UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

______________________

FORM 10-Q

______________________



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, ~~2017.~~2019.



o☐	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~~CORPORATION

(Exact name of Registrant as specified in its charter)

______________________



Canada	98-0154400
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)



275 Frank Tompa Drive,			N2L 0A1
Waterloo,	Ontario	Canada	N2L 0A1
(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	Trading Symbol(s)	Name of each exchange on which registered
~~CANADA~~Common stock without par value	OTEX	~~98-0154400~~
~~(State or other jurisdiction of~~ ~~incorporation or organization)~~		~~(IRS Employer~~ ~~Identification No.)~~ NASDAQ Global Select Market

~~275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1~~

~~(Address of principal executive offices)~~

~~(519) 888-7111~~

~~(Registrant’s telephone number, including area code)~~

~~______________________~~

Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý☒ No ¨☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of ~~Regulation~~Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerý☒ Accelerated filer ¨☐Non-accelerated filer ¨ ~~(Do not check if smaller reporting company)~~ ☐Smaller reporting company ¨ ☐Emerging growth company ¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

At January ~~29, 2018,~~27, 2020, there were ~~265,809,263~~270,771,591 outstanding Common Shares of the registrant.

OPEN TEXT CORPORATION

TABLE OF CONTENTS



		Page No
Part I Financial ~~Information:~~Information
Item 1. Financial Statements
	Condensed Consolidated Balance Sheets as of December 31, ~~2017~~2019 (unaudited) and June 30, ~~2017~~2019	3
	Condensed Consolidated Statements of Income - Three and Six Months Ended December 31, ~~2017~~2019 and ~~2016~~2018 (unaudited)	4
	Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended December 31, ~~2017~~2019 and ~~2016~~2018 (unaudited)	5
	Condensed Consolidated Statements of Shareholders' Equity - Three and Six Months Ended December 31, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows - Six Months Ended December 31, ~~2017~~2019 and ~~2016~~2018 (unaudited)	68
	Notes to Condensed Consolidated Financial Statements (unaudited)	79
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		3342
Item 3. Quantitative and Qualitative Disclosures about Market Risk		6473
Item 4. Controls and Procedures		6574
Part II Other ~~Information:~~Information
Item 1A. Risk Factors		6675
Item 6. Exhibits		6776
Signatures		6877

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share data)

December 31, 2017 June 30, 2017
ASSETS (unaudited)
Cash and cash equivalents $ 476,014
$ 443,357
Accounts receivable trade, net of allowance for doubtful accounts of $8,503 as of December 31, 2017 and $6,319 as of June 30, 2017 (note 3) 511,969
445,812
Income taxes recoverable (note 14) 23,861
32,683
Prepaid expenses and other current assets 101,063
81,625
Total current assets 1,112,907
1,003,477
Property and equipment (note 4) 260,896
227,418
Goodwill (note 5) 3,578,976
3,416,749
Acquired intangible assets (note 6) 1,468,378
1,472,542
Deferred tax assets (note 14) 1,158,836
1,215,712
Other assets (note 7) 96,612
93,763
Deferred charges (note 8) 39,204
42,344
Long-term income taxes recoverable (note 14) 23,412
8,557
Total assets $ 7,739,221
$ 7,480,562
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 9) $ 318,008
$ 342,120
Current portion of long-term debt (note 10) 382,760
182,760
Deferred revenues 557,873
570,328
Income taxes payable (note 14) 30,084
31,835
Total current liabilities 1,288,725
1,127,043
Long-term liabilities:
Accrued liabilities (note 9) 47,379
50,338
Deferred credits (note 8) 4,005
5,283
Pension liability (note 11) 62,213
58,627
Long-term debt (note 10) 2,385,709
2,387,057
Deferred revenues 68,934
61,678
Long-term income taxes payable (note 14) 176,222
162,493
Deferred tax liabilities (note 14) 77,182
94,724
Total long-term liabilities 2,821,644
2,820,200
Shareholders’ equity:
Share capital and additional paid-in capital (note 12)
265,625,515 and 264,059,567 Common Shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively; authorized Common Shares: unlimited 1,650,217
1,613,454
Accumulated other comprehensive income 47,521
48,800
Retained earnings 1,949,503
1,897,624
Treasury stock, at cost (714,169 shares at December 31, 2017 and 1,101,612 at June 30, 2017, respectively) (19,250 ) (27,520 )
Total OpenText shareholders' equity 3,627,991
3,532,358
Non-controlling interests 861
961
Total shareholders’ equity 3,628,852
3,533,319
Total liabilities and shareholders’ equity $ 7,739,221
$ 7,480,562



	December 31, 2019			June 30, 2019
ASSETS	(unaudited)
Cash and cash equivalents	$	675,403		$	941,009
Accounts receivable trade, net of allowance for doubtful accounts of $17,937 as of December 31, 2019 and $17,011 as of June 30, 2019 (note 4)	526,020			463,785
Contract assets (note 3)	22,794			20,956
Income taxes recoverable (note 15)	24,615			38,340
Prepaid expenses and other current assets	104,962			97,238
Total current assets	1,353,794			1,561,328
Property and equipment (note 5)	273,448			249,453
Operating lease right of use assets (note 6)	253,387			—
Long-term contract assets (note 3)	17,975			15,386
Goodwill (note 7)	4,656,492			3,769,908
Acquired intangible assets (note 8)	1,808,072			1,146,504
Deferred tax assets (note 15)	930,856			1,004,450
Other assets (note 9)	158,058			148,977
Long-term income taxes recoverable (note 15)	46,151			37,969
Total assets	$	9,498,233		$	7,933,975
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 10)	$	417,611		$	329,903
Current portion of long-term debt (note 11)	913,631			10,000
Operating lease liabilities (note 6)	66,579			—
Deferred revenues (note 3)	718,861			641,656
Income taxes payable (note 15)	51,298			33,158
Total current liabilities	2,167,980			1,014,717
Long-term liabilities:
Accrued liabilities (note 10)	14,977			49,441
Pension liability (note 12)	73,678			75,239
Long-term debt (note 11)	2,600,386			2,604,878
Long-term operating lease liabilities (note 6)	218,681			—
Deferred revenues (note 3)	77,335			46,974
Long-term income taxes payable (note 15)	180,507			202,184
Deferred tax liabilities (note 15)	165,457			55,872
Total long-term liabilities	3,331,021			3,034,588
Shareholders’ equity:
Share capital and additional paid-in capital (note 13)
270,608,627 and 269,834,442 Common Shares issued and outstanding at December 31, 2019 and June 30, 2019, respectively; authorized Common Shares: unlimited	1,803,663			1,774,214
Accumulated other comprehensive income	24,690			24,124
Retained earnings	2,201,653			2,113,883
Treasury stock, at cost (847,369 shares at December 31, 2019 and 802,871 shares at June 30, 2019, respectively)	(32,066		)	(28,766		)
Total OpenText shareholders' equity	3,997,940			3,883,455
Non-controlling interests	1,292			1,215
Total shareholders’ equity	3,999,232			3,884,670
Total liabilities and shareholders’ equity	$	9,498,233		$	7,933,975

Guarantees and contingencies (note ~~13)~~14)

Related party transactions (note ~~21)~~22)

Subsequent ~~event~~events (note ~~22)~~23)

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands of U.S. dollars, except share and per share data)

(unaudited)


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016			2019			2018			2019			2018
Revenues:
Revenues (note 3):
License	$	135,244		$	97,764		$	213,475		$	158,420		$	138,095		$	132,756		$	215,993		$	209,643
Cloud services and subscriptions	208,121			175,061			401,974			344,748			248,340			219,233			485,605			427,316
Customer support	308,070			219,656			603,474			429,862			315,508			310,354			627,806			621,905
Professional service and other	82,970			50,228			156,169			101,343			69,614			72,888			139,041			143,524
Total revenues	734,405			542,709			1,375,092			1,034,373			771,557			735,231			1,468,445			1,402,388
Cost of revenues:
License	4,587			2,391			7,547			6,236			3,050			3,655			5,373			7,527
Cloud services and subscriptions	90,418			73,150			174,748			143,442			103,644			88,698			205,806			176,401
Customer support	33,194			27,349			65,985			53,087			29,788			31,273			59,175			61,738
Professional service and other	64,985			40,295			124,444			81,638			53,604			56,030			107,942			112,826
Amortization of acquired technology-based intangible assets (note 6)	47,128			24,848			91,088			47,983
Amortization of acquired technology-based intangible assets (note 8)													42,299			48,366			82,597			95,843
Total cost of revenues	240,312			168,033			463,812			332,386			232,385			228,022			460,893			454,335
Gross profit	494,093			374,676			911,280			701,987			539,172			507,209			1,007,552			948,053
Operating expenses:
Research and development	80,304			64,721			157,933			123,293			80,283			75,753			161,461			153,223
Sales and marketing	129,142			102,651			251,964			197,799			137,310			126,193			265,928			246,375
General and administrative	48,985			39,914			97,900			78,111			54,595			52,198			106,130			103,122
Depreciation	22,071			15,301			40,949			30,571			20,712			23,834			40,989			47,688
Amortization of acquired customer-based intangible assets (note 6)	46,268			33,815			90,057			67,423
Special charges (recoveries) (note 17)	715			11,117			18,746			23,571
Amortization of acquired customer-based intangible assets (note 8)													51,460			45,919			100,618			91,795
Special charges (recoveries) (note 18)													10,072			9,380			15,173			32,691
Total operating expenses	327,485			267,519			657,549			520,768			354,432			333,277			690,299			674,894
Income from operations	166,608			107,157			253,731			181,219			184,740			173,932			317,253			273,159
Other income (expense), net	5,547			(3,558		)	15,771			3,141			1,972			378			(813		)	1,900
Interest and other related expense, net	(34,092		)	(27,743		)	(67,380		)	(55,018		)	(32,376		)	(33,613		)	(64,586		)	(68,144		)
Income before income taxes	138,063			75,856			202,122			129,342			154,336			140,697			251,854			206,915
Provision for (recovery of) income taxes (note 14)	53,146			30,822			80,515			(828,603		)
Provision for (recovery of) income taxes (note 15)													46,818			36,236			69,909			66,086
Net income for the period	$	84,917		$	45,034		$	121,607		$	957,945		$	107,518		$	104,461		$	181,945		$	140,829
Net (income) loss attributable to non-controlling interests	194			(12		)	100			(39		)	(51		)	(29		)	(77		)	(73		)
Net income attributable to OpenText	$	85,111		$	45,022		$	121,707		$	957,906		$	107,467		$	104,432		$	181,868		$	140,756
Earnings per share—basic attributable to OpenText (note 20)	$	0.32		$	0.18		$	0.46		$	3.92
Earnings per share—diluted attributable to OpenText (note 20)	$	0.32		$	0.18		$	0.46		$	3.89
Earnings per share—basic attributable to OpenText (note 21)													$	0.40		$	0.39		$	0.67		$	0.52
Earnings per share—diluted attributable to OpenText (note 21)													$	0.40		$	0.39		$	0.67		$	0.52
Weighted average number of Common Shares outstanding—basic (in '000's)	265,504			245,653			265,153			244,282			270,450			268,524			270,232			268,276
Weighted average number of Common Shares outstanding—diluted (in '000's)	266,857			247,501			266,549			246,123			271,590			269,400			271,328			269,396
Dividends declared per Common Share	$	0.1320		$	0.1150		$	0.2640		$	0.2300

