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,
2002.2004.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
9075 days. YesXxNo___ ---¨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). Yes xNo ¨
Aggregate market value of the
Registrant'sRegistrant’s Common Shares held by non-affiliates as ofSeptember 17, 2002June 30, 2004 was approximately$339$1,113 million. The number of theRegistrant'sRegistrant’s Common Shares outstanding as of September17, 20021, 2004 was19,277,795. Page 1 of 84 Exhibit Index Appears at Page i51,235,368. 2Forward-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
1995.1995 and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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"“Risk Factors That May Affect Future Results” beginning on page3250 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 2004” means theCompany'sCompany’s fiscal year beginning on July 1,20012003 and ending on June 30,20022004 and the term"fiscal 2001"“fiscal 2003” means theCompany'sCompany’s fiscal year beginning July 1,20002002 and ending on June 30,2001.2003. 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 Securities and Exchange Commission may be obtained through the Investor 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 and viewing of these reports. Information on 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 independent software vendor providing enterprise content management (“ECM”) solutions that bring together people, processes, and information. In today’s highly regulated and interactive
business world, organizations need to operate in structured ways while simultaneously giving people the freedom to innovate and grow. By enabling organizations to manage content from initial creation to final archive, we offer the most comprehensive, end-to-end content lifecycle management solutions. Our software seamlessly combines collaboration with content management, transforming information into knowledge that provides the foundation for innovation, compliance and accelerated growth.
The Company’s software enables organizations to effectively address a diverse range of business needs including the ability to: comply with increasing and changing regulatory requirements, classify and organize information, manage the retention and archiving of massive information volumes, unify globally distributed teams, capture market opportunities, accelerate product cycles, improve customer and partner relationships, and alter business strategies.
Open Text develops, markets, licenses and supports
collaboration and knowledge managementits software for use by global organizations on intranets, extranets and theInternet, enablingInternet. The Company’s principal product line is Livelink®, which seamlessly combines collaboration and content management, transforming information into knowledge and providing the foundation for innovation, compliance, and accelerated growth. The software enables users to capture, and find and retrieve electronically stored information, work together in both creative and collaborative processes as well as more structured 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 comprehensive configuration, rapid 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 principalIn the eight years since the introduction of the Livelink product line,
is Livelink(R), a leading collaboration and knowledge management softwareLivelink has achieved significant market acceptance. Organizations with tens of thousands of users are deploying Livelink forglobal 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.business-critical applications. The Company believesthattwo 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 a 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 configurable 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.With its acquisition of IXOS Software AG (“IXOS”) during fiscal 2004, the Company has added a second primary product line focused on enabling document archiving and retrieval from enterprise applications such as Enterprise Resource Planning (“ERP”) and Customer Relationship Management (“CRM”) systems. IXOS developed this business in cooperation with SAP AG initially around SAP’s product, SAP R/3 and later broadened the offering to support other enterprise applications. The deployment typically involves management of massive business documents associated with primary accounts payable and accounts receivable processes. More recently, IXOS implemented a strategy to expand its product portfolio to include broader ECM capabilities. Those non-SAP capabilities primarily include Web Content Management, e-mail archiving, and business process management. These capabilities will continue to be supported for existing customers and the Company has begun integrating some of these capabilities into the Livelink product line. The ERP document enabling function retains the IXOS branding whose base technology provides the foundation for enterprise content repository services that could be commonly exploited by Livelink, SAP R/3, email applications, and other enterprise applications. The combined companies offer a comprehensive set of integrated capabilities that allow an organization to work with content in context.
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 whichfor a fee generally around 18.5% 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 configuring and customizing theCompany'sCompany’s software to specific customer needs.Open Text alsoThe Company maintains
a "business partner support program"its Global Alliance Program that provides the commercial and technical training and support fororiginal equipment manufacturers ("OEMs"systems integrators (“SIs”)and value-added resellers ("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 six 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. Numerous VARs,, management consultants, solution providers, technologypartners,providers, storage vendors, independent software vendors (“ISVs”), value-added resellers (“VARs”), and application service providers("ASPs"(“ASPs”), and systems integrators have joined Open Text's Livelink Affinity Partner program since its inception.to work with the Company toward mutually beneficial business objectives. Business, technical, and marketing relationships havealsobeen formed with industry leaders such asAdobe(TM),Adobe, Accenture, Bearing Point, Cap Gemini Ernst & Young, CSC, Deloitte, EDS, HewlettPackard(TM), Microsoft(TM), Netscape(TM), Oracle(TM), Sun(TM),Packard, Hitachi Data Systems, Microsoft, Network Appliance, Oracle, SAP, Siebel Systems, Siemens Business Services, StorageTek, andSAP(TM). Open Text's Affinity ASP program offers organizations a cost-effective way to deploy and support mission critical applications.Sun.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 managementpersonnel that may have specific domain expertise. Third, the Company seeks to acquire businesses that offer a new distribution channel or customer base for OpenText'sText’s products.Products and Technology
In February 2002,The Livelink brand is Open
Text releasedText’s premier brand, representing its commitment to providing innovative, reliable, and scalable ECM software.Livelink9.1,Enterprise Server (formerly known asLivelink) continues to be thelatest releaseCompany’s flagship collaboration and content management product, but the Company’s product portfolio has significantly expanded, reflecting the emergence of theCompany's flagship product.Enterprise Content Management market.TheLivelink
Web serverEnterprise 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.ThisThe latest release ofLivelink Enterprise Server 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 Enterprise Server 9.2, the latest release, significantly improves the ease of use of the system by providing an improved user interface, more personalization of appearance options, new one-click links, one-click “breadcrumbs” that clarify the navigation path, additional wizards that easily guide users through the project creation process, and improved project status and reporting capabilities. Additionally, many other components of the product, such asLivelink MeetingZone™, received incremental improvements and corrections to identified software deficiencies.
In
November 2001,June 2004, Open Text announced theCompany releasedrelease ofLivelinkMeetingZone(TM)Portal™, an optional module forLivelink Enterprise Server that provides a powerful enterprise integration portal framework.Livelink Portal enables the aggregation, integration, and personalization of enterprise content, including pre-defined connectors for Livelink content such as threaded discussions, document management, news channels, and search. A connector development kit provides companies with the flexibility to easily develop and customize connectors for all of the applications unique to their businesses—as well as their unique views into those applications.In March 2004, Open Text introducedLivelink MeetingZone™ 2.1. This significant new release of our Web conferencing and online meetings product provided the capability to record meetings in real-time, including all standardLivelink MeetingZone interface activities; users can record slide show presentations, application sharing, whiteboard collaboration and more, as well as the accompanying conference call audio communication. After recording a meeting, users can view synchronized teleconference audio with presented visuals of recorded meetings using theLivelink Eloquent Media Server player.
In March 2004, Open Text announced the release ofLivelink Instant Messenger™ 1.0, an optional module for Livelink Enterprise Server that provides secure enterprise instant messaging capabilities. In addition to facilitating real-time spontaneous collaboration between enterprise users,Livelink Instant Messenger introduced the concept of user presence to Livelink. Anywhere that a user name appears in theLivelink Enterprise Server interface—such as the project participants list, discussion topics, workflow assignments, and audit trails—that user’s online presence is also indicated, and other users can initiate an instant messaging session with a single click from that user’s name. Similarly, “presence objects” enable users to create an actual Livelink object that represents their online status, and place it in any Livelink container, enabling other users to initiate messaging sessions with them from that presence object.
In March 2004, Open Text introducedLivelink Eloquent Media Server™, a
product that adds real-time collaborationre-branded version of its rich media knowledge delivery and sales readiness solution. This release provided tighter integration withLivelink Enterprise Server, including an updated user interface. Enhanced quiz capabilities and improved system reporting provide a more robust closed-loop training and certification application. Based on rich-media technology acquired by Open Text from Eloquent,Livelink Eloquent Media Server significantly accelerates training for sales forces, provides a training and certification solution for compliance applications, and simultaneously helps large organizations save money.In February 2004, Open Text announced a modular upgrade forLivelink Enterprise Server’s workflow and forms core components. The focus of this release was on improved usability, performance, and archival as well as improving the automation of common publishing tasks related to
Livelink's already extensive asynchronous collaboration capabilities. It enables membersrevisions, renditions, and generations ofgeographically dispersed teams, including customers, suppliers, consultants,documents.In January 2004, Open Text announced the release ofLivelink Enterprise Server 9.2 SP1. This service pack provided enhanced security and controls for administrators, an optimized user authentication cookie, as well as support for Microsoft Office 2003, and other
trading partners,emerging formats.IT Solutions Based on Livelink Enterprise Server
Open Text offers a range of products based on theLivelink Enterprise Server software platform. Each of theLivelink Enterprise Server products have the server and content repository at its foundation and adds to
attend real-timeit a set of specialized capabilities designed to address a particular IT business problem.
• Livelink Enterprise Suite™provides a 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 the 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 Web Content Management™ is a comprehensive Web content management solution that enables organizations to create and manage content once and re-use it as many times as necessary in a variety of publication types, including intranet, extranet, and Internet sites. Not only does it provide the ability to effectively manage increasing volumes of content,Livelink for Web Content Management makes it easy for business users to author content and participate in the Web content management process, balancing the need for content control with the need for corporate agility and individual empowerment.
• Livelink for Document Management™ is a secure, Web-based solution for managing any type of electronic document.Livelink for Document Managementprovides 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 Enterprise Server
Open Text offers a selection of business applications built on theLivelink Enterprise Server platform that enable organizations to address particular business needs. The followingLivelink Enterprise Server-based applications are available:
• Livelink for Accounts Payable™reduces the cost per transaction of invoice processing through powerful invoice data capture and automated invoice routing. By seamlessly integrating with PeopleSoft Enterprise Financials,Livelink for Accounts Payableprovides a robust image repository and workflow solution engine to streamline an organization’s accounts payable business processes. Open Text also offers variants ofLivelink for Accounts Payable that provide integration with PeopleSoft Enterprise, EnterpriseOne and WorldSoftware.
• 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 Program Management™is a Web-based enterprise program management application 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. Industry Specific Solutions Based on Livelink Enterprise Server
Open Text offers a selection of industry-specific applications built on theLivelink Enterprise Server 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 for Customer Due Diligence™provides an integrated business process and records management solution that ensures timely due diligence reviews of customer information and compliance with anti-money laundering regulations.
• Livelink for Exploration and Development™provides a comprehensive means for managing upstream energy projects including drilling and completion, facility design, construction and shutdown, multi-well field development, prospect identification, asset management, new country entry and exist, and strategic planning. Livelink Development Tools
Livelink Enterprise Server 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. LAPI includes Web
meetings,Services for supporting application development in Microsoft .NET and J2EE environments, as well as native programming interfaces.Scalability and extensibility have come as much to the forefront as factors in corporate spending decisions as return on investment. Organizations need to be able to develop business cases that not only show short-term profitability, but also long-terminteroperability. They need to support direct interactions between all of their applications, to build an environment that makes the most out of corporate content—regardless of
their location, usingwhere it resides, in what format and on what platform. The integration of structured and unstructured data into astandard Web browser. Duringconsolidated Enterprise Content Management (ECM) repository requires alive meeting session, attendees can view applications sharedframework of communication that supports XML and Internet-based protocols, to extract the maximum value from information and make the most of business opportunities.Open Text recognizes the need for interoperability; extending the capabilities introduced by the
presenter, conduct group chats, have private conversations, useLivelink SDK to leverage thewhiteboard tool,scalability of XML,Livelink Web Services enables rapid development andcreatedeployment of customizations toLivelink Enterprise Server, andview agenda items, notes, tasks,to integrations betweenLivelink Enterprise Server andWeb links. Whenother enterprise applications.Livelink Optional and Embedded Modules
Open Text offers a wide selection of modules that allow organizations to easily extend and enhance the
meeting ends, allfunctionality ofthis information, including a meeting summary, is captured inLivelinkautomatically, becoming a permanentEnterprise Server to suit their evolving business requirements. The following modules are available separately or bundled as part ofan organization's knowledge capital and providing benefits long aftera solution offering described above:
• Livelink Activator™ for CORBA® Development Kitenables organizations to create applications that extendLivelink Enterprise Server’s functionality and integrateLivelink Enterprise Server 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 theLivelink Enterprise 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 asLivelink Enterprise Server.Livelink Archive for SAP R/3 enablesLivelink Enterprise Server to be used as the archive for SAP R/3 documents.
• Livelink Appearance™ enables easy enhancement of theLivelink Enterprise Server user interface. Two components, Appearance XML and Appearance HTML, give users the flexibility to customize the interface using XSL style sheets or simple HTML coding. Users apply UI customizations to a folder location or on a system-wide basis.
• 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 multipleLivelink Enterprise Serverrepositories, Microsoft® Exchange Public Folders, public and internal search engines, as well as from legacy data sources and other authenticated sites.
• Livelink for Libraries Integration™allows organizations to extend the reach of their library and its functionality by making it an integral part of their enterprise knowledge architecture.
• Livelink CADManager™ for AutoCADis the first in a series of products designed to introduce data from engineering departments into a corporate document management system. To manage the complex relationships of engineering drawings in theLivelink Enterprise Serverrepository,Livelink CADManagerfor AutoCAD includes an intuitive structure that differentiates between parent relationships, children relationships, and more.Livelink CADManager for AutoCAD provides seamless access to theLivelink Enterprise Server repository directly from AutoCAD menus, so engineers can interact withLivelink Enterprise Server via the familiar AutoCAD interface.
• Livelink CADManager™ for MicroStationcontinues theLivelink CADManager series of products, which are designed to bring engineering departments into the corporate document management system.Livelink CADManager for MicroStation provides seamless access to theLivelink Enterprise Server repository directly from MicroStation menus, simplifying use of the system for engineers.Livelink CADManager for MicroStation also provides a structure to support and manage the complex relationships between CAD drawings within the Livelink Enterprise Server repository. The ability to maintain work-in-progress drawings within the
meeting is over. In April 2001, the Company releasedLivelinkWireless(TM), a product that delivers one-click access to Livelink's dynamic content and collaboration, allowing users to stay 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 Livelink items, and storage 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, Information Retrieval, Virtual Team Collaboration, and Business Process Automation. Other services including,EnterpriseGroup 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 technologyServer repository provides a securecentral repository where organizations storeandmanagecollaborative work environment for engineers. WithLivelink CADManager for MicroStation, engineers can leverage otherLivelink Enterprise Server tools, such asLivelink Enterprise Server’sworkflow engine to route documents for review and approval and theLivelink MeetingZone online meeting tool to conduct real-time collaborative reviews of drawings and otherobjects (workflow maps, discussions, tasks or news) in an organized, hierarchical structure. The Knowledge Library is accessible 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.documents.
• Livelink Classifications™ allows Classification Librarians to define a taxonomy of classifications inLivelink Enterprise Server. 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 Collaborative Document Review and Approval™provides a controlled, user-friendly collaborative environment that accelerates the process of document review inLivelink Enterprise Server. It enables users to quickly submit a document for review, regulate the review participants and order, review and annotate a document, and report on the status of a document review.
• Livelink Collections Server Integration™enables organizations to integrate their corporate library and information centers into a collaborative enterprise knowledge network. This module provides an ideal solution for combining the collaborative features ofLivelink Enterprise Server with the data collection management features ofLivelink Collections Server.
• Livelink DB Backup Validator™ ensures the integrity of aLivelink Enterprise Server database backup for installations using external storage. It enables theLivelink Enterprise ServerAdministrator to synchronize database and external storage images upon restoration.
• Livelink Directory Services™ allows organizations to administer users and groups for eachLivelink Enterprise Server system 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 Enterprise Server discussions and receive enhanced e-mail notification of Livelink events.
• Livelink eForms Management™ is a complete electronic forms solution for automating both internal and external forms and the business processes that they drive. Forms created with the eForm Designer can be used to initiate workflows, to gather information in multiple workflow steps, and to make workflow routing decisions. Form data can automatically be sent to external database applications and complete form images can be stored in the Livelink Enterprise Server repository.
• Livelink Enhanced Renditions™ is an optional module that augments the core functionality of the Renditions component ofLivelink Enterprise Server. WithLivelink Enhanced Renditions, users can schedule the creation of PDF renditions of documents in theLivelink Enterprise Server repository with a single click. Users specify containers to be monitored byLivelink Enhanced Renditions, and when new documents or versions are added in these areas, the new content is automatically rendered to PDF.
• Livelink eSign™ adds electronic signature capabilities toLivelink Enterprise Server 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™providesusers with access toLivelink Enterprise Server content and functionality from their Microsoft Windows desktop. In Microsoft Windows Explorer, users can navigate the Livelink hierarchy and perform allLivelink Enterprise Server functions. Users also have direct access toLivelink Enterprise Server from popular desktop productivity tools, such as Micrsoft Word®, Excel®, and Outlook®, and Adobe Acrobat®. In addition, mobile users can also mark content inLivelink Enterprise Serverfor offline viewing in Microsoft Windows Explorer when they are not connected for the corporate network.
• Livelink Instant Messenger™ enhances the collaborative aspects ofLivelink Enterprise Server, by indicating the online presence of users wherever a user name appears in the interface, such as in a project participants list, a discussion topic, workflow assignment details, and so on. By tightly integrating presence with theLivelink Enterprise Server user interface, users are always a single click away from a quick collaborative exchange. In addition to peer-to-peer communication, users can host a spontaneous virtual meeting in a public conference room, and project managers can create and host regular chat sessions for team members in project conference rooms. Livelink Instant Messenger provides a powerful solution to the enterprise risks associated with the proliferation of commercial instant messaging applications within organizations. In addition,Livelink Instant Messenger extends compliance to an organization’s instant messaging framework. Conference chat transcripts can be archived, and in turn, are fully indexed and auditable—with a quick search it can be easily determined who said what to whom, and when.
• Livelink Internal Controls™ is an option forLivelink Enterprise Server that uses the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework as a reference model to integrate and organize standard risk and control components into a single platform, which effectively addresses the range of activities required to govern an enterprise today, including compliance to Sarbanes Oxley Section 404.
• Livelink Learning Management™ is a Learning Management System (LMS) that delivers a comprehensive Web-based system for training management, combining extensive training functionality with a centralized knowledge base. WithLivelink Learning Management, you can manage entire corporate learning processes, from the identification of training gaps to course delivery and display and the evaluation of the impact of training.
• 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 Multi-Volume Provider™ enables administrators to integrate multiple file stores with the Livelink repository. This ability to store content in multiple locations on the external file store better guarantees that space is always available in theLivelink Enterprise Server repository.
• Livelink Multi-File Output™ is an option forLivelink Enterprise Server. Common business processes, such as responding to customer inquiries or consolidating weekly reports, require rapid output of multiple
documents from the content repository, while minimizing the download time for the user.Livelink Multi-File Output makes it simple and fast to download, email, or print single or multiple documents directly fromLivelink Enterprise Server.
• Livelink Object Importer™ is used to import large quantities of objects intoLivelink Enterprise Server from a file system. It is capable of importing different types of objects—documents, compound documents, folders, projects and URLs—which distinguishes it from other import or migration tools.
• Livelink Online Office Document Editor™ enables users to collaboratively edit Microsoft® Word, Excel, and PowerPoint documents directly fromLivelink Enterprise Server.
• Livelink OnTime™allows users to schedule group and project team meetings. Fully integrated withLivelink Enterprise Server, this module provides users with secure access to other users’ personal calendar information, project team calendars and resources.
• Livelink Performance Analyzer™ is an option forLivelink Enterprise Server.Livelink Performance Analyzer is a powerful tool that enables administrators to generate comprehensive reports detailingLivelink Enterprise Server system performance, usage, and availability.
• Livelink Portal™ provides a portal framework that enables organizations to control the access and distribution of corporate information from a unified point of access.Livelink Portal enables companies to aggregate content from theirLivelink Enterprise Server system, and unify the content of ERP, CRM, and other systems, into a single, consolidated interface that facilitates rapid user access and supports enterprise-wide business processes.
• Livelink Print Documents™ enables users to print documents directly from theLivelink Enterprise Server interface, rather than having to open the document in its native application.Livelink Print Documents supports printing of single and multiple documents, as well as entire folders of documents with a single click.
• Livelink Privacy Panel™ is a security extension for Livelink that enables users to “hide” from other users on the system.Livelink Privacy Panel restricts general access to Livelink User and Group objects, assuring anonymity for all users.
• 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 toLivelink Enterprise Server, enabling it to become the first comprehensive, Web-based, full lifecycle knowledge management and records management solution for the entire enterprise.
• Livelink Recycle Bin™ enables users to restore previously deleted objects inLivelink Enterprise Server. Users are given access to an area from which deleted documents and other objects can be retrieved rather than being permanently deleted. It provides functionality beyond what is offered inLivelink Enterprise Server’s Document Undelete facility.
• 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 Review™ Manager for Acrobat adds Adobe® Acrobat® review and comment features and capabilities toLivelink Enterprise Server. WithLivelink Review Manager for Acrobat, users can add comments and make text and graphic markups to documents from withinLivelink Enterprise Server without compromising the integrity of the original document.
• Livelink SEA Servlet™ is a J2EE servlet component that enables the successful implementation of the SEA (Secure Extranet Architecture). It replaces the J2EE servlet that is included withLivelink Enterprise Server version 9.1.0.3 and later. The SEA Servlet eliminates the need for a file system mapping to theLivelink
Enterprise Server system for file uploads, allowing for security best practices between network tiers. A file system mapping is no longer required; all communication is transmitted via the standardLivelink Enterprise Server port (typically 2099).
• Livelink Secure Connect™secures user communications between theLivelink Enterprise Server and non-Web clients such asLivelink Explorer,using industry-standard cryptographic encryption technology.
• Livelink Skills Management™ provides the ability to catalog, maintain, and assess levels of expertise possessed by employees. It allows an organization to determine where required knowledge exists within the organization so that it can be leveraged to solve business problems.
• 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, enablingLivelink Enterprise Server to maintain an up-to-date, searchable knowledge base.
• Livelink UNITE™ provides users with a unified, personalizable interface to one or moreLivelink Enterprise Server systems. WithLivelink UNITE, users can filter access toLivelink Enterprise Server 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 toLivelink Enterprise Server via the Web Distributed Authoring and Versioning (WebDAV) protocol. 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 WebReports™ is a powerful reporting tool that extendsLivelink Enterprise Server’s LiveReports to provide a platform that meets challenging business reporting requirements within Livelink. Without additional customization, any number of reporting applications can be created, ranging from simple, easy-to-read report outputs, to complex interactive applications using browser languages such as JavaScript to complement Livelink features with client side functionality.
• Livelink Wireless™gives mobile professionals access toLivelink Enterprise Server’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.
• Livelink XML Workflow Interchange™ enablesLivelink Enterprise Server workflows to interact with other system through the exchange of XML-based HTTP messages that are used to update information in external systems or to retrieve information from those systems to make routing decisions or update information inLivelink Enterprise Server. This option also provides the ability to initiate aLivelink Enterprise Server workflow remotely via HTTP. Information Retrieval
- The Livelink'sis PervasiveOpen Text’s heritage is rooted in information retrieval and that heritage is pervasive throughout theLivelink Enterprise Serverproduct.Livelink Enterprise Server’s Information Retrieval functionality helps users find and access information from anywhere throughout the
enterprise--includingenterprise—including the corporate information repository, corporate Web sites and across the Internet. Authorized users have on-demand access to information even if theirknowledge-baseknowledge base spans distributed and diverse network environments. More than full-text search and5retrieval,Livelink Enterprise Serverprovides 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 Enterprise Server’s Information Retrieval provides high performance and linear scaling, even across millions of documents and terabytes of information.Livelink Enterprise Serverallows 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
searchexamine 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 Enterprise Server’sData Flows facilitate moving information betweenLivelink Enterprise Serverand 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).IXOS Products and Solutions
With the acquisition and integration of IXOS, Open Text’s product suite continues to expand. The IXOS 6 Suite of products break down the barriers to business content by integrating seamlessly into and across ERP, CRM, portals, and groupware applications by leading vendors like SAP, Siebel, Microsoft, and IBM Lotus. Finding the right information and documents quickly reduces processing time in fundamental business processes supported by these enterprise systems. Additionally, proper management of the supporting business documents in these enterprise processes is a growing subject of additional regulatory scrutiny.
IXOS Suite Products
The IXOS 6 Suite consists of the following product and solution components:
Platform—the IXOS Enterprise Content RepositoryBusiness Process ManagementProduction Document ManagementWeb Content ManagementArchiving
• IXOS Enterprise Content Repository. At the heart of the IXOS 6 Suite is the highly scalable common Enterprise Content Repository (ECR) where all relevant content and its associated context information (meta information like author, version, attributes, access rights, etc.) is stored and kept available for ongoing access. This comprehensive content management platform can manage and archive even the highest volumes of data and documents, and seamlessly integrates into leading enterprise applications. As the IXOS 6 Suite implements one consistent data archive infrastructure across all ECM components, it enables customers to apply one consistent content lifecycle policy across all content types—regardless of the content’s origin. IXOS 6 infrastructure seamlessly manages and integrates applications so that data redundancy can be avoided while still providing access to all enterprise content.
• IXOS Business Process Management (BPM).IXOS Business Process Management takes control of business processes by providing tools to create an automated workflow framework. The tight integration with the IXOS 6 Enterprise Content Repository ensures existing documents and data are quickly and securely accessed, distributed, approved and released in the appropriate business context.IXOS BPM is a highly scalable and intuitive solution that connects people, content and business applications. Its advantage is the combination of proven, full-featured BPM capabilities, a fast and easy process design, and an easy-to-use interface that leads to efficient and cost-effective implementation of business processes. IXOS BPM can be seamlessly integrated with leading ERP and CRM systems (WFMC conformable). Companies can also include employees, business partners or customers who occasionally need to participate in an ERP or CRM workflow using the money-savingIXOS BPM solution. This provides real-time access to electronic business processes, without the ERP or CRM installation and training expense.
• IXOS Production Document Management.IXOS Production Document Management enables a company to migrate content and its associated meta data into a central, strategic repository at the earliest possible moment to make it accessible not only through the originating application but also through all business applications. Order workflows, for example, are expedited because incoming paper orders are automatically scanned, linked to the ERP application’s workflow and forwarded to the appropriate employee for processing. Whether the workflow is managed in an ERP, CRM, custom application or IXOS Business Process Management, documents can be retrieved from any authorized desktop or browser, in exactly the right business context without accessing the original application and without delays. IXOS DM, with its extensible business framework and extensive integration capabilities, also allows customers to build specific business-oriented applications and assemble all relevant information in the context users need to support their business processes.
• IXOS Web Content Management. IXOS Web Content Management is focused around the personalized, multi channel delivery of markup content. As content markup descriptions grew over time (e.g., xml, html, wml, etc.) and as the interoperability of computing platforms over the web (e.g., http, soap, webservices) grew, content management systems became a key component in any companies Enterprise Content Management infrastructure. IXOS Web Content management is integrated with the IXOS ECR to allow published web content to be securely and compliantly archived and retrieved with the overall ECM infrastructure.
