,000
150,000
—
—
—
—
John Shackleton
President
2003
2002
2001
358,000
330,000
315,000
228,189
88,224
128,892
12,174
16,229
- - President 2001 315,000 128,89213,219
- - 2000 313,125 116,800 3,638 - - - ---------------------------------------------------------------------------------------------------------------—
—
—
—
—
—
Bill Forquer
2002 250,000 52,400 6,225 - - Senior Vice 2001 195,809 32,985 10,016 - - President, Business 2000 169,282 64,220 7,171 - - Development - --------------------------------------------------------------------------------------------------------------- Michael Farrell 2002 200,000 86,480 281 - -Executive Vice
2001 187,500 60,680 255 - -President,World- 2000 162,500 88,467 1,310 50,000 - wide Sales - --------------------------------------------------------------------------------------------------------------- Anik GangulyMarketing2003
2002
180,000 87,350 151 10,000 -2001
260,000
250,000
195,809
48,050
52,400
32,985
6,270
6,225
10,016
—
—
—
—
—
—
Michael Farrell
Executive Vice
2001 170,000 54,550 142 - -President,2000 157,040 13,658 1,021 - -Sales and Marketing2003
2002
2001
220,000
200,000
187,500
176,000
86,480
60,680
342
281
255
—
—
—
—
—
—
Anik Ganguly
Executive Vice President, Product Management
===============================================================================================================2003
2002
2001
195,000
180,000
170,000
95,450
87,350
54,550
215
151
142
—
10,000
—
—
—
Notes:
- ------------ (1) The amounts in "Other Annual Compensation" include pension and health benefits, car allowances and club memberships paid by the Company. (2) The Company has not granted restricted shares or stock appreciation rights to Named Executive Officers and has no long term incentive plan. 72
(1) The amounts in “Other Annual Compensation” include pension and health benefits, car allowances and club memberships paid by the Company.
(2) The Company has not granted restricted shares or stock appreciation rights to Named Executive Officers and has no long-term incentive plan. Stock Option Information
Option Grants in Last Fiscal Year
The following table sets forth the options granted to the Named Executive Officers in the fiscal year ended June 30,
2002.2003. The exercise price per share of each option was equal to the fair market value of the CommonStockShares on the grant date as determined by the Board of Directors of the Company, and the options become exercisable at the rate of 25% of the total option grant at the end of each of 4 annual periods from the date the options begin to vest. The Company did not grant any stock appreciation rights during fiscal2002.2003. The potential realizable value represents amounts that may be realized upon exercise of the options immediately prior to the expiration of their term assuming the specified compounded rates of appreciation on the Common Shares over the term of the options. These numbers are calculated based on the requirements of the Securities and Exchange Commission and do not reflect theCompany'sCompany’s estimate of future stock price growth. Actual gains, if any, on stock option exercises will depend on the future performance of the Common Shares and the date on which the options are exercised. There can be no assurance that the rates of appreciation assumed in the table can be achieved or that the amounts reflected will be received by the Named Executive Officers.
=========================================================================================================== Potential realizable value Individual Grants at assumed annual rates of stock price appreciation for option term - ----------------------------------------------------------------------------------------------------------- Name Number of Percent of Exercise Expiration date 5% 10% securities total price ($) ($) underlying options/SARs ($/sh) options/SARs granted to granted (#) employees in fiscal year - -----------------------------------------------------------------------------------------------------------P. Thomas Jenkins 150,000 14.71% $28.20 April 22, 2013 2,660,224 6,741,531 - ----------------------------------------------------------------------------------------------------------- Anik Ganguly 10,000 0.98% $22.17 December 3, 2012 139,426 353,333 - ----------------------------------------------------------------------------------------------------------- John Shackleton - - - - - - - ----------------------------------------------------------------------------------------------------------- Bill Forquer - - - - - - - ----------------------------------------------------------------------------------------------------------- Michael Farrell - - - - - - ===========================================================================================================
Individual Grants
Potential realizable value
at assumed annual rates
of stock price
appreciationfor option term
Name
Number of
securities
underlying
options/SARs
granted (#)Percent of
total
options/SARs
granted to
employees in
fiscal yearExercise
price($/sh)
Expiration date 5%
($)
10%
($)
P. Thomas Jenkins
100,000 23.39 % $ 20.78 August 7, 2012 3,306,843 1,311,797 John Shackleton
— — — — — — Bill Forquer
— — — — — — Michael Farrell
— — — — — — Anik Ganguly
— — — — — — Aggregate Options Exercised in the Last Fiscal Year and Fiscal Year-End Option Values
The following table sets forth options exercised and the values of outstanding options for Common Shares held by each of the Named Executive Officers:
Name
Shares
acquired on
exercise(#)
Aggregate
value
received($)
Number of Common Shares
underlying outstanding
Options at June 30, 2003Value of unexercised
in-the-money options at
June 30, 2003(1)
($)
Exercisable Unexercisable Exercisable Unexercisable P. Thomas Jenkins
— — 199,500 212,500 3,198,375 752,625 John Shackleton
— — 375,000 0 5,437,500 0 Bill Forquer
— — 30,000 5,000 427,175 56,875 Michael Farrell
— — 66,000 12,500 905,004 121,875 Anik Ganguly
— — 37,500 7,500 476,138 45,600
===================================================================================================================== Name Shares Aggregate NumberNote:
(1) Based on the closing price of the Company’s Common Shares Value of unexercised in-the-money AcquiredonValue underlying outstanding Options Options atthe NASDAQ National Market on June 30,2002/(1)/ Exercise Received at June 30, 2002 ($) -------------------------------------------------------------------- (#) ($) Exercisable Unexercisable Exercisable Unexercisable - ---------------------------------------------------------------------------------------------------------------------P. Thomas Jenkins - - 159,000 153,000 1,782,990 13,830 - --------------------------------------------------------------------------------------------------------------------- John Shackleton - - 300,000 100,000 1,758,000 586,000 - --------------------------------------------------------------------------------------------------------------------- Bill Forquer - - 21,250 13,750 122,563 59,088 - --------------------------------------------------------------------------------------------------------------------- Michael Farrell - - 51,625 26,875 385,689 27,750 - --------------------------------------------------------------------------------------------------------------------- Anik Ganguly - - 32,500 12,500 244,938 0 =====================================================================================================================2003.Note: - ------------------ /(1)/ Based on the closing price of the Company's Common Shares on the NASDAQ National Market on June 28, 2002. 73Executive Officer Employment Agreements
The following is a brief description of the employment agreements entered into between the Company or its subsidiaries and each of the Named Executive Officers.