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands of U.S. dollars)

(unaudited)


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2017			2016			2019			2018			2019			2018
Net income for the period	$	84,917		$	45,034		$	121,607		$	957,945		$	107,518		$	104,461		$	181,945		$	140,829
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments	(1,446		)	(11,526		)	(540		)	(10,307		)	4,875			(3,418		)	(736		)	(6,938		)
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect of ($60) and ($252) for the three months ended December 31, 2017 and 2016, respectively; $403 and ($380) for the six months ended December 31, 2017 and 2016, respectively	(168		)	(698		)	1,117			(1,053		)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($141) and ($33) for the three months ended December 31, 2017 and 2016, respectively; ($428) and ($38) for the six months ended December 31, 2017 and 2016, respectively	(391		)	(91		)	(1,188		)	(108		)
Unrealized gain (loss) - net of tax expense (recovery) effect of $301 and ($677) for the three months ended December 31, 2019 and 2018, respectively; $95 and ($496) for the six months ended December 31, 2019 and 2018, respectively													833			(1,877		)	261			(1,375		)
(Gain) loss reclassified into net income - net of tax (expense) recovery effect of ($26) and $169 for the three months ended December 31, 2019 and 2018, respectively; ($23) and $301 for the six months ended December 31, 2019 and 2018, respectively													(72		)	467			(64		)	833
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect of ($153) and $1,077 for the three months ended December 31, 2017 and 2016, respectively; ($236) and $484 for the six months ended December 31, 2017 and 2016, respectively	(48		)	2,823			(163		)	4,361
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $43 and $57 for the three months ended December 31, 2017 and 2016, respectively; $85 and $119 for the six months ended December 31, 2017 and 2016, respectively	56			134			112			281
Unrealized net gain (loss) on marketable securities - net of tax effect of nil for the three and six months ended December 31, 2017 and 2016, respectively	—			512			—			400
Release of unrealized gain on marketable securities - net of tax effect of nil for the three and six months ended December 31, 2017 and 2016, respectively	—			—			(617		)	—
Actuarial gain (loss) - net of tax expense (recovery) effect of $1,308 and ($519) for the three months ended December 31, 2019 and 2018, respectively; $59 and ($213) for the six months ended December 31, 2019 and 2018, respectively													3,698			(1,521		)	614			(324		)
Amortization of actuarial (gain) loss into net income - net of tax (expense) recovery effect of $97 and $72 for the three months ended December 31, 2019 and 2018, respectively; $243 and $145 for the six months ended December 31, 2019 and 2018, respectively													260			64			491			130
Total other comprehensive income (loss) net, for the period	(1,997		)	(8,846		)	(1,279		)	(6,426		)	9,594			(6,285		)	566			(7,674		)
Total comprehensive income	82,920			36,188			120,328			951,519			117,112			98,176			182,511			133,155
Comprehensive (income) loss attributable to non-controlling interests	194			(12		)	100			(39		)	(51		)	(29		)	(77		)	(73		)
Total comprehensive income attributable to OpenText	$	83,114		$	36,176		$	120,428		$	951,480		$	117,061		$	98,147		$	182,434		$	133,082

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of U.S. dollars and shares)

(unaudited)



	Three Months Ended December 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
Balance as of September 30, 2019	270,190	$	1,791,689		(1,103	)	$	(41,190	)	$	2,141,278		$	15,096	$	1,241	$	3,908,114
Issuance of Common Shares
Under employee stock option plans	231	6,783			—		—			—			—		—		6,783
Under employee stock purchase plans	188	6,532			—		—			—			—		—		6,532
Share-based compensation	—	7,783			—		—			—			—		—		7,783
Issuance of treasury stock	—	(9,124		)	256		9,124			—			—		—		—
Dividends declared ($0.1746 per Common Share)	—	—			—		—			(47,092		)	—		—		(47,092		)
Other comprehensive income (loss) - net	—	—			—		—			—			9,594		—		9,594
Net income for the quarter	—	—			—		—			107,467			—		51		107,518
Balance as of December 31, 2019	270,609	$	1,803,663		(847	)	$	(32,066	)	$	2,201,653		$	24,690	$	1,292	$	3,999,232



	Three Months Ended December 31, 2018
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
Balance as of September 30, 2018	268,332	$	1,730,933		(992	)	$	(30,381	)	$	1,993,099		$	32,256		$	1,123	$	3,727,030
Issuance of Common Shares
Under employee stock option plans	62	1,740			—		—			—			—			—		1,740
Under employee stock purchase plans	175	5,696			—		—			—			—			—		5,696
Share-based compensation	—	6,885			—		—			—			—			—		6,885
Purchase of treasury stock	—	—			(370	)	(12,815		)	—			—			—		(12,815		)
Issuance of treasury stock	—	(13,955		)	545		13,955			—			—			—		—
Dividends ($0.1518 per Common Share)	—	—			—		—			(40,700		)	—			—		(40,700		)
Other comprehensive income (loss) - net	—	—			—		—			—			(6,285		)	—		(6,285		)
Net income for the quarter	—	—			—		—			104,432			—			29		104,461
Balance as of December 31, 2018	268,569	$	1,731,299		(817	)	$	(29,241	)	$	2,056,831		$	25,971		$	1,152	$	3,786,012



	Six Months Ended December 31, 2019
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income		Non-Controlling Interests		Total
Balance as of June 30, 2019	269,834	$	1,774,214		(803	)	$	(28,766	)	$	2,113,883		$	24,124	$	1,215	$	3,884,670
Issuance of Common Shares
Under employee stock option plans	415	11,359			—		—			—			—		—		11,359
Under employee stock purchase plans	360	12,540			—		—			—			—		—		12,540
Share-based compensation	—	14,674			—		—			—			—		—		14,674
Purchase of treasury stock	—	—			(300	)	(12,424		)	—			—		—		(12,424		)
Issuance of treasury stock	—	(9,124		)	256		9,124			—			—		—		—
Dividends declared ($0.3492 per Common Share)	—	—			—		—			(94,098		)	—		—		(94,098		)
Other comprehensive income (loss) - net	—	—			—		—			—			566		—		566
Net income for the quarter	—	—			—		—			181,868			—		77		181,945
Balance as of December 31, 2019	270,609	$	1,803,663		(847	)	$	(32,066	)	$	2,201,653		$	24,690	$	1,292	$	3,999,232



	Six Months Ended December 31, 2018
	Common Shares and Additional Paid in Capital				Treasury Stock					Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
	Shares	Amount			Shares		Amount			Retained Earnings			Accumulated Other Comprehensive Income			Non-Controlling Interests		Total
Balance as of June 30, 2018	267,651	$	1,707,073		(691	)	$	(18,732	)	$	1,994,235		$	33,645		$	1,037	$	3,717,258
Adoption of ASU 2016-16 - cumulative effect	—	—			—		—			(26,780		)	—			—		(26,780		)
Adoption of Topic 606 - cumulative effect	—	—			—		—			29,786			—			—		29,786
Issuance of Common Shares
Under employee stock option plans	556	14,171			—		—			—			—			—		14,171
Under employee stock purchase plans	362	11,265			—		—			—			—			—		11,265
Share-based compensation	—	13,440			—		—			—			—			—		13,440
Purchase of treasury stock	—	—			(674	)	(24,534		)	—			—			—		(24,534		)
Issuance of treasury stock	—	(14,025		)	548		14,025			—			—			—		—
Dividends declared ($0.3036 per Common Share)	—	—			—		—			(81,166		)	—			—		(81,166		)
Other comprehensive income - net	—	—			—		—			—			(7,674		)	—		(7,674		)
Non-controlling interest	—	(625		)	—		—			—			—			42		(583		)
Net income for the year	—	—			—		—			140,756			—			73		140,829
Balance as of December 31, 2018	268,569	$	1,731,299		(817	)	$	(29,241	)	$	2,056,831		$	25,971		$	1,152	$	3,786,012

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

(unaudited)


	Six Months Ended December 31,						Six Months Ended December 31,
	2017			2016			2019			2018
Cash flows from operating activities:
Net income for the period	$	121,607		$	957,945		$	181,945		$	140,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets	222,094			145,977			224,204			235,326
Share-based compensation expense	15,393			15,712			14,674			13,440
Excess tax (benefits) expense on share-based compensation expense	—			(542		)
Pension expense	1,869			2,061			2,895			2,254
Amortization of debt issuance costs	2,532			2,654			2,276			2,157
Amortization of deferred charges and credits	2,234			4,292
Loss on sale and write down of property and equipment	163			—			—			9,428
Release of unrealized gain on marketable securities to income	(841		)	—
Deferred taxes	44,374			(868,233		)	34,168			8,909
Share in net (income) loss of equity investees	196			(5,993		)	(1,948		)	(7,863		)
Other non-cash charges	—			1,033
Changes in operating assets and liabilities:
Accounts receivable	(49,458		)	456			2,598			33,548
Contract assets							(17,659		)	(13,400		)
Prepaid expenses and other current assets	(5,383		)	11,885			(501		)	12,532
Income taxes and deferred charges and credits	1,583			(9,620		)
Income taxes							(891		)	17,324
Accounts payable and accrued liabilities	(72,499		)	(23,995		)	(33,235		)	(29,748		)
Deferred revenue	(48,846		)	(47,742		)	(64,093		)	(69,151		)
Other assets	(1,269		)	(5,420		)	2,357			4,919
Operating lease assets and liabilities, net							(2,105		)	—
Net cash provided by operating activities	233,749			180,470			344,685			360,504
Cash flows from investing activities:
Additions of property and equipment	(55,937		)	(32,274		)	(38,212		)	(33,464		)
Proceeds from maturity of short-term investments	—			9,212
Purchase of Carbonite, Inc., net of cash and restricted cash acquired							(1,216,639		)	—
Purchase of Dynamic Solutions Group Inc.							(4,149		)	—
Purchase of Liaison Technologies, Inc.							—			(311,285		)
Purchase of Guidance Software, Inc., net of cash acquired	(229,275		)	—			—			(2,279		)
Purchase of Covisint Corporation, net of cash acquired	(71,279		)	—
Purchase of HP Inc. CCM Business	—			(315,000		)
Purchase of Recommind, Inc.	—			(170,107		)
Purchase consideration for acquisitions completed prior to Fiscal 2017	—			(7,146		)
Other investing activities	(8,061		)	(563		)	(5,541		)	(6,373		)
Net cash used in investing activities	(364,552		)	(515,878		)	(1,264,541		)	(353,401		)
Cash flows from financing activities:
Excess tax benefits (expense) on share-based compensation expense	—			542
Proceeds from issuance of Common Shares from exercise of stock options and ESPP							23,117			24,286
Proceeds from long-term debt and Revolver	200,000			256,875			750,000			—
Proceeds from issuance of Common Shares from exercise of stock options and ESPP	29,622			10,701
Proceeds from issuance of Common Shares under the public Equity Offering	—			604,223
Repayment of long-term debt and Revolver	(3,880		)	(4,000		)	(5,000		)	(5,000		)
Debt issuance costs	—			(4,155		)	(979		)	(322		)
Equity issuance costs	—			(18,127		)
Purchase of Treasury Stock							(12,424		)	(24,534		)
Purchase of non-controlling interests							—			(583		)
Payments of dividends to shareholders	(69,828		)	(55,650		)	(94,098		)	(81,166		)
Net cash provided by (used in) financing activities	155,914			790,409			660,616			(87,319		)
Foreign exchange gain (loss) on cash held in foreign currencies	7,546			(16,267		)	(4,071		)	(5,901		)
Increase (decrease) in cash and cash equivalents during the period	32,657			438,734
Cash and cash equivalents at beginning of the period	443,357			1,283,757
Cash and cash equivalents at end of the period	$	476,014		$	1,722,491
Increase (decrease) in cash, cash equivalents and restricted cash during the period							(263,311		)	(86,117		)
Cash, cash equivalents and restricted cash at beginning of the period							943,543			683,991
Cash, cash equivalents and restricted cash at end of the period							$	680,232		$	597,874



Reconciliation of cash, cash equivalents and restricted cash:	December 31, 2019		December 31, 2018
Cash and cash equivalents	$	675,403	$	595,069
Restricted cash included in Other assets	4,829		2,805
Total cash, cash equivalents and restricted cash	$	680,232	$	597,874

Supplemental cash flow disclosures (note ~~19)~~20)

See accompanying Notes to Condensed Consolidated Financial Statements

OPEN TEXT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended December 31, ~~2017~~2019

(Tabular amounts in thousands of U.S. dollars, except share and per share data)

(unaudited)

NOTE 1—BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as "OpenText" or the "Company". We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa)~~, GXS, Inc. (GXS Korea)~~ and EC1 Pte. Ltd. (GXS Singapore), which as of December 31, ~~2017,~~2019, were 70%~~, 85%~~ and 81% owned, respectively, by OpenText. All inter-company balances and transactions have been eliminated.