• IXOS Archiving. The IXOS Enterprise Content Repository (ECR) is an archive of data in a central repository, which remains secure and easily accessible and delivers a convenient and cost-effective storage medium. IXOS manages and stores both the metadata (context information about content) and the content. Metadata is always stored online in a relational database. The IXOS repository can maintain as much metadata as required to locate a document. IXOS ECR has an option to full-text index documents, which provides a way to fully exploit business-relevant information. The repository supports queries based on metadata, full-text index and even a combination of both. Another option is to render document content to a long-term format like TIFF or PDF. An administrator can choose to store the content on a file server, optical devices, tape or other long-term storage medium. Using digital signatures (time stamps) it can be assured that content cannot be modified without recognition. IXOS has a long history of successful partnerships with storage vendors manufacturing optical media (DVD-R, WORM) and jukeboxes. More recently, major storage vendors like EMC2, NetApp, StorageTek and Hitachi Data Systems (HDS) entered the market of long-term archiving with HD-based solutions providing support for non-rewriteable, non-erasable media. IXOS has set up partnerships with all major players and is now able to offer the broadest spectrum of storage options in the market. Report output (print lists, document lists) can be captured and automatically indexed using IXOS COLD Module. Metadata of COLD documents can be either kept in an SAP or IXOS Repository, COLD content is available near-line after archiving. Users of IXOS Document Management or IXOS DocuLink can search and retrieve archived documents. Hyperlinks in the print lists provide access to archived originals as well. IXOS Suite for SAP and IXOS Suite for Siebel
There are a number of application-specific solutions based on IXOS 6 Product Suite that extend an SAP and Siebel environment with robust data and document management and archiving capabilities. The solutions in this suite are:
IXOS Suite for SAP Document ArchivingIXOS Suite for mySAP CRM Document ManagementIXOS Suite for SAP Data ArchivingIXOS Suite for Siebel
• IXOS Suite for SAP Document Archiving. IXOS Suite for SAP Document Archiving is a highly scalable and secure repository for business-critical SAP business documents and data. It is designed for the complete
range of business documents such as incoming/outgoing invoices, orders, delivery notes, quality certificates, HR employee documents, archived SAP data and more. IXOS Suite for SAP Document Management is certified by SAP, ensuring a rapidly implemented solution for SAP document management needs.
• IXOS Suite for mySAP CRM Document Management. IXOS Suite for mySAP CRM Document Management enables access to documents and data from different systems within mySAP CRM—i.e., customer correspondence, orders, invoices or data generated within an SAP environment. This is achieved regardless of whether the information originates from SAP systems operating in various business divisions, host systems or homegrown applications. Customer-related data and documents are displayed in an organized folder structure independent of the SAP module or transaction.
• IXOS Suite for SAP Data Archiving. SAP outputs archive files generated with standard SAP tools. The data then passes to the IXOS solution via the SAP ArchiveLink® interface where it is securely stored and managed for as long as needed. Data can also be stored as print lists (reports) in the optical archive. Print lists are available online after archiving. Users can access original, archived documents that have links to print list data by using hyperlinks in the print lists. IXOS Suite provides simultaneous access to both online and offline data and documents. Archived and online data can be displayed concurrently and in a logical relationship. The IXOS solution allows the user to define when and how to archive data. The access options are so flexible that companies can archive SAP data as soon as the corresponding business transaction is complete.
• IXOS Suite for Siebel.The IXOS Suite for Siebel extends a Siebel environment with robust data and document management and archiving capabilities. By managing the complete lifecycle of all customer information, IXOS Solutions for Siebel provides immediate, secure access to all customer-related documents such as contracts, invoices, orders, proposals, cancellations and service requests, directly from the Siebel application. This 360-degree view of the customer helps a business maximize the value of every customer interaction and drives superior corporate performance. IXOS Suite for Groupware
The IXOS Suite for Groupware applies the IXOS ECR to the challenge of managing an organization’s email repositories from cost effectiveness and compliance perspectives. Support is provided for both Microsoft Exchange and Lotus Notes.
• IXOS Suite for Microsoft Exchange Archiving. IXOS Suite for Microsoft Exchange Archiving securely manages e-mail storage, addressing regulations and reducing the total cost of ownership for Microsoft Exchange. Built on IXOS Enterprise Content Repository, IXOS Suite for Microsoft Exchange Archiving provides a unified platform that enables organizations running Microsoft Exchange to store, manage and control all e-mail within a central content repository. Specifically, benefits and features of the system include the ability to: Select, archive, restore, manage, audit and review all e-mail and record the entire processAlleviate storage demands on Exchange serversConsolidate and reduce the number of Exchange servers while increasing their performanceDecrease backup timesSignificantly ease migration to new releases of Microsoft ExchangeLower risks associated with data loss and regulatory compliance.
• IXOS Suite for Lotus Notes. With IXOS Suite for Lotus Notes, users can select e-mails from within Lotus Notes, archive them automatically or interactively, and access them seconds later directly from the archive. IXOS stores all electronic messages in IXOS Enterprise Content Repository (“ECR”), a central, highly scalable archive server, which serves as the core repository for all business content and the integration point
for applications deployed throughout the enterprise. IXOS 6 Suite enables companies to comprehensively manage and control business-critical content and address compliance with government regulations while minimizing risks associated with data loss. Features and benefits of the system include:
Significantly reduce Lotus Notes database sizeDecrease the number of Lotus Domino ServersDramatically cut back-up times—for instance, from 12+ hours to less than 2 hoursSignificantly ease migration to new releases of Lotus NotesLower compliance risksOpen Text and IXOS—First Fruits of Integration and Synergy
Once the business combination agreement between Open Text and IXOS was publicly announced, the companies focused on meeting with customers and seeking validation of the contemplated joint development plans. Those plans were unveiled initially at the LinkUp Europe events held in London, Paris, and Munich in April 2004. In addition to the
information retrieval capabilitiesresale of existing products into the respective customer bases, the companies committed to release offerings thatare partcombine the best of Open Text and IXOS technologies to deliver new Web Content Management, flexible storage options for Livelink, and E-mail Management solutions.Livelink Web Content Management Server became generally available in April 2004 and was the
Company also offers BRS/Search(TM)first product released by the combined Open Text andQuery Server(TM)IXOS companies. This integrated product offering includes technology integration fromthe Company's BRS Products division. BRS/Search is a search engine for publishing large quantities of dynamic, customized information in all Web-based applications requiring sophisticated functionalityOpen Text, Gauss, andappearance. 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 ofIXOS that enables organizations toquickly design, prototype,create anddevelop applications that provide real-time access to the organization's islandsmanage content once and reuse it as many times as necessary in a variety ofinformation, 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,publication types, includingrepositories, news feeds, document management systems, intranets, and the Internet. .. 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 in Livelink has 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 such as quality 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 need to do their 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 view and 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 library control, 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. BASIS is available as a stand-alone product or as part of a fully integrated solution with Livelink. The Livelink Activator for BASIS(TM) integrates the collaborative features of Livelink with the collection management features of BASIS. This module extends BASIS information management and library automation functionality to fully exploit Livelink's rich collaborative features, enabling users to easily access BASIS library objects and incorporate them into the Livelink environment. .. Library Automation - The Techlib(R) product is a specific application that utilizes BASIS 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 of BASIS, or as an integrated solution with Livelink, as the Livelink Cataloged Library(TM) module. Techlib and Livelink integration gives users consolidated access to knowledge resources on theintranet, extranet, and Internet sites.Flexible storage options for Livelink provide customers a choice in storage hardware. Customers can take advantage of the most appropriate storage for the job, comfortable in the
corporate library,fact that, as new devices become available, they won’t be locked into obsolete technology. By adding the IXOS 6 ECR as an optionalLivelink Storage Provider, Livelink can leverage access tosupport decisions, smooth workflowall of the hardware devices supported by IXOS. The IXOS 6 storage gateway has connectors for all the leading storage vendors, exposes device-specific capabilities such as unalterable storage, andautomate processes.provides migration capabilities if/when new devices are brought online.Open Text’s e-mail management solution combines Livelink’s proven ECM platform (including search, classifications, records management, and collaboration) with IXOS’ proven archiving platform. Using the IXOS technology, the system can track any or all incoming and outgoing e-mail while continuing to make e-mail “always available”. The combined solution provides the compliant environment required in business today, addressing SEC 17a-3, NASD Rules 3010/3110, NYSE Rule 440, Sarbanes-Oxley, and country-specific regulations worldwide. All of this working together can reduce costs associated with legal discovery motions and overburdened e-mail servers and bring e-mail into the collaborative work environment.
Open Text Provides Additional Specialized ECM Products and Solutions
Open Text provides a series of specialized collaboration, content, and knowledge-based products that are sold independent of, or integrated with, theLivelink Enterprise Serverplatform. Customers of these products have the confidence of moving forward with these more specialized products knowing that a single reliable vendor can deliver comparable functionality integrated into the broaderLivelink Enterprise Serverplatform as their requirements evolve to do so:
• 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 cost of ownership for messaging and communication in the industry.
• Advanced Information Retrieval—In addition to the information retrieval capabilities that are part ofLivelink Enterprise Server, the Company also offersLivelink Discovery Server™ (formerly BRS/Search) andLivelink Federated Query Server™ (formerlyQuery 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.Livelink Discovery Server 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 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.Livelink Federated Query Serveris 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.
• Document Collections Management—Open Text also offers theLivelink Collections Server™ (formerly known as BASIS) software product line to support the management of specialized corporate and government document collections. Designed for comprehensive library control,Livelink Collections Server 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,Livelink Collections Server provides library automation, research management, litigation support, intellectual property protection, content management and competitive intelligence. Web browser and JDBC interfaces have made
BASISLivelink Collections Server 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
• Employee Accreditation—In order to provide highly effective corporate management and training solutions for the Financial Services sector,Livelink Accreditations Server™ (formerly known as EDC) gives organizations the ability to provide corporate learning and training programs that will meet regulatory compliance objectives. TheLivelink Accreditations Server 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.
• eGovernment Compliance—In compliance with the Document Management and Archiving regulations issued by the KBSt in Germany, many eGovernment organizations rely on the innovative workflow-based document management capabilities provided by Open Text’sDOMEA® solution.DOMEA, named after the regulation it addresses, was the first product offering certified by the KBSt to meet their requirements for document management and departmental coordination. With Open Text products, such asDOMEA, German eGovernment institutions can eliminate paper-based systems, streamline business processes, and mitigate risk and cost containment within their existing systems.
• Knowledge Delivery—Livelink Eloquent Media Server™ leverages leading-edge rich media technology and revolutionary closed-loop content publishing, tracking and remediation capabilities to manage and measure the delivery of information to globally distributed audiences. Typical uses include certified knowledge delivery of mission-critical information to corporate audiences, preparing a sales force to sell a new product
line, educating employees about new policies and procedures, or certifying compliance with complex regulations.Livelink Eloquent Media Serverenables 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 corporate initiatives are effective.
• Library Automation—Livelink for Libraries® is a specific application that utilizesLivelink Collections Server to automate and integrate the main functions of a corporate or government library.Livelink for Libraries 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,Livelink for Librariesprovides users with the ability to manage digital collections and make the corporate library the focus of an organization’s knowledge resources.
• Production Imaging—Supporting all major business scanning hardware,Livelink for Production Imaging™ enables companies to quickly and cost effectively turn paper documents into digital business assets, supporting instantaneous retrieval and management of critical information. The proliferation of
all corporate recordspaper invoices andinformation holdings, indocuments increases operating costs, creates a tremendous burden to bothpapersecuring andelectronic format. iRIMS allowsproviding long-term storage, and carries inherent risks that can undermine regulatory compliance, disaster recovery, and business continuity. To minimize expenses, enable business users toaccess records management functionsextract the maximum value fromany standard Web browser. By providingbusiness documents, and in due course strengthen customer relationships and corporate reputation, organizations need a robust production imaging solution.
• Records Management—Livelink Records Server™ gives users comprehensive, full lifecycle management of all corporate records and information holdings, in both paper and electronic format.Livelink Records Server 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,Livelink Records Server provides an automated system that removes the complexities of electronic records management and streamlines processes for end users.Livelink Records Server 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.Livelink Records Server brings 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 (Livelink Records Server™) or fully integrated intoLivelink Enterprise Server.
• Report and Output Management—As business operations expand across multiple locations and lines of business, enterprise reporting requirements grow in scope and complexity. The information that was once maintained in a single system and routed to a single destination must now be captured from a variety of different sources, in an increasing number of file formats. In addition, different sections of reports need to be routed everywhere from user workstations to network printers, and from wireless devices to conventional in-trays. Traditionally, organizations have relied on paper-based processes to
access all formssupport these requirements—processes that were adequate when operations were nominal, but that impair the accessibility and usability of critical corporate informationsuchasimages, 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 processesenterprises reach a global scale.Livelink forend 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. .. ContentEnterprise Report 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 7™ enables organizations to organization 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 suiteachieve the performancereduce operating costs, andsecurity 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 modulesensure thatallow organizations to easily extend and enhance the functionality of Livelink to suit their evolvingappropriate businessrequirements. 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 cannavigateextract theLivelink hierarchy and perform all Livelink functions. Users also have direct access to Livelinkmaximum value frompopular 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.report content.
• Web Content Management—Livelink WCM Server™ is a comprehensive Web content management solution that enables organizations to create and manage content once and re-use it as many times as necessary in a variety of publication types, including intranet, extranet, and Internet sites. Not only does it provide the ability to effectively manage increasing volumes of content,Livelink WCM Server makes it easy for business users to author content and participate in the Web content management process, balancing the need for content control with the need for corporate agility and individual empowerment. Product Development
Open Text intends to pursue its strategy of growing the capabilities of its ECM 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
2002,2004, the Companydevelopedenhanced theLivelink portfolio and several of its optional components to continue to set the standard for ECM capabilities and in response to customer requests. Examples include the addition of secure Instant Messaging capability and the ability to distribute rich-media presentations including video, voice and text components to a wide audience over the web. 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, including Livelink MeetingZone, a real-time meetingcomponents andcollaboration tool that allows valuable meeting contenttechnologies to becaptured, searched,quickly assimilated intoLivelink. New offerings based on technologies acquired in fiscal 2004 from IXOS andreused.Gauss Interprise AG (“Gauss”) were developed and are evidence of the continued success of this architectural approach.The
Company also releasedstrategic intent of the Company’s product developments is to offer customers in the world’s largest and most complex organizations, acompletely re-architectured, next generation versionscalable infrastructure for managing all their enterprise content. Large organizations are expected to continue to invest in infrastructure and solutions for ECM for several years as they look for better ways to manage risk and comply with regulations; find ways to extend their investment in enterprise applications like ERP; and provide tools to make their innovating and problem-solving processes more efficient. The company’s product development will continue to focus on offering customers infrastructure products that provide high value and low total cost of ownership, as well as innovative solutions for important business problems.The product development organization, in coordination with 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, Livelink for Learning Management, Livelink for Skills Management, Livelink for Program Management, Livelink virtualteams,Professional Services function, partners, andLivelink UNITE, all of which are described above. In addition, Open Textidentified lighthouse customers, continues todevelopadvance theLivelink platform andrelease new versionstechnology to support rapid development ofall of its product offerings. Updates of Livelink, BASIS, Techlib, and iRIMS were all released during fiscal 2002.knowledge-based applications.As of June 30,
2002,2004, theCompany'sCompany’s research and development teamincluded 214consisted of 546 employees. During fiscal2001,2004, through the acquisitions ofBluebird, the BRS search assets of LeadingSide, Open Image,IXOS, Gauss, andBase4,DOMEA eGovernment, the Company acquired new technologies thathave beenare being integrated with itsLivelink technology with the goal of producing a more diverse product offering. Amounts spent on research and development during fiscal2002,2004, fiscal2001,2003, and fiscal20002002 were $43.6 million, $29.3 million, and $24.1 million,$24.3 million, and $17.7 million,respectively.Customer Support and
ProfessionalGlobal ServicesOpen Text providesThe Company offers its customers a broad range of support, consulting, and learning services aimed at providing the highest level of customer satisfaction. These services include:
Customer Support
The Company’s worldwide Customer Support organization has the technical expertise and experience needed to get the most out of
itsa customer’s investment in our technology. The Company’s staff of Product Specialists, Team Leaders, and Customer Service Representatives provide technical assistance to customers who are enrolled in Support Programs. Support teams handle questions on the use, configuration, and functionality of products. In addition, these teams can help to identify software issues, develop creative solutions, and document enhancement requests for consideration in future product releases. By allowing each customersupport activities through telephone support, since itto select a level of service that corresponds with specific requirements, the Company is able to deliver highly appropriate and effective servicemost software problems remotely. The Company's major products are typically licensedto maximize customers’ investment inconjunction with a twelve-month maintenance contract which renews each year thereafter. The annual maintenance and support fee is typically 18.5% 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 fortheirannual maintenance contracts up-front, and the Company recognizes revenues relating to these services ratably over the term of the related contract. As of June 30, 2002, the Company's customer support team included 102 employees.implementation.Global Services
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.AlthoughConsultants orchestrate theCompany's software is readystrategic planning, implementation and governance of our solutions, and deliver rapid implementation and upgrade services touse "out-of-the-box",accelerate customer return on investment. The Company’s consulting group can help buildsolutions that enable customers
often desire further customization or similar professional services worktofurther tailor the Company's products toleverage theirspecifications. Engagements performed by the Company's professional services organization are typically billedinvestment in our technology, as well as in existing enterprise systems. As consulting engagements, service packages include tasks and deliverables as defined on atimeper-engagement basis. The implementation of these service packages can range from simple modifications to meet specific departmental needs to enterprise applications that integrate with multiple existing systems. Open Text’s Global Services Implementation Framework provides the proven methods, procedures, andmaterial basis. Asguidelines to successfully roll out ECM solutions.The Company’s Learning Services area provides the educational programs for its products. The Company provides a variety of
June 30, 2002,educational offerings from educational planning and custom curriculums to e-learning, certification programs, courses and workshops.Competition
The Company positions itself within the
Company's professional service group included 231 employees. Competition Open Text'smarket category of ECM. This market category represents an aggregation of capabilities from what were previously distinct markets that are consolidating due to pressure from buyers wanting an increasingly higher level of integration and interoperability. Therefore, the Company’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 result of Livelink's broad spectrum of functionality, it has a number of competitors foroverlapping competitors. These markets include business process management, collaboration and team support software, compliance management, conferencing software, document management, document archiving and retrieval, e-mail management, knowledge management, eLearning, learning management, project management, portals, records management, and web content management, each ofits functions. In the market for workflow and document management software, the Company competes with vendors of document management software, including Documentum, Inc., FileNet Corporation, and PC DOCS Group (a division of Hummingbird Communications Ltd.),whichoffer highly specialized document management technology suitable for building application-specific document management needs. Companies like Microsoft and IBM/Lotus offer e-mail based collaborative messaging applications. The Company also competes with vendors of collaboration software solutions such as Lotus Notes/Domino(R), iManage(R) and eRoom(R). Open Text has positioned its products in the new and emerging "collaborative commerce" (c-Commerce) and "collaborative knowledge management" (CKM) markets which areis intensely competitive and subject to rapid technological change.TheseDespite growing adoption of the term ECM, other terms exist to describe all or sub-sets of these marketsare becoming fiercely competitiveincluding Knowledge Management (KM), 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 differentiates itself.The Company competes with repository-based collaboration software solutions such as
majorIBM’s Lotus Notes/Domino, Microsoft’s Sharepoint, andsmaller industry players jockey for positionEMC’s Documentum eRoom, collaboration service providers such as WebEx Communications Inc. and Centra Software Inc., and withofferings that fall into several different segments. The c-Commercee-mail-based collaboration solutions from Microsoft Corp, International Business Machines Corporation, andCKM markets are defined by high-end, specializedGroove Networks Inc. In the document management market, the Company competes with vendors such as EMC’s Documentum Division, FileNet Corp, and Hummingbird Ltd. Companies like FileNet Corp and TIBCO Software Inc. also offer integrated document and business process management solutionscollaborationsimilar to the archiving, forms, workflow, andknowledgeBPM capabilities provided by the Company. As the Company envisioned over five years ago with its acquisition of PS Software, nearly all remaining pure-play records management vendors have now been acquired over the past two years. Those acquiring vendors include EMC’s Documentum Division, IBM Corporation, and Vignette Corporation. Web content management vendors such as EMC’s Documentum Division, Interwoven Inc., Vignette Corporation, and Stellent Inc. compete aggressively with the Company to manage content for purpose-built web sites. In the e-learning market for regulatory compliance training and accreditations, the Company competes with learning management solutions from vendors such as SumTotal Systems Inc., Saba Software Inc., and Centra Software Inc. In the email management market, the Company competes against vendors such as KVS Inc., which was recently acquired, and EMC’s Legato Division. In the portal marketplace, the Company competes with Plumtree Software Inc. and portal solutions from major infrastructure providers. In all the above cases, the Company will also compete against vendors having a particular regional strength (such as Easy Software AG in Germany) or systems integrators purpose-built composite applicationsand e-mail centric messaging systems.based on web development techniques rather than a commercial off-the-shelf (“COTS”) product like those provided by some of the vendors above.The Company expects competition to increase in the future as the markets for
Open Text'sits products develop and as additional players enterthe market.these markets. The Company believes that the principal competitive factors inthis market include the ability to provide: 11. full support for intranets; . functionality with document management solutions; . integration of document management with workflow management applications and related enabling technologies; .these markets include:vendor and product reputation;.vendor financial stability;versatility to provide a broad range of business solutions;full support for functionality required for compliance management solutions;rapid time to deploy and overall cost of ownership;scalable integration of component technologies;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 integrateworkflow, document managementcollaboration, content, andcollaborative computingprocess features.Open Text'sThe Company’s markets are the subject of intense industry interest, and the Company is aware of numerous other major software
developersvendors as well as smaller entrepreneurial companies focusing significant resources on developing and marketing software products and services that may compete withOpen Textthe Company’s products and services. Numerous releases of products and services that compete with those ofOpen Textthe Company 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 byOpen Text.the Company.Many of
Open Text'sthe Company’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 theCompany'sCompany’s experience throughout most of fiscal20022003 and 2004 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,
2002,2004, OpenText'sText’s worldwide sales organization consisted of219417 employees located in107approximately 150 cities. Historically, a significant percentage of theCompany'sCompany’s revenues have been generated through its direct sales force. For fiscal 2004, the Company’s license revenues were significantly 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 withbetterspecific industry or application domain expertise. Such partners generally sell an entire product portfolio into the target market, thereby having more cost effective access tospecific target markets or large installed customer bases.that market than Open Text.Alliance Partners. The Company’s Livelink
Affinity Partners. Open Text's Livelink AffinityAlliance Partner programhas more than 45includes VARs, solution providers, technology partners, ASPs, and systemsintegrators. Open Text's Livelink Affinityintegrators.Alliance 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 AffinityAlliance Partners are able to deliver completeknowledge managementsolutions to address specific customer needs.Employees
As of June 30,
2002,2004, the Company employed a total of9802,105 individuals. The composition of this employee base is approximately as follows:257498 employees in sales and marketing,214546 employees in product development,231475 employees in professional services,102238 employees in customer support, and176348 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 obtained or applied for trademark registration for most strategic product names in all major markets. 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. The Company now owns, mainly as a result of its acquisition program, four US patents and has an additional four patent applications filed with the US Patent and Trademark Office. Some of these patents and patent applications have been filed in other jurisdictions. Recently the Company hasnot soughtembarked on a program to identify and seek patent protection for the intellectual property that results from itsproducts, though it may do sointernal research and development efforts. There can be no assurance that any patentable elements will be identified or, if identified, that patent protection will be obtained. Although the Company intends to protect its rights vigorously, there can be no assurance that these measures will, inthe future.all cases, be successful. 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. 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 its intellectualproperties.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
82,600451,571 square feet of office space in two office parks in Grasbrunn (Munich), Germany pursuant to four distinct leases expiring on: August 31, 2007, February 28, 2011, June 30, 2007 and March 31, 2011; 101,458 square feet of office space in Richmond Hill, Ontario, Canada pursuant to a lease agreement which expires on June 30, 2011; approximately 82,558 square feet of office space in three facilities in Waterloo,Ontario,ON, Canada including its corporate headquarters pursuant totwo leasesone lease thatterminateexpires on September 30, 2005, one that expires on August 31, 2005 and one that expires on June 30,2003,2006; approximately 66,155 square feet in Basel, Switzerland pursuant to two leases, onethat terminatesterminating onJuneMarch 31, 2009 and the other on April 30,2006,2005; andone that terminates on August 24, 2010. The Company has also leased approximately 36,00038,115 square feet in its operational headquarters inBannockburn,Lincolnshire, Illinoisfor its product development, marketing, consulting, support, administration and sales operations untilpursuant to a lease that terminates on April 30,2004.2012. The Company also leases US field offices in Dublin, Ohio; Philadelphia, Pennsylvania; San Mateo, California; Carlsbad, California; Irvine, California; Livonia, Michigan; Boston, Massachusetts; and Albany, New York; Canadian field offices inMississauga,Ottawa, Ontarioand Ottawa, Ontario; US field offices in Albany, New York; Dublin, Ohio; Livonia, Michigan; McLean, Virginia; Redmond, Washington; Los Angeles, 13California and Carlsbad, California;and international field offices, the most important of which are located in Hamburg, Germany; Paris, France; Amsterdam, The Netherlands;Paris, France; Frankfurt, Germany; Munich, Germany; Beaconsfield, United Kingdom;Prague, Czech Republic; St. Gallen, Switzerland; Melbourne, Australia andSydney, Australia.Beaconsfield, UK. After executing its restructuring plans, this space is considered adequate for the Company’s needs. The current annualizedtotalhead-lease rentforpaid by the Company,excludingincluding operating costs, is approximately$4.4US $22.7 million. The current annualized sub-lease rent collected by the Company, including operating costs, is approximately US $7.42 million.The Harold Tilbury and Yolanda Tilbury Family Trust
hashave brought an action againstOpen 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 completed until the fall 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 of the 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 plaintiffs allege that Eloquent, certain of its 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. In May, 2004, the plaintiffs and counsel for various defendants, including the Company, reached agreement on a proposed form of settlement agreement (the “Settlement Agreement”). Under the proposed Settlement Agreement, the issuers (including the Company, as successor to Eloquent) are to be dismissed as parties from the litigation and will be released from all claims by the plaintiffs without admission of wrongdoing on behalf of the Company. Under the proposed Settlement Agreement, if the plaintiffs fail to obtain a minimum settlement or judgment against certain underwriter defendants in related cases, each of the settling issuer defendants will pay their proportionate share of the difference. Under the Issuer-Insurer Agreement, however, the Company and the other settling issuers have agreed with their insurers that in the event that the issuer defendants ultimately owe any payment to the plaintiffs under the settlement, the issuers’ insurers will be responsible for making any such payment to the plaintiffs subject to the applicable deductible ($250,000, in the case of the Company) and up to the coverage amount of each Issuers’ insurance policy. The Company believes that its coverage is sufficient to cover its obligations, if any, under the proposed Settlement Agreement. Implementation of the Settlement Proposal requires execution and delivery of the proposed Settlement Agreement and Issuer-Insurer Agreement by the Company and other parties, and approval by the court, which is expected to occur in late 2004 or early 2005. The Company believes that these lawsuits are without merit and, if the proposed Settlement Agreement is not implemented, intends to defend against them vigorously.
The settlement was finalized and executed in mid-June 2004. Following submission to the court of the executed settlement agreement, the plaintiffs filed a motion on June 25 for the court’s preliminary approval of the settlement. Thereafter, on July 14, 2004, the Underwriters filed an opposition to the plantiffs’ motion for preliminary approval. Judge Scheindlin has not, at this
pending arbitration. Intime scheduled a preliminary-approval.The Company is also subject to legal proceedings and claims that arise in the
normalordinary course ofbusiness the Company is subject to various other legal matters.business. While theresultsoutcome oflitigationthese proceedings and claims cannot be predicted with certainty,the Company believesmanagement does not believe that thefinaloutcome of any of theseotherlegal matters willnothave amateriallymaterial adverse effect on itsconsolidated results of operations orfinancialconditions.results.Item 4. Submission of Matters to a Vote of Security Holders
None.