Effective
JanuaryJuly 1,1999,2002, the Company entered into a new employment agreement with P. Thomas Jenkins. The agreement provides for an annual base salary and for an annual performance bonus based upon goals established by the Compensation Committee from time to time. Theagreement expires on June 30, 2003 unless extended by mutual agreement of the parties. Theemployment agreement provides that, upon termination without"just cause"“just cause”, the Company will pay Mr. Jenkins a lump-sum payment equivalent tothe lesser of 1218 months base salaryor the base salary for the remaining balance of the term;and Mr. Jenkins will be entitled to receive all other benefits to which he would have been entitled for the followingsix18 months. If Mr. Jenkins is terminated as a result of a change in control of the Company, the Company will pay Mr. Jenkins a lump-sum amount ofC$750,000.CDN $250,000.Effective November 1998, the Company entered into an employment agreement with John Shackleton, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time. The employment agreement provides that upon termination without
"just cause"“just cause”, the Company will pay Mr. Shackleton, semi-monthly, an amount equivalent to 6 months base salary plus incentive payments calculated on a prorated basis up to the date of the termination.Effective March 7, 2000, the Company entered into an employment agreement with Mike Farrell, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time. The employment agreement does not require the Company to pay a penalty for terminating the agreement without
"just cause"“just cause”.Effective May 2001, the Company entered into an employment agreement with Bill Forquer, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time.
Effective December 1997, the Company entered into an employment agreement with Anik Ganguly, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time. The employment agreement provides that upon termination without
"just“just cause,"” the Company will make semi-annual payments equivalent to 6 months base salary to Mr. Ganguly.Effective May 2001, the Company entered into an employment agreement with Bill Forquer, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time. Effective June 1999, the Company entered into an employment agreement with Alan Hoverd, which provides for an annual base salary and for an annual bonus upon the attainment of certain corporate, revenue, profit and other goals established from time to time. The employment agreement provides that upon termination without "gross misconduct or cause", the Company will provide severance equal to 3 months base salary to Mr. Hoverd.The Company has also entered into separate Employee Confidentiality and Non-Solicitation Agreements with each of the Named Executive Officers. Under these agreements, each of the Named Executive Officers has agreed to keep in confidence all proprietary information of the Company during his employment with the Company and for a period of three years following the termination of his or her employment with the Company.
Compensation Committee Interlocks and Insider Participation
During fiscal
2002,2003, the Compensation Committee was comprised of Messrs.Black, OlisaFowlie, Jackman andSlaunwhite.Johnston. None of the current members of the Compensation Committee have been or are an officer or employee of theCompany, however, Ken Olisa provides consulting services to the Company through Interregnum Plc. 74Company. Director Compensation
Directors who are salaried officers or employees of the Company receive no compensation for serving as directors. Non-employee directors of the Company receive an annual retainer fee of $10,000 and an additional $1,250 fee for each meeting attended, including committee meetings. Each committee chairman receives an annual retainer of $5,000. Non-employee directors of the Company are also entitled to a yearly grant of 6,000 options to
acquire Common Shares of the Company. The Company reimburses all directors for all reasonable expenses incurred by them in their capacity as directors.
Certain members of the Company's Board of Directors also act as consultants to the Company, for which they are paid a fee not to exceed $2,000 per day with a limit of 25 days of consulting per annum, resulting in a maximum of $50,000 per person for such fees, except as may otherwise be approved by the Board.Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 30,
20022003 regarding Common Shares beneficially owned, directly or indirectly, or over which control or direction is exercised by the following persons or companies: (i) each person or company known by the Company to be the beneficial owner of, or to exercise control or direction over, more than 5% of the outstanding Common Shares, (ii) each director and proposed director of the Company, (iii) each Named Executive Officer,(as defined under "Executive Compensation and Other Transactions" below) of the Company,and (iv) all directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Shares listed below, based on the information furnished by such owners, have sole investment and voting power with respect to such Common Shares, subject to community property laws where applicable. As of June 30,2002,2003, there were19,875,87219,568,259 Common Shares outstanding.
Name and Address of Beneficial Owner
Number of Shares
Beneficially Owned,
Controlled or DirectedPercent of Total
Beneficially Owned,
Controlled or Directed
FMR Corp.
82 Devonshire Street, Boston,
Massachusetts, US 02109
2,056,450 10.51% Guardian Capital Inc.
Commerce Court West, Suite 3100
P.O. Box 201
Toronto, Ontario CA M5L 1E8
1,580,255 8.08% RBC Global Investment Management Inc.
Royal Trust Tower
77 King Street West, Suite 3800
Toronto, Ontario CA M5K 1H1
1,416,310 7.24% The Royal Trust Company
Royal Trust Tower,
P.O. Box 7500, Station A
77 King Street West, 6th Floor
Toronto, Ontario, CA M5W 1P9
1,271,200 6.50% Helix Investments (Canada) Inc.