Throughout this Quarterly Report on Form 10-Q: (i) the term “Fiscal 2020” means our fiscal year beginning on July 1, 2019 and ending June 30, 2020; (ii) the term “Fiscal 2019” means our fiscal year beginning on July 1, 2018 and ended June 30, 2019; (iii) the term “Fiscal 2018” means our fiscal year beginning on July 1, 2017 and ~~ending~~ended June 30, 2018; ~~(ii)~~(iv) the term “Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30, 2017; ~~(iii)~~and (v) the term “Fiscal 2016” means our fiscal year beginning on July 1, 2015 and ended June 30, 2016; (iv) the term "Fiscal 2015" means our fiscal year beginning on July 1, 2014 and ended June 30, 2015; and (v) the term "Fiscal 2014" means our fiscal year beginning on July 1, 2013 and ended June 30, 2014.2016.

These Condensed Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented and includes certain assets and liabilities of Dynamic Solutions Group Inc. (The Fax Guys), with effect from December 2, 2019, and the financial results of ~~Covisint Corporation (Covisint)~~Carbonite, Inc. (Carbonite), with effect from ~~July 26, 2017 and Guidance Software, Inc. (Guidance), with effect from September 14, 2017~~December 24, 2019 (see note 1819 "Acquisitions").

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. In particular, ~~significant~~key estimates, judgments and assumptions include those related to: (i) revenue recognition, (ii) accounting for income taxes, (iii) testing of goodwill for impairment, ~~(iii)~~(iv) the valuation of acquired intangible assets, ~~(iv)~~(v) the valuation of long-lived assets, ~~(v)~~(vi) the recognition of contingencies, ~~(vi)~~(vii) restructuring accruals, ~~(vii)~~(viii) acquisition accruals and pre-acquisition contingencies, ~~(viii)~~(ix) the realization of investment tax credits, ~~(ix)~~(x) the valuation of stock options granted and obligations related to share-based payments, including the valuation of our long-term incentive plans, ~~(x)~~and (xi) the valuation of pension ~~assets and obligations, and (xi) accounting for income taxes. During the second quarter~~obligations.

Impact of Fiscal 2018, our income tax estimates were impacted by an Act to provide for the reconciliation pursuant to titles II and IV of the concurrent resolution on the budget for fiscal year 2018, informally titled the Tax Cuts and Jobs Act, which was enacted in the United States on December 22, 2017. The Company recorded a provisional charge in the second quarter of Fiscal 2018 and continues to assess the effect of the new law on its consolidated financial statements in accordance with StaffRecently Adopted Accounting ~~Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). For more details related to this matter, please refer to note 14 "Income Taxes".~~

~~NOTE 2— RECENT ACCOUNTING PRONOUNCEMENTS~~Pronouncements

Leases

~~In February 2016, the Financial Accounting Standards Board (FASB) issued~~Effective July 1, 2019, we adopted Accounting Standards Update (ASU) No. 2016-02 “Leases (Topic 842)” ~~(ASU 2016-02),~~(Topic 842) using the modified retrospective transition approach. In accordance with this adoption method, results for reporting periods as of July 1, 2019 are presented under the new standard, while prior period results continue to be reported under the previous standard. Additionally, we elected the package of practical expedients permitted under the transition guidance within Topic 842, which ~~supersedes~~allowed us to (i) carry forward the ~~guidance in former Accounting Standards Codification (ASC) Topic 840 “Leases”. The most significant change will result in~~historical lease classification for any expired or existing leases, (ii) not reassess whether any expired or existing contracts contain leases and (iii) not reassess any initial direct cost for existing leases. We did not elect the ~~recognition~~practical expedient of hindsight when determining the lease assets for the right to use the underlying asset and lease liabilities for the obligation to make lease payments by lessees, for those leases classified as operating leases under current guidance. The new guidance will also require significant additional disclosures about the amount, timing and uncertaintyterm of cash flows related to leases. This standard is effective for us for our fiscal year ending June 30, 2020, with early adoption permitted. Upon adoption of ASU 2016-02, entities are required to recognize and measure leasesexisting contracts at the ~~beginning~~effective date. As a result of this adoption, we recorded the ~~earliest period presented using a modified retrospective approach. We have formed a sub-committee consisting~~following adjustments as of ~~internal members from various departments to assess~~July 1, 2019 on the ~~effect that the pending adoption of ASU 2016-02 will have on our Condensed~~ Consolidated Balance ~~Sheets. Although the sub-committee has not completed their assessment, we expect the~~Sheets:

~~majority of the impact to come from our facility leases, and that most of our~~An increase in operating lease ~~commitments will be recognized as~~ right of use assets ~~and~~of approximately $217.5 million;

An increase in total operating lease liabilities ~~which will increase our~~of approximately $253.5 million;

A decrease in prepaid expenses and other current assets of approximately $6.6 million in connection with lease fair value adjustments and prepaid rent;

A decrease in other assets of approximately $0.2 million in connection with lease fair value adjustments; and

A decrease in total ~~assets~~accrued liabilities of approximately $42.8 million in connection with tenant allowances, deferred rent, lease fair value adjustments, and ~~total liabilities, as reported on our~~amounts payable in respect of restructured facilities.

The adoption of Topic 842 had no impact to the Condensed Consolidated ~~Balance Sheets, relative to such amounts prior to adoption. The sub-committee continues to evaluate the impact~~Statements of ~~the new standard on our~~Income, Condensed Consolidated ~~Financial Statements.~~

~~Revenue Recognition~~

In May 2014, the FASB issued ASC 606 "Revenue from Contracts with Customers" (Topic 606). Topic 606 supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition" and nearly all other existing revenue recognition guidance under U.S. GAAP. The core principalStatements of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services and permits the use of the retrospective or cumulative effect transition method. Topic 606 identifies five steps to be followed to achieve its core principal, which include (i) identifying contract(s) with customers, (ii) identifying performance obligations in the contract(s), (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract(s) and (v) recognizing revenue when (or as) the entity satisfies a performance obligation.

~~We anticipate that we will adopt Topic 606 using the cumulative effect approach when this guidance becomes effective for us, starting in the first quarter of our fiscal year ending June 30, 2019.~~

We have established a project team with the primary objective of evaluating the effect that Topic 606 will have on our business processes, systems and controls in order to support the requirements of the new standard. We have utilized a bottoms-up approach to determine the impact of the new standard on our contracts and have completed our review of current accounting policies and practices as compared to the new standard. This has resulted in the identification of differences that will result from applying the requirements of Topic 606 to our revenue contracts that will be open at the time of the transition. While we are continuing to assess all potential impacts of Topic 606, we currently believe the key differences relate to our accounting for implementation services on cloud arrangements and accounting for on premise subscription offerings.

Under current U.S. GAAP, fees charged for professional services to implement hosted software within a cloud arrangement are deferred and amortized over the longer of the non-cancellable contract term or the estimated customer life because the activities are not deemed to be a separate element for which stand-alone value exists. The requirements for the identification of distinct performance obligations within a contract have changed under the new revenue recognition standard. Under this new standard we will be required to recognize certain implementation services that meet the criteria of being distinct as a separate performance obligation from the on-going cloud arrangement with corresponding revenues recognized as the services are provided to the customer. Costs relating to these implementation services will be expensed as they are incurred.

Under current U.S. GAAP, revenue attributable to subscription services related to on premise offerings is recognized ratably over the term of the arrangement because Vendor Specific Objective Evidence (VSOE) does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of the delivered software licenses is eliminated under the new revenue recognition standard. Accordingly, under this new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the initial software at the outset of the arrangement. This difference will result in allocating a transaction price to the delivered software component of a subscription offering and thus an earlier recognition of revenue related to that transaction price.

The accounting for the recognition of costs related to obtaining customer contracts under Topic 606 is not significantly different from our current policy to defer commissions, although there will be certain modifications to reflect the changes in the pattern and timing of recognition of certain arrangements as discussed above. In addition, as a result of adopting the new revenue standard certain additional disclosure requirements will exist.

We are still in the process of quantifying the impacts of Topic 606 and the methodology of estimating Standalone Selling Price for certain of the separately identified performance obligations under the new revenue recognition standard. It is important to note, however, that certain contracts are complex, and actual determination of revenue recognition under both existing and new guidance is dependent on contract-specific terms, which may cause variability in the timing and quantum of revenue recognized. We will continue to assess all of the impacts that the application of Topic 606 will have on ourComprehensive Income, Condensed Consolidated ~~Financial~~Statement of Shareholders' Equity or Condensed Consolidated Statements ~~including on our disclosure requirements, and, if material, will provide updated disclosures with regard~~of Cash Flows. Please refer to ~~the expected impact.~~Note 6, “Leases,” for additional information.

~~ASUs adopted~~

NOTE 2—RECENT ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Adopted in Fiscal ~~2018~~2020

During Fiscal ~~2018~~2020, we have adopted the following ~~ASU, which~~ASUs, in addition to those discussed in note 1 "Basis of Presentation". The ASUs listed below did not have a material impact to our reported financial position, results of operations or cash flows:

ASU ~~2016-09 "Compensation-Stock Compensation~~No. 2017-12 “Derivatives and Hedging (Topic ~~718)"~~815) Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12)

ASU No. 2018-15 “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”

Accounting Pronouncements Not Yet Adopted

Retirement Benefits

In August 2018, the Financial Accounting Standards Board (FASB) issued ASU No. 2018-14 “Compensation-Retirement Benefits-Defined Benefit Plans - General (Topic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans” (ASU 2018-14), which modifies the disclosure requirements for defined benefit pension plans and other post retirement plans. ASU 2018-14 is effective for us in the first quarter of our fiscal year ending June 30, 2021. We are currently evaluating the impact of our pending adoption of ASU 2018-14 on our consolidated financial statements.

Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04, ASU 2019-05 and ASU 2019-11 (collectively Topic 326). Topic 326 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This replaces the existing incurred loss model with an expected loss model and requires the use of forward looking information to calculate credit loss estimates. Topic 326 is effective for us in our first quarter of our fiscal year ending June 30, 2021. Topic 326 must be adopted by applying a cumulative effect adjustment to retained earnings. We are currently evaluating Topic 326, including its potential impact to our process and controls. We believe the effect on our consolidated financial statements will largely depend on the composition and credit quality of our financial assets and the economic conditions at the time of adoption.

NOTE 3—REVENUES

In accordance with Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606), we account for a customer contract when we obtain written approval, the contract is committed, the rights of the parties, including the payment terms, are identified, the contract has commercial substance and consideration is probable of collection. Revenue is recognized when, or as, control of a promised product or service is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for our products and services (at its transaction price). Estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based on readily available information, which may include historical, current and forecasted information, taking into consideration the type of customer, the type of transaction and specific facts and circumstances of each arrangement. We report revenue net of any revenue-based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions.

We have 4 revenue streams: license, cloud services and subscriptions, customer support, and professional service and other.

License revenue

Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of which are deployed on the customer’s premises (on-premise).

Perpetual licenses: We sell perpetual licenses which provide customers the right to use software for an indefinite period of time in exchange for a one-time license fee, which is generally paid at contract inception. Our perpetual licenses provide a right to use intellectual property (IP) that is functional in nature and have significant stand-alone functionality. Accordingly, for perpetual licenses of functional IP, revenue is recognized at the point-in-time when control has been transferred to the customer, which normally occurs once software activation keys have been made available for download.

Term licenses and Subscription licenses: We sell both term and subscription licenses which provide customers the right to use software for a specified period in exchange for a fee, which may be paid at contract inception or paid in installments over the period of the contract. Like perpetual licenses, both our term licenses and subscription licenses are functional IP that have significant stand-alone functionality. Accordingly, for both term and subscription licenses, revenue is recognized at the point-in-time when the customer is able to use and benefit from the software, which is normally once software activation keys have been made available for download at the commencement of the term.

Cloud services and subscriptions revenue

Cloud services and subscriptions revenue are from hosting arrangements where in connection with the licensing of software, the end user does not take possession of the software, as well as from end-to-end fully outsourced business-to-business (B2B) integration solutions to our customers (collectively referred to as cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services.

PaaS/ SaaS/ Cloud Subscriptions (collectively referred to here as cloud-based solutions): We offer cloud-based solutions that provide customers the right to access our software through the internet. Our cloud-based solutions represent a series of distinct services that are substantially the same and have the same pattern of transfer to the customer. These services are made available to the customer continuously throughout the contractual period, however, the extent to which the customer uses the services may vary at the customer’s discretion. The payment for cloud-based solutions may be received either at inception of the arrangement, or over the term of the arrangement.

These cloud-based solutions are considered to have a single performance obligation where the customer simultaneously receives and consumes the benefit, and as such we recognize revenue for these cloud-based solutions ratably over the term of the contractual agreement. For example, revenue related to cloud-based solutions that are provided on a usage basis, such as the number of users, is recognized based on a customer’s utilization of the services in a given period.

Additionally, a software license is present in a cloud-based solutions arrangement if all of the following criteria are met:

(i) The customer has the contractual right to take possession of the software at any time without significant penalty; and

(ii) It is feasible for the customer to host the software independent of us.

In these cases where a software license is present in a cloud-based solutions arrangement it is assessed to determine if it is distinct from the cloud-based solutions arrangement. The revenue allocated to the distinct software license would be recognized at the point in time the software license is transferred to the customer, whereas the revenue allocated to the hosting performance obligation would be recognized ratably on a monthly basis over the contractual term unless evidence suggests that revenue is earned, or obligations are fulfilled in a different pattern over the contractual term of the arrangement.

Managed services: We provide comprehensive B2B process outsourcing services for all day-to-day operations of a customers’ B2B integration program. Customers using these managed services are not permitted to take possession of our software and the contract is for a defined period, where customers pay a monthly or quarterly fee. Our performance obligation is satisfied as we provide services of operating and managing a customer's electronic data interchange (EDI) environment. Revenue relating to these services is recognized using an output method based on the expected level of service we will provide over the term of the contract.

In connection with cloud subscription and managed service contracts, we often agree to perform a variety of services before the customer goes live, such as for example, converting and migrating customer data, building interfaces and providing training. These services are considered an outsourced suite of professional services which can involve certain project-based activities. These services can be provided at the initiation of a contract, during the implementation or on an ongoing basis as part of the customer life cycle. These services can be charged separately on a fixed fee or time and materials basis, or the costs associated may be recovered as part of the ongoing cloud subscription or managed services fee. These outsourced professional services are considered to be distinct from the ongoing hosting services and represent a separate performance obligation within our cloud subscription or managed services arrangements. The obligation to provide outsourced professional services is satisfied over time, with the customer simultaneously receiving and consuming the benefits as we satisfy our performance

obligations. For outsourced professional services, we recognize revenue by measuring progress toward the satisfaction of our performance obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we recognize revenue at that amount.

Customer support revenue

Customer support revenue is associated with perpetual, term license and on-premise subscription arrangements. As customer support is not critical to the customer's ability to derive benefit from its right to use our software, customer support is considered as a distinct performance obligation when sold together in a bundled arrangement along with the software.

Customer support consists primarily of technical support and the provision of unspecified updates and upgrades on a when-and-if-available basis. Customer support for perpetual licenses is renewable, generally on an annual basis, at the option of the customer. Customer support for term and subscription licenses is renewable concurrently with such licenses for the same duration of time. Payments for customer support are generally made at the inception of the contract term or in installments over the term of the maintenance period. Our customer support team is ready to provide these maintenance services, as needed, to the customer during the contract term. As the elements of customer support are delivered concurrently and have the same pattern of transfer, customer support is accounted for as a single performance obligation. The customer benefits evenly throughout the contract period from the guarantee that the customer support resources and personnel will be available to them, and that any unspecified upgrades or unspecified future products developed by us will be made available. Revenue for customer support is recognized ratably over the contract period based on the start and end dates of the maintenance term, in line with how we believe services are provided.

Professional service and other revenue

Our professional services, when offered along with software licenses, consists primarily of technical services and training services. Technical services may include installation, customization, implementation or consulting services. Training services may include access to online modules or delivering a training package customized to the customer’s needs. At the customer’s discretion, we may offer one, all, or a mix of these services. Payment for professional services is generally a fixed fee or is a fee based on time and materials.

Professional services can be arranged in the same contract as the software license or in a separate contract.

As our professional services do not significantly change the functionality of the license and our customers can benefit from our professional services on their own or together with other readily available resources, we consider professional services as distinct within the context of the contract.

Professional service revenue is recognized over time so long as: (i) the customer simultaneously receives and consumes the benefits as we perform them, (ii) our performance creates or enhances an asset the customer controls as we perform, and (iii) our performance does not create an asset with alternative use and we have enforceable right to payment.

If all of the above criteria are met, we use an input-based measure of progress for recognizing professional service revenue. For example we may consider total labor hours incurred compared to total expected labor hours. As a practical expedient, when we invoice a customer at an amount that corresponds directly with the value to the customer of our performance to date, we will recognize revenue at that amount.

Material rights

To the extent that we grant our customer an option to acquire additional products or services in one of our arrangements, we will account for the option as a distinct performance obligation in the contract only if the option provides a material right to the customer that the customer would not receive without entering into the contract. For example if we give the customer an option to acquire additional goods or services in the future at a price that is significantly lower than the current price, this would be a material right as it allows the customer to, in effect, pay in advance for the option to purchase future products or services. If a material right exists in one of our contracts then revenue allocated to the option is deferred and we would recognize revenue only when those future products or services are transferred or when the option expires.

Based on history, our contracts do not typically contain material rights and when they do, the material right is not significant to our consolidated financial statements.

Arrangements with multiple performance obligations

Our contracts generally contain more than one of the products and services listed above. Determining whether goods and services are considered distinct performance obligations that should be accounted for separately or as a single performance obligation may require judgment, specifically when assessing whether both of the following two criteria are met:

the customer can benefit from the product or service either on its own or together with other resources that are readily available to the customer; and

our promise to transfer the product or service to the customer is separately identifiable from other promises in the contract.

If these criteria are not met, we determine an appropriate measure of progress based on the nature of our overall promise for the single performance obligation.

If these criteria are met, each product or service is separately accounted for as a distinct performance obligation and the total transaction price is allocated to each performance obligation on a relative standalone selling price (SSP) basis.

Standalone selling price

The SSP reflects the price we would charge for a specific product or service if it was sold separately in similar circumstances and to similar customers. In most cases we are able to establish the SSP based on observable data. We typically establish a narrow SSP range for our products and services and assess this range on a periodic basis or when material changes in facts and circumstances warrant a review.

If the SSP is not directly observable, then we estimate the amount using either the expected cost plus a margin or residual approach. Estimating SSP requires judgment that could impact the amount and timing of revenue recognized. SSP is a formal process whereby management considers multiple factors including, but not limited to, geographic or regional specific factors, competitive positioning, internal costs, profit objectives, and pricing practices.

Transaction Price Allocation

In bundled arrangements, where we have more than one distinct performance obligation, we must allocate the transaction price to each performance obligation based on its relative SSP. However, in certain bundled arrangements, the SSP may not always be directly observable. For instance, in bundled arrangements with license and customer support, we allocate the transaction price between the license and customer support performance obligations using the residual approach because we have determined that the SSP for licenses in these arrangements are highly variable. We use the residual approach only for our license arrangements. When the SSP is observable but contractual pricing does not fall within our established SSP range, then an adjustment is required and we will allocate the transaction price between license and customer support at a constant ratio reflecting the mid-point of the established SSP range.

When two or more contracts are entered into at or near the same time with the same customer, we evaluate the facts and circumstances associated with the negotiation of those contracts. Where the contracts are negotiated as a package, we will account for them as a single arrangement and allocate the consideration for the combined contracts among the performance obligations accordingly.

Sales to resellers

We execute certain sales contracts through resellers, distributors and channel partners (collectively referred to as resellers). For these type of agreements, we assess whether we are considered the principal or the agent in the arrangement. We consider factors such as, but not limited to, whether or not the reseller has the ability to set the price for which they sell our software products to end users and whether or not resellers distribution rights are limited such that any potential sales are subject to OpenText’s review and approval before delivery of the software product can be made. If we determine that we are the principal in the arrangement, then revenue is recognized based on the transaction price for the sale of the software product to the end user at the gross amount. If that is not known, then the net amount received from the reseller is the transaction price. If we determine that we are the agent in the agreement, then revenue is recognized based on the transaction price for the sale of the software product to the reseller, less any applicable commissions paid or discounts or rebates, if offered. Costs or commissions paid to the reseller would be recognized as a reduction of revenue unless we received a distinct good or service in return. Similarly, any discounts or rebates offered by the reseller would be recognized as a reduction of revenue.

Typically, we conclude that we are the principal in our reseller agreements, as we have control over the service and products prior to being transferred to the end customer.

We also assess the creditworthiness of each reseller and if they are newly formed, undercapitalized or in financial difficulty, we defer any revenues expected to emanate from such reseller and recognize revenue only when cash is received, and all other revenue recognition criteria under Topic 606 are met.