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,
2002,2004, the closing price of theCompany'sCompany’s Common Shares on NASDAQ was$19.61$31.90 USD per share. On June 30,2002,2004, the closing price of theCompany'sCompany’s Common Shares on the TSX was$30.10$42.70 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, 2004:
Fourth Quarter
$ 32.96 $ 23.00 $ 43.13 $ 31.94 Third Quarter
32.80 19.02 43.29 24.68 Second Quarter
23.74 17.06 31.52 23.00 First Quarter
19.27 12.40 26.38 17.38 Year Ending June 30, 2003:
Fourth Quarter
$ 17.38 $ 13.46 $ 25.12 $ 19.05 Third Quarter
15.02 11.55 22.41 18.19 Second Quarter
14.00 8.49 21.85 13.55 First Quarter
12.97 7.74 20.40 12.25 On September
17, 2002,1, 2004, the closing price of theCompany'sCompany’s Common Shares on NASDAQ was$22.26$16.72 USD per share. As at September17, 2002,1, 2004, there were approximately6,25018,385 shareholders of record of theCompany'sCompany’s CommonShares. As at September 17, 2002,1, 2004, there were approximately2,0505,834 U.S. shareholders of record, holding6,944,664Common Shares.All of the share information presented above and throughout this report has been adjusted for the stock split that took place in fiscal 2004 as described below.
There have been no recent sales of unregistered securities and no repurchases of securities by the Company or its affiliates.
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. In fiscal 2004, as a one time event, the Company declared a two-for-one split of the Company’s Common Shares effected by means of a dividend.
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.$237 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 are publicly announced by the Department of Finance, Canada prior to the date hereof, thecurrent publishedadministrative policies and15assessing practices of the Canada Customs andRevenue Agency("CCRA"(“CRA”), made publicly available prior to the date hereof 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 theCCRACRA whether by legislative, governmental or judicial action and 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 and are not affiliated 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 tax 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 thefive year60 month 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, corporations, estates and
corporationstrusts 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 anUnconnected US Shareholder based on such
Shareholder'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;.regulated investment 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 USdollar.dollar;partnerships or other flow-through entities;S corporations;persons who have ceased to be US citizens.This discussion does not address any aspect of US federal gift or estate tax, or of state, local or non-U.S. tax
laws.laws and does not address aspects of US federal income taxation applicable to Unconnected US Shareholders holding options, warrants or other rights to acquire Common Shares.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 US source ordinary income or loss. TheSubject to the discussion below under “Passive Foreign Investment Company”, 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 of20%15% provided the Common Shares were held for more than 12months. Such rate for capital gains on shares held for more than five years is generally 18% ifmonths at theshares are acquired after December 31, 2000 (or, in the casetime ofshares that are acquired pursuant to an option, such shares are acquired pursuant to an option granted after December 31, 2000).sale or disposition. Special rules (and generally lower maximum rates) may 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%28% 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 USShareholder'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. Unconnected US Shareholders should consult their tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption if applicable.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 ofoperationsincome data set forth below for the fiscal years ended June 30, 2004, 2003 and 2002 and the consolidated balance sheet data as of June 30, 2004 and 2003 are derived from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of income data set forth below for the fiscal years ended June 30, 2001 and 2000 and the consolidated balance sheet data as of June 30, 2002, 2001 and20012000 are derived fromouraudited consolidated financial statementswhich have been audited for 2002 and 2001 by KPMG LLP and for 2000 by PricewaterhouseCoopers LLP, both of whichthat areindependent public accountants, and arenot includedelsewherein this Annual Report on Form 10-K.19
Fiscal Year Ended 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 in 2001, 2000, 1999, and 1998 from the time of acquisition. See Note 14 of Notes to Consolidated Financial Statements. 20
Fiscal Year Ended June 30, 2004 2003 2002 2001 2000 (in thousands, except per share data) Statement of Income Data:
Revenues:
License
$ 121,642 $ 75,991 $ 65,984 $ 73,752 $ 57,574 Customer support
108,812 63,091 48,707 40,316 26,641 Service
60,604 38,643 39,681 35,709 30,180 Total revenues
291,058 177,725 154,372 149,777 114,395 Cost of revenues:
License
10,784 6,550 5,341 5,878 2,685 Customer support
20,299 10,406 8,364 7,632 5,731 Service
47,319 28,241 27,411 27,043 25,670 Total cost of revenues
78,402 45,197 41,116 40,553 34,086 Gross profit
212,656 132,528 113,256 109,224 80,309 Operating expenses:
Research and development
43,616 29,324 24,071 24,311 17,743 Sales and marketing
87,362 54,532 51,084 51,317 42,928 General and administrative
22,795 13,509 12,498 13,191 19,832 Depreciation
7,103 5,009 5,587 5,178 4,586 Amortization of acquired intangible assets
11,306 3,236 6,506 5,460 2,962 Restructuring charge
10,005 — — — 1,774 Total operating expenses
182,187 105,610 99,746 99,457 89,825 Income (loss) from operations
30,469 26,918 13,510 9,767 (9,516 ) Other income (expense)
217 2,788 1,613 (2,417 ) 48,965 Interest income
1,355 1,283 1,853 4,736 6,161 Interest expense
(145 ) (55 ) (16 ) (61 ) (109 ) Income before income taxes
31,896 30,934 16,960 12,025 45,501 Provision for income taxes
7,270 3,177 289 1,229 20,422 Net income before minority interest
24,626 27,757 16,671 10,796 25,079 Minority interest
1,328 — — — — Net income for the year
$ 23,298 $ 27,757 $ 16,671 $ 10,796 $ 25,079 Net income per share, basic
$ 0.53 $ 0.71 $ 0.42 $ 0.27 $ 0.56 Net income per share, diluted
$ 0.49 $ 0.67 $ 0.39 $ 0.25 $ 0.51 Weighted average Common Shares outstanding, basic
43,744 39,051 39,957 40,064 44,698 Weighted average Common Shares outstanding, diluted
47,272 41,393 42,478 42,932 48,842 June 30, 2004 2003 2002 2001 2000 (in thousands) Balance Sheet Data:
Cash and cash equivalents
$ 156,987 $ 116,554 $ 109,895 $ 87,526 $ 113,918 Working capital
104,722 94,440 103,897 82,030 98,008 Total assets
670,755 238,687 186,847 175,002 183,250 Long-term liabilities
60,071 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 trendanalysisanalyses and other forward-looking statements within the safeharbourharbor provisions of the Private Securities Litigation Reform Act of1995.1995 and are made pursuant to the safe habor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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"“Risk Factors That May Affect Future Results” 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("US GAAP"(“U.S. 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 withUSU.S. GAAP and all dollar amounts in thisreportAnnual Report on Form 10-K are in United States dollars unless otherwise indicated.Open Text
develops, markets, licensesis the market leader in providing Enterprise Content Management (“ECM”) solutions that bring together people, processes andsupportsinformation. The Company’s principal product line is Livelink®, a leading collaboration andknowledgecontent management software product foruse on intranets, extranets and the Internet, enablingglobal enterprises. The software enables users to capture as well as find electronically stored information, work together in both creative and collaborative processes as well as more structured 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 comprehensive configurations, rapidout-of-the-boxdeployment, 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. 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 on occasion include certain third party software in its products.In fiscal
2002,2004, the Company recorded total revenues of$152.5$291.1 million,its largest amounta record for a Company fiscal year, due todate, partially due toa number of factors including an increase in new customers,as well as strongadditionallicenses tolicense transactions completed with existingcustomers.customers, and the acquisitions of IXOS, Gauss, and DOMEA eGovernment. The Company achieved overall profitability in fiscal20022004 for thefourthsixth straight year, while it achieved profitability from operations for thesecondfourth straight year. In addition, cash and cash equivalents increased to$109.9$157.0 millionwith positiveas of June 30, 2004, while cash flow from operationsintotaled $37.5 million for fiscal2002.2004.During fiscal
2002,2004, the Companycompleted a buy-back of 620,200did not repurchase any Common Shares in the open market, whereas during fiscal 2003, 1,512,000 Common Shares were repurchased in the open market for a total purchase price of$13.8$17.3 million. TheCompany'sCompany’s days sales outstanding (DSO)decreased slightlyincreased from7661 days at June 30,20012003 to7271 days at June 30,2002. Geographical2004. The main reason for this increase is due to IXOS, which has a higher DSO than the Company.The Company expects that over time, the Company DSO will trend towards historical levels. Geographic segment information regarding the Company is presented in Note
1316 to theCompany'sCompany’s Consolidated Financial Statements.21CriticalOn February 19, 2004, Open Text Corporation acquired a total of 19,157,428 IXOS shares or approximately 88% of the ordinary share capital and voting rights of IXOS through its wholly owned subsidiary 2016091 Ontario Inc. (“Ontario”). Of these IXOS shares, 17,792,529 shares (approximately 93% of the tendered shares) were tendered for the Alternative Consideration (as described below), with the balance, including shares purchased on the open market, acquired for approximately $15.3 million in cash. The Alternative Consideration for each IXOS share consisted of 0.5220 of an Open Text Common Share and 0.1484 of a warrant. Each whole warrant is exercisable to purchase one Open Text Common Share and may be exercised at any time prior to February 19, 2005, at a strike price of $20.75 per share. Between the closing date of the tender offer and June 30, 2004, Open Text acquired an additional 203,647 Common Shares of IXOS for $2.3 million in cash. As a result of the additional purchase, Ontario obtained a total of 19,361,075 IXOS shares or approximately 89% ownership of IXOS. It is the Company’s intention to acquire 100% of IXOS, as discussed further on page 86. At this time, it is not determinable when this process will be completed. The results of IXOS’ operations have been included in the consolidated financial statements of Open Text since March 1, 2004.
On October 16, 2003, Open Text acquired approximately 75% of the shares of Gauss Interprise AG (“Gauss”) for total cash consideration of $9.8 million pursuant to several sale and purchase agreements with major shareholders. The results of Gauss’ operations have been included in the consolidated financial statements of Open Text since that date. As of June 30, 2004, Open Text had acquired approximately 92% of the common shares of Gauss as a result of these agreements, as well as through the purchase of common shares on the open market and through a public tender offer. It is the Company’s intention to acquire 100% of Gauss, as discussed further on page 88. At this time, it is not determinable how long this process will take.
On October 23, 2003, Open Text acquired all the common shares of SER Solutions Software GmbH and SER eGovernment Deutschland GmbH (together “DOMEA eGovernment”) for total consideration of up to $11.4 million, subject to meeting certain revenue performance and certain adjustments based on the Company’s assets and liabilities. The results of DOMEA eGovernment’s operations have been included in the consolidated financial statements of Open Text since that date. The purchase price of $11.4 million includes contingent consideration of $3.8 million that may be earned by the former shareholders of DOMEA eGovernment based on the achievement of certain revenue targets through December 31, 2004. Amounts earned under this arrangement will be paid in the form of 50% cash and 50% in Open Text Common Shares. As of June 30, 2004, approximately $0.6 million of the purchase price is being held to secure certain warranties, representations and covenants in the acquisition agreement. As this amount is also being held as security for certain pre-acquisition contingencies, the resolution of which is uncertain, the Company is unable to estimate when this amount will be paid. When paid, these amounts will be recorded as additional goodwill.
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 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.
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 was comprised of (1) cash consideration of $3.6 million paid on closing; (2) additional cash consideration of $650,000 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. This acquisition was also subject to an adjustment of the purchase price based on the level of net assets in existence at closing. As of June 30, 2004, the Company is of the opinion that the level of net assets present at the closing date was sufficiently low such
that no further amounts are due in respect of this purchase price. The results of operations of Corechange have been consolidated with those of Open Text beginning February 25, 2003.
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.
With respect to the Company’s strategy relating to acquisitions, Open Text has established the practice of integrating acquired technology into Livelink shortly following the completion of the respective acquisition. Consequently over time, the operational performance of the Company’s acquired entities on a stand-alone basis may not be tracked.
Significant Accounting Policies and Critical Accounting Estimates
The
Company'sCompany’s Consolidated Financial Statements are prepared in accordance withUSU.S. GAAP. The preparation of the Consolidated Financial Statements in accordance withUSU.S. 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"Recognition,issued by the American Institute of Certified Public Accountants ("AICPA") in October 1997 andas amended by SOP 98-9,issued in December 1998. The Company records productModification of SOP 97-2,Software Revenue Recognition with Respect to Certain Transactions, and to the extent applicable, Securities and Exchange Commission Staff Accounting Bulletin 104, “Revenue Recognition.”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 in the arrangement other than licenses 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. 22Network revenues consistmaintenance contract, typically one year.Services revenue consists of
revenues earnedfees 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.Customer advances and billed amounts due from customers
under an application service provider ("ASP") model. Under this model, customers pay a monthly fee that entitles them to usein excess ofthe Company's software on a secure, hosted, third-party server. These revenuesrevenue recognized arerecognizedrecorded asthe services are provided on a monthly basis over the term of the customer's contract. With respect to these revenues, the Company's customers pay exclusively for the right to use the software. The Company's customers do not receive the right to take possession of the Company'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 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 an investment's current carrying value, thereby possibly requiring an impairment charge in the future. Valuation Allowance.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 theneedestimated valuation allowance and income tax expense. See page 43 forand sizemanagement’s discussion of thevaluation allowance. Iffactors necessary for the Companywere to conclude that it was ableto realize its deferred 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. Long-Lived Assets. The Company accounts for the impairment and disposition of long-lived assets in accordance with the Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance with SFAS No. 121, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment of long-lived assets and for the disposal of long-livedassets.SFAS No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning after December 15, 2001. The Company evaluates the carrying value of 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.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 inthe financial statements, the Company would be required to record, against earnings, such excess
amountat 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 at the date of acquisition 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. Similarly, in accordance with SFAS No. 142Goodwill and Other Intangible Assets, the Company is required to annually test the value of its goodwill as well as its acquired intangible assets. This testing requires management to make estimates of the market value of its various operating segments. Changes in estimates could result in different conclusions for the value of goodwill. The Company performs its annual impairment testing on its goodwill at June 30th each fiscal year, provided that circumstances don’t arise during the year that would necessitate an earlier evaluation. Over the past two years, the value of the Company’s reporting units have exceeded their book value by a substantial margin. Based on currently available information, management does not anticipate that an impairment of its goodwill will occur in the foreseeable future, although there can be no assurances that at the time a future review is completed, a material impairment charge will not be required and recorded.
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, 2004 2003 2002 Revenues:
License
41.8 % 42.8 % 43.3 % Customer support
37.4 35.5 31.9 Service
20.8 21.7 24.8 Total revenues
100.0 100.0 100.0 Cost of revenues:
License
3.7 3.7 3.5 Customer support
7.0 5.9 5.5 Service
16.3 15.9 16.7 Total cost of revenues
27.0 25.5 25.7 Gross profit
73.0 74.5 74.3 Operating expenses:
Research and development
15.0 16.5 15.8 Sales and marketing
30.0 30.7 33.5 General and administrative
7.8 7.6 8.2 Depreciation
2.4 2.8 3.7 Amortization of acquired intangible assets
3.9 1.8 4.3 Restructuring charge
3.4 — — Total operating expenses
62.5 59.4 65.5 Income from operations
10.5 15.1 8.8 Other income
0.1 1.6 1.1 Interest income
0.5 0.7 1.2 Interest expense
(0.1 ) — — Income before income taxes
11.0 17.4 11.1 Provision for income taxes
2.5 1.8 0.2 Net income before minority interest
8.5 15.6 10.9 Minority interest
0.5 — — Net income for the year
8.0 % 15.6 % 10.9 % The ECM Market
According to the Meta group, the enterprise content management (ECM) market will reach $2.3 billion in software and $7 billion in services by 2007, representing a compound annual growth rate of 15%. They expect that many vendors will adopt the mantle of “enterprise content management” during the next 12 months, which they have stated has already begun. Over that same period and consistent with experience over the past several years, the Company does not expect total information technology spending to increase. This means that the growth in ECM is coming at the expense of other parts of the IT market. The vast majority of information contained in an organization is unstructured data—exactly the type of data that the ECM market is focused on managing. Whereas companies have spent the better part of the last decade focusing on managing the structured data that ERP systems center around, their focus has now shifted to the larger opportunity of managing the unstructured data.
Over the past year the Company has witnessed numerous changes to the social-political landscape that have had significant impacts on the ECM market, which the Company sees as now being at an inflection point. Events over the past several years such as the September 11th terrorist attacks, the financial collapse of high-profile US corporations such as Enron and Worldcom, as well as ensuing changes to the regulatory environment such as Sarbanes-Oxley and the Patriot Act have placed a significant onus on the private and public sectors alike to adopt compliance driven software solutions. Simultaneously, more organizations continue to focus their attention on the preservation of their intellectual property and the knowledge residing throughout their workforces. With baby-boomers retiring, corporations have only recently become sensitive to the fact that a high percentage of the knowledge of their workforces may not be documented or archived in any organized fashion which future employees can retrieve.
The ECM sector has been marked by significant consolidation over the past several years. Sophisticated customers are demanding more robust suites of technology which address all aspects of ECM as compared with past practice of purchasing point solutions from separate vendors to address specific needs. The largest, most financially stable vendors have taken advantage of their financial position by acquiring many of their smaller competitors in an attempt to round out their product line. These smaller vendors had found that as the ECM market matured and as ECM technologies became mission critical within organizations, customers became increasingly hesitant to purchase their product if the vendor’s financial viability was at all a question. In many cases, these smaller companies have what is regarded as leading technology, but they lack the financial resources to convince customers that they will remain in business to support and enhance their products for years to come. Within the growing ECM sector, the Company has established itself by the end of fiscal 2004 as both the largest and fastest growing software vendor in this sector.
The Company has seen its competitive landscape evolve over the past year. Given the growth of the ECM market, new vendors continue to try and penetrate the market. Microsoft has recently entered the ECM market with a competitive product which is focused on departmental use rather than enterprise-wide deployment as the product does not possess the scalability of Livelink. With the content management offerings coming from the IXOS acquisition, the Company believes that it has the most comprehensive collaboration and content management software in the industry. As a result, the Company is increasingly competing against more traditional content management vendors such as Filenet. The Company feels that one of its key strategic advantages over its competition is the fact that its core technology has been in place for several years. This has allowed Open Text to spend the past couple of years focused on designing and delivering solutions to specific market participants. By contrast, many of the Company’s competitors are still in the process of acquiring and integrating the requisite technology to provide a complete product offering.
Market Trends
During fiscal 2004, many of the Company’s customers were dealing with internal mandates to significantly reduce information technology spending. Given these tighter budgets, customers have increasingly focused on
purchasing software solutions which help organizations save money. Software that is quickly and easily deployable is currently viewed as being more attractive than software that takes a long time to implement, such as ERP systems. One area within information technology spending which companies are not reducing spending, and in many cases are increasing spending, is compliance-focused software. Companies are not able to defer spending to become or remain compliant with the regulatory environments they operate within. The Company is focused on exploiting this opportunity, particularly given the fact that compliance touches all employees in an organization. As a result, compliance opportunities can evolve into enterprise-wide deployments.
During fiscal 2004, the Company continued to experience a trend witnessed over the past several years of initial, limited-scope deployments quickly evolving into larger deploys. Initial deployments typically last for approximately nine months, subsequent to which the customer will frequently purchase additional licenses for further internal deployment, followed often by an enterprise-wide deployment. This strategy has been a focus of the Company’s sales efforts since post-September 11th, when it became extremely difficult to close sales opportunities with new customers. In addition, over the past several years, as many customers imposed rigid spending freezes on purchases of new information technology solutions and initiatives, the Company has been able to continue to grow its revenue by further developing relationships and opportunities within its installed-base.
Historically, the Company has been able to generate revenue growth by selling and marketing its products on the proposition that they produced an extremely high return on investment and can actually save companies money. The fact that the Livelink product line is highly configurable without programming means that as soon as it is purchased, an organization can have it deployed almost immediately and can begin saving money. By contrast, many competitive products and solutions require a significant amount of customized programming and service work adding not only cost but also lead-time to the deployment cycle. Both of these factors adversely impact such product’s return on investment. Although today the high return on investment of the Company’s products remains a selling feature, during fiscal 2004 the Company experienced an increase in customers purchasing products to address key business problems that they cannot delay addressing.
Another recent operational trend has been the Company’s strong focus on vertical markets and designing products to address specific needs of those markets. The Company currently has four vertical sales groups focused on selling solutions to the government, pharmaceutical, financial services, and oil and gas sectors. The Company feels that customized Livelink solutions designed specifically for each of these verticals address specific mission critical problems that these industries confront. Pharmaceutical companies, for instance, are focused more than ever on bringing products to market faster and more cost-effectively than ever before while remaining fully-compliant with Food and Drug Administration regulations. Nearly all regulations require an organization to train and test all employees involved in processes associated with the regulation. The need for US government agencies to communicate, collaborate, and share knowledge has never been as important as it is today, and the Company is increasingly active in this sector.
Open Text continues to remain focused on selling to its large user installed base as an important source of sales opportunities. The Company has found that customers that initially purchase Livelink to address a specific need often expand the deployment of Livelink to address multiple other issues within the first year. The Company also feels that the acquisitions it completed over the past several years represent significant cross-selling opportunities, and that these cross-selling opportunities will represent a further source of future growth. Open Text anticipates that it will continue to develop and market ECM related solutions focused on addressing specific problems and specific industries.
Open Text has not engaged in overly aggressive discounting practices relative to many of its competitors. Over the past several years, the Company has maintained an average deal size of between $250,000 and $300,000. By contrast, IXOS content management products had been under significant pricing pressure, driving the average deal size to approximately $100,000 over the same period.
Fiscal
20022004 OverviewThe most significant corporate transaction during fiscal 2004 was the acquisition of IXOS. The strength of IXOS’ product-line is its strong offering in the area of content management—a key aspect of ECM. Traditionally, the strength of Open Text’s product offering has been its collaboration functionality. Taken together, the Company believes that the unprecedented one-stop shopping combination of collaboration and content functionality achieved through this acquisition provides the Company with the most complete ECM suite in the industry. As of June 30, 2004, the two organizations are now organized as one global organization, and perhaps most importantly, the Company’s integrated product roadmap is now complete and published. General availability of the Company’s first integrated product—Livelink WCM Server occurred in the fourth quarter of fiscal 2004 with additional integrated products scheduled in the latter half of calendar 2004. The majority of the IXOS restructuring efforts were completed by June 30, 2004, although some aspects of the Company’s plans will get executed in early fiscal 2005. As a results, the Company believes that the synergies between the two companies are only now just starting to be realized, and the Company is optimistic that these will continue and broaden into fiscal 2005. The Company strives to prudently manage expenses. Expense management played a key role in the profitability achieved in fiscal 2004. From a products perspective, the continued growth in the Company’s core Livelink business reinforced the fact that the Company’s value proposition for the ECM market is being well received.