20 Great George Street
Charlottetown, PEI, CA C1A 7L1
1,069,971 5.47% P. Thomas Jenkins (1)
735,050 3.71% Stephen J. Sadler (2)
450,000 2.25% John Shackleton (3)
378,188 1.90% Michael Farrell (4)
273,000 1.39% Michael Slaunwhite (5)
56,000 * Randy Fowlie (6)
46,000 * Ken Olisa (7)
44,000 * Anik Ganguly (8)
41,661 * Bill Forquer (9)
33,272 * Richard C. Black (10)
12,000 * David Johnston (11)
200 *
Brian Jackman
— * Peter Hoult
— * All executive officers and directors as a group (13 Persons) (12)
2,069,371 10.58%
Number* Less than 1%
(1) Includes 510,550 Common Shares owned and options for 199,500 Common Shares which are vested and options for 25,000 Common Shares which will vest within 60 days of June 30, 2003.
(2) Includes 25,000 Common Shares Percent of Total Beneficially Owned, Beneficially Owned, Nameowned andAddress of Beneficial Owner Controlled or Directed Controlled or Directed - ------------------------------------ ---------------------- ----------------------Helix Investments (Canada) Inc. 2,097,271 9.54% 20 Great George Street Charlottetown, PE C1A 7L1 P. Thomas Jenkinsoptions for 425,000 Common Shares which are vested.
(3) Includes options for 375,000 Common Shares which are vested and 3,188 Common Shares owned.
(4) Includes 207,000 Common Shares owned and options for 66,000 Common Shares which are vested.
(5) Includes 3,000 Common Shares owned and options for 53,000 Common Shares which are vested.
(6) Includes options for 46,000 Common Shares which are vested.
(7) Includes options for 44,000 Common Shares which are vested.
(8) Includes options for 37,500 Common Shares which are vested and 4,161 Common Shares owned.
(9) Includes options for 30,000 Common Shares which are vested and 3,272 Common Shares owned.
(10) Includes options for 12,000 Common Shares which are vested.
(11) Includes 200 Common Shares.
(12) See notes (1) 672,550 3.27% Stephen J. Sadler (2) 419,000 2.06% John Shackleton (3) 301,693 1.50% Michael Farrell (4) 258,625 * Ken Olisa (5) 62,000 * Michael Slaunwhite (6) 50,000 * Randy Fowlie (7) 42,500 * Anik Ganguly (8) 34,899 * Bill Forquer (9) 22,176 * Paul J Stoyan (10) 8,500 * Richard C. Black– (11)6,000 * All executive officers and directors as a 1,946,693 8.92% group (12 Persons) (12).* Less than 1% (1) Includes 510,550 Common Shares owned and options for 159,000 Common Shares which are vested and options for 3,000 Common Shares which will vest within 60 days of June 30, 2002. (2) Includes 25,000 Common Shares owned and options for 394,000 Common Shares which are vested. (3) Includes options for 300,000 Common Shares which are vested and 1,693 Common Shares owned. (4) Includes 207,000 Common Shares owned and options for 51,625 Common Shares which are vested. (5) Includes 33,000 Common Shares owned and options for 29,000 Common Shares which are vested. (6) Includes 3,000 Common Shares owned and options for 47,000 Common Shares which are vested. (7) Includes options for 42,500 Common Shares which are vested. (8) Includes options for 32,500 Common Shares which are vested and 2,399 Common Shares owned. (9) Includes options for 21,250 Common Shares which are vested and 926 Common Shares owned. (10) Includes 500 Common Shares owned and options for 8,000 Common Shares which are vested. 75(11) Includes options for 6,000 Common Shares which are vested. (12) See notes (1)-(11).Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth summary information relating to the
Company'sCompany’s various stock options plans as of June 30,2002:2003:
================================================================================================================ Number of securities to Weighted average Number of securities Plan Category be issued upon exercise exercise price of remaining available for of outstanding options, outstanding options, issuance warrants, and rights warrants, and rights - ----------------------------------------------------------------------------------------------------------------Equity compensation plans 3,173,405 $16.15 477,385 approved by security holders - ----------------------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders - - - - ----------------------------------------------------------------------------------------------------------------- Total 3,173,405 $16.15 477,385 =================================================================================================================
Plan Category
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rightsWeighted average
exercise price of
outstanding options,
warrants, and rightsNumber of securities
remaining available
for issuanceEquity compensation plans approved by security holders
3,173,405 $ 16.15 477,385 Equity compensation plans not approved by security holders
— — — Total
3,173,405 $ 16.15 477,385 Item 13. Certain Relationships and Related Transactions
ADuring fiscal 2003, Steve Sadler received $237,000 in consulting
arrangement dated July 7, 1997 has been entered into by the Company withStephen J. Sadler under which Mr. Sadler provides consulting services to the Company in addition to serving as a director of the Company. Mr. Sadler was granted options to purchase 300,000 Common Shares all of which have vested. An additional grant of options to purchase 100,000 Common Shares was made to Mr. Sadler on September 21, 1999 for his consulting services, which options vest over four years from the date of grant. Mr. Sadler earns $2,000 per day for consulting services and additional fees based on completion of specific transactions as follows: (1) 1% of the first $10 million of an acquired company's revenue in the 12 months prior to acquisition by the Company and 0.5% of the acquired company's revenue which exceeds $10 million in the 12 months prior to the acquisition by the Company; and (2) 2.5% of the sale price of any of the Company's operations sold. Mr. Olisa provides consulting services to the Company through Interregnum Plc., an information technology advisory and investment company, in addition to serving as a director of the Company. Mr. Olisa was granted options to purchase 36,000 Common Shares on September 21, 1999 for consulting services, which options vest over four years from the date of grant. One of the directors, Mr. Paul Stoyan, is a partner of the law firm, Gardiner Roberts LLP, which receives legalfees forservices provided to the Company. Item 14. Controls and Procedures There have not been any significant changes to the Company's internal controls or in other factors that could significantly affect our internal controls subsequent to the date of the Company's Chief Executive Officer's and Chief Financial Officer's most recent evaluation.assisting with acquisition activities.PART IV
Item
14.15. Exhibits, Financial Statement Schedules, and Reports on Form 8-Ka) The following documents are filed as a part of this report: 761) Consolidated Financial Statements and Report of Independent Accountants and the related notes thereto are included under Item 8, in Part II. 2) Consolidated Financial Statement Schedules and Report of Independent Public Accountants in those schedules are included as follows: Schedule II - Valuation and Qualifying Accounts 3) Exhibits: The following exhibits are filed as part of this Report. Exhibit Number Description of Exhibit -------------- ---------------------- 3.1 Articles of Incorporation of the Company.(1) 3.2 Articles of Amalgamation of the Company.(1) 3.3 Articles of Amendment of the Company.(1) 3.4 By-law No. 1 of the Company.(1) 3.5 Articles of Amendment of the Company.(1) 3.6 By-law No. 2 of the Company.(1) 3.7 By-law No. 3 of the Company.(1) 3.8 Articles of Amalgamation of the Company.(1) 3.9
a) The following documents are filed as a part of this report:
1) Consolidated Financial Statements and Report of Independent Accountants and the related notes thereto are included under Item 8, in Part II.