Rights of return and other incentives

We do not generally offer rights of return or any other incentives such as concessions, product rotation, or price protection and, therefore, do not provide for or make estimates of rights of return and similar incentives. However, we do offer consumers who purchase certain of our products on-line directly from us an unconditional full 70-days money-back guarantee. Distributors and resellers are also permitted to return the consumer products, subject to certain limitations. Revenue is reduced for such rights based on the estimate of future returns originating from contractual agreements with these customers.

Additionally, in some contracts, however, discounts may be offered to the customer for future software purchases and other additional products or services. Such arrangements grant the customer an option to acquire additional goods or services in the future at a discount and therefore are evaluated under guidance related to “material rights” as discussed above.

Other policies

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days of the invoice date. In certain arrangements, we will receive payment from a customer either before or after the performance obligation to which the invoice relates has been satisfied. As a practical expedient, we do not account for significant financing components if the period between when we transfer the promised good or service to the customer and when the customer pays for the product or service will be one year or less. On that basis, our contracts for license and maintenance typically do not contain a significant financing component, however, in determining the transaction price we consider whether we need to adjust the promised consideration for the effects of the time value of money if the timing of payments provides either the customer or OpenText with a significant benefit of financing. Our managed services contracts may not include an upfront charge for outsourced professional services performed as part of an implementation and are recovered through an ongoing fee. Therefore, these contracts may be expected to have a financing component associated with revenue being recognized in advance of billings.

We may modify contracts to offer customers additional products or services. The additional products and services will be considered distinct from those products or services transferred to the customer before the modification and will be accounted for as a separate contract. We evaluate whether the price for the additional products and services reflects the SSP adjusted as appropriate for facts and circumstances applicable to that contract. In determining whether an adjustment is appropriate, we evaluate whether the incremental consideration is consistent with the prices previously paid by the customer or similar customers.

Certain of our subscription services and product support arrangements generally contain performance response time guarantees. For subscription services arrangements, we estimate variable consideration using a portfolio approach because performance penalties are tied to standard response time requirements. For product support arrangements, we estimate variable consideration on a contract basis because such arrangements are customer-specific. For both subscription services and product support arrangements, we use an expected value approach to estimate variable consideration based on historical business practices and current and future performance expectations to determine the likelihood of incurring penalties.

Performance Obligations

A summary of our typical performance obligations and when the obligations are satisfied are as follows:



Performance Obligation	When Performance Obligation is Typically Satisfied
License revenue:
Software licenses (Perpetual,Term, Subscription)	When software activation keys have been made available for download (point in time)
Cloud services and subscriptions revenue:
Outsourced Professional Services	As the services are provided (over time)
Managed Services / Ongoing Hosting / SaaS	Over the contract term, beginning on the date that service is made available (i.e. "Go live") to the customer (over time)
Customer support revenue:
When and if available updates and upgrades and technical support	Ratable over the course of the service term (over time)
Professional service and other revenue:
Professional services	As the services are provided (over time)

Disaggregation of Revenue

The following table disaggregates our revenue by significant geographic area, based on the location of our end customer, and by type of performance obligation and timing of revenue recognition for the periods indicated:



	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Total Revenues by Geography:
Americas ⁽¹⁾	$	450,691	$	420,696	$	870,401	$	810,036
EMEA⁽²⁾	252,268		243,937		462,435		458,412
Asia Pacific ⁽³⁾	68,598		70,598		135,609		133,940
Total Revenues	$	771,557	$	735,231	$	1,468,445	$	1,402,388



	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Total Revenues by Type of Performance Obligation:
Recurring revenue ⁽⁴⁾
Cloud services and subscriptions revenue	$	248,340	$	219,233	$	485,605	$	427,316
Customer support revenue	315,508		310,354		627,806		621,905
Total recurring revenues	$	563,848	$	529,587	$	1,113,411	$	1,049,221
License revenue (perpetual, term and subscriptions)	138,095		132,756		215,993		209,643
Professional service and other revenue	69,614		72,888		139,041		143,524
Total revenues	$	771,557	$	735,231	$	1,468,445	$	1,402,388

Total Revenues by Timing of Revenue Recognition
Point in time	138,095		132,756		215,993		209,643
Over time (including professional service and other revenue)	633,462		602,475		1,252,452		1,192,745
Total revenues	$	771,557	$	735,231	$	1,468,445	$	1,402,388

⁽¹⁾ Americas consists of countries in North, Central and South America.

⁽²⁾ EMEA primarily consists of countries in Europe, the Middle East and Africa.

⁽³⁾ Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.

⁽⁴⁾ Recurring revenue is defined as the sum of cloud services and subscriptions revenue and customer support revenue.

Contract Balances

A contract asset will be recorded if we have recognized revenue but do not have an unconditional right to the related consideration from the customer. For example, this will be the case if implementation services offered in a cloud arrangement are identified as a separate performance obligation and are provided to a customer prior to us being able to bill the customer. In addition, a contract asset may arise in relation to subscription licenses if the license revenue that is recognized upfront exceeds the amount that we are able to invoice the customer at that time. Contract assets are reclassified to accounts receivable when the rights become unconditional.

The balance for our contract assets and contract liabilities (i.e. deferred revenues) for the periods indicated below were as follows:



	As of December 31, 2019		As of June 30, 2019
Short-term contract assets	$	22,794	$	20,956
Long-term contract assets	$	17,975	$	15,386
Short-term deferred revenue	$	718,861	$	641,656
Long-term deferred revenue	$	77,335	$	46,974

The difference in the opening and closing balances of our contract assets and deferred revenues primarily results from the timing difference between our performance and the customer’s payments. We fulfill our obligations under a contract with a customer by transferring products and services in exchange for consideration from the customer. During the six months ended December 31, 2019, we reclassified $13.3 million of contract assets to receivables as a result of the right to the transaction consideration becoming unconditional. During the three and six months ended December 31, 2019, respectively, there was 0 significant impairment loss recognized related to contract assets.

We recognize deferred revenue when we have received consideration or an amount of consideration is due from the customer for future obligations to transfer products or services. Our deferred revenues primarily relate to customer support agreements which have been paid for by customers prior to the performance of those services. The amount of revenue that was recognized during the six months ended December 31, 2019 that was included in the deferred revenue balances at June 30, 2019 was approximately $491 million.

Incremental Costs of Obtaining a Contract with a Customer

Incremental costs of obtaining a contract include only those costs that we incur to obtain a contract that we would not have incurred if the contract had not been obtained, such as sales commissions. We have determined that certain of our commission programs meet the requirements to be capitalized. Some commission programs are not subject to capitalization as the commission expense is paid and recognized as the related revenue is recognized. In assessing costs to obtain a contract, we apply a practical expedient that allows us to assess our incremental costs on a portfolio of contracts with similar characteristics instead of assessing the incremental costs on each individual contract. We do not expect the financial statement effects of applying this practical expedient to the portfolio of contracts to be materially different than if we were to apply the new standard to each individual contract.

We pay commissions on the sale of new customer contracts as well as for renewals of existing contracts to the extent the renewals generate incremental revenue. Commissions paid on renewal contracts are limited to the incremental new revenue and therefore these payments are not commensurate with the commission paid on the original sale. We allocate commission costs to the performance obligations in an arrangement consistent with the allocation of the transaction price. Commissions allocated to the license performance obligation are expensed at the time the license revenue is recognized. Commissions allocated to professional service performance obligations are expensed as incurred, as these contracts are generally for one year or less and we apply a practical expedient to expense costs as incurred if the amortization period would have been one year or less. Commissions allocated to maintenance, managed services, on-going hosting arrangements or other recurring services, are capitalized and amortized consistent with the pattern of transfer to the customer of the services over the period expected to benefit from the commission payment. As commissions paid on renewals are not commensurate with the original sale, the period of benefit considers anticipated renewals. The benefit period is estimated to be approximately six years which is based on our customer contracts and the estimated life of our technology.

Expenses for incremental costs associated with obtaining a contract are recorded within sales and marketing expense in the Condensed Consolidated Statements of Income.

Our short term capitalized costs to obtain a contract are included in "Prepaid expenses and other assets", while our long-term capitalized costs to obtain a contract are included in "Other assets" on our Condensed Consolidated Balance Sheets.

The following table summarizes the changes in total capitalized costs since June 30, 2019:



Capitalized costs to obtain a contract as of June 30, 2019	$	48,284
New capitalized costs incurred	10,590
Amortization of capitalized costs	(7,715		)
Adjustments on account of foreign exchange	(228		)
Capitalized costs to obtain a contract as of December 31, 2019	$	50,931

During the three and six months ended December 31, 2019, respectively, there was 0 significant impairment loss recognized in relation to costs capitalized.

Transaction Price Allocated to the Remaining Performance Obligations

As of December 31, 2019, approximately $1.3 billion of revenue is expected to be recognized from remaining performance obligations on existing contracts. We expect to recognize approximately 50% of this amount over the next 12 months and the remaining balance thereafter. We apply the practical expedient and do not disclose performance obligations that have original expected durations of one year or less.

NOTE 4—ALLOWANCE FOR DOUBTFUL ACCOUNTS



Balance as of June 30, 2019	$	17,011
Bad debt expense	3,450
Write-off /adjustments	(2,524		)
Balance as of December 31, 2019	$	17,937

Balance as of June 30, 2017 $ 6,319
Bad debt expense 3,591
Write-off /adjustments (1,407 )
Balance as of December 31, 2017 $ 8,503

Included in accounts receivable are unbilled receivables in the amount of ~~$73.2~~$80.5 million as of December 31, ~~2017~~2019 (June 30, ~~2017—~~2019—$~~46.2~~56.1 million).

NOTE 4—5—PROPERTY AND EQUIPMENT


	As of December 31, 2017							As of December 31, 2019
	Cost		Accumulated Depreciation			Net		Cost		Accumulated Depreciation			Net
Furniture and fixtures	$	30,734	$	(16,494	)	$	14,240	$	45,392	$	(29,191	)	$	16,201
Office equipment	1,412		(685		)	727		2,152		(1,244		)	908
Computer hardware	189,567		(119,097		)	70,470		286,043		(186,562		)	99,481
Computer software	77,223		(41,024		)	36,199		125,736		(95,262		)	30,474
Capitalized software development costs	73,903		(34,906		)	38,997		102,560		(62,420		)	40,140
Leasehold improvements	107,024		(44,502		)	62,522		125,155		(73,802		)	51,353
Land and buildings	48,506		(10,765		)	37,741		49,547		(14,656		)	34,891
Total	$	528,369	$	(267,473	)	$	260,896	$	736,585	$	(463,137	)	$	273,448



	As of June 30, 2019
	Cost		Accumulated Depreciation			Net
Furniture and fixtures	$	40,260	$	(26,492	)	$	13,768
Office equipment	1,993		(1,576		)	417
Computer hardware	258,802		(177,402		)	81,400
Computer software	119,018		(87,240		)	31,778
Capitalized software development costs	95,729		(56,205		)	39,524
Leasehold improvements	113,510		(66,520		)	46,990
Land and buildings	49,557		(13,981		)	35,576
Total	$	678,869	$	(429,416	)	$	249,453

As of June 30, 2017
Cost
Accumulated
Depreciation
Net
Furniture and fixtures $ 23,026
$ (14,879 ) $ 8,147
Office equipment 1,245
(597 ) 648
Computer hardware 164,268
(104,572 ) 59,696
Computer software 72,835
(33,862 ) 38,973
Capitalized software development costs 67,092
(28,430 ) 38,662
Leasehold improvements 81,564
(38,642 ) 42,922
Land and buildings 48,431
(10,061 ) 38,370
Total $ 458,461
$ (231,043 ) $ 227,418

NOTE 5—6—LEASES

We enter into operating leases, both domestically and internationally, for certain facilities, automobiles, data centers and equipment for use in the ordinary course of business. The duration of the majority of these leases generally range from 1 to 10 years, some of which include options to extend for an additional 3 to 5 years after the initial term. Additionally, the land upon which our headquarters in Waterloo, Ontario Canada is located, is leased from the University of Waterloo for a period of 49 years beginning in December 2005, with an option to renew for an additional term of 49 years. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets and we do not have any material finance leases.