Fiscal 2004 Compared with Fiscal
20012003Revenues. Total revenues included license
and networkingrevenues, customer support revenues, and service revenues.The Company recognized license 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. Software maintenance revenues were deferred and recognized ratably over the life of the service contract, which is typically one year. Service revenue consisted of revenues from consulting contracts, as well as training and integration services contracts. Service revenues were derived from service contracts to develop applications and to provide consulting services. Service revenues were recognized under the 24percentage 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. Revenues from training and integration services were recognized in the period in which the services were performed.Total revenues increased3%64% from$147.7$177.7 million inthe year ended June 30, 2001fiscal 2003 to$152.5$291.1 million inthe year ended June 30, 2002. Revenuesfiscal 2004. License revenues increased 60% fromlicenses and networking decreased 11% from $73.8$76.0 million inthe year ended June 30, 2001fiscal 2003 to$66.0$121.6 million in fiscal 2004. The overall increase in revenue was significantly impacted by several acquisitions that theyear ended June 30, 2002.Company completed in fiscal 2004. During fiscal 2004, the Company acquired Gauss, DOMEA eGovernment, and IXOS. On a combined basis, revenues stemming from these acquisitions accounted for approximately 76% of the revenue growth achieved during fiscal 2004 compared to fiscal 2003. Thedecreaseremaining $27.3 million or 15% represents organic revenue growth achieved during fiscal 2004. Additionally, $10.3 million was contributed from companies acquired during fiscal 2003 which were not included in fiscal 2003 results for the entire fiscal year. The impact that both fiscal 2004 and fiscal 2003 acquisitions had on the Company’s revenue growth was reasonably consistent across license, service and support revenues. As these results indicate, although acquisitions represented the largest component of growth during fiscal 2004, the Company’s core operations still achieved strong organic growth. This organic growth reflects the continued demand in the marketplace for the Company’s software solutions. The Company defines organic growth as being the period-to-period growth achieved when the impact of the current period’s acquisitions are removed. Consequently, organic growth in fiscal 2004 represents the fiscal 2004 revenue growth compared to fiscal 2003 once the impact of IXOS, Gauss and DOMEA eGovernment are removed. On this basis, the Company’s organic revenue growth during fiscal 2004 was 15%.An important factor responsible for the increase in license
and networkingrevenues from $76.0 million to $121.6 million during fiscal 2004 wasa resultthe impact of theoverall slowdown in information technology spending which was, in part, accelerated by the September 11th terrorist activities which then continued throughoutfiscal2002. Though all aspects of the Company's revenues were affected by this overall economic slowdown, revenues relating to the Company's licenses were most strongly impacted. It was the Company's experience throughout most of fiscal 2002 that customers were more hesitant to commit to large, enterprise-wide deployments of the Company's software and as a result, the Company has experienced 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 indicative2004 acquisitions. These transactions accounted for approximately $34.0 million of license revenueactivity that will continue intogrowth from fiscal2003. Also2003 or approximately 75% of the year-to-year growth. Of the remaining growth, $3.7 million related to a full inclusion of fiscal 2003 acquisitions. The Company’s organic growth relating to license revenue was 14% during fiscal2001, the Company began actively promoting the rental of Livelink to customers through an Application Service Provider (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 as Networking Revenues. During fiscal 2002 networking revenues totaled $1.7 million,2004 as compared with$0.6fiscal 2003. This strong organic growth was driven by the fact that customers who purchase the Company’s products to address a specific problem in their business very quickly find alternative uses for Livelink and within a year often have Livelink managing multiple processes. The organic growth also reflects the fact that the Company remains focused on specific industry verticals for its solution offerings. The Company operates sales verticals for the pharmaceutical, financial services, government, and oil and gas industries. During fiscal 2004, the continued development and strong performance in the Company’s government vertical had a particularly significant impact on the Company’s fiscal 2004 license revenue growth, although the Company’s pharmaceutical and financial services verticals also performed well. Additionally, the continued adoption of the Company’s newly introduced moduleswas a further contributor to growth. Most of these new products are small components of code licensed as point solutions designed to accelerate deployment by addressing very specific and recurring issues faced by customers. Revenue in this category totaled approximately $1.0 million during fiscal 2003, and increased to approximately $5.8 million during fiscal 2004. During fiscal 2004, the Company did not experience a significant variation from fiscal 2003 in
fiscal 2001.the amount of revenue realized from large license transactions.Customer support revenues increased
21%72% from$40.3$63.1 million inthe year ended June 30, 2001fiscal 2003 to$48.7$108.8 million in fiscal 2004. Support revenues stemming from fiscal 2004 acquisitions accounted for approximately 65% of theyear ended June 30, 2002.revenue growth achieved during fiscal 2004 compared to fiscal 2003. Of the remaining 35% or approximately $17.5 million of growth achieved during fiscal 2004, $5.5 million was contributed from companies acquired during fiscal 2003 which were not included in fiscal 2003 results for the entire fiscal year. The Company’s organic growth relating to license revenue was 28% during fiscal 2004 as compared with fiscal 2003. The increase in customer support revenues resulted from severalfactors. Thefactors including the increase in the number of licenses grantedthroughoutin fiscal2002,2004, as well as strong renewal rates for maintenance contracts for existingaccounts, had a positive impact oncustomers. The Company continued to experience very strong service contract renewal rates for all of its products, most notably its core Livelink products. Over the past year, the Company effectively implemented price increases in all regions for its customer supportrevenues. Also,services. The increases contributed to the revenue growth achieved in fiscal2001,2004. Furthermore, growth in support revenue stemming from the Company’s core Livelink products was 24% as compared with fiscal 2003. The Companycompleted a numberbelieves that this fact demonstrates that the Company’s customers are very satisfied and dedicated to the Company’s core product offering. The Company believes that during fiscal 2005 the integration ofacquisitions during the middle of the year. As a result, fiscal 2001'sIXOS’ customer supportrevenue includes only a partial year of revenues from these acquisitions, while fiscal 2002 contains a full year'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.organization will create further operational synergies.Service revenues increased
13%57% from$33.6$38.6 million inthe year ended June 30, 2001fiscal 2003 to$37.8$60.6 million in fiscal 2004. Service revenues stemming from fiscal 2004 acquisitions accounted for theyear ended June 30, 2002. The increaseentire revenue growth achieved during fiscal 2004 compared to fiscal 2003. If the impact of the fiscal 2004 acquisitions were removed, the Company’s organic services revenue growth was a decrease of approximately 5%. This decrease in core service revenues was primarily attributable toan increase in consulting and integrationthe continued challenging market for servicesprovided to new license customers. Additionally, a full year's inclusionengagements globally. The Company is witnessing many ofservice 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 the Company's acquisitions, whereas fiscal 2002 included a full year's revenue from these businesses. The impact on fiscal 2002 customer service revenues of having a full year of revenue relating to these acquired businessesits customers addressing its services needs with in-house personnel as opposed toa partial yearusing third-parties. 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. In response to this challenging services environment, the Company will be taking active steps in fiscal2001 was2005 to maximize service revenue opportunities when it will align its services resources by vertical industry. This mirrors a similar change that the Company’s sales organization undertook approximately$2 million.2 years ago and which has demonstrated considerable success. The Company expects that this will result in the Company’s sales and services organization working more closely together, with similar areas of expertise, and that these changes will help create more revenue opportunities.Cost of revenues. Cost of license
and networkingrevenues consisted primarily of the costs associated with the royalties payable to third parties whose software is bundledinwith theCompany'sCompany’s products, as well as product media, duplication, manuals, packaging expenses, andpackaging expenses.finder’s fees. Cost of licenseand networkingrevenuesdecreased 10%increased 65% from$5.9$6.6 million inthe year ended June 30, 2001fiscal 2003 to$5.3$10.8 million inthe year ended June 30, 2002.fiscal 2004. As a percentage of licenseand networkingrevenues, the cost of licenseand networkingrevenues remainedconstantconsistent at8% 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 recorded in9% during fiscal2001. Typically, license transactions entered into by the Company do not involve large amounts of third-party product cost, thus this particular transaction caused an2004. The increase in cost of licenseand networkingrevenues infiscal 2001. This decreaseabsolute dollars is a reflection of the increase in license revenues. The consistency in the cost of licenseand networkingrevenuesfrom fiscal 2001as a percentage of license revenues isalsodue to the fact thatlicense revenuethe cost structure hasdecreased sinceremained unchanged. In each of fiscal 2003 and fiscal 2004, costs related to third-party product costs, as well as royalties, represented theprior year. The decrease invast majority of the cost of licenseand networking revenues is generally consistent withrevenue. Also, thedecrease in license revenue. Cost of networking revenues were $277,000companies acquired in fiscal2002 compared with $300,000 in fiscal 2001. 252004 maintained a similar cost structure. Cost of customer support revenues is comprised primarily of technical support personnel and their related costs. Cost of customer support revenues increased
11%95% from$7.6$10.4 million inthe year ended June 30, 2001fiscal 2003 to$8.4$20.3 million inthe year ended June 30, 2002, mostlyfiscal 2004, primarily as a result of increasedheadcountpersonnel costs in fiscal20022004 as compared with fiscal2001.2003. Over half of the increase in the cost of customer support revenues is attributable to personnel costs. The majority of the increase in personnel costs is attributable to personnel costs related to fiscal 2004 acquisitions, although theCompany also experienced an increase in personnel costs for its core operations due to the inclusion of a full year’s impact of fiscal 2003 acquisition personnel costs. Support personnel increased from 140 at the end of fiscal 2003 to 238 at the end of fiscal 2004. Whereas historically the Company’s support personnel has resided predominantly in North America, the Company’s European based 2004 acquisitions have made Europe almost as significant as North America with respect to support personnel. The increased number of personnel in the Company’s customer support organization drove increases in variable expense categories including communication, travel and office expenses. Occupancy costs increased during fiscal 2004 commensurate with the increase in facilities due to fiscal 2004 acquisitions. As a percentage of customer support revenues, customer support costs
decreasedincreased from 16% in fiscal 2003 to 19% in fiscal 2004. This increase in percentage terms reflects theyear ended June 30, 2001 to 17% infact that theyear ended June 30, 2002. This decrease as a percentage of customer support revenues resulted from certain cost reduction and efficiency measures that were takencompanies acquired during fiscal2002, which provided for2004 have higher cost structures compared to therationalization of certain roles withinCompany’s core operations and theCompany's support organization.Company has not yet realized full synergies from their integration.Cost of service revenues consisted primarily of the costs of providing integration, customization and
training.training with respect to the Company’s various software products. The most significant component of cost of service revenue is personnel related expenses, while other components include costs associated with travel, occupancy, and third-party subcontracting. Cost of service revenues increased2%68% from$25.0$28.2 million inthe year ended June 30, 2001fiscal 2003 to$25.5$47.3 million inthe year ended June 30, 2002. This slight increase is primarily due to some additional headcount costs incurred duringfiscal2002 to support the expanded activities of the integration and consulting departments.2004. Cost of service revenues as a percentage of service revenuesdecreasedincreased from74%73% inthe year ended June 30, 2001fiscal 2003 to68%78% inthe year ended June 30, 2002,fiscal 2004. Additional costs assumed as a result ofimprovedthe fiscal 2004 acquisitions effectively accounted for the entire increase in cost of service revenues; approximately 60% of this increase is the result of the added IXOS related expenses, while the balance is largely comprised of other expenses coming from Gauss and DOMEA eGovernment. The general mix of expenses associated with the cost of service revenues for the fiscal 2004 acquisitions is generally consistent with that of the Company’s core business, with personnel subcontracting and travel representing approximately three quarters of the entire expense base in this area. The Company experienced higher billing utilization ratesexperienced overduring fiscal 2004 than it did during fiscal 2003. Service personnel increased from 229 at thepast year.end of fiscal 2003 to 475 at the end of fiscal 2004. This increase in headcount driven by the 2004 acquisitions occurred primarily in European countries; almost 70% of the service organization personnel were in Europe at the end of fiscal 2004, an increase of approximately 40% from the end of fiscal 2003.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 expensesdecreased by 1%increased 49% from$24.3$29.3 million inthe year ended June 30, 2001fiscal 2003 to$24.1$43.6 million inthe year ended June 30, 2002fiscal 2004 and, as a percentage of total revenues, decreased slightly from17% in fiscal 2001 to16% in fiscal2002. Although2003 to 15% in fiscal 2004. The increase in research and developments expenses in absolute dollars in fiscal 2004 resulted primarily from approximately $12.0 million of additional expenses added as part of thetotal dollars spent onintegration of the development organizations of the fiscal 2004 acquisitions, primarily attributable to IXOS. The balance of the increase is attributable to increased spending within the Company’s core development organization, which recorded an additional $4 million in operating expenses during fiscal 2004 and was offset by increased tax credits associated with qualifying research and development activitiesdecreased slightly sinceof $2 million. Development personnel increased from 305 at theprior year,end of fiscal 2003 to 546 at theamount spent on labour costs actually increased slightly. Thisend of fiscal 2004. The vast majority of growth in the Company’s development organization wasa resultcentered in Europe. Whereas the Company had effectively no European development presence at the end of fiscal 2003, at the end of fiscal 2004 over 40% of theCompany 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 increaseCompany’s development headcount was inlabour 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.Europe.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 expensesremained relatively constant at $51.3increased 60% from $54.5 million inthe year ended June 30, 2001 compared with $51.1fiscal 2003 to $87.4 million inthe year ended June 30, 2002.fiscal 2004. Sales and marketing expenses decreased slightly as a percentage of total revenues from35%31% in fiscal 2003 to 30% in fiscal 2004. The vast majority of theyear ended June 30, 2001 to 34%increase inthe year ended June 30, 2002. Although the total dollars spent onsales and marketingactivities were aboutexpense in absolute dollars was thesame in bothresult of costs added because of the fiscal2001 and fiscal 2002,2004 acquisitions, as only approximately 10% of theallocation of those costs varied slightly between years. In fiscal 2002, the Company experienced a slightincrease inlabor costs, mostly attributable to annual remuneration increases for the Company'ssales and marketingpersonnel. Thisexpenses relates to the Company’s core operations. Furthermore, the increased spending within the Company’score operations was almost exclusively focused on marketing as the Company’s core spending on sales was consistent with the prior year. With ECM becoming a viable, growing segment of the software market, the Company is placing additional emphasis on marketing initiatives in an effort to be globally regarded as the ECM market leader. Sales and marketing personnel increased from 322 at the end of fiscal 2003 to 498 at the end of fiscal 2004. Similar to the other functional groups, this increase
though,in headcount wasmore than offset by decreasesfocused ina numberEurope due to the fiscal 2004 acquisitions. As ofdiscretionary areas, specifically recruiting costs, consulting expenses,June 30, 2004, approximately 50% of the Company’s sales andexternalmarketingspending.personnel were located in Europe as compared to 30% in the prior year.General and administrative expenses.General and administrative expenses consisted primarily of the salaries of administrative personnel,
andrelated overhead, facilities expenses andfacilities expenses.corporate public company costs. General and administrative expensesdecreased 5%increased 69% from$13.2$13.5 million inthe year ended June 30, 2001fiscal 2003 to$12.5$22.8 million inthe year ended June 30, 2002 and decreasedfiscal 2004 but remained consistent as a percentage of total revenues at 8% in both fiscal 2004 and 2003. Over half of the increase in general and administrative expenses relate to expenses added as part of the 2004 acquisitions. Approximately 50% of the remaining increase in general and administrative expenses relates to increased personnel the Company added throughout fiscal 2004. As the size and scope of the Company’s business continues to grow, Open Text requires a more sophisticated infrastructure to support the changing needs of the business. All areas within general and administrative expenses, including finance, information technology, and human resources, added headcount during the year. Total general and administrative personnel increased from9% in the year ended200 as of June 30,20012003 to8% in the year ended348 as of June 30,2002. During2004. Whereas approximately 75% of the Company’s general and administrative personnel were located in North America as of June 30, 2003, this percentage has been reduced to a little over 50% as of June 30, 2004 as a result of the fiscal2002,2004 acquisitions. The remainder of theCompany initiated a seriesincrease in general and administrative expenses is comprised ofcost reduction measures affectinghigher spending in a number ofdiscretionary and controllable areas. Specifically,non-personnel areas, including compliance with new legislation including theCompany realized cost savingsSarbanes-Oxley Act, as well as increased spending with respect totravel,consulting andlegaltravel resulting from significant acquisition integration activities.Depreciation expenses
that totaled approximately $1.9 million during fiscal 2002 as compared with fiscal 2001. Depreciation expenses.. Depreciation expense increased8%42% from$5.2$5.0 million in fiscal 2003 to $7.1 million in fiscal 2004. Almost all of the increase in depreciation expense is a result of increased depreciation expenses recorded during the yearended June 30, 2001relating to$5.6 million incapital assets acquired as part of the fiscal 2004 acquisitions. Before the impact of the fiscal 2004 acquisition depreciation is considered, the Company’s depreciation expense remained consistent with the depreciation expense the Company recorded during fiscal 2003. During the year,ended June 30, 2002. This increasethe impact of the full depreciation of older assets wasthe result of new capital expenditures during fiscal 2002 as well as a full year'snot offset by depreciation onassets purchased or acquired in fiscal 2001. 26newer capital assets. Amortization of acquired intangible assets.
Included in amortizationAmortization of acquired intangible assetsisincludes the amortization ofcoreboth acquired technologypurchased softwareandgoodwill on the acquisitions of Bluebird, LeadingSide, Open Image, Base4, OnTime, Information Dimensions, Lava, PS Software and Microstar.customer assets. Amortization of acquired intangible assets increased18%249% from$5.5$3.2 million forthe year ended June 30, 2001fiscal 2003 to$6.5$11.3 million for fiscal 2004. This increase was principally the result of acquisitions during fiscal 2004, which accounted for 69% of the increase as the size of acquisitions completed during fiscal 2004 was far greater than those completed in any previous fiscal year. As a result, the amount allocated as part of the various purchase price allocations, to intangible assets, was also greater than in any previous fiscal year. Because the amortization of acquired intangible assets has only been included from the date of acquisition, this expense will continue to increase substantially in fiscal 2005 when a full yearended June 30, 2002.amortization is recorded for the fiscal 2004 acquisitions. The remaining 31% increase was due to amortization of acquired intangibles from acquisitions in fiscal 2003 being included for a full fiscal year as compared to the 3 months of amortization expense recorded on the 2003 acquisitions during fiscal 2003.Other income. Other income decreased 92% from $2.8 million for fiscal 2003, compared to $0.2 million for fiscal 2004. Other income consists primarily of foreign exchange gains or losses, which reflect relative movements in the various foreign currencies in which the Company conducts business.
Interest.Interest income, net remained unchanged at $1.2 million in fiscal 2003 and fiscal 2004.
Income taxes.During fiscal 2004, the Company recorded a tax provision of $7.3 million compared to $3.2 million during fiscal 2003. The increase in
amortization wasthe Company’s tax provision is due to theCompany's acquisition activity in fiscal 2001. During fiscal 2001, only a partial year of amortization expenses was recorded on the intangible assets acquired duringfact thatyear, whereas a full year's amortization expenses was recorded for those same intangible assetsduring fiscal2002. 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's attempted acquisition of Accelio Corporation, a software company located in Ottawa, Ontario. The gain that2004, the Companyrealized on this acquisition arose from the sale of shares of Accelio common stock owned bybecame taxable or began using acquired losses in certain taxing jurisdictions where it was previously able to use internally generated tax loss carry forwards. When the Company uses losses acquired in business combinations, the benefit of those losses impacts the purchase equation andgains realized in connectionnot the income statement as occurs withcertain lock-up agreements in connection withinternally generated loss carryforwards.The Company’s deferred tax asset of $46.4 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
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 resultoperations of the Companyrealizing $154,000in the tax jurisdictions in which such losses or deductions arose. The deferred tax liability arises from the amortization of timing differences relating to acquired intangible assets, non-capital losses acquired at a discount in asset acquisitions, and future income inclusions. 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 thesalereversal ofthese shares, netdeferred income tax liabilities, projected future taxable income, the character ofits cost of $102,000 ontherelated securities. Interest. Interestincomewas $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 million in fiscal 2001. The net deferredtax assetas of June 30, 2002andJune 30, 2001 was nil. During fiscal 2002, the Company utilized $7.7 million of deferredtaxassets, of which $7.2 million were used to offset current income with losses from prior years. In accordance with US GAAP,planning strategies, management has determined that a valuation allowance of$9.3$126.9 million isrecorded againstrequired in respect of its deferred income tax assets as at June 30, 2004. A valuation allowance of $5.7 million was required for the deferred income taxasset,assets as at June 30, 2003. This increase is primarily attributable to valuation allowances against acquired loss carryforwards in the year. In order to fully utilize the recognized deferred income tax assets of $46.4 million, the Company will need to generate aggregate future taxable income in applicable jurisdictions of approximately $133 million. Based on the Company’s current projection of taxable income for the periods in the jurisdictions in which the deferred income tax assets are deductible, it isnot considered to bemore likely than not that the Company will realize the benefit of theasset will be realized. The decrease of $7.8 million from the valuation allowance asrecognized deferred income tax assets at June 30,2001 of $17.1 million mainly represented the utilization of prior years' losses against the current year'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 of2004.During fiscal 2004, the Company
among others. Please see Note 12recorded deferred tax assets of $11.9 million and deferred tax liabilities of $2.3 million inNotes to Consolidated Financial Statements.connection with its acquisition of IXOS. Deferred tax assets associated with the acquisition of Gauss were fully offset by a valuation allowance.Fiscal
20012003 Compared with Fiscal20002002Revenues. Total revenues included license revenues, customer support 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. 27revenues. Total revenues increased 31%15% from$112.9$154.4 million inthe year ended June 30, 2000fiscal 2002 to$147.7$177.7 million inthe year ended June 30, 2001.fiscal 2003. Revenues fromlicenses and networkinglicense increased28%15% from$57.6$66.0 million in fiscal 2002 to $76.0 million fiscal 2003. The increase in license revenues was a result of several factors, including theyear ended June 30, 2000 to $73.8 millionCompany’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 revenue growth. Also contributing to license revenue growth were the acquisitions completed during fiscal 2003. Specifically, approximately $5.6 million of license revenue was recorded during the fiscal yearended June 30, 2001.relating to the fiscal 2003 acquisitions. Additionally, the introduction of new modules designed to accelerate deployment and address very specific issues faced by customers further contributed to the Company’s growth in license revenues. Revenue of these products 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.Customer support revenues increased
51%30% from$26.6$48.7 million inthe year ended June 30, 2000fiscal 2002 to$40.3$63.1 million inthe 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. Infiscal2001 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.2003. The increase in customer supportrevenue was a direct resultrevenues resulted from several factors including the increase in the number ofcontinued strong license sales,licenses granted in fiscal 2003, as well as strong renewal rates for maintenance contracts for existingaccounts.customers. During fiscal 2003, the Company effectively implemented price increases in all regions for its customer support services and those increases contributed to the revenue growth achieved in fiscal 2003. Additionally, in fiscal 2003 the Company’s customer support organization began to offer to customers a number of value added support programs. Theincreaseacquisitions in fiscal 2003 also contributed to the growth in customer support revenues. 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. The Company’s renewal rate of maintenance contracts for the Company’s products was 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 and integration revenues relating to customers of companies acquired during fiscal 2003 totaling approximately $600,000 during fiscal 2003. These increases were more than offset by a decrease in services
providedrevenue relating tonew license customers.certain of the Company’s older products.Cost of revenues. Cost of license
and networkingrevenuesconsistsconsisted primarily of the costs associated with the royalties payable tothird partiesthird-parties whose software is bundledinwith theCompany'sCompany’s products, as well as product media, duplication, manuals, packaging expenses, andpackaging expenses.finder’s fees. Cost of licenseand networkingrevenues increased119%23% from$2.7$5.3 million inthe year ended June 30, 2001fiscal 2002 to$5.9$6.6 million inthe year ended June 30, 2000. Costs of revenues increased asfiscal 2003. As a percentage of licenserevenuerevenues, the cost of license revenues increased slightly from5% to8%. This increase was primarily due to a one-time third party software charge associated with a large license transaction that was incurred induring fiscal2001. 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 an2002 to 9% during fiscal 2003. The increase in cost of license revenues infiscal 2001. Costsabsolute dollars was a reflection ofnetworkingthe increase in license revenues. The increase in cost of license as a percentage of license revenueswere $300,000was due to higher third-party product costs included in licenses granted during fiscal2001, the first year that the Company began marketing its networking offering. As a result, there was no cost of networking revenues during fiscal 2000.2003 associated largely with acquired companies’ products.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 ofcustomer support revenues is comprised primarily of technical supportpersonnel.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 from22%17% in fiscal 2002 to 16% in fiscal 2003, reflective of theyear ended June 30, 2000fact that the Company effectively restructured the acquired companies’ cost structures and that the Company realized some economies of scale as its support organization continued to19% in the year ended June 30, 2001.grow.Cost of service revenues consisted primarily of the costs of providing integration,
product supportcustomization and training. Cost of service revenues increased 3% from$24.2$27.4 million inthe year ended June 30, 2000fiscal 2002 to$25.0$28.2 million inthe year ended June 30, 2001, primarily due to the additional personnel hired to support the expanded activities of the integration and consulting departments.fiscal 2003. Cost of service revenues as a percentage of service revenuesdecreasedincreased from84%69% inthe year ended June 30, 2000fiscal 2002 to74%73% inthe year ended June 30, 2001,fiscal, 2003. Additional costs assumed as a result ofimproved utilization rates. Thethe 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 Companybelievesrecorded approximately $700,000 less of investment tax credits through its services organization, due to the fact thatit must continuethe amount of investment tax credits recorded during fiscal 2002 was atypically high. Investment tax credits are recorded as a credit toenhance its integrationcost of service revenues. Consequently, once the impact of the 2003 acquisitions andconsulting capabilitiesinvestment tax credits are removed, the Company’s core services organization actually realized a decrease in costs in fiscal 2003 asits customer base expands.compared with fiscal 2002. This decrease in core cost of services was 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. The Company
presently expensesexpensed all research and development costs asincurred. See Note 2 of Notes to Consolidated Financial Statements.incurred during the year. Research and developmentcostsexpenses increasedby 37%22% from$17.7$24.1 million inthe year ended June 30, 2000fiscal 2002 to$24.3$29.3 million inthe year ended June 30, 2001fiscal 2003 and, as a percentage ofrevenue,total revenues, remainedconstant between the two yearsrelatively consistent at 16%.in both fiscal 2002 and 2003. The increaseof $6.6 millionin research and development expenses in absolute dollars in fiscal2001 was2003 resulted primarilythe resultfrom approximately $4.0 million of additional expenses added as part of theincreased labor costs thatintegration of the development organizations of the companies acquired in fiscal 2003. The increase in research and development expense in fiscal 2003 as compared with fiscal 2002 also resulted from thehiring of additional employeesfact that in fiscal 2003 theCompany'sCompany recorded approximately $750,000 less in investment tax credits, which were recorded as a reduction to research and developmentfacilities, as well as the additional personnel added as a resultexpenses. The investment tax credits recorded during fiscal 2002 were atypically high, and were not considered to be indicative ofacquisitionsclaims expected to be made in2001. The fiscal 2000 amount includes a one-time expense of $475,000 relating to the purchase of audio technology from Communities.com.subsequent years.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 increased2820%from$42.9$51.1 million fiscal 2002 to $54.5 million inthe year ended June 30, 2000 to $51.3 million in the year ended June 30, 2001.fiscal 2003. Sales and marketing expenses decreased as a percentage of total revenues from38%33% in fiscal 2002 to 31% in fiscal 2003. Of theyear ended June 30, 2000 to 35%increase inthe year ended June 30, 2001. The increasesales and marketing expense in absolute dollars,was due principally$1.0 million related toexpenses associated with increasesadditional marketing initiatives, approximately half of which related to the companies acquired in fiscal 2003. Additionally, sales costs assumed as part of thenumberCompany’s 2003 acquisitions accounted for an additional $5.4 million of sales and marketingpersonnel and related salaries and commissions, as well asexpensesrelatedduring fiscal 2003. Consequently, sales expenses decreased by approximately $1.4 million within the Company’s core business operations during fiscal 2003, the majority of which relates tomarketing, public relations activities, marketing materials, advertising and trade shows.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
decreased 33%increased 8% from$19.8$12.5 million inthe year ended June 30, 2000fiscal 2002 to$13.2$13.5 million inthe year ended June 30, 2001 and decreasedfiscal 2003 but remained consistent as a percentage of total revenuesfrom 18%at 8% in both fiscal 2002 and 2003. Of theyear 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$1.0 million increase insalaries and communication costs. In fiscal 2000, the Company's non-recurring Year 2000 legal, testing and compliance costs significantly impacted that year'sgeneral and administrativeexpenditures. Also duringexpenses, approximately half related to the 2003 acquisitions, most notably Centrinity. The balance of the increase in general and administrative expenses related to increases in a number of administrative areas, the majority of which were driven by a higher volume of business activity in fiscal2000 the Company wrote-off a significant amount of accounts receivable that were determined not2003 as compared with fiscal 2002.Depreciation expenses. Depreciation expense decreased 10% from $5.6 million in fiscal 2002 to
be collectible. Generally, these bad debts were$5.0 million in fiscal 2003. The decrease in depreciation expense was a result of theCompany's determining that its respective customersfact the Company did nothave the capacity to pay their respective amounts due. In addition, the Company incurred non-recurring legal costs from its NetSys legal proceedings duringmake significant capital expenditures in fiscal2000. 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 due2003. Depreciation relating to thelackcapital assets added as part ofcollection assurance. Depreciation expenses. Depreciation expensethe fiscal 2003 acquisitions was$4.6 million inonly recorded for a partial year, and as a result this additional depreciation did not offset theyear ended June 30, 2000 and increased to $5.2 million inreduction realized from theyear ended June 30, 2001. This increase wasCompany’s core base of capital assets during theresult of increased capital expenditures during fiscal 2001 as well as increased capital equipment acquired through acquisitions.year.Amortization of acquired intangible assets.Amortization of acquired intangible assets
was $3.0 million for the year ended June 30, 2000includes amortization of both acquired technology and$5.5 million for the year ended June 30, 2001. Included incustomer assets. Additionally, during fiscal 2002 amortization of acquired intangible assetsisincluded amortization ofcore technology, purchased software andgoodwill on acquisitions. At theacquisitionbeginning ofBluebird, 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 infiscal2001. Restructuring costs. During fiscal 2000,2003, the Companyrecordeddiscontinued its amortization of goodwill consistent with new accounting pronouncements. As arestructuring chargeresult, amortization 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 $49acquired intangible assets decreased 50% from $6.5 million forthe year ended June 30, 2000, comparedfiscal 2002 toa $2.4$3.2 millionlossforthe 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.fiscal 2003. Thisgaindecrease wasaprincipally the result of theCompany having realized proceedsdiscontinued amortization 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 investmentsgoodwill, which was partially offset bya recoveryadditional amortization on the intangible assets recorded as part ofan acquisition accrual relatingthe 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
favorable settlementCompany’s attempted acquisition ofcertain claims totaling $734,000, as well asAccelio Corporation, a software company located in Ottawa, Ontario. The gain that the Company realized on this attempted acquisition arose from the sale of shares ofAbout.comAccelio 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 was primarily comprised of$52,000. This gainforeign exchange gains realized during the year, the most significant cause of which was theresultappreciation of theCompany realizing $154,000 onEuro against thesale of these shares, net of its cost of $102,000 on the related securities.U.S. dollar.Interest.Interest income
was $6.2decreased 33% from $1.9 million inthe year ended June 30, 2000,fiscal 2002, compared to$4.7$1.2 million inthe year ended June 30, 2001.fiscal 2003. The decrease was due to loweraverage cash balances held byinterest 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
2001, largely a result of2002. The increase in therepurchase of its common stockCompany’s tax provision was due to the fact that duringthe 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. Duringfiscal2001,2003, the Companyutilized $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 thebecame taxable in certain taxing jurisdictions where it was previously able to useof 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).loss carryforwards.Quarterly Results
The following table summarizes selected unaudited quarterly financial data
overfor the pasttwo fiscal years:eight quarters:
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 2004 Fourth Quarter Third Quarter Second Quarter First Quarter (in thousands, except per share data) Total revenues
$ 104,984 $ 80,215 $ 61,674 $ 44,185 Gross profit
74,197 60,005 45,944 32,510 Net income
$ 8,973 $ 3,279 $ 7,692 $ 3,354 Net income per share
Basic
$ 0.18 $ 0.07 $ 0.19 $ 0.08 Diluted
$ 0.16 $ 0.07 $ 0.18 $ 0.08 Fiscal 2003 Fourth Quarter Third Quarter Second Quarter First 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
$ 0.24 $ 0.17 $ 0.16 $ 0.14 Diluted
$ 0.22 $ 0.16 $ 0.15 $ 0.13 The Company has experienced, and is likely to continue to experience, significant fluctuations in quarterly results
that have beencaused by many factors, including changes in demand for theCompany'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 otherquarters, however,quarters. The acquisition of IXOS, which generates a very high proportion of its revenues in Europe, will make this trend more pronounced going forward. 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 andSpecialWarrants. At June 30,2002,2004, the Company had working capital of$103.9$104.7 million compared to working capital of$82.0$94.4 million at June 30,2001,2003. This increase in working capital primarily relates to increased working capital assumed asa resultpart ofincreases in cash and cash equivalents that resulted from profits earned duringthepastIXOS acquisition, along with the Company’s fiscalyear.2004 profitability. Cash and cash equivalents increased from$87.5$116.6 million at June 30,20012003 to$109.9$157.0 million at June 30,2002,2004, 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 30,2002,2004, 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 pledgedallcertain of its assets including an assignment of accounts receivable as collateral for outstanding amounts under this line of credit.On October 16, 2003, the Company acquired approximately 75% of the shares of Gauss for total cash consideration of $9.8 million. The results of Gauss’ operations have been included in the consolidated financial statements of Open Text since that date. As of June 30, 2004, Open Text had acquired approximately 92% of the common shares of Gauss as a result of additional shares purchased under a delisting offer, an agreement of control, as well as through the purchase of common shares on the open market and through a public tender offer. The Company intends to achieve 100% ownership and has offered to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss-Share. As of June 27, 2004 there were 662,241 Gauss shares not owned by Open Text. Therefore, the maximum cost for these shares is Euro 701,975. The original acceptance period had been two months. After certain shareholders filed for a special court procedure to reassess the amount of the offered consideration (Spruchverfahren), the acceptance period was extended pursuant to mandatory German law until the end of these proceedings.