2) Consolidated Financial Statement Schedules and Report of Independent Public Accountants in those schedules are included as follows:
Schedule II—Valuation and Qualifying Accounts
3) Exhibits: The following exhibits are filed as part of this Annual Report on Form 10-K.
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation of the Company. (1)
3.2 Articles of Amalgamation of the Company. (1)
3.3 Articles of Amendment of the Company. (1)
3.4 By-law No. 1 of the Company. (1)
3.5 Articles of Amendment of the Company. (1)
3.6 By-law No. 2 of the Company. (1)
3.7 By-law No. 3 of the Company. (1)
3.8 Articles of Amalgamation of the Company. (1)
3.9 Articles of Amalgamation of the Company, dated July 1, 2001 (4)
3.10 Articles of Amalgamation of the Company, dated July 1, 2002 (5)
3.11 Articles of Amalgamation of the Company, dated July 1, 2003
4.1 Form of Common Share Certificate. (1)
10.1 Restated 1995 Flexible Stock Incentive Plan. (3)
10.2 1995 Replacement Stock Option Plan. (1)
10.3 1995 Supplementary Stock Option Plan. (1)
10.4 1995 Directors Stock Option Plan. (1)
10.5 Amendment to Agreement, dated June 27, 1997 between INSO Corporation and the Company. (2)
10.6 Employee Stock Purchase Plan. (3)
10.7 1998 Stock Option Plan. (3)
21.1 List of the Company’s Subsidiaries.
23.1 Consent of KPMG.
24.1 Power of Attorney (see page 83)
31.1 Certification of the Chief Executive Officer
31.2 Certification of the Chief Financial Officer
32.1 Certification of the Chief Executive Officer
32.2 Certification of the Chief Financial Officer
† Portions of these exhibits, which are incorporated by reference to Registration No. 33-98858, have been omitted pursuant to an Application for Confidential Treatment filed by the Company with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
(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 Report on Form 8-K, as filed with the SEC on June 16, 1998 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 August 20, 1999 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 28, 2001 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 28, 2002 and incorporated herein by reference.
b) Reports on Form 8-K. Acquisition of Eloquent Inc.
On June 3, 2003, the Company
dated July 1, 2001(14) 3.10 Articlesfiled a Form 8-K/A to provide audited consolidated financial statements and pro forma financial information relating to its acquisition ofAmalgamationEloquent.Acquisition of Corechange Inc.
On May 12, 2003, the Company
dated July 1, 2002 4.1filed a Formof Common Share Certificate.(1) 10.1 Restated 1995 Flexible Stock Incentive Plan.(3) 10.2 1995 Replacement Stock Option Plan.(1) 10.3 1995 Supplementary Stock Option Plan.(1) 10.4 1995 Directors Stock Option Plan.(1) 10.5 Amendment8-K/A toResearch Funding Agreement, dated October 31, 1995, between the University of Waterlooprovide audited consolidated financial statements andthe Company, and Research Funding Agreement, dated July 1, 1991, between the University of Waterloo and the Company.(1) 10.6 Technology Licensing Agreement, dated July 1, 1991, between Dr. Frank Tompa and the Company.(1) 10.7 Assignment Agreement, dated August 25, 1995, between Dr. Frank Tompa and 1136390 Ontario, Inc. (1) 10.8 License Agreement, dated August 25, 1995, between the University of Waterloo and the Company.(1) 10.9 Technology Development Agreement, dated August 25, 1995, between the University of Waterloo and the Company, and Amendment No. 1 thereto.(1) 10.10 Letter of offer, dated January 19, 1994, between the Canadian Strategic Software Consortium and the Minister of Industry, Science and Technology, Canada. (1) 10.11 Representation Letter, dated November 30, 1993, to Helix Investments (Canada) Inc. from the Company. (1) 10.12 License Agreement, dated August 1, 1995, between Mortice Kern Systems Inc. and 1136299 Ontario Limited.(1) 7710.13 Amended and Restated Agreement and Plan of Merger, dated October 10, 1995, between Open Text Acquisition Corporation, Odesta Systems Corporation, Daniel Cheifetz, and the Company. (1) 10.14 Purchase Agreement, dated October 12, 1995, between Intunix AG and the Company. (1) 10.15 Security Agreement, dated May 29, 1992, between Royal Bank of Canada and the Company. (1) 10.16 Lease, dated March 3, 1994, between Wiebe Property Corporation Ltd. and the Company. (1) 10.17 Lease, dated October 6, 1994, between REGUS/Washington Tysons, Inc. and the Company. (1) 10.18 Agreement, dated January 1, 1995, between P Thomas Jenkins and the Company. (1) 10.19 Employment Agreement, dated October 13, 1995, between Marco Palatini and the Company. (1) 10.20 Employment Agreement, dated October 19, 1995, between Daniel Cheifetz and the Company. (1) 10.21 Form of Registration Rights Agreement, between Technology Crossover Ventures, L.P., Technology Crossover Ventures, C.V. and the Company. (1) 10.22 Confirmation letter, dated November 1, 1995, between Netscape Communications Corporation and the Company. (1) +10.23 OEM License Agreement, dated November 10, 1995, between Netscape Communications Corporation and the Company. (1) 10.24 Amending Agreement, dated October 6, 1995, between Helix (PEI) and the Company. (1) 10.25 Shareholders' Agreement, dated June 30, 1992, with certain amendments. (1) 10.26 Forms of Compensation Option Agreement, dated July 19, 1995 between Yorkton Securities Inc., Midland Walwyn Capital Inc., Griffiths McBurney & Partners Inc. and the Company. (1) 10.27 Share Purchase Agreement dated June 28, 1996 between Open Text Corporation and the shareholders of InfoDesign Corporation. (2) 10.28 Documentationpro forma financial information relating tostock option grants and subsequent option exercises for P Thomas Jenkins. (3) 10.29 Letter Agreement, dated October 10, 1996 between the Company and Marco Palatini. (4) 10.30 Letter Agreement, dated October 10, 1996 between the Company and Daniel Cheifetz. (4) 10.31 Letter Agreement, dated May 27, 1997 between the Company and Brett Newbold. (5) 10.32 Letter Agreement, dated November 14, 1996 between the Company and Abraham Kleinfeld. (5) 10.33 Letter Agreement, dated April 25, 1997 between the Company and Anthony Heywood. (5) 10.34 Letter Agreement, dated July 10, 1997 between the Company and Kirk Roberts. (5) 10.35 Amendment to Agreement, dated January 22, 1997, between the Company and P Thomas Jenkins. (5) 7810.36 Separation Agreement, dated August 14, 1997 between the Company and Keith Soley.