We account for a contract as a lease when we have the right to direct the use of the asset for a period of time while obtaining substantially all of the asset’s economic benefits. We determine the initial classification and measurement of our right of use (ROU) assets and lease liabilities at the lease commencement date and thereafter if modified.

ROU assets represent our right to control the underlying assets under lease, and the lease liability is our obligation to make the lease payments related to the underlying assets under lease, over the contractual term. ROU assets and lease liabilities are recognized on the Consolidated Balance Sheets based on the present value of future minimum lease payments to be made over the lease term. When available, we will use the rate implicit in the lease to discount lease payments to present value. However, real estate leases generally do not provide a readily determinable implicit rate, therefore, we must estimate our incremental borrowing rate to discount the lease payments. We estimate our incremental borrowing rate based on a collateralized basis with similar terms and payments, in an economic environment where the leased asset is located.

The ROU asset equals the lease liability, adjusted for any initial direct costs, prepaid rent and lease incentives. Fixed lease costs are included in the recognition of ROU assets and lease liabilities. Variable lease costs are not included in the measurement of the lease liability. These variable lease payments are recognized in the Consolidated Statements of Income in the period in which the obligation for those payments is incurred. Consistent with previous lease accounting rules under ASC Topic 840, lease expense for minimum lease payments continue to be recognized in the Consolidated Statements of Income on a straight-line basis over the lease term.

We have not elected the practical expedient to combine lease and non-lease components in the determination of lease costs for our facility leases. For all other asset classes, we have elected the practical expedient to combine the lease and the non-lease components. The lease liability includes lease payments related to options to extend or renew the lease term only if we are reasonably certain we will exercise those options. Our leases typically do not contain any material residual value guarantees or restrictive covenants.

In certain circumstances, we sublease all or a portion of a leased facility, to various other companies through a sublease agreement.

Lease Costs and Other Information

The following illustrates the various components of operating lease costs, lease term and discount rate for the period indicated:



	Three Months Ended December 31, 2019			Six Months Ended December 31, 2019
Operating lease cost	$	15,955		$	32,102
Short-term lease cost	190			288
Variable lease cost	764			1,507
Sublease income	(1,583		)	(3,137		)
Total lease cost	$	15,326		$	30,760

Weighted-average remaining lease term	6.05 years			6.05 years

Weighted-average discount rate	3.28		%	3.28		%

Supplemental Cash Flow Information

The following table presents supplemental information relating to cash flows arising from lease transactions. Cash payment made for variable lease cost and short-term lease are not included in the measurement of operating lease liabilities, and, as such, are excluded from the amounts below:



	Three Months Ended December 31, 2019		Six Months Ended December 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities:	$	18,461	$	36,070
Right of use assets obtained in exchange for new operating lease liabilities	$	10,557	$	15,417

Maturity of Lease Liabilities

The following table presents the future minimum lease payments under our operating leases liabilities as of December 31, 2019:



Fiscal years ending June 30,
2020 (six months ended June 30)	$	39,817
2021	66,295
2022	54,406
2023	41,187
2024	30,844
Thereafter	81,161
Total Lease payments	$	313,710
Less: Imputed interest	(28,450		)
Total	$	285,260
Reported as
Current operating lease liabilities	66,579
Non-current operating lease liabilities	218,681
Total	$	285,260

Operating lease maturity amounts included in the table above do not include sublease income expected to be received under our various sublease agreements with third parties. Under these agreements, we expect to receive sublease income of approximately $3.7 million over the remainder of Fiscal 2020, and approximately $27.2 million thereafter.

The following table presents the future minimum lease payments under our operating leases, based on the expected due dates of the various agreements as of June 30, 2019, as previously reported in our Annual Report on Form 10-K for the year ended June 30, 2019, prior to the adoption of Topic 842:



Fiscal years ending June 30,
2020	$	72,853
2021	59,451
2022	46,943
2023	33,871
2024	25,570
Thereafter	80,163
Total minimum lease payments ⁽¹⁾	$	318,851

⁽¹⁾ Net of $30.7 million of sublease income to be received from properties which we have subleased to third parties.

NOTE 7—GOODWILL

Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable net tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, ~~2017:~~2019:



Balance as of June 30, 2019	$	3,769,908
Acquisition of Carbonite (note 19)	885,547
Acquisition of The Fax Guys (note 19)	2,180
Adjustments relating to acquisitions prior to Fiscal 2020 that had open measurement periods (note 19)	842
Adjustments on account of foreign exchange	(1,985		)
Balance as of December 31, 2019	$	4,656,492

Balance as of June 30, 2017 $ 3,416,749
Acquisition of Guidance (note 18) 130,939
Acquisition of Covisint (note 18) 26,905
Adjustments relating to acquisitions prior to Fiscal 2018 with open measurement periods (note 18) (1,458 )
Adjustments on account of foreign exchange 5,841
Balance as of December 31, 2017 $ 3,578,976

NOTE 6—8—ACQUIRED INTANGIBLE ASSETS



	As of December 31, 2019
	Cost		Accumulated Amortization			Net
Technology assets	$	1,126,601	$	(431,856	)	$	694,745
Customer assets	1,951,617		(838,290		)	1,113,327
Total	$	3,078,218	$	(1,270,146	)	$	1,808,072

	As of June 30, 2019
	Cost		Accumulated Amortization			Net
Technology assets	$	835,498	$	(349,259	)	$	486,239
Customer assets	1,397,937		(737,672		)	660,265
Total	$	2,233,435	$	(1,086,931	)	$	1,146,504

As of December 31, 2017
Cost Accumulated Amortization Net
Technology assets $ 981,026
$ (344,994 ) $ 636,032
Customer assets 1,335,610
(503,264 ) 832,346
Total $ 2,316,636
$ (848,258 ) $ 1,468,378

As of June 30, 2017
Cost Accumulated Amortization Net
Technology assets $ 930,841
$ (272,872 ) $ 657,969
Customer assets 1,230,806
(416,233 ) 814,573
Total $ 2,161,647
$ (689,105 ) $ 1,472,542

The above balances as of December 31, 2017 have been reduced to reflect the impact of intangible assets relating to acquisitions where the gross cost has become fully amortized during the six months ended December 31, 2017. The impact of this resulted in a reduction of $19.0 million related to Technology assets and $3.0 million related to Customer assets.

The weighted average amortization periods for acquired technology and customer intangible assets are approximately ~~six~~five years and ~~eight~~seven years, respectively.

The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation assumes no future adjustments to acquired intangible assets:

Fiscal years ending
June 30,
2018 (six months ended June 30) $ 186,702
2019 346,701
2020 275,188
2021 187,202
2022 177,208
2023 and beyond 295,377
Total $ 1,468,378



Fiscal years ending June 30,
2020 (six months ended June 30)	$	239,877
2021	424,138
2022	384,751
2023	299,585
2024	220,855
2025 and beyond	238,866
Total	$	1,808,072

NOTE 7—9—OTHER ASSETS



	As of December 31, 2019		As of June 30, 2019
Deposits and restricted cash	$	13,527	$	13,671
Capitalized costs to obtain a contract	37,692		35,593
Investments	69,712		67,002
Long-term prepaid expenses and other long-term assets	37,127		32,711
Total	$	158,058	$	148,977

As of December 31, 2017 As of June 30, 2017
Deposits and restricted cash $ 11,962
$ 15,821
Deferred implementation costs 29,233
28,833
Investments 34,630
27,886
Marketable securities —
3,023
Long-term prepaid expenses and other long-term assets 20,787
18,200
Total $ 96,612
$ 93,763

Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease agreements and cash restricted per the terms of certain contractual-based agreements.

~~Deferred implementation~~Capitalized costs to obtain a contract relate to ~~deferred direct and relevant~~incremental costs ~~on implementation~~ of ~~long-term~~obtaining a contract, such as sales commissions, which are eligible for capitalization on contracts to the extent that such costs ~~can~~are expected to be recovered ~~through guaranteed contract revenues.~~(see note 3 "Revenues").

Investments relate to certain non-marketable equity securities in which we are a limited partner. Our ~~interest, individually,~~interests in each of these investees range from 4% to below 20%. These investments are accounted for using the equity method. Our share of net income or losses based on our interest in these investments is recorded as a component of other income (expense), net in our Condensed Consolidated Statements of Income. During the three and six months ended December 31, ~~2017,~~2019, our share of income (loss) from these investments was ~~$0.3~~$1.3 million and ~~$(0.2)~~$1.9 million, respectively, (three and six months ended December 31, ~~2016—$0.5~~2018 — $5.5 million and ~~$6.0~~$7.9 million, respectively).

Marketable securities are classified as available for sale securities and are recorded on our Condensed Consolidated Balance Sheets at fair value with unrealized gains and losses reported as a separate component of Accumulated other comprehensive income. We did not hold any marketable securities as of December 31, 2017.

Long-term prepaid expenses and other long-term assets ~~primarily relate to~~includes advance payments on long-term licenses that are being amortized over the applicable terms of the ~~licenses.~~licenses and other miscellaneous assets.

~~NOTE 8—DEFERRED CHARGES AND CREDITS~~

Deferred charges and credits relate to cash taxes payable and the elimination of deferred tax balances relating to legal entity consolidations completed as part of internal reorganizations of our international subsidiaries. Deferred charges and credits are amortized to income tax expense over periods of 6 to 15 years.

NOTE 9—10—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Current liabilities

Accounts payable and accrued liabilities are comprised of the following:



	As of December 31, 2019		As of June 30, 2019
Accounts payable—trade	$	45,285	$	46,323
Accrued salaries and commissions	113,901		131,430
Accrued liabilities⁽¹⁾⁽²⁾	229,414		117,551
Accrued interest on Senior Notes	24,786		24,786
Amounts payable in respect of restructuring and other Special charges⁽¹⁾	1,111		8,153
Asset retirement obligations	3,114		1,660
Total	$	417,611	$	329,903

As of December 31, 2017 As of June 30, 2017
Accounts payable—trade $ 48,857
$ 43,699
Accrued salaries and commissions 94,880
121,958
Accrued liabilities 138,496
135,512
Accrued interest on Senior Notes 24,786
24,787
Amounts payable in respect of restructuring and other Special charges 7,114
13,728
Asset retirement obligations 3,875
2,436
Total $ 318,008
$ 342,120

Long-term accrued liabilities



	As of December 31, 2019		As of June 30, 2019
Amounts payable in respect of restructuring and other Special charges⁽¹⁾	$	—	$	4,804
Other accrued liabilities⁽¹⁾	2,186		30,338
Asset retirement obligations	12,791		14,299
Total	$	14,977	$	49,441

As of December 31, 2017 As of June 30, 2017
Amounts payable in respect of restructuring and other Special charges $ 2,425
$ 2,686
Other accrued liabilities* 33,804
36,702
Asset retirement obligations 11,150
10,950
Total $ 47,379
$ 50,338

* Other accrued liabilities consist primarily of⁽¹⁾ Previously, in Fiscal 2019, tenant allowances, deferred rent, ~~and~~ lease fair value adjustments and amounts payable relating to ~~certain~~restructured facilities ~~acquired through business acquisitions.~~were included in total accrued liabilities. Effective July 1, 2019, these balances were reclassified to operating lease right of use assets in accordance with the adoption of Topic 842. See note 1 "Basis of Presentation" and note 6 "Leases" for more information.