On October 23, 2003, Open Text acquired all the common shares of DOMEA eGovernment for total consideration of up to $11.4 million, subject to meeting certain revenue performance and certain adjustments based on the Company’s assets and liabilities. The results of DOMEA eGovernment’s operations have been included in the consolidated financial statements of Open Text since that date. As June 30, 2004, potential purchase price payment obligations in the amount of $2.5 million in cash and $1.8 million in shares remains outstanding.
On February 19, 2004, the Company acquired approximately 88% of the ordinary share capital and voting rights of IXOS, including shares acquired in the open market for cash consideration of $15.3 million plus issuance of 9.3 million in common shares and 2.6 million in warrants. Between the closing date and June 30, 2004, Open Text acquired an additional 1% of the Common Shares of IXOS for $2.3 million in cash. The results of operations of IXOS have been consolidated with those of Open Text beginning March 1, 2004. The Company anticipates that it will acquire all of the outstanding shares of IXOS. The total cash consideration to acquire the remaining outstanding shares of IXOS is estimated to be approximately 9 EURO per share, for a total cost of approximately $30 million. The timeline for achieving 100% ownership is uncertain and could take several more quarters. During fiscal 2004, proceeds received from exercised purchase warrants were $4.7 million. These purchase warrants expire in February 2005. Assuming 100% of the outstanding warrants are exercised prior to expiration, the Company can expect to receive further cash proceeds of approximately $50 million.
Cash provided by operations during
the year ended June 30, 2002fiscal 2004 was$28.5$37.5 million, compared to$11.8$40.0 million for fiscal 2003. This decrease is primarily due to theyear endedfact that the Company undertook a restructuring during its third quarter of fiscal 2004 and $3.4 million was paid out relating to this undertaking by June 30,2001. This increase is largely a function of higher net income during fiscal 2002, as well as cash generated from a number of operating asset and liability accounts.2004.Net cash
used for 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 millionused in investment activitiesforduring fiscal2001, consisting2004 was $19.6 million of which $9.8 million relates to the acquisition of Gauss, $3.4 million relates to the acquisition of DOMEA eGovernment, and cash provided through the acquisition of IXOS of $19.4 million. The IXOS acquisition represented a source of cash given the fact that the acquisition was financed primarily through shares and IXOS had significant cash reserves on itsbalance sheet at the date of
acquisitions of furniture and equipment totaling $5.8 million and $15.6 million foracquisition. Other significant investment activities during fiscal 2004 include the purchase of capital assets totaling $6.1 million, other acquisitions of $4.0 million, and business acquisition costs of $15.7 million. Net cash used in investment activities in fiscal 2003 was $23.9 million of which $18.2 million related to thefollowing companies: Bluebird, LeadingSide, Open Image,acquisitions of Centrinity, Corechange andBase4.Eloquent. The other significant investment activity during fiscal 2003 was the purchase of capital assets, which totaled $3.6 million.Net cash provided by financing activities during fiscal 2004 was $21.9 million This amount was comprised of proceeds of $18.3 million received by the Company related to the exercise of stock options and purchases made under the Company’s employee stock purchase plan and proceeds of $4.7 million related to the issuance of warrants arising from the IXOS acquisition. These proceeds were offset by deferred financing costs related to the IXOS acquisition of $0.7 million, and payments of capital lease obligations of $0.4 million. Net cash used in financing activities was
$6.3$10.1 millioninduring fiscal2002, primarily resulting from2003. This amount was comprised of proceeds of $7.0 million received by therepurchase for cancellationCompany related to the exercise of620,200stock options and purchases made under the Company’s employee stock purchase plan, offset by $17.3 million spent on repurchasing 1,512,000 Common Shareson the open market at a cost of $13.8 million,of which$6.3$7.7 millionhas beenwas charged to share capital and$7.5$9.6 millionhas beenwas charged to accumulateddeficit, partially offset by proceeds of $7.5 million from the sale of Common Shares related to the exercise of Company stock options. During fiscal 2001, net cash used in financing activities was $15.3 million, primarily resulting from the repurchase 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's stock options.deficit.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$1.9$1.4 million during fiscal20022004 and$4.7$1.3 million during fiscal2001,2003, due tolower interest rateshigher cash balances maintained in fiscal2002.2004 as compared to fiscal 2003.The Company’s capital asset balance increased from $10.0 million as at June 30, 2003 to $24.7 million as at June 30, 2004. This increase is primarily due to the addition of capital assets net of depreciation acquired through the Company’s three acquisitions completed during fiscal 2004 that totaled over $14.2 million and regular capital asset acquisitions totaling $0.4 million as well the impact of foreign exchange revaluations.
The increase in the Company’s goodwill from $32.3 million as at June 30, 2003 to $223.8 million as at June 30, 2004 is due to additional goodwill recorded in connection with the fiscal 2004 acquisitions.
The Company’s acquired intangible assets totaled $20.5 million as at June 30, 2003 as compared to $116.6 million as at June 30, 2004. During fiscal 2004, the Company added $107.4 million of intangible assets as a result of 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’s other assets totaled $3.1 million as at June 30, 2003 as compared to $5.7 million as at June 30, 2004. Other assets are primarily comprised of deposits, loan receivable, and pension plan assets.
Subsequent to June 30, 2004, the Company entered into separate commitments to purchase Artesia Technologies Inc., as well as the business assets of the Vista Plus suite of products. Total consideration for these transactions will be approximately $30.0 million cash, and it is expected that this amount will be principally paid during the Company’s quarter ending September 30, 2004.
In July 2004, the Company entered into a commitment to construct a building in Waterloo, Ontario in an effort to consolidate its existing facilities in Waterloo. Construction of this facility will commence in the Company’s first quarter ending September 30, 2004, and is expected to be completed by August 2005 which is the approximate date when the Company’s current leases for space in Waterloo will expire. The size of this facility is approximately the same as the Company’s current space under lease in Waterloo, with a provision for modest growth. The facility is to be constructed on a land which has been leased from the University of Waterloo in its High-Technology Park for a period of 99 years. The total cost of this project is approximately $8 million and at this point the Company intends to finance this investment through its working capital. Once constructed, this facility will become the Company’s lowest cost facility on a per square footage basis.
The Company currently anticipates that its operating expenses for the year ending June 30,
20032005 will be relatively consistent, as a percentage of revenue, with those incurred in fiscal2002.2004. In absolute dollars, operating expenses will increase substantially, along with revenues, given that a full year’s operating results for IXOS will be recorded. Similarly, the Company currently anticipates that amounts expended on capital assets for the year ending June 30,20032005 will be generally consistent with those incurred during fiscal2002.2004. 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.Cautionary StatementsCommitments and Contractual Obligations
As of June 30, 2004, 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.
Payment due by period Total Less than
1 year1 - 3
years3 - 5
yearsMore than
5 yearsOperating lease obligations
111.4 17.1 31.3 28.2 34.8 Purchase obligations
2.2 0.7 1.5 — — 113.6 17.8 32.8 28.2 34.8 Off-Balance Sheet Arrangements
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 U.S. GAAP, neither the lease liability nor the underlying asset is carried on the balance sheet, as the terms of the leases do not meet the thresholds for capitalization. Commitments related to the operating leases over the next five years and thereafter are disclosed above.
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 typically limited to the value of the fees paid for the corresponding license or service, but the company does agree in limited circumstances to expand this limitation or to make the indemnification obligation unlimited. To date the Company has not paid any amounts to settle claims or defend lawsuits.
Pursuant to the Agreement of Control between 2016090 Ontario Inc. (“Ontario”), a wholly owned subsidiary of Open Text, and Gauss, Ontario has offered to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss-Share. As of June 27, 2004 there were 662,241 Gauss shares not owned by
Open Text. The costs for these shares will be Euro 701,975, if the remaining shareholders agree to sell at this price. The original acceptance period had been two months. As a result of certain shareholders having now filed for a special court procedure to reassess the amount of the offered consideration (Spruchverfahren), the acceptance period has been extended pursuant to mandatory German law until the end of such proceedings. In addition, in April 2004 Gauss announced that effective July 1, 2004 the shares of Gauss will cease to be listed on a stock exchange. In connection with this delisting, on July 2, 2004, a second offer by Ontario to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share has commenced. Again, the acceptance period has been extended pursuant to mandatory German law until the end of the proceedings to reassess the amount of the offered consideration (Spruchverfahren). The Agreement of Control is currently subject to a court procedure in which certain shareholders of Gauss claim, that the resolution of shareholders of Dec 23, 2003 respecting the Agreement of Control is null and void. A first instance judgment (in favor of the validity of the Agreement of Control) is expected by November 2004 at the earliest.
Risk Factors That May Affect Future Results
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
1995.1995 and are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, including those set forth in the followingcautionarystatements 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 theCompany'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 likely 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, the
Company'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 onintends to pursue its strategy of growing the capabilities of its ECM software offerings through the in-house research and development ofand improvements to,newversions ofproduct offerings. During fiscal 2004, the Company enhanced Livelink andother products. In November 2001,several of its optional components to continue to set theCompany released Livelink MeetingZone(TM),standard for Enterprise Content Management capabilities and inApril 2001,response to customer requests. Examples include theCompany released Livelink Wireless(TM). In February 2002, Open Text released Livelink 9.1,addition of secure Instant Messaging capability and thelatest release ofability to distribute rich-media presentations including video, voice and textcomponents to a wide audience over the
Company's flagship product.web. The primary market for OpenText'sText’s software and services is rapidly evolving. As is typical in the case of anew andrapidly 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 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 the Company’s operating results
Open Text acquired a number of companies in each of fiscal 2003 and 2004 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 and acquisitions create risks including 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-time 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. In addition, if Open Text acquires companies with weak internal controls, it will take time to get the acquired company up to the same level of operating effectiveness as Open Text. The Company’s inability to address these risks could negatively affect the Company’s operating results.
The tender offer for all shares of IXOS by Open Text began on December 2, 2003. On February 19, 2004, Open Text Corporation closed the tender offer, pursuant to which, 2016091 Ontario, a wholly owned subsidiary of Open Text Corporation, acquired a total of 19,157,428 IXOS shares or approximately 88% of the ordinary share capital and voting rights of IXOS, including shares acquired in the open market. Between the closing date of the tender offer and June 30, 2004, Open Text acquired an additional 203,647 Common Shares of IXOS. As a result of the additional purchase, 2016091 Ontario obtained a total of 19,361,075 IXOS shares or approximately 89% ownership in IXOS. The issuance of Common Shares and Common Share purchase warrants by Open Text under the offer and the subsequent resale of these securities may result in a material adverse affect on the market value of our Common Shares. After completion of the offer, Open Text must successfully integrate, among other
things, certain product offerings, product development, sales and marketing, administrative and customer service functions, and management information systems of the Company and IXOS. This integration may cause disruptions, including potential loss of customers, suppliers, and other business partners, in the business of Open Text or that of IXOS, which could have material adverse effects on each company’s or the combined companys’ business and operations. In addition, Open Text may not be able to retain the management and key employees of IXOS. It is possible that these integration efforts will not be completed as efficiently as planned or will distract management from the operations of the combined company. Expected cost savings from the business combination may not be fully realized or realized within the Company’s expected time frames.
Businesses acquired by the Company may have disclosure controls and procedures and internal controls that are weaker than or otherwise not in conformity with those of the Company
The Company has a history of acquiring complementary businesses with varying levels of organizational size and complexity. Upon consummating an acquisition, the Company seeks to implement its disclosure controls and procedures and internal controls at the acquired company as promptly as possible. Depending upon the size and complexity of the business acquired, the implementation of the Company’s disclosure controls and procedures and internal controls at an acquired company may be a lengthy process. Typically the Company conducts due diligence prior to consummating an acquisition, however, the Company’s integration efforts may periodically expose deficiencies in the disclosure controls and procedures and internal controls of an acquired company. The Company believes that the process involved in completing the integration of the Company’s own disclosure controls and procedures and internal controls at an acquired business will sufficiently correct any identified deficiencies.
A reduction in the number or sales efforts by distributors could materially impact the Company’s revenues
A material 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, 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. The Company is increasing its presence in the European market, especially since its acquisition of IXOS. Revenues derived outside of North America represented 53%, 42%, and 40% of total revenues for fiscal 2004, 2003, and 2002, 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, 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 the Company's end-user base consists of a limited number of end-users, theThe 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 ondamage remedies andthe 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 infringes their intellectual property, 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 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. In particular, 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. Any of the foregoing could have a significant impact on the Company’s ability to generate future revenue and profits.
The loss of licenses to use third party software or the lack of support or enhancement of such software could adversely affect the Company’s business
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's products TheCompany’s products. For a limited number of product modules, the Company relies on certain software that it licenses fromthird parties,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 tousthe Company 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, andintegrated. Currentintegrated, andfuture competitorscouldhave a significant impactadversely affect the Company’s business.The Company’s success depends and will depend on
the Company's abilityour relationships with strategic partnersThe company relies on close cooperation with leading partners for product development, optimization, and sales. If any of our partners should decide for any reason to
generate future revenue and profits The markets 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. 33Numerous releases of products and services that competeterminate or scale back their cooperative efforts withthose ofthe Company,canour business, operating results, and financial condition may beexpected 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.adversely affected.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 CompanyOur expenses may not
achieve itsmatch anticipated revenuesif it doesWe base our operating expenses on anticipated revenue trends. Since a high percentage of these expenses are relatively fixed, a delay in recognizing revenue from license transactions could cause significant variations in operating results from quarter to quarter and could result in operating losses. If these expenses precede, or are not
expand its product line Substantially all of Open Text'ssubsequently followed by, increased revenues,are currently derived from its Livelink and related products and services offered by the Company in the Internet, intranet and extranet markets. Accordingly, the Company's futureour business, financial condition, or results of operationswill depend, in part, on expanding its product-linecould be materially andrelated 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 the Company's business.adversely affected.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 grownfrom 292 as of September 1, 1996to980, excluding contractors,approximately 2105 as of June 30,2002.2004. 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 softwarewhich,that, 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, Microsoftand 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 the
Company'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 materially 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 timing of restructuring charges taken in connection with acquisitions completed by the Company, 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 materially decline.Failure to protect
ourthe Company’s intellectual property could harm our ability to compete effectivelyThe 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, subject to those patents and patents pending as discussed on page 22, 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 the
Company'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
hightechnology 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 theCompany'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 reductionWe may have exposure to greater than anticipated tax liabilities
We are subject to income taxes and non-income taxes in a variety of jurisdictions and our tax structure is subject to review by both domestic and foreign taxation authorities. The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment. Although we believe our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the
numberperiod orsales efforts by distributors could materially impactperiods for which such determination is made.New accounting pronouncements may require us to change the
Company's revenues A portionway in which we account for our operational or business activitiesThe Financial Accounting Standards Board and other bodies that have jurisdiction over the form and content of our accounts are constantly discussing proposals designed to ensure that companies best display relevant and transparent information relating to their respective businesses. The effect of the
Company's revenue is derived frompronouncements of FASB and other bodies may have thelicenseeffect ofits 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 continuerequiring us to account fora significant portion of its revenue. Revenues derived outside of North America represented 40%, 41%, and 39% of totalrevenuesfor 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 productsand/or expenses in atimely manner. International operations also tenddifferent manner than at present. In particular, if the FASB or any other standard-setting or regulatory body requires us toexpose 36expense the Companyfair value of stock options, we would likely report increased expenses in our income statement and a reduction of our net income and earnings per share. The impact of applying a fair value method of accounting for stock options is disclosed in the Note 2 toa longer sales and collection cycle, as well as potential losses arising from currency fluctuations, and limitations regardingtherepatriation 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.Consolidated Financial Statements.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 30,2002.2004. The Company primarilyinvests its cash in short-term, high-quality securities with reputable financial institutions. The primary objective of the
Company'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 30,20022004 would have been a decrease of approximately$1.0$1.3 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"),the British Pound Sterling,("GBP"),the Australian dollar,("AUD"),the Swiss Franc,("CHF"), the German Mark ("DEM"), the French Franc ("FRF"), the Dutch Guilder ("NLG"), the Danish Kroner ("DKK"), the Arabian Durham ("AED"),and theEuro ("EUR").Euro. 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%53%,41%42%, and39%40% of theCompany'sCompany’s total revenues in fiscal2002, 2001,2004, 2003, and2000,2002, respectively, were derived from operations outside of North America. Approximately45%61%,42%46%, and44%45% of theCompany'sCompany’s operating expenses in fiscal2002, 20012004, 2003 and2000,2002, respectively, were incurred from operations outside of North America. The Company does not currently use financial instruments to hedge operating expenses in foreigncurrencies.currencies, as it feels that its diverse international base of revenues and expenses provides a natural hedge to its foreign currency exposure. 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%decreasechange against the U.S. dollar would have had on theCompany'sCompany’s total revenues, operating expenses, and net income for the year ended June 30,2002.2004 assuming no other impact. 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
$ 8,052 $ 7,001 1,051 British Pound
3,540 2,172 1,368 Canadian Dollar
1,750 5,166 (3,416 ) Swiss Franc
1,441 1,615 (174 ) 10% Change in Transactional Currency Total
RevenueOperating
ExpensesNet
IncomeEuro
$ 7,873 $ 6,985 $ 888 British Pound
3,413 2,143 1,270 Canadian Dollar
1,355 4,448 (3,093 ) Swiss Franc
1,133 1,669 (536 ) Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data
Page Number Management's59 60 Consolidated Balance Sheets at June 30,
20022004 and2001 43200361 62 63 64 65 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
/s/ P. THOMAS JENKINS
/s/ ALAN HOVERD
P. Thomas Jenkins
Chief Executive Officer
Alan Hoverd
Chief Financial Officer
August 31, 2004
REPORT OF
KPMG]INDEPENDENTAUDITORS' REPORTREGISTERED PUBLIC ACCOUNTING FIRMTo the Shareholders of Open Text Corporation
We have audited the accompanying consolidated balance sheets of Open Text Corporation as of June 30,
20022004 and20012003 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 30,2002.2004. These consolidated financial statements are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these consolidated 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 withauditingthe standardsgenerally accepted inof theUnited States.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an 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
companyCompany asatof June 30,20022004 and20012003 and the results of its operations and its cash flows for each of the years in thetwo-yearthree-year period ended June 30,2002,2004, in conformity withaccounting principlesU.S. generally accepted accounting principles.As discussed in
the United States of America. On July 29, 2002, we reported separatelyNote 2 tothe shareholders of the company onthe 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 forthe same period, prepared in accordance with Canadian generally accepted accounting principles.goodwill and intangible assets resulting from business combinations consummated after June 30, 2001./s/ KPMG LLP
Chartered Accountants
Toronto, Canada
July 29, 2002 41[LETTERHEAD OF PRICEWATERHOUSECOOPERS] Auditors' Report To the Shareholders 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. OnAugust
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. 4231, 2004 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, 2004 2003 ASSETS Current assets:
Cash and cash equivalents
$ 156,987 $ 116,554 Accounts receivable trade, net of allowance for doubtful accounts of $3,628 as at June 30, 2004 and $1,933 as at June 30, 2003
82,996 35,855 Income taxes recoverable
7,041 484 Prepaid expenses and other current assets
6,550 3,541 Deferred tax asset (note 15)
18,776 7,688 Total current assets
272,350 164,122 Capital assets (note 3)
24,678 10,011 Goodwill, net of accumulated amortization of $12,807 at June 30, 2004 and 2003 (note 4)
223,752 32,301 Deferred tax asset (note 15)
27,668 8,674 Acquired intangible assets (note 5)
116,588 20,517 Other assets (note 6)
5,719 3,062 Total assets
$ 670,755 $ 238,687 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities:
Accounts payable—trade and accrued liabilities (note 9)
$ 94,075 $ 31,596 Deferred revenues
62,661 38,086 Deferred tax liabilities
10,892 — Total current liabilities
167,628 69,682 Long-term liabilities:
Deferred revenues
915 1,696 Deferred tax liabilities
35,536 — Accrued liabilities (note 10)
23,620 4,912 Total long-term liabilities
60,071 6,608 Minority interest
10,051 — Shareholders’ equity:
Share capital (note 11)
51,054,786 and 39,136,518 Common Shares issued and outstanding at June 30, 2004 and June 30, 2003 respectively
427,015 204,343 Warrants issued (note 18)
22,705 — Accumulated other comprehensive income:
Cumulative translation adjustment
1,814 (119 ) Accumulated deficit
(18,529 ) (41,827 ) Total shareholders’ equity
433,005 162,397 Commitments and contingencies (note 13)
Total liabilities and shareholders’ equity
$ 670,755 $ 238,687 Subsequent event (note 23)
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 ============= ============= ==============
Year ended June 30, 2004 2003 2002 Revenues:
License
$ 121,642 $ 75,991 $ 65,984 Customer support
108,812 63,091 48,707 Service
60,604 38,643 39,681 Total revenues
291,058 177,725 154,372 Cost of revenues:
License
10,784 6,550 5,341 Customer support
20,299 10,406 8,364 Service
47,319 28,241 27,411 Total cost of revenues
78,402 45,197 41,116 212,656 132,528 113,256 Operating expenses:
Research and development
43,616 29,324 24,071 Sales and marketing
87,362 54,532 51,084 General and administrative
22,795 13,509 12,498 Depreciation
7,103 5,009 5,587 Amortization of acquired intangible assets
11,306 3,236 6,506 Restructuring charge
10,005 — — Total operating expenses
182,187 105,610 99,746 Income from operations
30,469 26,918 13,510 Other income (note 14)
217 2,788 1,613 Interest income
1,355 1,283 1,853 Interest expense
(145 ) (55 ) (16 ) Income before income taxes
31,896 30,934 16,960 Provision for income taxes (note 15)
7,270 3,177 289 Net income before minority interest
24,626 27,757 16,671 Minority interest
1,328 — — Net income for the year
$ 23,298 $ 27,757 $ 16,671 Net income per share—basic (note 19)
$ 0.53 $ 0.71 $ 0.42 Net income per share—diluted (note 19)
$ 0.49 $ 0.67 $ 0.39 Weighted average number of Common Shares outstanding—basic
43,743,508 39,050,556 39,957,438 Weighted average number of Common Shares outstanding—diluted
47,272,113 41,393,108 42,477,930 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 Warrants Accumulated
Deficit
Accumulated
Comprehensive
Income
Total Shares Amount Number Amount Balance as of June 30, 2001
39,876 $ 203,636 $ — $ — $ (69,213 ) $ (1,396 ) $ 133,027 Issuance of Common Shares
Under employee stock option plans
838 4,917 — — — — 4,917 Under employee stock purchase plans
278 2,600 — — — — 2,600 Repurchase and cancellation of shares
(1,240 ) (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
— — — — — — 17,287 Balance as of June 30, 2002
39,752 204,815 — — (60,004 ) (780 ) 144,031 Issuance of Common Shares
Under employee stock option plans
582 4,445 — — — — 4,445 Under employee stock purchase plans
314 2,562 — — — — 2,562 Repurchase and cancellation of shares
(1,512 ) (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
— — — — — — 28,418 Balance as of June 30, 2003
39,136 204,343 — — (41,827 ) (119 ) 162,397 Issuance of Common Shares
Under employee stock option plans
1,986 14,943 — — — — 14,943 Under employee stock purchase plans
305 3,387 — — — — 3,387 Acquisition of DOMEA eGovernment
117 2,411 — — — — 2,411 Acquisition of IXOS
9,286 190,907 2,640 24,820 — — 215,727 Under IXOS warrants exercised
225 6,775 (225 ) (2,115 ) — — 4,660 Income tax effect related to stock options
— 4,249 — — — — 4,249 Comprehensive income:
Foreign currency translation adjustment
— — — — — 1,933 1,933 Net income for the year
— — — — 23,298 — 23,298 Total comprehensive income
— — — — — — 25,231 Balance as of June 30, 2004
51,055 $ 427,015 2,415 $ 22,705 $ (18,529 ) $ 1,814 $ 433,005 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 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 Cash flow from 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 =========== ============ ============Supplementary information (note 13)
Year ended June 30, 2004 2003 2002 Cash flows from operating activities:
Net income for the year
$ 23,298 $ 27,757 $ 16,671 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
18,409 8,245 12,093 Non-cash restructuring charge
684 — — Undistributed earnings related to minority interest
1,328 — — Deferred taxes
(2,244 ) — — Changes in operating assets and liabilities:
Accounts receivable
(2,461 ) 1,259 4,610 Prepaid expenses and other current assets
5,058 354 (396 ) Income taxes
188 (231 ) (2,878 ) Accounts payable and deferred revenues
(6,845 ) 2,670 (590 ) Other
104 (35 ) (1,012 ) Net cash provided by operating activities
37,519 40,019 28,498 Cash flows from investing activities:
Acquisition of capital assets
(6,112 ) (3,615 ) (2,248 ) Purchase of Gauss, net of cash acquired
(9,764 ) — — Purchase of DOMEA eGovernment, net of cash acquired
(3,403 ) — — Purchase of IXOS, net of cash acquired
19,367 — — Business acquisition costs
(15,736 ) — — 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 ) Proceeds from sale of other investments
— — 2,702 Payments against acquisition accruals
— (1,455 ) (212 ) Proceeds from available for sale securities
— 287 — Other
(3,965 ) (1,171 ) — Net cash used in investment activities
(19,613 ) (23,938 ) (467 ) Cash flow from financing activities:
Payment of obligations under capital leases
(386 ) — (12 ) Proceeds from issuance of Common Shares
18,330 7,007 7,517 Proceeds from exercise of warrants
4,660 — — Repurchase of Common Shares
— (17,302 ) (13,800 ) Other
(668 ) 243 — Net cash provided by (used in) financing activities
21,936 (10,052 ) (6,295 ) Foreign exchange gain on cash held in foreign currency
591 630 633 Increase in cash and cash equivalents during the year
40,433 6,659 22,369 Cash and cash equivalents at beginning of the year
116,554 109,895 87,526 Cash and cash equivalents at end of the year
$ 156,987 $ 116,554 $ 109,895 Supplementary cash flow information (note 17)
See accompanying notes to consolidated financial statements
46Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE
1--NATURE1—NATURE OF OPERATIONSOpen Text is the market leader in providing Enterprise Content Management (ECM) solutions that brings together people, processes and information. The
Company develops, markets, licensesCompany’s principal product line is Livelink®, a leading collaboration andsupports collaborative knowledgecontent managementapplicationsoftware product foruse on intranets, extranets and the Internet, enablingglobal enterprises. The software enables users to capture as well as find electronically stored information, work together in both creative and collaborative processesengage inas well as more structured 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. 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 comprehensive configuration, rapid 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 accounting principles generally accepted
accounting principlesin 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.wholly-owned with the exception of IXOS Software AG and Gauss Interprise AG, which as of June 30, 2004, were 89% and 92% owned, respectively. All material intercompany balances and transactions have been eliminated. The Company has recorded a minority interest on its balance sheet in respect of IXOS to reflect the 11% of non-controlling interest in IXOS. Since Gauss was acquired with a net liability position, no minority interest has been recorded. A minority interest will not be recorded in Gauss until such time as it moves into a net asset position.Use of estimates
The Company’s Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of
financial statementsthe Consolidated Financial Statements inconformityaccordance withUSU.S. 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.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
Cash and cash equivalents
All highly liquid short-term investments
with an originalwhich are readily convertible into known amounts of cash and which are so near their maturity that they present insignificant risk ofthree months or less at the datechanges in value because ofacquisitionchanges in interest rates 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.assets. Gains and losses upon assetdisposaldisposals are taken into income in the year of disposition. The following represents the estimated useful lives of capital assets:
Furniture and fixtures
5 to 10 years Office equipment
5 years Computer hardware
3 to 7 years Computer software
3 years Leasehold improvements
Over the term of the lease, generally 5 years Building
20 years Impairment of long-lived capital and intangible assets
The Company
evaluates itsaccounts for the impairment on disposal of long-lived assetsincluding goodwill and certain identifiable intangibles, in accordance withusing theprovisions ofFinancial Accounting Standards Board (“FASB”) Statement of FinancialStandardAccounting Standards No.121 ("144 (“SFAS121"144”),"Accounting“Accounting for the Impairment or Disposal of Long-LivedAssetsAssets”. This Statement addresses financial accounting and reporting forLong-Lived Assets to be Disposedthe impairment or disposal of" for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets or intangibles may not be recoverable.long-lived assets. 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.In July 2001,The Company accounts for the
Financial Accounting Standards Board ("FASB") issuedimpairment of intangible assets using the FASB 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 beginning July 1, 2002. The Company has tested its goodwill for impairment for the quarter ended June 30, 2004, and has determined that there currently exists no impairment in itsfiscal year 2003. 47goodwill. Adjusted net income and per share amounts presented as if the principles in SFAS 142 had been applied in all periods would be as follows:
Year ended June 30, 2004 2003 2002 Net income for the period
$ 23,298 $ 27,757 $ 16,671 Add back: goodwill amortization
— — 4,711 Adjusted net income for the period
$ 23,298 $ 27,757 $ 21,382 Adjusted net income per share
Basic
$ 0.53 $ 0.71 $ 0.54 Diluted
$ 0.49 $ 0.67 $ 0.50 OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
The Company is currently assessing the impact of SFAS 142 on its operating results and financial condition. 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 accounting and reporting for the impairment or 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 beginning in its fiscal year 2003. The Company does not expect the adoption of SFAS 144 to have a material impact on its financial position or results of operations.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 fair value of the undelivered PCS element based on the contracted price for renewal PCS included in the original multiple element sales arrangement, as substantiated by contractual terms and theCompany'sCompany’s significant PCS renewal experience, from its large installed base of over517 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.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
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") model. Under this model, customers pay a monthly fee that entitles them to use the Company'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 the customer's contract. With respect to these revenues, the Company's customers pay exclusively for the right to use the software. The Company's customers do not receive the right to take possession of the Company'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.