(5) 10.37 Lease, dated December 18, 1996 between Unipark III Inc. and the Company.(5) 10.38 Indemnity agreement dated December 18, 1996 between the Cora Group Inc. and the Company.(5) 10.39 Lease, dated August 26, 1997, between CarrAmerica Realty Corporation and the Company.(5) 10.40 Amendment to Agreement, dated June 27, 1997 between INSO Corporation and the Company.(5) 10.41 Amendment to Agreement, dated June 10, 1997, between Netscape Communications Corporation and the Company.(5) 10.42 Letter Agreement, dated October 1, 1997 between the Company and Thomas J Hearne (5) 10.43 Commitment letter from Royal Bankits acquisition ofCanada dated July 20, 1998.(5) 10.44 Asset Purchase Agreement among Campbell Services, Inc. as Seller, and FTP Software, Inc. and Open Text Inc. as Buyer, and Open Text Corporation dated as of December 3, 1997.(6) 10.45 Agreement of Purchase and Sale of Assets by and among Open Text Inc., Open Text Corporation, Information Dimensions, Inc., the Stockholders of Information Dimensions International Corp. and Gores Technology Group dated May 31, 1998.(7) 10.46 Employee Stock Purchase Plan.(7) 10.47 1998 Stock Option Plan.(7) 10.48 Lease effective February 3/rd/, 1998 between Bybatch Enterprises Limited and Open Text UK Limited and Open Text Corporation.(8) 10.49 Sublease Agreement dated November 10/th/, 1997 between Compuserve Incorporated and Information Dimensions, Inc.(8) 10.50 Lease Agreement dated March 6/th/, 1998 between Open Text Inc. and The Blain Group.(8) 10.51 Employment Agreement, dated October 12, 1998, between John Shackleton and the Company.(10) 10.52 Employment Agreement, dated May 31, 1999, between Les McNeil and the Company. (10) 10.53 Employment Agreement, dated January 19, 1999 between David Lewis and the Company.(10) 10.54 Sublease, dated March 25, 1999, between Livingston Group Inc. and the Company. (10) 10.55 Agreement of Purchase and Sale of Assets by and among Open Text Corporation, as Buyer, and Richter & Partners Inc., the receiver of Lava Systems Inc., as Seller. (9) 10.56 Agreement relating to the sale of the business and the assets of Lava Systems (Europe) Limited and SCS Consulting Ltd. between the Open Text UK Limited and Open Text Corporation, as buyers and the receivers (Tracey Elizabeth Callaghan and Peter John Robertson Souster), as sellers. (9) 10.57 Notice of agreement by Open Text Corporation to acquire all of the outstanding shares of Microstar Software Ltd. (11) 7910.58 Agreement of Share Purchase by Open Text Corporation, as Purchaser, and David Gibbard, Brian MacLeod, The Brian MacLeod Family Trust, The David Gibbard Family Trust, 1202605 Ontario Limited and 1202606 Ontario Limited, as Vendors. (13) 10.59 Offer to Purchase by 3557855 Canada Inc., a wholly owned subsidiary of Open Text Corporation, as Offeror, and Microstar Software Ltd. (13) 10.60 Compromise Agreement, dated February 2, 2000 between the Open Text UK Limited and Anthony Heywood. (13) 16.1 Letter re: Change in Certifying Accountant. (12) 21.1 List of the Company's Subsidiaries. 23.1 Consent of PricewaterhouseCoopers. 23.2 Consent of KPMG. 24.1 Power of Attorney (see page 82). 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 Of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer. ______________ + Portions of these exhibits, which are incorporated by reference to Registration No. 33-98858, have been omitted pursuant to an Application for Confidential Treatment filed by the Company with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. (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 Report on Form 8-K, as filed with the SEC on July 15, 1996 and incorporated herein by reference. (3) Filed as an Exhibit to the Company's Registration Statement on Form S-8 (Registration Number 333-5474) as filed with the SEC on August 23, 1996 and incorporated herein by reference. (4) Filed as an Exhibit to amendment (1) to the Company's Annual Report on form 10-K as filed with the SEC on October 28, 1996 and incorporated herein by reference. (5) Filed as an Exhibit to the Company's Annual Report on Form 10K as filed with the SEC on September 29, 1997 and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on December 17, 1997 and incorporated herein by reference. (7) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on June 16, 1998 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 September 28, 1998 and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on January 12, 1999 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 20, 1999 and incorporated herein by reference. (11) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on July 26, 1999 and incorporated herein by reference. (12) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on April 5, 2001 and incorporated herein by reference. (13) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 30, 2000 and incorporated herein by reference. 80(14) 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. b) Reports on Form 8-K. None c) ExhibitsCorechange.