⁽²⁾ Includes approximately $89 million of Carbonite purchase consideration that was accrued and unpaid as of December 31, 2019, in accordance with the purchase agreement (see note 19 "Acquisitions").

Asset retirement obligations

We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of December 31, ~~2017,~~2019, the present value of this obligation was ~~$15.0~~$15.9 million (June 30, ~~2017—~~2019—$~~13.4~~16.0 million), with an undiscounted value of ~~$16.8~~$17.3 million (June 30, ~~2017—~~2019—$~~15.0~~17.6 million).

NOTE ~~10—~~11—LONG-TERM DEBT

Long-term debt

Long-term debt is comprised of the following:



	As of December 31, 2019			As of June 30, 2019
Total debt
Senior Notes 2026	$	850,000		$	850,000
Senior Notes 2023	800,000			800,000
Notes due 2022	143,750			—
Term Loan B	982,500			987,500
Revolver	750,000			—
Total principal payments due	3,526,250			2,637,500

Premium on Senior Notes 2026	5,085			5,405
Make-whole premium on Notes due 2022⁽¹⁾	9,881			—
Debt issuance costs	(27,199		)	(28,027		)
Total amount outstanding	3,514,017			2,614,878

Less:
Current portion of long-term debt
Notes due 2022 including make-whole premium	153,631			—
Term Loan B	10,000			10,000
Revolver	750,000			—
Total current portion of long-term debt	913,631			10,000

Non-current portion of long-term debt	$	2,600,386		$	2,604,878

As of December 31, 2017 As of June 30, 2017
Total debt
Senior Notes 2026 $ 850,000
$ 850,000
Senior Notes 2023 800,000
800,000
Term Loan B 768,240
772,120
Revolver 375,000
175,000
Total principal payments due 2,793,240
2,597,120

Premium on Senior Notes 2026 6,311
6,597
Debt issuance costs (31,082 ) (33,900 )
Total amount outstanding 2,768,469
2,569,817

Less:
Current portion of long-term debt
Term Loan B 7,760
7,760
Revolver 375,000
175,000
Total current portion of long-term debt 382,760
182,760

Non-current portion of long-term debt $ 2,385,709
$ 2,387,057
⁽¹⁾ Represents the total value of the make-whole premium, assuming all holders convert at the temporarily increased conversion rate.

Senior Unsecured Fixed Rate Notes

Senior Notes 2026

On May 31, 2016, we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (Securities Act), and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.

On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million.

For the three and six months ended December 31, ~~2017,~~2019, we recorded interest expense of $12.5 million and $25.0 million, respectively, relating to Senior Notes 2026 (three and six months ended December 31, ~~2016—$9.4~~2018— $12.5 million and ~~$18.2~~$25.0 million, respectively).

Senior Notes 2023

On January 15, 2015, we issued $800 million in aggregate principal amount of 5.625% Senior Notes due 2023 (Senior Notes ~~2023 and together with Senior Notes 2026, Senior Notes)~~2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bear interest at a

rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015. Senior Notes 2023 will mature on January 15, 2023, unless earlier redeemed, in accordance with their terms, or repurchased.

For the three and six months ended December 31, ~~2017,~~2019, we recorded interest expense of $11.2 million and $22.5 million, respectively, relating to Senior Notes 2023 (three and six months ended December 31, ~~2016—$11.2~~2018— $11.2 million and $22.5 million, respectively).

Notes due 2022

As part of our acquisition of Carbonite, our consolidated debt reflects $143.8 million of principal debt convertible notes (Notes due 2022). Notes due 2022 were originally issued by Carbonite, on April 4, 2017, in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes due 2022 were issued under an Indenture (the 2022 Notes Indenture) between Carbonite and U.S. Bank National Association, as trustee (the 2022 Notes Trustee). The Notes due 2022 accrue interest at 2.5% per year, payable semiannually in arrears on April 1 and October 1 of each year. The Notes due 2022 will mature on April 1, 2022, unless earlier repurchased, redeemed or converted. Carbonite, now a subsidiary of OpenText, remains the sole obligor on the Notes due 2022.

In connection with our acquisition of Carbonite, and as required by the 2022 Notes Indenture, Carbonite and the 2022 Notes Trustee entered into a first supplemental indenture, dated as of December 24, 2019 (the 2022 Notes Supplemental Indenture). The 2022 Notes Supplemental Indenture provides that, at and after the effective time of our acquisition of Carbonite, the right to convert each $1,000 principal amount of the Notes due 2022 was changed into the right to convert such principal amount of the Notes due 2022 solely into cash in an amount equal to the Conversion Rate (as defined in the 2022 Notes Indenture) in effect on the Conversion Date (as defined in the 2022 Notes Indenture) multiplied by $23.00, which was the price per share we paid in connection with our acquisition of Carbonite.

As a result of our acquisition of Carbonite, the Conversion Rate for the Notes due 2022 was temporarily increased by 7.7633 per $1,000 principal amount of Notes due 2022 to yield a Conversion Rate of 46.4667 per $1,000 principal amount of Notes due 2022. The increased Conversion Rate will remain in effect until the close of business (5:00 P.M. New York City time) on February 27, 2020. During the period between our acquisition of Carbonite and that date, each $1,000 principal amount of Notes due 2022 surrendered for conversion will be converted into $1,068.7341 in cash.

Term Loan B

~~We entered~~On May 30, 2018, we refinanced our existing term loan facility, by entering into a new $1 billion term loan facility (Term Loan B), whereby we borrowed $1 billion on that day and repaid in full the loans under our prior $800 million term loan facility ~~(Term Loan B) and borrowed the full amount~~originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver (defined below).

Term Loan B has a seven year term, maturing in May 2025, and repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B currently bear a floating rate of interest equal to ~~2.0%~~1.75% plus LIBOR. As of December 31, ~~2017,~~2019, the outstanding balance on the Term Loan B bears an interest rate of approximately ~~3.35%~~3.45%.

For the three and six months ended December 31, ~~2017,~~2019, we recorded interest expense of ~~$6.4~~$9.0 million and ~~$12.8~~$19.1 million, respectively, relating to Term Loan B (three and six months ended December 31, ~~2016—~~2018—$~~6.5~~10.3 million and ~~$13.0 million, respectively)~~$20.1 million).

Revolver

~~We currently have a $450 million~~On October 31, 2019, we amended our committed revolving credit facility (the Revolver) ~~which matures on~~to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, ~~2022.~~2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of December 31, ~~2017,~~2019, the outstanding balance on the Revolver bears ~~a weighted average~~an interest rate of approximately ~~3.20%~~3.29%.

During the three months ended December 31, 2019 we drew down $750 million from the Revolver to partially fund the acquisition of Carbonite. As of December 31, 2019, the full amount drawn remained outstanding (June 30, 2019—nil). During the three and six months ended December 31, ~~2017,~~2019, we ~~drew down nil and $200~~recorded interest expense relating to amounts drawn of approximately $0.6 million, ~~respectively, from the Revolver to finance the acquisition~~respectively.

As of ~~Guidance (three and six months ended~~ December 31, ~~2016—nil, respectively).~~

~~For~~2018, we had 0 outstanding balance on the Revolver. There was no activity during the three and six months ended December 31, ~~2017,~~2018 and we recorded 0 interest ~~expense of $2.8 million and $4.6 million, respectively, relating to amounts drawn on the Revolver (three and six months ended December 31, 2016—nil, respectively).~~expense.

Debt Issuance Costs and Premium on Senior Notes

Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our Senior Notes 2023 and Senior Notes 2026 (collectively referred to as the Senior Notes) and are being amortized over the respective terms of the Senior Notes and Term Loan B and the Revolver using the effective interest method.

The premium on Senior Notes 2026 represents the excess of the proceeds received over the face value of Senior Notes 2026. This premium is amortized as a ~~credit~~reduction to interest expense over the term of Senior Notes 2026 using the effective interest method.

NOTE ~~11—~~12—PENSION PLANS AND OTHER POST RETIREMENT BENEFITS

The following table provides details of our defined benefit pension plans and long-term employee benefit obligations for Open Text Document Technologies GmbH (CDT), GXS GmbH (GXS GER) ~~and~~, GXS Philippines, Inc. (GXS PHP) and other plans as of December 31, ~~2017~~2019 and June 30, ~~2017~~:2019:


	As of December 31, 2017						As of December 31, 2019
	Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation		Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation
CDT defined benefit plan	$	30,825	$	642	$	30,183	$	35,221	$	700	$	34,521
GXS Germany defined benefit plan	25,304		983		24,321
GXS Philippines defined benefit plan	4,566		102		4,464
GXS GER defined benefit plan							25,650		986		24,664
GXS PHP defined benefit plan							7,113		93		7,020
Other plans	3,404		159		3,245		7,964		491		7,473
Total	$	64,099	$	1,886	$	62,213	$	75,948	$	2,270	$	73,678


	As of June 30, 2017						As of June 30, 2019
	Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation		Total benefit obligation		Current portion of benefit obligation*		Non-current portion of benefit obligation
CDT defined benefit plan	$	28,881	$	583	$	28,298	$	35,836	$	675	$	35,161
GXS Germany defined benefit plan	23,730		926		22,804
GXS Philippines defined benefit plan	4,495		81		4,414
GXS GER defined benefit plan							26,739		1,012		25,727
GXS PHP defined benefit plan							6,904		124		6,780
Other plans	3,256		145		3,111		8,052		481		7,571
Total	$	60,362	$	1,735	$	58,627	$	77,531	$	2,292	$	75,239

*The current portion of the benefit obligation has been included within "Accrued salaries and commissions", all within "Accounts payable and accrued liabilities" in the Condensed Consolidated Balance Sheets (see note 910 "Accounts Payable and Accrued Liabilities").

Defined Benefit Plans

CDT Plan

CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT ~~pension~~ plan) which provides for old age, disability and survivors’ benefits. Benefits under the CDT ~~pension~~ plan are generally based on age at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. NoNaN contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan's active employees. As of December 31, ~~2017,~~2019, there is approximately ~~$0.3~~$0.5 million in accumulated other comprehensive income related to the CDT ~~pension~~ plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal ~~2018.~~2020.

GXS ~~Germany~~GER Plan

As part of our acquisition of GXS Group, Inc. (GXS) in Fiscal 2014, we assumed an unfunded defined benefit pension plan covering certain German employees which provides for old age, disability and survivors' benefits. The GXS GER plan has been closed to new participants since 2006. Benefits under the GXS GER plan are generally based on a participant’s remuneration, date of hire, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the

discount rate and estimated service costs. NoNaN contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan’s active employees. As of December 31, ~~2017,~~2019, there is approximately ~~$36.1 thousand~~$0.1 million in accumulated other comprehensive income related to the GXS GER plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal ~~2018.~~2020.