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
USU.S. dollar denominated Canadian federal government securities, commercial paper, or short-term, interest-bearing, investment-grade securities and demand accounts of a major Canadian charteredbank or commercial paper.bank.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 30,20022004 and June 30,2001. 49OPEN TEXT CORPORATION Notes to Consolidated Financial Statements Tabular amounts in thousands, except per share data2003.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
AssetsThe functional currency of the majority of the Company’s subsidiaries is the local currency. For such subsidiaries, monetary assets and liabilities denominated in foreign currencies are translated into local currencies at the year-end rate of
certainexchange. Non-monetary assets and liabilities denominated in foreignsubsidiaries, whosecurrencies areOPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
translated at historic rates, and revenue and expenses are translated at average exchange rates prevailing during the month of the transaction. Exchange gains or losses are reflected in the consolidated statements of income.
The accounts of the Company’s self-sustaining foreign operations for which the functional currency is other than the
local currency,U.S. dollar are translatedfrom their respective functional currencies to USinto U.S. dollarsat year-end exchange rates. Incomeusing the current rate method. Assets andexpense itemsliabilities are translated at the year-end exchange rate, and revenue and expenses are translated at average exchange ratesof exchangeprevailing during theyear. Realized foreign exchange gainsmonth of the transaction. Gains and lossesare included in income or loss inarising from theyear in which they occur. Unrealized foreign currencytranslationgains and losses are included in other comprehensive income or loss in the year in which they occur. The adjustment resulting from translating theof financial statements ofsuchforeignsubsidiaries is reflectedoperations are deferred in the “foreign currency translation adjustment” account included 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 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 of the options based on the difference, if any, on the grant date between the quoted market price of thecompany'sCompany’s stock and theamount anoption exercise price. No compensation costs were included in net income as reported for fiscal years 2004, 2003 and 2002.Had compensation cost for the Company’s stock-based compensation plans and the employee
must pay to acquirestock purchase plan been determined using thestock. Earningsfair value approach set forth in SFAS No. 123, the Company’s net income for the year and net income per shareBasic earningswould have been in accordance with the pro forma amounts indicated below:
Year ended June 30, 2004 2003 2002 (in thousands, except per share amounts) Net income for the year
As reported
$ 23,298 $ 27,757 $ 16,671 Fair value compensation cost*
(2,151 ) (7,087 ) (8,104 ) Pro forma
$ 21,147 $ 20,670 $ 8,567 Net income per share—basic
As reported
$ 0.53 $ 0.71 $ 0.42 Pro forma
$ 0.48 $ 0.53 $ 0.21 Net income per share—diluted
As reported
$ 0.49 $ 0.67 $ 0.39 Pro forma
$ 0.45 $ 0.50 $ 0.20
* The fair value compensation cost is net of the tax benefit provided on the exercise of stock options by employees in the United States. OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share
aredataThe 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, 2004 2003 2002 Volatility
60 % 80 % 80 % Risk-free interest rate
3 % 6 % 6 % Dividend yield
— — — Expected lives (in years)
3.5 5.5 5.5 Weighted average fair value (in dollars)
$ 10.33 $ 6.34 $ 9.60 Net income per share
Basic net income per share is computed using the weighted average number of common shares outstanding including contingently issuable shares where the contingency has been resolved. Diluted
earningsnet income per shareareis computed using the weighted average number of common shares and stockoptionsequivalents (using the treasury stock method) outstanding during theperiod. 50year. Recently Issued Accounting Pronouncements
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires all companies with variable interests in entities created after January 31, 2003 to apply its provisions to those entities immediately. In December 2003, the FASB issued a revised Interpretation “FIN 46R”. Under the revised Interpretation, an entity deemed to be a business, based on certain specified criteria, need not be evaluated to determine if it is a Variable Interest Entity. The Company must apply the provisions to variable interests held in all variable interest entities during the year ended on June 30, 2004. Adoption of FIN 46 and FIN 46R during fiscal 2004 did not have an impact on the Company’s financial condition or results of operations.
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity
In May 2003, the FASB issued Statement of Financial Accounting Standards 150 (“SFAS 150”) “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. SFAS 150 established standards for classifying and measuring as liabilities certain financial instruments that have characteristics of liabilities and equity. The statement is effective for Open Text for its fiscal year beginning July 1, 2003. Adoption of SFAS 150 did not have a material impact on the Company’s financial condition or results of operations.
Accounting for Revenue Arrangements and Multiple Deliverables
The Emerging Issues Task Force released Issue No. 00-21 “Accounting for Revenue Arrangements and Multiple Deliverables” in May 2003. Issue No. 00-21 addresses how to account for arrangements that may involve delivery or performance of multiple products, services and or rights to use assets. Issue No. 00-21 is effective for Open Text for its fiscal year beginning July 1, 2003. Adoption of Issue No. 00-21 did not have a material impact on the Company’s financial condition or results of operations.
OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
Restructuring Liabilities
The Company follows the guidance of SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which addresses accounting for restructuring and similar costs. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. In addition, under SFAS No. 146 the restructuring liability is measured and recorded at fair value. This statement was effective for exit and disposal activities initiated after December 31, 2002. The Company’s restructuring efforts in fiscal 2004 were accounted for in accordance with SFAS No. 146.
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 its operations.
NOTE
3--CAPITAL3—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 ============ ============51
June 30, 2004 Cost Accumulated
DepreciationNet Furniture and fixtures
$ 8,615 $ 5,639 $ 2,976 Office equipment
3,259 1,550 1,709 Computer hardware
39,249 31,267 7,982 Computer software
11,551 6,908 4,643 Leasehold improvements
9,748 2,565 7,183 Building under construction
185 — 185 $ 72,607 $ 47,929 $ 24,678 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 OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
NOTE
5--BANK4—GOODWILLGoodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets. The following table summarizes the changes in goodwill over the past two fiscal years:
Balance, July 1, 2002
$ 24,587 Goodwill recorded during fiscal 2003:
Corechange
1,901 Eloquent
342 Centrinity
4,551 Adjustments to purchase price allocations for prior acquisitions and foreign exchange impact
920 Balance, June 30, 2003
32,301 Goodwill recorded during fiscal 2004:
IXOS
167,713 Gauss
16,965 Domea
5,058 Other acquisitions
990 Adjustments to purchase price allocations for prior acquisitions and foreign exchange impact
725 Balance, June 30, 2004
$ 223,752 NOTE 5—ACQUIRED INTANGIBLE ASSETS
Technology
AssetsCustomer
AssetsTotal Net Book Value, July 1, 2002
$ 5,380 $ — $ 5,380 Assets acquired during fiscal 2003:
Corechange
4,600 2,000 6,600 Centrinity
4,000 2,400 6,400 Eloquent
2,300 800 3,100 Patent
1,246 — 1,246 Other
759 268 1,027 Amortization expense
(2,722 ) (514 ) (3,236 ) Net Book Value, June 30, 2003
15,563 4,954 20,517 Assets acquired during fiscal 2004:
IXOS
60,758 32,913 93,671 Gauss
5,500 4,200 9,700 Domea
1,700 1,800 3,500 Other
506 — 506 Amortization expense
(7,211 ) (4,095 ) (11,306 ) Net Book Value, June 30, 2004
$ 76,816 $ 39,772 $ 116,588 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
The weighted average amortization period for intangible assets is 7 years.
Certain of the acquired intangible asset allocations for fiscal 2004 represent management’s preliminary estimates. The Company has retained the services of an independent valuation expert to assist in this allocation, and expects that this valuation will be finalized early in fiscal 2005. Changes may occur from these preliminary estimates and those changes may be material.
The following table shows the estimated amortization expense for each of the next 5 years, assuming no further additions to acquired intangible assets are made:
Year ending
June 30,2005
$ 20,043 2006
19,107 2007
19,008 2008
17,188 2009
16,038 Total
$ 91,384 NOTE 6—OTHER ASSETS
June 30, 2004 2003 Deposits (note 10)
$ 5,287 $ 2,090 Loan receivable
404 972 Other
28 — $ 5,719 $ 3,062 NOTE 7—ALLOWANCE FOR DOUBTFUL ACCOUNTS
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 Bad debt expense for the year
(940 ) Write-off/adjustments
2,635 Balance of allowance for doubtful accounts as at June 30, 2004
$ 3,628 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
NOTE 8—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 30,20022004 and2001.2003. 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. During2002, 2001,2004, 2003, and20002002 borrowings and interest cost on bank indebtedness were insignificant.NOTE
6--ACCOUNTS PAYABLE -9—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, 2004 2003 Accounts payable
$ 18,050 $ 4,035 Short-term loan
2,189 — Accrued liabilities
36,905 12,693 Amounts payable for acquisitions
6,734 3,443 Accrued salaries and commissions
28,583 10,403 Other liabilities
1,614 1,022 $ 94,075 $ 31,596 Short-term loan
IXOS’ subsidiary in Japan has a short-term loan totaling approximately $2.2 million as of June 30, 2004. The weighted average interest rate on these short-term borrowings was 1.21% as of June 30, 2004. The loan is renewed monthly. There are no significant bank covenants associated with these borrowings.
NOTE
7--SHARE10—LONG-TERM ACCRUED LIABILITIES
June 30, 2004 2003 Pension liability
$ 3,552 $ — Excess facility obligations
16,159 4,912 Asset retirement obligations
3,909 — $ 23,620 $ 4,912 Pension liability
IXOS has pension commitments to employees as well as to current and previous members of its Executive Board. The actuarial cost method used in determining the net periodic pension cost is the projected unit credit method. The liabilities and annual income or expense of the Company’s pension plan are determined using methodologies that involve various actuarial assumptions, the most significant of which are the discount rate and the long-term rate of return on assets. The Company’s policy is to deposit amounts with an insurance company to cover the actuarial present value of the expected retirement benefits. The total held in short-term investments at June 30, 2004 was $2.1 million. These amounts are included in “other assets”. The amounts are independent of the defined benefit plan and do not constitute assets of the plan. The fair value of the pension obligation at June 30, 2004 was $3.6 million.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
Excess facility obligations
The Company has accrued for the cost of excess facilities both in connection with its fiscal 2004 restructuring, as well as several of its acquisitions. These accruals give effect to the Company’s best estimate in respect of future sub-lease income. These liabilities will be discharged over the term of the respective leases.
Asset retirement obligations
The Company is required to return certain of its leased facilities to their original state at the conclusion of the lease. At June 30, 2004, the present value of this obligation was $3.9 million. These leases were assumed in connection with the IXOS acquisition and consequently this liability was recorded as part of the purchase price equation, when a liability of $3.8 million was recorded. The change in the liability since the date of acquisition relates to the accretion of interest against this liability subsequent to the acquisition.
NOTE 11—SHARE CAPITAL
The 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 2004, the Company did not repurchase any common shares for cancellation. On October 8, 2003, the Company declared a two-for-one split of the Company’s Common Shares effected by means of a dividend. The stock split doubled the number of the Company’s outstanding Common Shares. Share certificates representing the stock dividend were mailed on or after October 28, 2003 to shareholders of record as of the close of business on October 22, 2003. All of the share and per share information presented in these Annual Financial Statements reflects the stock dividend.
During fiscal 2003, the Company repurchased for cancellation 1,511,400 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
620,2001,240,400 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,NOTE 12—OPTION PLANS
A summary of the
Company repurchasedCompany’s various Stock Option Plans is set forth below. All numbers shown in the chart below have been adjusted to account forcancellation 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,theCompany 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. 522:1 stock split that occurred on October 22, 2003. OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
Options granted under the Incentive Plan vest over a four or five year period. Under the Incentive Plan, options are exercisable for a period of up
1995
“Restated” Flexible
Stock Incentive
Plan1995
Replacement
Stock Option
Plan1995
Supplementary
Stock Option
Plan1995
Directors
Stock Option
Plan1998
Stock Option
PlanCentrinity
Stock Option
PlanIXOS
Stock Option
PlanGauss
Stock Option
PlanDate of Inception
Jun-95 Oct-95 Oct-95 Oct-95 Jun-98 Jan-03 Mar-04 Jan-04 Eligibility
Employees, officers, directors, and consultants Employees, officers, directors, and consultants 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 Eligible employees as determined by the Board of Directors Eligible employees as determined by the Board of Directors Options granted to date
12,778,750 1,096,498 715,000 1,048,000 7,494,290 414,968 210,000 51,000 Options cancelled to date
(3,829,198) (2,418) (177,750) (286,000) (2,147,940) (8,000) 0 0 Options exercised to date
(8,105,864) (1,094,080) (476,550) (508,500) (1,989,474) (33,751) 0 0 Options outstanding
843,688 — 60,700 253,500 3,356,876 373,217 210,000 51,000 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 Immediately “for cause”; 90 days for any other reason; 180 days due to death 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 Vest over a 3 year period; options 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 Over a 4 year period, unless otherwise specified Over a 4 year period, unless otherwise specified Exercise price range (average)
$2.13 - $6.10
($3.69)N/A $2.13 - $2.13
($2.13)
$6.45 - $7.41 ($7.07) $6.09 - $26.24 ($11.59) $12.09 - $13.50 ($12.36) $26.24 - $26.24 ($26.24) $26.24 - $26.24 ($26.24) Expiration dates
10/12/2005 to 1/27/2008 N/A 9/17/2006 9/17/2007 to 3/5/2008 8/14/2008 to 5/10/2014 11/1/2012 to 1/28/2013 1/27/2014 1/27/2014
(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. OPEN TEXT CORPORATION
Notes 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 Replacement Stock Option Plan 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 $0.0005Consolidated Financial Statements—(Continued)Tabular amounts in thousands, except 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.dataOption 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"“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,
2002,2004, options to purchase an aggregate of3,173,4055,148,981 Common Shares were outstanding under all of theCompany'sCompany’s stock option plans out of an allowable pool of options totaling10,007,424.20,875,848. There were exercisable options outstanding to purchase2,082,1643,450,755 shares at an average price of$13.08.$8.11. At June 30,2001,2003, there were exercisable options outstanding to purchase1,806,8404,602,456 shareshadat an average price of$11.19. At June 30, 2000, exercisable options to purchase 1,475,324 shares had an average price of $9.54.$7.26.A summary of option activity since June 30,
19992001 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 =================55
Options Outstanding Number Weighted
Average
Exercise
PriceOptions outstanding at June 30, 2001
5,762,228 $ 6.77 Granted during fiscal 2002
2,039,500 11.62 Cancelled
(616,822 ) 10.69 Exercised
(838,096 ) 5.87 Options outstanding at June 30, 2002
6,346,810 $ 8.08 Granted during fiscal 2003
856,690 11.87 Cancelled
(167,350 ) 11.25 Exercised
(582,354 ) 7.63 Options outstanding at June 30, 2003
6,453,796 $ 8.54 Granted during fiscal 2004
809,000 20.89 Cancelled
(127,330 ) 12.07 Exercised
(1,986,485 ) 7.54 Options outstanding at June 30, 2004
5,148,981 $ 10.77 OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
The following table summarizes information regarding post-split stock options outstanding at June 30,
2002:2004:
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, 2004Weighted
Average
Remaining
Contractual
Life (years)Weighted
Average
Exercise
PriceNumber
Outstanding
at June 30, 2004Weighted
Average
Exercise
Price$ 2.13 -$ 4.98 853,286 2.61 $ 3.48 853,286 $ 3.48 5.63 - 6.88 1,035,938 4.22 6.74 1,035,938 6.74 7.22 - 10.75 1,022,750 6.17 9.74 709,500 9.46 10.76 - 13.10 765,150 7.25 11.76 425,900 11.64 13.15 - 16.25 657,357 6.89 14.46 407,131 14.78 17.04 - 26.24 814,500 9.28 20.90 19,000 18.38 $ 2.13 -$ 26.24 5,148,981 5.93 $ 10.77 3,450,755 $ 8.11 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, combinations of shares, or other similar changes in capitalization of the Company. During fiscal2002,2004, a total of139,056305,380 Common Shares were issued under theESPP, duringESPP. During fiscal2001,2003, a total of131,732314,000 Common Shares were issued under the ESPP, and during fiscal2000,2002, a total of111,057278,112 Common Shares were issued under the ESPP.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--COMMITMENTS13—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 ================
2005
$ 17,769 2006
16,808 2007
15,998 2008
14,299 2009
13,938 Thereafter
34,812 $ 113,624 Rent expense amounted to $14.3 million in 2004, $7.2 million in 2003, and $5.9 million in
2002, $5.1 million2002.The Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in
2001,the ordinary course of business. While the outcome of these proceedings and$4.2 millionclaims 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.OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in
2000.thousands, except per share dataPursuant to the Agreement of Control between 2016090 Ontario Inc. (“Ontario”), a wholly owned subsidiary of Open Text, and Gauss, Ontario has offered to purchase the remaining outstanding shares of Gauss at a price of EURO 1.06 per Gauss-Share. As of June 30, 2004 there were 662,241 Gauss shares not owned by Open Text. The costs for these shares will be EURO 701,975, if the remaining shareholders agree to sell at this price. The original acceptance period had been two months. As a result of certain shareholders having now filed for a special court procedure to reassess the amount of the offered consideration (Spruchverfahren), the acceptance period has been extended pursuant to mandatory German law until the end of such proceedings. In addition, in April 2004 Gauss announced that effective July 1, 2004 the shares of Gauss will cease to be listed on a stock exchange. In connection with this delisting on July 2, 2004, a second offer by Ontario to purchase the remaining outstanding shares of Gauss at a price of EURO 1.06 per Gauss share has commenced. Again, the acceptance period has been extended pursuant to mandatory German law until the end of the proceedings to reassess the amount of the offered consideration (Spruchverfahren). The Agreement of Control is currently subject to a court procedure in which certain shareholders of Gauss claim, that the resolution of shareholders of Dec 23, 2003 respecting the Agreement of Control is null and void. A first instance judgment (in favor of the validity of the Agreement of Control) is expected by November 2004 at the earliest.
NOTE
10--OTHER14—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 =========== =========== ===========During fiscal 2001 and 2000, the Company sold 8,900 and 876,301 shares, respectively, of its investment in Primedia, representing its entire interest in this investment.
Year ended June 30, 2004 2003 2002 Gain (loss) on sale of investments, net of disposal costs
$ (74 ) $ 152 $ 1,012 Balance of other income
291 2,636 601 Other income
$ 217 $ 2,788 $ 1,613 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 gainthatthe 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.
During fiscal 2004, the Company incurred a loss on the disposition of a small equity investment. The majority of the balance of other income during fiscal 2004 relates to foreign exchange gains and losses incurred during the year.
OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
NOTE
11--INCOME15—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, 2004 2003 2002 Domestic income
$ 15,457 $ 7,549 $ 3,931 Foreign income
16,439 23,385 13,029 Income before income taxes
$ 31,896 $ 30,934 $ 16,960 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, 2004 2003 2002 Expected statutory rate
36.4 % 37.6 % 40.0 % Expected provision for income taxes
$ 11,610 $ 11,631 $ 6,784 Effect of permanent differences
(151 ) 1,316 2,694 Effect of foreign tax rate differences
(491 ) (234 ) (453 ) Effect of change in tax rates
(855 ) — — Non-taxable portion of capital gain
— — (202 ) Tax incentive for research and development
(506 ) (1,854 ) (368 ) Benefit of losses*
(2,004 ) (3,633 ) — Change in valuation allowance
236 (3,548 ) (7,850 ) Other items
(569 ) (501 ) (316 ) $ 7,270 $ 3,177 $ 289
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 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* The benefit of lossesoperating tax loss carryforwards (net of valuation allowance) acquired onacquisitions - (3,400) Changethe purchases of Centrinity, Eloquent, Corechange, Gauss, and IXOS do not affect the income statement as amounts were 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 dataThe 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, 2004 2003 2002 Domestic:
Current income taxes
$ — $ 460 $ — Deferred income taxes
1,265 (272 ) — 1,265 188 — Foreign:
Current income taxes
9,514 3,493 289 Deferred income taxes
(3,509 ) (504 ) — 6,005 2,989 289 Provision for income taxes
$ 7,270 $ 3,177 $ 289 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
The Company has approximately
$15.1$49.9 million of domestic non-capital loss carryforwards which expire between 2006 and 2010 and $2.2 million of domestic capital loss carryforwards that have no expiry date. In addition, the Company has $326.7 million of foreign non-capital loss carry forwards of which$7.9$226.1 million have no expiry date.Additionally, $2.8$8.2 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 between20042005 and2011.2024. 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 30,20022004 and20012003 are:
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, 2004 2003 Deferred tax assets
Non-capital loss carryforwards
$ 148,990 $ 19,668 Capital loss carryforwards
1,331 710 Employee stock options
2,875 — Undeducted scientific research and development expenses
2,770 — Scientific research and development tax credits
684 684 Depreciation and amortization
5,349 1,062 Share issue costs
— 167 Financing fees
558 — Restructuring costs
7,895 — Other
2,927 — Total deferred tax asset
173,379 22,291 Less, valuation allowance
(126,934 ) (5,669 ) 46,445 16,622 Deferred tax liabilities
Scientific research and development tax credits
294 260 Deferred credits
8,160 — Acquired intangibles
35,372 — Other
2,603 — Net deferred tax asset
$ 16 $ 16,362 Comprised of:
Current asset
$ 18,776 $ 7,688 Long-term asset
27,668 8,674 Current liability
(10,892 ) — Long-term liability
(35,536 ) 0 $ 16 $ 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 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
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
NOTE
13--SEGMENT16—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 2004
Total revenues
$ 136,346 $ 138,192 $ 16,520 $ 291,058 Operating costs
89,884 123,384 18,907 232,175 Contribution margin
$ 46,462 $ 14,808 $ (2,387 ) $ 58,883 Segment assets
$ 249,515 $ 275,815 $ 52,011 $ 577,341 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 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, 2004, 2003 and 2002,
2001 and 2000,the"Other"“Other” category consists of geographic regions other than North America and Europe.60OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)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,
2002, 2001,2004, 2003, and20002002 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, 2004 2003 2002 Total contribution margin from operating segments above
$ 58,883 $ 35,163 $ 25,603 Amortization and depreciation
(18,409 ) (8,245 ) (12,093 ) Restructuring charge
(10,005 ) — — Income from operations
30,469 26,918 13,510 Interest, other income (expense), income taxes and minority interest
(7,171 ) 839 3,161 Net income for the year
$ 23,298 $ 27,757 $ 16,671
As of June 30, 2004 2003 Segment assets
$ 577,341 $ 139,493 Investments
— — Cash and cash equivalents (corporate)
93,414 99,194 Total assets
$ 670,755 $ 238,687 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
into 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,
2002, 20012004, 2003 and20002002 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, 2004 2003 2002 Total revenues:
Canada
$ 16,662 $ 13,500 $ 12,190 United States
119,684 88,721 80,220 United Kingdom
35,547 22,042 20,320 Germany
43,447 12,472 7,352 Rest of Europe
59,198 35,529 30,594 Other
16,520 5,461 3,696 Total revenues
$ 291,058 $ 177,725 $ 154,372 OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
As of June 30, 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 =========== ===========
As of June 30, 2004 2003 Segment assets:
Canada
$ 183,290 $ 43,725 United States
66,225 55,044 United Kingdom
20,682 13,733 Germany
119,566 4,831 Rest of Europe
135,567 20,053 Other
52,011 2,107 Total segment assets
$ 577,341 $ 139,493 The Company’s goodwill has been allocated as follows to the Company’s operating segments:
As of June 30, 2004 2003 North America
$ 66,452 $ 21,922 Europe
124,530 9,612 Other
32,770 767 $ 223,752 $ 32,301 NOTE
13--SUPPLEMENTAL17—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 - - 97,420
Year Ended June 30, 2004 2003 2002 Supplemental disclosure of cash flow information:
Cash paid during the period for interest
$ 46 $ 55 $ 19 Cash paid during the period for taxes
6,277 590 495 NOTE
14--ACQUISITIONS18—ACQUISITIONSFiscal
2001 Bluebird Systems In2004IXOS
On October
2000,21, 2003, Open Textacquiredannounced that it had entered into a business combination agreement with IXOS Software AG (“IXOS”). The transaction was consummated via a tender offer to purchase all of the issued and outstanding shares of common stock of IXOS for either cash or a combination of Common Shares and Common Share purchase warrants (the “Alternative Consideration”) of Open Text.On February 19, 2004, Open Text Corporation closed the tender offer, pursuant to which, a wholly owned subsidiary 2016091 Ontario, acquired a total of 19,157,428 IXOS shares or approximately 88% of the ordinary share capital and voting rights of
Bluebird Systems ("Bluebird")IXOS, including shares acquired in the open market. Of these IXOS shares, 17,792,529 shares (approximately 93% of the tendered shares) were tendered for the Alternative Consideration (as described below),of Carlsbad, California.with the balance, including shares purchased on the open market, acquired for approximately $15.3 million in cash. The Alternative Consideration forthis acquisitioneach IXOS share consisted of 0.5220 of an Open Text Common Share and 0.1484 of a warrant. Each whole warrant iscomprisedexercisable to purchase one Open Text Common Share and may be exercised at any time prior to February 19, 2005 at a strike price 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: 62$20.75 per OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)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 =============== Includedshare. Between the closing date of the tender offer and June 30, 2004, Open Text acquired an additional 203,647 Common Shares of IXOS for $2.3 million in
tangible net liabilities is an amountcash. As a result of$646 representing directthe additional purchase, 2016091 Ontario obtained a total of 19,361,075 IXOS shares or approximately 89% ownership of IXOS.Approximately 9.3 million Open Text shares were issued in conjunction with the tender offer for IXOS. These shares were valued using the average share price two days before and two days after the acquisition
costs, involuntary terminations,was agreed to andoffice closure costs.announced. Accordingly, the fair value of these shares was approximately $191 million.Approximately 2.6 million warrants were issued in conjunction with the Alternative Consideration. The
liabilities included $504fair value ofdirect acquisition costs, $75 for involuntary terminations, and $67 for office closures. An acquisition accrualeach warrant was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:
Volatility
60 % Risk-free interest rate
3.5 % Dividend yield
— Expected life
1 year Based on this methodology, the warrants were valued at $9.40 each, resulting in a total value of
$188 remains on the balance sheetapproximately $25 million. As at June 30,2002, which relates2004, 224,572 warrants have been exercised.The results of operations of IXOS have been included in Open Text’s consolidated results from March 1, 2004.