c) Exhibits The Company hereby files as part of this Annual Report on Form 10-K the exhibits listed in 14(a)(3) above. Exhibits which are incorporated by reference can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street NW, Room 1024, Washington D.C. and at the
Commission'sCommission’s regional offices at 219 South Dearborn Street, Room 1204, Chicago Illinois; 76 Federal Plaza, Room 1102, New York, New York, and 5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of such materials can also be obtained from the Public Reference Section of the Commission, 450 Fifth Street NW, Washington, D.C. 20549 at prescribed rates.d) Financial Statement Schedules
d) Financial Statement Schedules The Company hereby files as part of this Annual Report on Form 10-K the consolidated financial statement schedules listed in 14(a)(2) above.
81SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 25, 2002 OPEN TEXT CORPORATION /s/ Alan Hoverd --------------------------- Alan Hoverd Chief Financial Officer
Date: September 28, 2003
OPEN TEXT CORPORATION
/s/ Alan Hoverd
Alan Hoverd
Chief Financial Officer
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of Open Text Corporation hereby constitute and appoint P. Thomas Jenkins and Alan Hoverd, and each of them singly, with full power of substitution, our true and lawful
attorney's-in-factattorney’s-in-fact and agents to sign for us in our names in the capacities indicated below any and all amendments to this Annual Report on Form 10-K and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
Title
Date
--------- ----- ----/s//s/P. Thomas Jenkins
DirectorChairman and Chief Executive Officer
- -------------------------------------- (Principal(Principal Executive Officer)
September
25, 200228, 2003P. Thomas Jenkins /s//s/Alan Hoverd
Chief Financial Officer
- -------------------------------------- (Principal(Principal Financial Officer and Accounting Officer)
September
25, 200228, 2003Alan Hoverd Officer) /s//s/Richard C. Black
Director
September
25, 2002 - --------------------------------------28, 2003Richard C. Black /s//s/John Shackleton
President and Director
September
25, 2002 - --------------------------------------28, 2003John Shackleton /s//s/Randy Fowlie
Director
September
25, 2002 - --------------------------------------28, 2003Randy Fowlie /s//s/Ken Olisa
Director
September
25, 2002 - --------------------------------------28, 2003Ken Olisa /s//s/Stephen J. Sadler
Director
September
25, 2002 - --------------------------------------28, 2003Stephen J. Sadler /s//s/Michael Slaunwhite
Director
September
25, 2002 - --------------------------------------28, 2003Michael Slaunwhite /s/Paul J. Stoyan/s/Peter Hoult
Director
September
25, 2002 - -------------------------------------- Paul J. Stoyan28, 2003Peter Hoult /s/David Johnston
Director
September 28, 2003
David Johnston /s/Brian Jackman
Director
September 28, 2003
Brian Jackman 82I, P. Thomas Jenkins, certify that: 1. I have reviewed this Annual Report on Form 10-K (the "Report") of Open Text Corporation (the "Company"); 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; and 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report. /s/ P. Thomas Jenkins --------------------------- P. Thomas Jenkins Chief Executive Officer Dated: September 25, 2002 83I, Alan Hoverd, certify that: 1. I have reviewed this Annual Report on Form 10-K (the "Report") of Open Text Corporation (the "Company"); 2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report; and 3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report. /s/ Alan Hoverd ----------------------- Alan Hoverd Chief Financial Officer Dated: September 25, 2002 84[LETTERHEAD OF PricewaterhouseCoopers] Our report on the consolidated financial statements of Open Text Corporation for the year ended June 30, 2000 is included in Item 8 of their Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule II listing in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included herein. /s/ PricewaterhouseCoopers LLP Chartered Accountants Ottawa, Ontario August 4, 2000 S-1[LETTERHEAD OF KPMG] INDEPENDENT AUDITORS'
KPMG LLP
Chartered Accountants
Telephone (416) 228-7000 Yonge Corporate Centre
Telefax (416) 228-7123 4120 Yonge Street Suite 500
www.kpmg.ca North York ON M2P 2B8
Canada
AUDITORS’ REPORT
To the Shareholders of Open Text Corporation
Under date of
July 29, 2002,August 8, 2003, except as to Note 16 which is as of September 19, 2003, we reported on the consolidated balance sheets of Open Text Corporation asofat June 30, 2003, 2002 and 2001, and therelatedconsolidated statements ofincome, shareholders'operations, shareholders’ equity and cash flows for each of the years in thetwo-yearthree-year period ended June 30,2002,2003, which are included in Item 8 oftheirits Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule, Schedule II-– Valuation and Qualifying Accounts, which is included in Item 14(a)(2) oftheirits Form 10-K. This consolidated financial statement schedule is the responsibility of theCompany'scompany’s management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits.The consolidated financial statement schedule as at June 30, 2000 and for the year then ended were audited by other auditors who expressed an opinion without reservation on that statement in their report dated August 4, 2000.In our opinion, the consolidated financial statement schedule,