IXOS is a leading vendor of solutions for Enterprise Content Management (“ECM”). IXOS enterprise solutions help businesses achieve efficient management and display of web information, optimization of business processes, and secure, long-term archiving of all business documents in a highly-scaleable document repository.
The Company has retained the services of an independent valuator to
certain direct acquisition costs. It is the Company's expectation that this accrual will be substantially utilizedassist in thecoming fiscal year.purchase price allocation. Theacquired software technology was valued using a stagework ofcompletion 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 currentlythe independent valuator is not yet finalized. The allocation presented in themarketplace aspreliminary purchase price allocation represents management’s best estimate of theacquisition 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 excessallocation of the purchase priceoverat the current time. These items may differ from the final purchase price allocation and these differences may be material.The following table summarizes the estimated fair
market valuevalues of the assets acquiredidentifiable assetsand liabilities assumedhas been recordedasgoodwill in the amount of $4.6 million which is being amortized on a straight-line basis over ten years. Any additional consideration earned by the former shareholders of Bluebird will be accounted for as partof thepurchase price, and consequently will be recorded as additional goodwill. Asdate ofJune 30, 2002, no additional consideration has been earned underthestock purchase agreement. LeadingSide In November 2000, Open Text acquired the product business of LeadingSide Inc. ("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 =========== 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 accrual of $334 remains on the balance sheet at June 30, 2002, which relates to potential legal disputes that the Company expects will be substantially utilized in the coming fiscal year. 63IXOS acquisition:
Current assets
$ 85,649 Long-term assets
28,612 Customer assets
32,913 Technology
60,758 Goodwill
167,713 Total assets acquired
375,645 Current liabilities
(49,188 ) Long-term liabilities
(34,718 ) Liabilities recognized in connection with the business combination
(46,440 ) Total liabilities assumed
(130,346 ) Minority Interest
(8,505 ) Net assets acquired
$ 236,794 OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
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 excessportion of the purchase priceover the fair market valueallocated to goodwill ofthe acquired identifiable assets and liabilities assumed has been recorded as goodwill in the amount of $2.2$167.7 millionwhich is being amortized on a straight-line basis over seven years. Open Image In November 2000, Open Text acquired all of the outstanding shares of Open Image Systems Inc. ("Open Image") of Toronto, Ontario for cash consideration of $2.1 million. The Company allocated the total purchase pricewas assigned to thenetCompany’s reportable geographic segments as follows:
North America
$ 31,857 Europe
104,000 Other
31,856 $ 167,713 The customer assets
acquired as follows: Tangible net liabilities $ (239) Current products 302 Goodwill 1,992 ----------- $ 2,055 =========== Included in tangible net liabilities isof $32.9 million have anamountestimated useful life 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. It is the Company's expectation that this accrual will be substantially utilized 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 four10 years. Theexcesstechnology assets of $60.8 million have an estimated useful life of between 5 years and 7 years.As part of the purchase price allocation, the Company recognized liabilities in connection with the acquisition of IXOS totaling approximately $46.4 million. The liabilities recognized include severance and related charges in connection with a worldwide reduction in the IXOS workforce, in addition to transaction costs and costs relating to provisioning for excessive facilities. Of the approximately $46.4 million in total liabilities recognized in connection with the acquisition, approximately $34.7 million remains accrued at June 30, 2004. Amounts accrued relating to severance will be paid during fiscal 2005, and amounts relating to excessive facilities will be paid over the
fair market valueterm of theacquired identifiablerespective leases.IXOS had approximately $132 million of net operating loss carry forwards and other future deductions at June 30, 2004. As of June 30, 2004, the Company had recorded $4.8 million of deferred tax assets
and liabilities assumed has been recorded as goodwillin theamountpreliminary purchase price allocation related to these operating loss carryforwards and other future deductions since it is currently considered unlikely that the Company will be able to utilize most of$2the loss carry forwards. The gross deferred tax asset related to these loss carry forwards is approximately $36 millionwhichand isbeing amortized onoffset by astraight-line basis over five years. Base 4 In January 2001,valuation allowance and deferred tax liabilities totaling $31.2 million. The Company will continue to review and evaluate these net operating loss carry forwards. If the Company determines that it will realize the tax attributes related to IXOS in the future, the related decrease in the valuation allowance will reduce goodwill instead of the provision for taxes.Open Text
acquired allintends to acquire 100% of the shares of IXOS. The total cash consideration to acquire the remaining outstanding shares ofBase 4 Inc. ("Base 4") of Toronto, Ontario for cash consideration of $529. Base 4's PharMatrix productIXOS isdesignedestimated tofacilitate the capture, storage and dissemination of knowledge generated during the complete project lifecyclebe approximately $30 million.A Director of the
pharmaceutical discovery process.Company received $220,000 in consulting fees for assistance with the acquisition of IXOS. These fees are included in the acquisition costs. TheCompany allocatedDirector abstained from voting on this transaction.IXOS Restructuring
On March 16, 2004, as a result of the
total purchase pricebusiness combination with Open Text and in response to thenet assetsCompany’s plan to exit certain activities of IXOS, IXOS announced plans to improve profitability and position the company for future growth. IXOS recorded a charge of approximately $13 million (10.5 million Euro) in the third quarter of fiscal 2004 relating to this restructuring activity which includes a reduction of IXOS’ workforce. In the fourth quarter of fiscal 2004, IXOS recorded further restructuring charges of $10.1 million. These restructuring charges taken by IXOS did not impact the operating results of Open Text as the restructuring charges were recorded as part of the liabilities assumed as of the date IXOS was acquired (see the table at the end of this note for further details). Furthermore, asfollows: Tangible netthe Company continues to finalize the restructuring plan, additional liabilities$ (701) Goodwill 1,240 ----------- $ 539 =========== 64associated with the Open Text restructuring efforts may be incurred. Additionally, the amounts that Open Text has recorded as liabilities assumed as part of the business combination which have not yet been recognized by IXOS will be recognized by IXOS as expenses in their stand-alone financial statements as the respective liabilities are incurred. It is Open Text’s expectations that the majority of these liabilities will be incurred by the end of fiscal 2005. OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
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 $1.0 million. 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 CanadaGauss
On October 16, 2003, 2016090 Ontario Inc. (“Ontario”), a wholly owned subsidiary of Open Text, acquired approximately 75% of the shares of Gauss Interprise AG (“Gauss”) pursuant to several sale and purchase agreements with major shareholders. The results of Gauss’ operations have been included in the consolidated financial statements of Open Text since that date. As of June 30, 2004, Open Text had acquired approximately 92% of the common shares of Gauss as a result of these agreements, as well as through the purchase of common shares on the open market and through a public tender offer. Total cash consideration paid for the Company’s interest in Gauss is $9.8 million.
On December 23, 2003, at an Extraordinary Shareholder Meeting of Gauss, the Gauss shareholders voted to approve an Agreement of Control between Ontario and Gauss. The Agreement of Control is not effective until it is registered with the German Courts. Under German law registration occurs on the earlier of a) 30 days following shareholder approval or b) if any actions contesting the registration are filed, when such actions have been resolved. Pursuant to the German Stock Corporation
acquired 92.87%Act, the Agreement entitles Ontario, as the majority shareholder ofMicrostar Software Ltd.'s issuedGauss, to issue instructions to the management board of Gauss.In May 2004, Gauss announced that the Agreement of Control between the majority shareholder Ontario and Gauss was registered in the commercial register at the lower court of Hamburg and became effective on May 6, 2004. The registrar at the commercial register granted the registration in spite of the fact that two complaints of shareholders against the validity of the resolutions are currently pending at the district court of Hamburg.
On May 12, 2004, the purchase offer of the major shareholder, Ontario, to the minority shareholders of Gauss commenced. Under the purchase offer Ontario offered to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss-Share. This amount represented the 3-month trailing weighted average stock price for Gauss as determined by the German takeover authority. The original acceptance period had been two months. After certain shareholders filed for a special court procedure to reassess the amount of the offered consideration, the acceptance period was extended pursuant to mandatory German law until the end of these proceedings.
In addition, in April 2004 Gauss announced that effective July 1, 2004 the shares of Gauss will cease to be listed on a stock exchange. In connection with this delisting on July 2, 2004, a second offer by Ontario to purchase the remaining outstanding shares of Gauss at a price of Euro 1.06 per Gauss share
capitalhas commenced. This acceptance period has been extended pursuant to mandatory German law until the end of the proceedings to reassess the amount of the offered consideration.Gauss is a developer of Web content management software. It also provides Integrated Document and Output Management (IDOM) software for
approximately $4.6 million in cash paid at closing.ERP systems. These products automate processes such as invoicing, ordering and insurance claims, allowing customers to convert large volumes of paper into electronic documents via imaging technology and processing them through highly structured workflows.The Company
allocatedhas retained thetotalservices of an independent valuator to assist in the purchase pricetoallocation. The work of theassets acquired as follows: Goodwill $ 4,763 Tangible net liabilities (159) --------- $ 4,604 ========= Includedindependent valuator is not yet finalized. The allocation presented intangible net liabilities is an amountthe preliminary purchase price allocation represents management’s best estimate of$882,000 for direct acquisition costs, involuntary terminations, costs to exit certain activitiesthe allocation of the purchase price at the current time. These items may differ from the final purchase price allocation andcertain contingencies. The liabilities included $854,000 for direct acquisition costs, $16,000 for involuntary terminations of management and certain development, sales and administrative staff, 65these differences may be material. OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)Tabular amounts in thousands, except per share data
The following table summarizes the estimated fair values of the assets acquired and
$12,000 for office closures. As at June 30, 2002, $78 remains accrued relating to direct acquisition costs thatliabilities assumed as of theCompany expects will be substantively utilized indate of thecoming fiscal year.Gauss acquisition.
Current assets
$ 3,712 Long-term assets
1,737 Customer assets
4,200 Technology
5,500 Goodwill
16,965 Total assets acquired
32,114 Current liabilities
(13,071 ) Long-term liabilities
(5,039 ) Liabilities recognized in connection with the business combination
(4,240 ) Total liabilities assumed
(22,350 ) Net assets acquired
$ 9,764 The
excessportion of the purchase priceoverallocated to goodwill of $17.0 million was assigned to thefairCompany’s reportable geographic segments as follows:
North America
$ 11,536 Europe
5,429 $ 16,965 No minority interest was recorded as part of the purchase price as the net book value of
acquired identifiableGauss’ assets and liabilitiesassumed haswas in a negative position.The customer assets of $4.2 million and the technology assets of $5.5 million have estimated useful lives of 5 years.
As part of the purchase price allocation, the Company recognized liabilities in connection with the acquisition of Gauss totaling $4.2 million. The liabilities recognized include severance and related charges in connection with a worldwide reduction in the Gauss workforce, in addition to transaction costs and costs relating to provisioning for excessive facilities. Of the total liabilities recognized in connection with the acquisition totaling $4.2 million, $0.7 million remains accrued at June 30, 2004. As the majority of this amount relates to vacated facilities, these amounts will be paid out over the terms of the various underlying leases.
Gauss had approximately $218 million of net operating loss carry forwards at December 31, 2003. Currently, no net deferred tax assets have been recorded
as goodwillin theamount of $4.8 millionpreliminary purchase price allocation related to these operating loss carry forwards since at the current time it is unlikely thatis 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 Companyrecordedwill be able to utilize any of these net operating loss carry forwards. The gross deferred tax asset related to these loss carry forwards is approximately $91 million and is fully offset by arestructuring charge of $1.8 million. The restructuring charge resulted from the closurevaluation allowance.Open Text intends to acquire 100% of the
Company's Toronto, Ontario office andshares of Gauss. The total cash consideration for 100% of Gauss is estimated to be approximately $11.0 million.A Director of the
London, UK office. In addition, 45 employees were terminated: 31Company received $170,000 inNorth America and 14 in Europe. At June 30, 2000 severance amounts relating to two employees remained outstanding.consulting fees for assistance with the acquisition of Gauss. Theseamounts were paid as salary continuancefees are included in thefirst and second quarters of fiscal 2001. 66acquisition costs. The Director abstained from voting on this transaction. OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)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) ------------- ---------- ---------- BalanceOn October 23, 2003, Open Text acquired all the common shares of SER Solutions Software GmbH and SER eGovernment Deutschland GmbH (together “DOMEA eGovernment”) for total consideration of up to $11.4 million, subject to meeting certain revenue performance and certain adjustments based on the Company’s assets and liabilities. The results of DOMEA eGovernment’s operations have been included in the consolidated financial statements of Open Text since that date. DOMEA eGovernment develops and markets the DOMEA eGovernment® software solution. The purchase price includes contingent consideration of $3.8 million that may be earned by the former shareholders of DOMEA eGovernment based on the achievement of certain revenue targets through December 31, 2004. Amounts earned under this arrangement will be paid in the form of 50% cash and 50% in Open Text Common Shares. In addition, approximately $0.5 million 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 thatthe purchasemethod of accounting be used for all business combinations. SFAS No. 141 specifies criteriaprice is being held to secure certain warranties, representations and covenants in the acquisition agreement. Given thatintangible assets acquired in a business combination must meet to be recognized and reported separately from goodwill. SFAS No. 142this amount willrequire 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 toonly become payable when certain pre-acquisition contingencies havean 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,become resolved, the Company isrequiredunable toevaluate 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.estimate when or if this amount will be paid.The Company
willhas retained the services of an independent valuator to assist in the purchase price allocation. The work of the independent valuator is not yet finalized. The allocation presented in the preliminary purchase price allocation represents management’s best estimate of the allocation of the purchase price at the current time. These items may differ from the final purchase price allocation and these differences may berequired to reassessmaterial.The following table summarizes the
useful lives and residualestimated fair values ofall intangiblethe assets acquired andmake 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 measuredliabilities assumed as of the date ofadoptionthe DOMEA eGovernment acquisition.
Current assets
$ 2,537 Long-term assets
249 Customer assets
1,800 Technology
1,700 Goodwill
5,058 Total assets acquired
11,344 Current liabilities
(2,080 ) Long-term liabilities
(1,336 ) Liabilities recognized in connection with the business combination
(350 ) Total liabilities assumed
(3,766 ) Net assets acquired
$ 7,578 The portion of the purchase price allocated to goodwill of $5.1 million was assigned entirely to the Company’s European operating segment.
Customer assets of $1.8 million and technology assets of $1.7 million were assigned a useful life of 5 years.
As part of the purchase price allocation, the Company recognized
as a cumulative effectliabilities in connection with the acquisition ofa changeDOMEA eGovernment totaling $0.4 million. The liabilities recognized relate to transaction costs related to this acquisition. Of the total liabilities recognized inaccounting principleconnection with the acquisition totaling $0.4 million, $15 thousand remains accrued at June 30, 2004.A Director of the Company received $90,000 in consulting fees for assistance with the acquisition of DOMEA eGovernment. These fees are included in the
first interim period of 2002.acquisition costs. TheCompany 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. 143Director abstained from voting onJuly 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- 67this transaction. OPEN TEXT CORPORATION
Notes to Consolidated Financial
StatementsStatements—(Continued)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.Pro forma results
The
Company adopted the provisions of SFAS 145 regarding early extinguishment of debt during the second quarter of 2002, and does not expect that its provisions will have a material impact on its financial condition orfollowing pro forma results ofoperations. In July 2002,operations reflect theFinancial Accounting Standards Board (FASB) issued Statementcombined results ofFinancial Accounting Standards No. 146, AccountingOpen Text, Gauss (acquired on October 16, 2003), DOMEA eGovernment (acquired on October 23, 2003) and IXOS, forRestructuring Costs (SFAS 146). SFAS 146 applies to costs associatedthe twelve months ended June 30, 2004 and 2003 as if the business combinations occurred at the beginning of Open Text’s fiscal year. The information used for this pro forma disclosure was obtained from unaudited reports filed withan exit activity (including restructuring) or with a disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employeesthe Ontario Securities Commission andcontracts, and relocating plant facilities or personnel. Under SFAS 146, a company will record a liabilitythe Deutsche Borse fora 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,therelated costs, and changes in those costs in the notes to the interimquarterly and annual (as applicable) periods ended June 30, 2003, September 30, 2003 and December 31, 2003 and from internal financialstatements that includereports prepared by Gauss for the periodin which an exit activity is initiated and in any subsequent period untilfrom July 1, 2003 to October 15, 2003, from theactivity is completed. SFAS 146 is effective prospectivelyinternal financial reports prepared by DOMEA eGovernment forexit or disposal activities initiated afterthe periods ended September 30, 2002, December 31, 2002,with earlier adoption encouraged. Under SFAS 146, a company may not restate its previously issuedMarch 31, 2003, June 30, 2003, September 30, 2003 and for the period from October 1, 2003 to October 22, 2003 and from the unaudited financial statements filed with the Deutsche Borse for the periods ended March 31, 2003 and December 31, 2003 and from the internal reports prepared by IXOS for the period from January 1, 2004 to February 29, 2004.
Twelve months ended
June 30
2004 2003 Revenue
$ 395,600 $ 342,866 Net Income (loss)
$ 1,356 $ (1,358 ) Basic EPS
$ 0.03 $ (0.03 ) Shares used in Basic EPS Calculation
50,048 48,453 The pro forma results are not necessarily indicative of what would have occurred if the acquisitions had actually been completed as of the assumed dates and for the periods presented. The pro forma results represent Open Text’s preliminary assessment of the intangible assets and are subject to change and, therefore, the final values may differ substantially from these amounts.
Asset Acquisitions
During the year, the Company acquired the assets of two companies through share purchases for total consideration of $2.2 million. The principal assets acquired for these acquisitions were both technology and tax assets. The tax assets had estimated fair values of $6.8 million $3.4 million respectively. As the benefit of the tax losses exceeded the purchase price after allocating estimated fair values to the assets acquired and liabilities assumed, the Company recorded a deferred tax asset of $12.0 million and a deferred tax credit of $10.1 million in respect of these acquisitions. As the losses are utilized the deferred tax asset and deferred credit will decrease concurrently and the
new Statement grandfathersCompany will recognize theaccountingbenefit of the losses in its income tax expense for the period.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.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
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 The total purchase price allocated to goodwill of $2.0 million was assigned entirely to the Company’s North American geographic segment.
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, $0.6 million remains accrued at June 30, 2004 in respect of a pre-acquisition contingency, the resolution of which may take in excess of one year.
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 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 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
The total purchase price allocated to goodwill of $0.6 million was assigned entirely to the Company’s North American geographic segment.
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, $0.5 million remains accrued at June 30, 2004 in respect of a pre-acquisition contingency, the resolution of which the Company expects to occur within fiscal 2005.
Centrinity, Inc.
On November 1, 2002, the 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, had over 8 million users worldwide.
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 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 technology assets 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
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
connection with the acquisition, $3.9 million remains accrued at June 30, 2004. The remaining accrual relates to provisioning for excessive facilities and pre-acquisition contingencies. The component of the accrual relating to excessive facilities will be paid out over the term of the respective leases. The Company is unable to estimate when the component relating to pre-acquisition contingencies will be paid, as the resolution of the underlying contingency is not estimable.
Fiscal 2002
There were no acquisitions in fiscal 2002.
The following tables summarize the activity that the Company has incurred with respect to its acquisition accruals over the past 2 fiscal years:
Balance,
June 30,
2002Additions Usage Adjustments
to goodwillBalance,
June 30,
2003Corechange
Employee termination costs
$ — $ 1,148 $ (892 ) $ — $ 256 Excess facilities
— 1,557 (180 ) — 1,377 Transaction-related costs
— 1,136 (640 ) — 496 — 3,841 (1,712 ) — 2,129 Eloquent
Employee termination costs
— 117 (76 ) — 41 Excess facilities
— — — — — Transaction-related costs
— 1,097 (451 ) — 646 — 1,214 (527 ) — 687 Centrinity
Employee termination costs
— 824 (324 ) — 500 Excess facilities
— 5,131 (685 ) — 4,446 Transaction-related costs
— 2,155 (775 ) — 1,380 — 8,110 (1,784 ) — 6,326 Totals
Employee termination costs
— 2,089 (1,292 ) — 797 Excess facilities
— 6,688 (865 ) — 5,823 Transaction-related costs
— 4,388 (1,866 ) — 2,522 $ — $ 13,165 $ (4,023 ) $ — $ 9,142 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
Balance,
June 30,
2003Additions Usage Adjustments
to goodwillBalance,
June 30,
2004IXOS
Employee termination costs
$ — $ 12,413 $ (4,975 ) $ — $ 7,438 Excess facilities
— 23,890 (51 ) 23,839 Transaction-related costs
— 11,911 (8,473 ) 3,438 — 48,214 (13,499 ) — 34,715 Gauss
Employee termination costs
— 1,117 (903 ) — 214 Excess facilities
— 1,127 (629 ) 498 Transaction-related costs
— 1,996 (1,996 ) — — 4,240 (3,528 ) — 712 Domea
Employee termination costs
— — — — — Excess facilities
— — — — — Transaction-related costs
— 350 (335 ) — 15 — 350 (335 ) — 15 Corechange
Employee termination costs
256 — (256 ) — — Excess facilities
1,377 — (826 ) — 551 Transaction-related costs
496 — (71 ) (400 ) 25 2,129 — (1,153 ) (400 ) 576 Eloquent
Employee termination costs
41 — (41 ) — — Excess facilities
— — — — — Transaction-related costs
646 — (146 ) 500 687 — (187 ) — 500 Centrinity
Employee termination costs
500 — — 500 Excess facilities
4,446 — (1,080 ) — 3,366 Transaction-related costs
1,380 — (648 ) (732 ) — 6,326 — (1,728 ) (732 ) 3,866 Totals
Employee termination costs
797 13,530 (6,175 ) — 8,152 Excess facilities
5,823 25,017 (2,586 ) — 28,254 Transaction-related costs
2,522 14,257 (11,669 ) (1,132 ) 3,978 $ 9,142 $ 52,804 $ (20,430 ) $ (1,132 ) $ 40,384 OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
NOTE 19—NET INCOME PER SHARE
Year Ended June 30, 2004 2003 2002 Basic income per share
Net income
$ 23,298 $ 27,757 $ 16,671 Weighted average number of shares outstanding
43,744 39,050 39,958 Basic income per share
$ 0.53 $ 0.71 $ 0.42 Diluted income per share
Net income
$ 23,298 $ 27,757 $ 16,671 Weighted average number of shares outstanding
43,744 39,050 39,958 Dilutive effect of stock options *
3,528 2,344 2,520 Adjusted weighted average number of shares outstanding
47,272 41,394 42,478 Diluted income per share
$ 0.49 $ 0.67 $ 0.39
* anti-dilutive options of 127,442 have been excluded for fiscal 2004 (fiscal 2003 - 907,808; fiscal 2002 - 846,566)
NOTE 20—SUMMARY OF MATERIAL DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”) IN THE UNITED STATES AND CANADA The consolidated financial statements of the Company have been prepared in accordance with U.S. GAAP which conform in all material respects with Canadian GAAP except as set forth below.
Condensed Consolidated Income Statements
There were no material differences in the income statements between U.S. and Canadian GAAP for the years ended on June 30, 2004 and 2003.
Condensed Consolidated Balance Sheets
June 30, 2004 2003 Total assets in accordance with U.S. GAAP
$ 670,755 $ 238,687 Goodwill (a)
9,092 9,092 Total assets in accordance with Canadian GAAP
$ 679,847 $ 247,779 Total shareholders’ equity in accordance with U.S. GAAP
$ 433,005 $ 162,397 Goodwill (a)
9,092 9,092 Total shareholders’ equity in accordance with Canadian GAAP
$ 442,097 $ 171,489 (a) Goodwill
Under U.S. GAAP, any portion of the purchase price allocated to research and development activities for which there is no alternative future use must be expensed on the acquisition date. Under Canadian GAAP Handbook Section 1581, such amounts were included in the amount recognized as goodwill as they did not meet the criterion to be separately classified as intangible assets.
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements—(Continued)
Tabular amounts in thousands, except per share data
NOTE 21—RESTRUCTURING COSTS
During fiscal 2004, in connection with the integration of its recent acquisitions, the Company approved a plan to streamline its operations. The initiative totaled approximately $10.0 million and consists primarily of workforce reduction and excess facilities associated with the integration. Charges for employee severance costs represent the reduction of Open Text’s work force from our core businesses by approximately 140 people. The components of the restructuring charges are as follows:
July 1,
2003
BalanceJune 30,
2004
BalanceProvision Usage Employee termination benefits
$ — $ 5,656 $ (2,366 ) $ 3,290 Facility costs
— 3,317 (779 ) 2,538 Capital assets
— 684 (684 ) — Legal and other outside service costs
— 348 (258 ) 90 $ — $ 10,005 $ (4,087 ) $ 5,918 NOTE 22 —RELATED PARTY TRANSACTIONS
During fiscal 2004, a Director of the Company received $480,000 (fiscal 2003—$237,000) in consulting fees for assistance with acquisition activities.
NOTE 23—SUBSEQUENT EVENT
In July 2004, the Company entered into a commitment to construct a building in Waterloo, Ontario in an effort to consolidate its existing facilities in Waterloo. Construction of this facility will commence in the Company’s first quarter ending September 30, 2004, and is expected to be completed by August 2005 which is the approximate date when the Company’s current leases for space in Waterloo will expire. The size of this facility is approximately the same as the Company’s current space under lease in Waterloo, with a provision for modest growth. The facility is to be constructed on a land which has been leased from the University of Waterloo in its High-Technology Park for a period of 99 years. The total cost of this project is approximately $8 million and at this point the Company intends to finance this investment through its working capital.
On August 3, 2004, the Company announced that it will acquire Artesia Technologies, Inc. of Rockville, Md., a privately owned company best known for its pioneering solutions in Digital Asset Management (DAM). The cash consideration paid for this acquisition will be approximately $6 million. The Company will begin consolidating Artesia’s results during its first fiscal quarter of 2005.
On August 31, 2004, the Company announced that it had
previously recorded under EITF Issue 94-3. 68signed a definitive agreement to acquire the Vista Plus® suite of products, business assets, and the related employees from Quest Software Inc. Vista Plus captures and stores business-critical information from packaged applications like Oracle E-Business Suite, PeopleSoft and mySAP as well as custom and mainframe legacy environments. The acquisition expands Open Text’s integration and report management capabilities as part of its comprehensive ECM suite. Vista provides a strong platform from which to address report content found in ERP applications, and business intelligence (BI) software from Cognos, Business Objects, Crystal Reports and others. The transaction is expected to close in September 2004, and the cash consideration will be approximately $24 million. The Company will begin to consolidate the results of Vista Plus beginning in its first quarter ending September 30, 2004. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
As of June 30, 2004, our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2004, our disclosure controls and procedures are effective in ensuring that material information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting during the fourth fiscal quarter ended on June 30, 2004 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
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,
2002.2004.