referred to above,when considered in relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein./s//s/ KPMG LLP
Chartered Accountants
Toronto, Canada
July 29, 2002 S-2August 8, 2003 except as to Note 16,
which is as of September 19, 2003
OPEN TEXT CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)Balance of allowance for doubtful accounts as at June 30, 1999 $ 1,658 Bad debt expense for the year 7,788 Write-off/adjustments (8,413) --------------- Balance of allowance for doubtful accounts as at June 30, 2000 1,033 Bad debt expense for the year 1,280 Write-off/adjustments (855) --------------- Balance of allowance for doubtful accounts as at June 30, 2001 1,458 Bad debt expense for the year 1,655 Write-off/adjustments (1,655) --------------- Balance of allowance for doubtful accounts as at June 30, 2002 $ 1,458 ===============S-3
(in thousands) Balance of allowance for doubtful accounts as at June 30, 2000
1,033 Bad debt expense for the year
1,280 Write-off/adjustments
(855 ) Balance of allowance for doubtful accounts as at June 30, 2001
1,458 Bad debt expense for the year
1,655 Write-off/adjustments
(1,655 ) Balance of allowance for doubtful accounts as at June 30, 2002
1,458 Bad debt expense for the year
537 Write-off/adjustments
(62 ) Balance of allowance for doubtful accounts as at June 30, 2003
$ 1,933 OPEN TEXT CORPORATION
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit 3.1 Articles of Incorporation of the Company. (1) 3.2 Articles of Amalgamation of the Company. (1) 3.3 Articles of Amendment of the Company. (1) 3.4 By-law No. 1 of the Company. (1) 3.5 Articles of Amendment of the Company. (1) 3.6 By-law No. 2 of the Company. (1) 3.7 By-law No. 3 of the Company. (1) 3.8 Articles of Amalgamation of the Company. (1) 3.9 Articles of Amalgamation of the Company, dated July 1, 2001. (14) 3.10 Articles of Amalgamation of the Company, dated July 1, 2002. 4.1 Form of Common Share Certificate. (1) 10.1 Restated 1995 Flexible Stock Incentive Plan. (3) 10.2 1995 Replacement Stock Option Plan. (1) 10.3 1995 Supplementary Stock Option Plan. (1) 10.4 1995 Directors Stock Option Plan. (1) 10.5 Amendment to Research Funding Agreement, dated October 31, 1995, between the University of Waterloo and the Company, and Research Funding Agreement, dated July 1, 1991, between the University of Waterloo and the Company. (1) 10.6 Technology Licensing Agreement, dated July 1, 1991, between Dr. Frank Tompa and the Company. (1) 10.7 Assignment Agreement, dated August 25, 1995, between Dr. Frank Tompa and 1136390 Ontario, Inc. (1) 10.8 License Agreement, dated August 25, 1995, between the University of Waterloo and the Company. (1) 10.9 Technology Development Agreement, dated August 25, 1995, between the University of Waterloo and the Company, and Amendment No. 1 thereto. (1) 10.10 Letter of offer, dated January 19, 1994, between the Canadian Strategic Software Consortium and the Minister of Industry, Science and Technology, Canada. (1) 10.11 Representation Letter, dated November 30, 1993, to Helix Investments (Canada) Inc. from the Company. (1) 10.12 License Agreement, dated August 1, 1995, between Mortice Kern Systems Inc. and 1136299 Ontario Limited. (1) 10.13 Amended and Restated Agreement and Plan of Merger, dated October 10, 1995, between Open Text Acquisition Corporation, Odesta Systems Corporation, Daniel Cheifetz, and the Company. (1) 10.14 Purchase Agreement, dated October 12, 1995, between Intunix AG and the Company. (1)
Exhibit Number Description of Exhibit
3.1
Articles of Incorporation of the Company. (1)
3.2
Articles of Amalgamation of the Company. (1)
3.3
Articles of Amendment of the Company. (1)
3.4
By-law No. 1 of the Company. (1)
3.5
Articles of Amendment of the Company. (1)
3.6
By-law No. 2 of the Company. (1)
3.7
By-law No. 3 of the Company. (1)
3.8
Articles of Amalgamation of the Company. (1)
3.9
Articles of Amalgamation of the Company, dated July 1, 2001 (4)
3.10
Articles of Amalgamation of the Company, dated July 1, 2002 (5)
3.11
Articles of Amalgamation of the Company, dated July 1, 2003
4.1
Form of Common Share Certificate. (1)
10.1
Restated 1995 Flexible Stock Incentive Plan. (3)
10.2
1995 Replacement Stock Option Plan. (1)
10.3
1995 Supplementary Stock Option Plan. (1)
10.4
1995 Directors Stock Option Plan. (1)
10.5
Amendment to Agreement, dated June 27, 1997 between INSO Corporation and the Company. (2)
10.6
Employee Stock Purchase Plan. (3)
10.7
1998 Stock Option Plan. (3)
21.1
List of the Company’s Subsidiaries.
23.1
Consent of KPMG.
24.1
Power of Attorney (see page 83)
31.1
Certification of the Chief Executive Officer
31.2
Certification of the Chief Financial Officer
32.1
Certification of the Chief Executive Officer
32.2
Certification of the Chief Financial Officer
† Portions of these exhibits, which are incorporated by reference to Registration No. 33-98858, have been omitted pursuant to an Application for Confidential Treatment filed by the Company with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.