Name
Age Position with Company
Principal Occupation
- ---- --- --------------------- --------------------P. Thomas Jenkins
42Waterloo, Ontario, Canada
44 Director and Chief Executive Officer Chairman and Chief Executive Officer of the Company Waterloo, Ontario, CanadaJohn Shackleton
55Burr Ridge, Illinois, USA
57 President and Director President of the Company Burr Ridge, IL, USA Richard C. Black/(1)/Randy Fowlie(2)
/ 33 Director Managing Partner, RBC Capital Partners Toronto,(3)Waterloo, Ontario, Canada
Randy Fowlie/(2)/ 4244 Director Chief Operating Officer and Chief Waterloo, Ontario,Financial Officer of Inscriber TechnologyCanadaCorporation,(a computera private softwarecompany)companyPeter Hoult(2)
Hillsborough, North Carolina, USA
60 Director Strategic Business Consultant with Peter Hoult Management Consultants, a private consulting firm Brian Jackman(1)(3)
Barrington Hills, Illinois, USA
63 Director Retired, Director of various public companies David Johnston(1)(3)
St. Clements, Ontario, Canada
63 Director President, Vice-Chancellor and Professor of University of Waterloo Ken
Olisa/(1)/ 50Olisa(2)London, UK
52 Director Managing Director,Chairman and Chief Executive Officer of Interregnum Venture Surrey,Plc., a publicly traded UKMarketing Limited (an Information Technology venture marketing company)technology merchant bankStephen J.
Sadler/(2)/ 51 Director Chairman and CEO, Enghouse SystemsSadlerAurora, Ontario, Canada
Limited (a software engineering company) Michael Slaunwhite/(1)(2)(3)/ 4153 Director Chairman and CEO,Chief Executive Officer of Enghouse Systems Limited, a publicly traded Canadian software and services companyMichael Slaunwhite(1)(2)
Gloucester, Ontario, Canada
43 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 5456 Chief Financial Officer Chief Financial Officer of the Company Toronto, Ontario, CanadaAnik Ganguly
43Northville, Michigan, USA
45 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 4846 Executive Vice President, WorldwideMarketingExecutive Vice President, WorldwideMarketing of the CompanyMichael Farrell
Northfield, Illinois, USA
50 Executive Vice President, Sales Santa Rosa, CaliforniaExecutive Vice President, Sales 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 ofMr. Jenkins held progressive executive positions within the Company. FromJanuary 1995 until March 1995, he served as the acting President of the Company. From July 1994 to June 1996, Mr. Jenkins also served as the Chief Operating Officer of the Company. From August 1993December 1989 until June 1994, heserved as the Senior Vice President, Sales and Marketing, ofheld several executive positions with DALSA, Inc., an electronic imaging manufacturer.("DALSA"). From December 1989 until August 1993, Mr. Jenkins served as the Vice President/General Manager of DALSA.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 software company that develops products for the global broadcast, video and digital signage marketplaces, 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. Fowlieworkedwas a partner with KPMG CharteredAccountants since 1984 and was a tax partner since 1995 and the head of the firm's Information, Communication and Entertainment practice in the Kitchener/Waterloo, Cambridge and Guelph offices.Accountants. Mr. Fowlie is currently a member of the board of Inscriber Technology Corporation and the advisory board of 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 at Babcock (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. Since 1992, Mr. Olisa has been Chairman & CEO of Interregnum
Plc., an informationPlc.a technologyadvisory and investment company since 1992.merchant bank quoted on London’s AIM exchange. 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. Prior to his term at Wang, Mr. Olisa was an executive at IBM (UK) Ltd. Currently Mr Olisa is a director of Reuters Group plc and of several privately held information technology companiesand serves as a Commissioner forin theUK Postal Services Commission.UK.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.CurrentlyMr. 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
vendorprovider ofproducts and services to the groupware marketplace,employee performance management software, 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 at Battelle 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 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. Before that he spent time with enterprise database vendors in sales and marketing management positions. Mr. Farrellgraduated with an honors degreestudied in the Honours Degree program in Computer Science in 1976.71The Board of Directors has determined that Randy Fowlie qualifies as an “audit committee financial expert” under the rules of the Securities and Exchange Commission. Mr. Fowlie is also financially sophisticated as required by NASD Marketplace Rules, and is independent within the meaning of the Company’s director independence standards and those of any exchange, quotation system or market upon which the Company’s securities are traded.
Code of Business Conduct and Ethics
The Company has adopted a “code of ethics” as defined by regulations promulgated under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934 and a “code of conduct” as defined by qualitative listing requirements promulgated by Nasdaq that apply to all of the Company’s directors, officers and employees, including the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics and code of conduct are collectively referred to as the Company’s “Business Conduct Policy.” A copy of the Business Conduct Policy is attached as exhibit 14.1 in this Annual Report on Form 10-K, and may also be obtained by any person, without charge, upon request directed to the Company at: 185 Columbia Street West, Waterloo, Ontario N2L 5Z5, CANADA, Attn: Sue Proulx.
The Company will promptly disclose to investors, in compliance with applicable rules and regulations, amendments to the Code, as well as waivers of the Code, that apply or are granted to specified individuals, including directors, executive officers or certain other senior financial officers or persons performing similar functions, in each such case to the extent required by such rules and regulations.
Item 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/
Compensation(2)/ - --------------------------------------------------------------------------------------------------------------- Awards --------------------All Other
Compensation($)
Year
Salary
($)
Bonus
($)
Other Annual
Securities Under All Other
Compensation(1)($)
Awards Name and Principal
Salary Bonus Compensation/PositionSecurities Under
Options/SARs
Granted(3)(#)
P. Thomas Jenkins
Chief Executive Officer
2004
2003
2002328,735
287,570
288,093214,624
232,220
287,96911,033
8,871
8,892—
200,000
300,000—
—
—John Shackleton
President
2004
2003
2002368,740
358,000
330,000231,133
228,189
88,22420,763
12,174
16,22980,000
—
——
—
—Bill Forquer
Executive Vice President, Marketing
2004
2003
2002265,000
260,000
250,00077,235
48,050
52,4008,913
6,270
6,22520,000
—
——
—
—Michael Farrell
Executive Vice President, Sales
2004
2003
2002230,000
220,000
200,000198,920
176,000
86,4801,753
342
28130,000
—
——
—
—Anik Ganguly
Executive Vice President, Product Management
2004
2003
2002242,500
195,000
180,00086,005
95,450
87,3501,625
215
15120,000
—
20,000—
—
—Notes:
(1) /The amounts in “Other Annual Compensation” include pension and health benefits, car allowances and club memberships paid by the Company.
(2) The Company has not granted restricted shares or stock appreciation rights to Named Executive Officers and has no long-term incentive plan.
(3) Options/SARs Granted Compensation Position Year ($) ($) ($) (#) ($) - ---------------------------------------------------------------------------------------------------------------P. Thomas Jenkins 2002 288,093 287,969 8,892 150,000 - Chief Executive 2001 229,385 197,462 14,752 - - Officer 2000 195,602 98,731 19,558 - - - --------------------------------------------------------------------------------------------------------------- John Shackleton 2002 330,000 88,224 16,229 - - President 2001 315,000 128,892 13,219 - - 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 Ganguly 2002 180,000 87,350 151 10,000 - Executive Vice 2001 170,000 54,550 142 - - President, 2000 157,040 13,658 1,021 - - Product Management ===============================================================================================================have been adjusted as per the stock split in October 2003.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. 72Stock 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,
2002.2004. 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 fiscal2002.2004. The potentialrealizable 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 the
Company'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% $22.17 December 3, 2012 139,426 353,333 - ----------------------------------------------------------------------------------------------------------- John Shackleton - - - - - - - ----------------------------------------------------------------------------------------------------------- Bill Forquer - - - - - - - ----------------------------------------------------------------------------------------------------------- Michael Farrell - - - - - - ===========================================================================================================
Individual Grants
Potential realizable
value at assumed
annual rates of stock
price appreciation for
option termName
Number of
securities
underlying
options/SARs
granted (#)Percent of
total
options/SARs
granted to
employees in
fiscal yearExercise
price($/sh)
Expiration Date 5%
($)
10%
($)
P. Thomas Jenkins
— — — — — — John Shackleton
80,000 9.89 % 17.015 8/19/2013 856,051 2,169,402 Bill Forquer
20,000 2.47 % 17.015 8/19/2013 214,013 542,351 Michael Farrell
30,000 3.71 % 17.015 8/19/2013 321,019 813,526 Anik Ganguly
20,000 2.47 % 17.015 8/19/2013 214,013 542,351 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($)
Number of Common Shares
underlying outstanding
Options at June 30, 2004Value of unexercised in-the-
money options at June 30,
2004(1)($)
Exercisable Unexercisable Exercisable Unexercisable P. Thomas Jenkins
— — 324,000 300,000 7,121,100 9,570,000 John Shackleton
— — 677,862 80,000 16,963,497 1,189,200 Bill Forquer
— — 40,000 25,000 981,463 414,613 Michael Farrell
— — — 30,000 — 445,950 Anik Ganguly
— — 80,000 30,000 1,890,835 505,450
===================================================================================================================== 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 =====================================================================================================================2004.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 intoa newan 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,January 1, 2003, the Company entered into an employment agreement with JohnShackleton, whichShackleton. The agreement provides for an annual base salary and for an annual performance bonus based uponthe attainment of certain corporate, revenue, profit and othergoals established by the Compensation Committee from time to time. The employment agreement provides that, upon termination without"just cause"“just cause”, the Company will pay Mr. Shackletonsemi-monthly, an amounta lump-sum payment equivalent to612 months base salaryplus incentive payments calculated onand Mr. Shackleton will be entitled to receive all other benefits to which he would have been entitled for the following 12 months. If Mr. Shackleton is terminated as aprorated basis up to the dateresult of a change in control of thetermination.Company, the Company will pay Mr. Shackleton a lump-sum amount of US $250,000.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
hasalso 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
2002,2004, the Compensation Committee was comprised of Messrs.Black, OlisaJackman, Johnston, and Slaunwhite. 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$15,000 and an additional $1,250 fee for each meeting attended, including committeemeetings.meetings, except for Audit Committee members who receive $1,875 for each Audit Committee meeting attended. Each committee chairman receives an annual retainer of $5,000, except for the Audit Committee Chairman who receives a $7,500 annual retainer. Non-employee directors of the Company are also entitled to a yearly grant of 12,000 options to acquire Common Shares of the Company. The Lead Director in addition to fees received as described above, receives an annual retainer of $5,000. 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,During fiscal 2004, Stephen J. Sadler received $480,000 (fiscal 2003—$237,000) in consulting fees for assistance with acquisition activities. Mr. Sadler abstained from voting on all transactions from whichthey are paid a fee not to exceed $2,000 per day with a limit of 25 days ofhe would potentially derive consultingper annum, resulting in a maximum of $50,000 per person for such fees, except as may otherwise be approved by the Board.fees.Item 12. Security Ownership of Certain Beneficial Owners
and Managementof the RegistrantThe following table sets forth certain information as of June 30,
20022004 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 Shareslisted 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,
2002,2004, there were19,875,87251,054,786 Common Shares outstanding.
Name and Address of Beneficial Owner
Number of Shares
Beneficially Owned,
Controlled or DirectedPercent of Total
Beneficially Owned,
Controlled or Directed
General Atlantic Service Corporation
3 Pickwick Plaza, Greenwich
Connecticut, US 06830
3,846,084 7.53 % FMR Corp.
82 Devonshire Street, Boston,
Massachusetts, US 02109
3,396,220 6.65 % Massachusetts Financial Services Company
500 Boylston Street, Boston
Massachusetts, US 02116
2,613,140 5.12 % RBC Asset Management Inc.
Royal Trust Tower
77 King Street West, Suite 3800
Toronto, Ontario CA M5K 1H1
2,550,800 5.00 % P. Thomas Jenkins (1)
1,395,100 2.73 % John Shackleton (2)
�� 704,090 1.38 % Stephen J. Sadler (3)
634,600 1.24 % Michael Farrell (4)
578,500 1.13 % Michael Slaunwhite (5)
124,000 * Randy Fowlie (6)
102,000 * Anik Ganguly (7)
94,232 * Bill Forquer (8)
51,792 * Ken Olisa (9)
42,000 * Peter Hoult (10)
14,000 * David Johnston (11)
12,400 * Brian Jackman (12)
12,000 * All executive officers and directors as a group (12 Persons) (13)
3,764,214 7.37 %
Number* Less than 1%
(1) Includes 1,021,100 Common Shares owned and options for 324,000 Common Shares which are vested and options for 50,000 Common Shares which will vest within 60 days of June 30, 2004.
(2) Includes 6,228 Common Shares Percentowned and options for 677,862 Common Shares which are vested and options for 20,000 Common Shares which will vest within 60 days ofTotal Beneficially Owned, Beneficially Owned, NameJune 30, 2004.
(3) Includes 182,600 Common Shares owned and Addressoptions for 452,000 Common Shares which are vested.
(4) Includes 571,000 Common Shares owned and options for 7,500 Common Shares which will vest within 60 days 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 JenkinsJune 30, 2004.
(5) Includes 6,000 Common Shares owned and options for 118,000 Common Shares which are vested.
(6) Includes 500 Common Shares owned and options for 101,500 Common Shares which are vested.
(7) Includes 9,232 Common Shares owned and options for 80,000 Common Shares which are vested and options for 5,000 Common Shares which will vest within 60 days of June 30, 2004.
(8) Includes 6,792 Common Shares owned and options for 40,000 Common Shares which are vested and options for 5,000 Common Shares which will vest within 60 days of June 30, 2004.
(9) Includes 42,000 Common Shares owned.
(10) Includes 2,000 Common Shares owned and options for 12,000 Common Shares which are vested.
(11) Includes 400 Common Shares owned and options for 12,000 Common Shares which are vested.
(12) Includes 12,000 Common shares owned.
(13) 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 future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))(a) (b) (c) Equity compensation plans approved by security holders
7,562,799 $ 13.95 293,650 Equity compensation plans not approved by security holders
— — — Total
7,562,799 $ 13.95 293,650 Item 13. Certain Relationships and Related Transactions
ADuring fiscal 2004, Stephen J. Sadler received $480,000 (fiscal 2003—$237,000) in consulting
arrangement dated July 7, 1997 has been entered into byfees for assistance with acquisition activities.Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.Item 14. Principal Accountant Fees and Services
Aggregate fees for professional services rendered to the Company
withStephen J. Sadler under which Mr. Sadler provides consultingby KPMG LLP for fiscal 2004 and fiscal 2003:Audit Fees
Audit fees were approximately $1,102,748 for fiscal 2004 and $484,176 for fiscal 2003. Such fees were for professional services rendered for the audits of the Company’s consolidated financial statements and the review of financial information included in the Company’s quarterly reports on Form 10-Q and fees related to filings with the Securities and Exchange Commission and accounting consultations.
Audit-Related Fees
Audit-related fees were approximately $154,364 for fiscal 2004 and $85,008 for fiscal 2003. Such fees were for accounting consultations concerning financial accounting and reporting standards.
Tax Fees
The total fees for tax services were approximately $424,538 for fiscal 2004 and $74,237 for fiscal 2003. The fees were for services related to: tax compliance, including the preparation of tax returns, tax planning and tax advice, advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities.
All Other Fees
There were no fees for other services for fiscal years 2004 and 2003.
Pre-Approval Policy
The Audit Committee has established a policy of reviewing, in advance, and either approving or disapproving, any audit, audit-related or non-audit service to be provided to the Company by any indepenendent public or certified public accountant who is providing audit services to the Company. This policy requires that all services received from the Company’s independent accountants be approved in advance by either the Audit Committee or a delegate of the Audit Committee. The Audit Committee has delegated pre-approval responsibility to the Chairperson of the Audit Committee. All of the audit-related, tax and all other services provided by KPMG to the Company in
addition to serving as a directorfiscal 2004 were pre-approved. All non-audit services provided in 2004 were reviewed with the Audit Committee, which concluded that the provision of such services by KPMG was compatible with the maintenance of theCompany. Mr. Sadler was granted options to purchase 300,000 Common Shares allfirm’s independence in the conduct ofwhich 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%its auditing functions.The Audit Committee of the
first $10 millionBoard of Directors has adopted anacquired company's revenue in the 12 months prior to acquisition by the Company and 0.5% of the acquired company's revenueAudit Committee Charter whichexceeds $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 servingis attached hereto asa 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 legal fees for services 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.Appendix A.Item
14.15. Exhibits and Financial Statement Schedulesand 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 thisReport. 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) 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 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) 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 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 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'sAnnual Report on Form10K10-K.
Exhibit
NumberDescription 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 (6) 3.12 Articles of Amalgamation of the Company, dated July 1, 2004. 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) 10.8 Indemnity Agreement with Robert Hoog dated April 30, 2004. 10.9 Indemnity Agreement with Hartmut Schaper dated April 30, 2004. 14.1 Business Conduct Policy. 21.1 List of the Company’s Subsidiaries. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney (contained on Signature Page) 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.
(6) Filed as an Exhibit to the Company’s Annual Report on Form 10-K, as filed with the SEC on September 29, 2003 and incorporated herein by reference. 3) Appendix: The following appendix is filed 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'spart of this Annual Report on Form10-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.10-K.
Appendix Description of Appendix
A Audit Committe Charter. b)
Reports on Form 8-K. None c)ExhibitsThe 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)c) 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.
81Pursuant 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 10, 2004
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
P. Thomas Jenkins
DirectorChairman and Chief Executive Officer
- --------------------------------------(Principal Executive Officer)September 25, 2002 P. Thomas Jenkins /s/10, 2004/S/ ALAN HOVERD
Alan Hoverd
Chief Financial Officer
- -------------------------------------- (Principal
(Principal Financial Officer and Accounting Officer)September 25, 2002 Alan Hoverd Officer) /s/Richard C. Black Director September 25, 2002 - -------------------------------------- Richard C. Black /s/10, 2004/S/ JOHN SHACKLETON
John Shackleton
President and Director
September 25, 2002 - -------------------------------------- John Shackleton /s/10, 2004/S/ RANDY FOWLIE
Randy Fowlie
Director
September 25, 2002 - -------------------------------------- Randy Fowlie /s/10, 2004/S/ KEN OLISA
Ken Olisa
Director
September 25, 2002 - -------------------------------------- Ken Olisa /s/10, 2004/S/ STEPHEN J. SADLER
Stephen J. Sadler
Director
September 25, 2002 - -------------------------------------- Stephen J. Sadler /s/10, 2004/S/ MICHAEL SLAUNWHITE
Michael Slaunwhite
Director
September 25,10, 2004/S/ PETER HOULT
Peter Hoult
Director
September 10, 2004 /S/ DAVID JOHNSTON
David Johnston
Director
September 10, 2004 /S/ BRIAN JACKMAN
Brian Jackman
Director
September 10, 2004 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 (4) 3.10 Articles of Amalgamation of the Company, dated July 1, 2002 - -------------------------------------- Michael Slaunwhite /s/Paul J. Stoyan Director(5)3.11 Articles of Amalgamation of the Company, dated July 1, 2003 (6) 3.12 Articles of Amalgamation of the Company, dated July 1, 2004. 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) 10.8 Indemnity Agreement with Robert Hoog dated April 30, 2004. 10.9 Indemnity Agreement with Hartmut Schaper dated April 30, 2004. 14.1 Business Conduct Policy. 21.1 List of the Company’s Subsidiaries. 23.1 Consent of Independent Registered Public Accounting Firm. 24.1 Power of Attorney (contained on Signature Page) 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. i
(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 25,28, 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 - -------------------------------------- Paul J. Stoyanand incorporated herein by reference.82I, P. Thomas Jenkins, certify that:
(6) Filed as an Exhibit to the Company’s Annual Report on Form 10-K, as filed with the SEC on September 29, 2003 and incorporated herein by reference. ii
Appendix A
Open Text Corporation
Audit Committee Charter
Adopted by the Board of Directors on May 31, 2000, as amended on April 21, 2003.
A. PURPOSE AND SCOPE
The primary function of the Audit Committee (the “Committee”) is to (a) assist the Board of Directors in fulfilling its responsibilities by reviewing: (i) the financial reports provided by the Corporation to the Securities and Exchange Commission (“SEC”), other Regulatory Bodies (as defined below), the Corporation’s stockholders or to the general public, and (ii) the Corporation’s internal financial and accounting controls; (b) oversee the engagement of, and work performed by, any independent public accountants, (c) oversee the accounting and financial reporting process of the Corporation and the audits of the financial statements of the Corporation; and (d) recommend, establish and monitor procedures including without limitation relating to Risk Management designed to improve the quality and reliability of the disclosure of the Corporation’s financial condition and results of operations.
B. COMPOSITION
The Committee shall be comprised of a minimum of three directors as appointed by the Board of Directors, each of whom shall meet the independence and audit committee composition requirements promulgated by the SEC, the National Association of Securities Dealers, any exchange upon which securities of the Corporation are traded, or any governmental or regulatory body exercising authority over the Corporation (each a “Regulatory Body” and collectively, the “Regulatory Bodies”), as in effect from time to time, and each member of the Committee shall be free from any relationship that, in the opinion of the Board of Directors, would interfere with the exercise of his or her independent judgment as a member of the Committee. A majority of the members of the Committee shall constitute a quorum at any meeting of the Committee, but in no case shall a quorum be comprised of less than three (3) members of the Committee.
All members of the Committee shall be able to read and understand fundamental financial statements, including a balance sheet, cash flow statement and income statement. At least one member of the Committee shall have employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. Further, no later than the earliest time required by any Regulatory Body, at least one member of the Committee shall qualify as a “financial expert” (as such term will be defined by SEC rulemaking).
The members of the Committee shall be elected by the Board of Directors at the meeting of the Board of Directors following each annual meeting of stockholders and shall serve until their successors shall be duly elected and qualified or until their earlier death, resignation or removal. Unless a Chair is elected by the full Board of Directors, the members of the Committee may designate a Chair by majority vote of the full Committee membership.
C. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Committee shall:
Document Review
1.
IReview and assess the adequacy of this Charter periodically as conditions dictate, but at least annually (and update this Charter if and when appropriate).2. Review with representatives of management and representatives of the Corporation’s independent accounting firm the Corporation’s audited annual financial statements prior to their filing as part of the Annual Report on Form 10-K. After such review and discussion, the Committee shall recommend to the Board of
Directors whether such audited financial statements should be included in the Corporation’s Annual Report on Form 10-K. The Committee shall also review the Corporation’s quarterly SEC filings on Form 10-Q and such other financial reports and filings as may be required by any other Regulatory Body.
3. Take steps designed to insure that the independent accounting firm reviews the Corporation’s interim financial statements prior to their inclusion in the Corporation’s quarterly reports on Form 10-Q and such other financial reports and filings as may be required by any other Regulatory Body.
4. Review and assess the performance of the Chief Financial Officer and award monetary bonus, if applicable, in accordance with the Incentive Program established by the Compensation Committee.
Independent Accounting Firm
5. The Committee shall be directly responsible for the appointment, retention and oversight of any registered public accounting firm engaged (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Corporation, and each such registered public accounting firm must report directly to the Committee. The Committee shall have
reviewed thisthe following specific committee responsibilities and authorities: (i) the pre-approval of all audit services and permissible non-audit services as set forth inSarbanes–Oxley Act, 2002 (the “Act”); (ii) the sole authority to appoint, determine funding for and oversee the outside auditors as set forth in the Act.6. Resolve any disagreements between management and the independent accounting firm as to financial reporting matters.
7. Instruct the independent accounting firm that it should report directly to the Committee on matters pertaining to the work performed during its engagement and on matters required by the rules and regulations of any applicable Regulatory Body.
8. On an annual basis, receive from the independent accounting firm a formal written statement identifying all relationships between the independent accounting firm and the Corporation consistent with Independence Standards Board (“ISB”) Standard 1. The Committee shall actively engage in a dialogue with the independent accounting firm as to any disclosed relationships or services that may impact its independence. The Committee shall take appropriate action to oversee the independence of the independent accounting firm.
9. On an annual basis, discuss with representatives of the independent accounting firm the matters required to be discussed by Statement on Auditing Standards (“SAS”) 61, as it may be modified or supplemented.
10. Meet with the independent accounting firm prior to the audit to review the planning and staffing of the audit and consider whether or not to approve the auditing services proposed to be provided.
11. Evaluate the performance of the independent accounting firm and consider the discharge of the independent accounting firm when circumstances warrant.
12. Consider in advance whether or not to approve any non-audit services to be performed by the independent accounting firm which are required to be approved by the Committee pursuant to the rules and regulations of any applicable Regulatory Body.
Financial Reporting Processes
13. In consultation with the independent accounting firm and management, review annually the adequacy of the Corporation’s internal financial and accounting controls.
14. Require the Corporation’s chief executive officer and chief financial officer to submit prior to the filing of the Annual Report on Form 10-K
(the "Report")or a Form 10-Q, a report dated no earlier than 10 days prior to the date ofOpen 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 lightfiling of thecircumstances under which such statements were made, not misleading with respectForm 10-K or Form 10-Q to theperiod coveredCommittee which evaluates the design and operation of the Corporation’s internal financial and accounting controls, and which discloses (a) any significant deficiencies discovered in the design and operation of the internal controls which could adversely affect the Corporation’s ability to record, process, summarize, and report financial data; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Corporation’s internal controls. The Committee shall direct the actions to be taken and/or make recommendations to the Board of Directors of actions to be taken, to the extent such report indicates the finding of any significant deficiencies in internal controls or fraud.15. Regularly review the Corporation’s critical accounting policies and accounting estimates resulting from the application of these policies and inquire at least annually of both the Corporation’s internal auditors and the independent accounting firm as to whether either has any concerns relative to the quality or aggressiveness of management’s accounting policies.
Compliance
16. To the extent deemed necessary by
this Report;the Committee, it shall have the authority to engage outside counsel and3. Based on my knowledge,determine funding for such counsel, independent accounting consultants and/or other experts, in each case at the Corporation’s expense, to review any matter under its responsibility.17. Establish procedures in compliance with the Act for (a) the receipt, retention, and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters; and (b) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
18. Investigate any allegations that any officer or director of the Corporation, or any other person acting under the direction of any such person, took any action to fraudulently influence, coerce, manipulate, or mislead any independent public or certified accountant engaged in the performance of an audit of the financial statements of the Corporation for the purpose of rendering such financial statements materially misleading and,
other financial informationif such allegations prove to be correct, take or recommend to the Board of Directors appropriate disciplinary action.Reporting
19. Prepare, in accordance with the rules of any Regulatory Body, a written report of the audit committee to be included in
this Report, fairly presentthe Corporation’s annual proxy statement for each annual meeting of stockholders.20. Instruct the Corporation’s management to disclose 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 thisits Annual Report on Form 10-K(the "Report")and its Form 10-Q’s the approval by the Committee ofOpen Text Corporation (the "Company"); 2. Based on my knowledge, this Report does not containanyuntrue statementnon-audit services performed by the independent accounting firm, and review the substance ofa material fact or omit to state a material fact necessary to make the statements made, in lightany such disclosure.Conflicts of Interest
21. Review all related party transactions involving executive officers and members of the
circumstances under whichBoard and, as required by any Regulatory Body, consider approval of suchstatements were made,transactions.While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not
misleading with respectthe duty of the Audit Committee to plan or conduct audits or to determine that theperiod covered by this Report; and 3. Based on my knowledge, theCorporation’s financial statements are complete andother financial information includedaccurate and are inthis 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 connectionaccordance withour 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' REPORT To the Shareholders of Open Text Corporation Under date of July 29, 2002, we reported on the consolidated balance sheets of Open Text Corporation as of June 30, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the two-year period June 30, 2002, which are included in Item 8 of their 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) of their Form 10-K. This consolidated financial statement schedule is the responsibility of the Company'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/ KPMG LLP Chartered Accountants Toronto, Canada July 29, 2002 S-2OPEN 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-3OPEN 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.generally accepted accounting principles.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) i10.15 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