(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 Report on Form 8-K, as filed with the SEC on June 16, 1998 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 August 20, 1999 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 28, 2001 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 28, 2002 and incorporated herein by reference. i
10.15 Security Agreement, dated May 29, 1992, between Royal Bank of Canada and the Company. (1) 10.16 Lease, dated March 3, 1994, between Wiebe Property Corporation Ltd. and the Company. (1) 10.17 Lease, dated October 6, 1994, between REGUS/Washington Tysons, Inc. and the Company. (1) 10.18 Agreement, dated January 1, 1995, between P Thomas Jenkins and the Company. (1) 10.19 Employment Agreement, dated October 13, 1995, between Marco Palatini and the Company. (1) 10.20 Employment Agreement, dated October 19, 1995, between Daniel Cheifetz and the Company. (1) 10.21 Form of Registration Rights Agreement, between Technology Crossover Ventures, L.P., Technology Crossover Ventures, C.V. and the Company. (1) 10.22 Confirmation letter, dated November 1, 1995, between Netscape Communications Corporation and the Company. (1) +10.23 OEM License Agreement, dated November 10, 1995, between Netscape Communications Corporation and the Company. (1) 10.24 Amending Agreement, dated October 6, 1995, between Helix (PEI) and the Company. (1) 10.25 Shareholders' Agreement, dated June 30, 1992, with certain amendments. (1) 10.26 Forms of Compensation Option Agreement, dated July 19, 1995 between Yorkton Securities Inc., Midland Walwyn Capital Inc., Griffiths McBurney & Partners Inc. and the Company. (1) 10.27 Share Purchase Agreement dated June 28, 1996 between Open Text Corporation and the shareholders of InfoDesign Corporation. (2) 10.28 Documentation relating to stock option grants and subsequent option exercises for P Thomas Jenkins. (3) 10.29 Letter Agreement, dated October 10, 1996 between the Company and Marco Palatini. (4) 10.30 Letter Agreement, dated October 10, 1996 between the Company and Daniel Cheifetz. (4) 10.31 Letter Agreement, dated May 27, 1997 between the Company and Brett Newbold. (5) 10.32 Letter Agreement, dated November 14, 1996 between the Company and Abraham Kleinfeld. (5) 10.33 Letter Agreement, dated April 25, 1997 between the Company and Anthony Heywood. (5) 10.34 Letter Agreement, dated July 10, 1997 between the Company and Kirk Roberts. (5) 10.35 Amendment to Agreement, dated January 22, 1997, between the Company and P Thomas Jenkins. (5) 10.36 Separation Agreement, dated August 14, 1997 between the Company and Keith Soley. (5) 10.37 Lease, dated December 18, 1996 between Unipark III Inc. and the Company. (5) 10.38 Indemnity agreement dated December 18, 1996 between the Cora Group Inc. and the Company. (5) ii10.39 Lease, dated August 26, 1997, between CarrAmerica Realty Corporation and the Company. (5) 10.40 Amendment to Agreement, dated June 27, 1997 between INSO Corporation and the Company. (5) 10.41 Amendment to Agreement, dated June 10, 1997, between Netscape Communications Corporation and the Company. (5) 10.42 Letter Agreement, dated October 1, 1997 between the Company and Thomas J Hearne (5) 10.43 Commitment letter from Royal Bank of Canada dated July 20, 1998. (5) 10.44 Asset Purchase Agreement among Campbell Services, Inc. as Seller, and FTP Software, Inc. and Open Text Inc. as Buyer, and Open Text Corporation dated as of December 3, 1997. (6) 10.45 Agreement of Purchase and Sale of Assets by and among Open Text Inc., Open Text Corporation, Information Dimensions, Inc., the Stockholders of Information Dimensions International Corp. and Gores Technology Group dated May 31, 1998. (7) 10.46 Employee Stock Purchase Plan. (7) 10.47 1998 Stock Option Plan. (7) 10.48 Lease effective February 3rd, 1998 between Bybatch Enterprises Limited and Open Text UK Limited and Open Text Corporation. (8) 10.49 Sublease Agreement dated November 10/th/, 1997 between Compuserve Incorporated and Information Dimensions, Inc. (8) 10.50 Lease Agreement dated March 6/th/, 1998 between Open Text Inc. and The Blain Group. (8) 10.51 Employment Agreement, dated October 12, 1998, between John Shackleton and the Company. (10) 10.52 Employment Agreement, dated May 31, 1999, between Les McNeil and the Company. (10) 10.53 Employment Agreement, dated January 19, 1999 between David Lewis and the Company. (10) 10.54 Sublease, dated March 25, 1999, between Livingston Group Inc. and the Company. (10) 10.55 Agreement of Purchase and Sale of Assets by and among Open Text Corporation, as Buyer, and Richter & Partners Inc., the receiver of Lava Systems Inc., as Seller. (9) 10.56 Agreement relating to the sale of the business and the assets of Lava Systems (Europe) Limited and SCS Consulting Ltd. between the Open Text UK Limited and Open Text Corporation, as buyers and the receivers (Tracey Elizabeth Callaghan and Peter John Robertson Souster), as sellers. (9) 10.57 Notice of agreement by Open Text Corporation to acquire all of the outstanding shares of Microstar Software Ltd. (11) 10.58 Agreement of Share Purchase by Open Text Corporation, as Purchaser, and David Gibbard, Brian MacLeod, The Brian MacLeod Family Trust, The David Gibbard Family Trust, 1202605 Ontario Limited and 1202606 Ontario Limited, as Vendors. (13) 10.59 Offer to Purchase by 3557855 Canada Inc., a wholly owned subsidiary of Open Text Corporation, as Offeror, and Microstar Software Ltd. (13) 10.60 Compromise Agreement, dated February 2, 2000 between the Open Text UK Limited and Anthony Heywood. (13) iii16.1 Letter re: Change in Certifying Accountant. (12) 21.1 List of the Company's Subsidiaries. 23.1 Consent of PricewaterhouseCoopers. 23.2 Consent of KPMG. 24.1 Power of Attorney (see page 82) 99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer. 99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer. _______________ + Portions of these exhibits, which are incorporated by reference to Registration No. 33-98858, have been omitted pursuant to an Application for Confidential Treatment filed by the Company with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. (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 Report on Form 8-K, as filed with the SEC on July 15, 1996 and incorporated herein by reference. (3) Filed as an Exhibit to the Company's Registration Statement on Form S-8 (Registration Number 333-5474) as filed with the SEC on August 23, 1996 and incorporated herein by reference. (4) Filed as an Exhibit to amendment (1) to the Company's Annual Report on form 10-K as filed with the SEC on October 28, 1996 and incorporated herein by reference. (5) Filed as an Exhibit to the Company's Annual Report on Form 10K as filed with the SEC on September 29, 1997 and incorporated herein by reference. (6) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on December 17, 1997 and incorporated herein by reference. (7) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on June 16, 1998 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 September 28, 1998 and incorporated herein by reference. (9) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on January 12, 1999 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 20, 1999 and incorporated herein by reference. (11) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on July 26, 1999 and incorporated herein by reference. (12) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the SEC on April 5, 2001 and incorporated herein by reference. (13) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 30, 2000 and incorporated herein by reference. (14) 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. iv