GXS ~~Philippines~~PHP Plan

As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits under the GXS PHP plan are generally based on a participant’s remuneration, years of eligible service and age at retirement. The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution which has a fair value of approximately ~~$33.3 thousand~~$0.03 million as of December 31, ~~2017, no~~2019, 0 additional contributions have been made since the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over the average remaining service period of the plan’s active employees. As of December 31, ~~2017,~~2019, there is approximately $0.1 million in accumulated other comprehensive income related to the GXS PHP plan that is expected to be recognized as a component of net periodic benefit costs over the remainder of Fiscal ~~2018.~~2020.

The following are the details of the change in the benefit obligation for each of the above mentioned pension plans for the periods indicated:



	As of December 31, 2019												As of June 30, 2019
	CDT			GXS GER			GXS PHP			Total			CDT			GXS GER			GXS PHP			Total
Benefit obligation—beginning of period	$	35,836		$	26,739		$	6,904		$	69,479		$	32,651		$	25,382		$	3,853		$	61,886
Service cost	286			159			609			1,054			550			566			771			1,887
Interest cost	229			168			173			570			642			489			300			1,431
Benefits paid	(313		)	(472		)	(115		)	(900		)	(626		)	(996		)	(140		)	(1,762		)
Actuarial (gain) loss	90			(269		)	(559		)	(738		)	3,365			1,872			1,957			7,194
Foreign exchange (gain) loss	(907		)	(675		)	101			(1,481		)	(746		)	(574		)	163			(1,157		)
Benefit obligation—end of period	35,221			25,650			7,113			67,984			35,836			26,739			6,904			69,479
Less: Current portion	(700		)	(986		)	(93		)	(1,779		)	(675		)	(1,012		)	(124		)	(1,811		)
Non-current portion of benefit obligation	$	34,521		$	24,664		$	7,020		$	66,205		$	35,161		$	25,727		$	6,780		$	67,668

As of December 31, 2017 As of June 30, 2017
CDT GXS GER GXS PHP Total CDT GXS GER GXS PHP Total
Benefit obligation—beginning of period $ 28,881
$ 23,730
$ 4,495
$ 57,106
$ 29,450
$ 24,729
$ 7,341
$ 61,520
Service cost 249
234
447
930
467
395
1,051
1,913
Interest cost 301
243
114
658
456
377
226
1,059
Benefits paid (280 ) (482 ) (60 ) (822 ) (469 ) (807 ) (53 ) (1,329 )
Actuarial (gain) loss 352
492
(444 ) 400
(1,708 ) (1,548 ) (3,728 ) (6,984 )
Foreign exchange (gain) loss 1,322
1,087
14
2,423
685
584
(342 ) 927
Benefit obligation—end of period 30,825
25,304
4,566
60,695
28,881
23,730
4,495
57,106
Less: Current portion (642 ) (983 ) (102 ) (1,727 ) (583 ) (926 ) (81 ) (1,590 )
Non-current portion of benefit obligation $ 30,183
$ 24,321
$ 4,464
$ 58,968
$ 28,298
$ 22,804
$ 4,414
$ 55,516

The following are details of net pension expense relating to the following pension plans:


	Three Months Ended December 31,																		Three Months Ended December 31,
	2017									2016									2019									2018
Pension expense:	CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total
Service cost	$	125	$	117	$	228		$	470	$	112	$	94	$	203		$	409	$	144	$	80	$	310		$	534	$	136	$	140	$	159		$	435
Interest cost	151		122		59			332		109		90		45			244		115		84		88			287		159		121		72			352
Amortization of actuarial (gains) and losses	134		18		(62		)	90		150		40		(12		)	178		235		61		(72		)	224		175		33		(139		)	69
Net pension expense	$	410	$	257	$	225		$	892	$	371	$	224	$	236		$	831	$	494	$	225	$	326		$	1,045	$	470	$	294	$	92		$	856



	Six Months Ended December 31,
	2019									2018
Pension expense:	CDT		GXS GER		GXS PHP			Total		CDT		GXS GER		GXS PHP			Total
Service cost	$	286	$	159	$	609		$	1,054	$	277	$	285	$	335		$	897
Interest cost	229		168		173			570		324		247		140			711
Amortization of actuarial (gains) and losses	469		122		(143		)	448		351		66		(279		)	138
Net pension expense	$	984	$	449	$	639		$	2,072	$	952	$	598	$	196		$	1,746

Six Months Ended December 31,
2017 2016
Pension expense: CDT GXS GER GXS PHP Total CDT GXS GER GXS PHP Total
Service cost $ 249
$ 234
$ 447
$ 930
$ 232
$ 195
$ 642
$ 1,069
Interest cost 301
243
114
658
226
186
121
533
Amortization of actuarial (gains) and losses 268
36
(123 ) 181
310
83
(24 ) 369
Net pension expense $ 818
$ 513
$ 438
$ 1,769
$ 768
$ 464
$ 739
$ 1,971

In determining the fair value of the pension plan benefit obligations as of December 31, ~~2017~~2019 and June 30, ~~2017~~2019, respectively, we used the following weighted-average key assumptions:



	As of December 31, 2019			As of June 30, 2019
	CDT	GXS GER	GXS PHP	CDT	GXS GER	GXS PHP
Assumptions:
Salary increases	2.50%	2.50%	6.50%	2.50%	2.50%	6.50%
Pension increases	2.00%	2.00%	N/A	2.00%	2.00%	N/A
Discount rate	1.30%	1.30%	5.25%	1.32%	1.32%	5.00%
Normal retirement age	65-67	65-67	60	65-67	65-67	60
Employee fluctuation rate:
to age 20	—%	—%	12.19%	—%	—%	12.19%
to age 25	—%	—%	16.58%	—%	—%	16.58%
to age 30	1.00%	—%	13.97%	1.00%	—%	13.97%
to age 35	0.50%	—%	10.77%	0.50%	—%	10.77%
to age 40	—%	—%	7.39%	—%	—%	7.39%
to age 45	0.50%	—%	3.28%	0.50%	—%	3.28%
to age 50	0.50%	—%	—%	0.50%	—%	—%
from age 51	1.00%	—%	—%	1.00%	—%	—%

As of December 31, 2017 As of June 30, 2017
CDT GXS GER GXS PHP CDT GXS GER GXS PHP
Assumptions:
Salary increases 2.00% 2.00% 6.20% 2.00% 2.00% 6.20%
Pension increases 1.75% 2.00% N/A 1.75% 2.00% N/A
Discount rate 1.93% 1.93% 5.75% 2.00% 2.00% 5.00%
Normal retirement age 65 65-67 60 65 65-67 60
Employee fluctuation rate:
to age 20 —% —% 12.19% —% —% 12.19%
to age 25 —% —% 16.58% —% —% 16.58%
to age 30 1.00% —% 13.97% 1.00% —% 13.97%
to age 35 0.50% —% 10.77% 0.50% —% 10.77%
to age 40 —% —% 7.39% —% —% 7.39%
to age 45 0.50% —% 3.28% 0.50% —% 3.28%
to age 50 0.50% —% —% 0.50% —% —%
from age 51 1.00% —% —% 1.00% —% —%

Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:



	Fiscal years ending June 30,
	CDT		GXS GER		GXS PHP
2020 (six months ended June 30)	$	331	$	493	$	31
2021	739		985		268
2022	810		1,017		266
2023	909		1,017		222
2024	1,014		1,023		278
2025 to 2029	5,851		5,171		2,890
Total	$	9,654	$	9,706	$	3,955

Fiscal years ending June 30,

CDT
GXS GER
GXS PHP
2018 (six months ended June 30) $ 304

$ 484

$ 51
2019 674

997

131
2020 727

1,004

149
2021 821

1,047

240
2022 904

1,057

270
2023 to 2027 5,652

5,637

1,990
Total $ 9,082

$ 10,226

$ 2,831

Other Plans

Other plans include defined benefit pension plans that are offered by certain of our foreign subsidiaries. Many of these plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and estimated service costs.

NOTE ~~12—~~13—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS

Cash Dividends

For the three and six months ended December 31, ~~2017~~2019, pursuant to the Company’s dividend policy, we declared total non-cumulative dividends of ~~$0.1320~~$0.1746 and ~~$0.2640,~~$0.3492, respectively, per Common Share in the aggregate amount of ~~$34.8~~$47.1 million and ~~$69.8~~$94.1 million, respectively, which we paid during the same period.

For the three and six months ended December 31, ~~2016,~~2018, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of ~~$0.1150~~$0.1518 and ~~$0.2300,~~$0.3036, respectively, per Common Share in the aggregate amount of ~~$27.9~~$40.7 million and ~~$55.7~~$81.2 million, respectively.

Share Capital

Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference Shares. NoNaN Preference Shares have been issued.

Treasury Stock

Repurchase

From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in connection with the settlement of awards under the Long-Term Incentive Plans (LTIP) or other plans.

During the three and six months ended December 31, ~~2017,~~2019, we ~~did not repurchase any~~repurchased NaN and 300,000, respectively, of our Common Shares in the open market, at a cost of approximately NaN and $12.4 million, respectively, for potential reissuance under our ~~Long-Term Incentive Plans (LTIP)~~LTIP or other plans (three and six months ended December 31, ~~2016—nil,~~2018—370,265 and 674,265, respectively, Common Shares at a cost of $12.8 million and $24.5 million, respectively). See below for more details on our various plans.

Reissuance

During the three and six months ended December 31, ~~2017,~~2019, we reissued ~~379,111 and 387,443~~255,502 Common Shares, respectively, from treasury stock (three and six months ended December 31, ~~2016—341,588~~2018—544,929 and ~~349,922~~547,897 Common Shares, respectively), in connection with the settlement of awards.

Share-Based Payments

Total share-based compensation expense for the periods indicated below is detailed as follows:



	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Stock options	$	2,667	$	2,319	$	4,677	$	4,921
Performance Share Units (issued under LTIP)	1,521		851		2,921		1,694
Restricted Share Units (issued under LTIP)	1,309		1,626		2,969		3,011
Restricted Share Units (other)	10		52		20		133
Deferred Share Units (directors)	1,124		1,032		1,875		1,693
Employee Share Purchase Plan	1,152		1,005		2,212		1,988
Total share-based compensation expense	$	7,783	$	6,885	$	14,674	$	13,440

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Stock options $ 2,729
$ 2,787
$ 6,031
$ 6,675
Performance Share Units (issued under LTIP) 937
947
1,972
1,828
Restricted Share Units (issued under LTIP) 1,513
1,765
3,399
3,367
Restricted Share Units (other) 198
743
677
1,495
Deferred Share Units (directors) 945
830
1,492
1,341
Employee Share Purchase Plan 836
500
1,822
1,006
Total share-based compensation expense $ 7,158
$ 7,572
$ 15,393
$ 15,712

Summary of Outstanding Stock Options

As of December 31, ~~2017,~~2019, an aggregate of ~~8,452,430~~7,511,605 options to purchase Common Shares were outstanding and an additional ~~11,196,176~~8,573,945 options to purchase Common Shares were available for issuance under our stock option plans. Our stock options generally vest over four years and expire between seven and ten years from the date of the grant. Currently we also have options outstanding that vest over five years, as well as options outstanding that vest based on meeting certain market conditions. The exercise price of all our options is set at an amount that is not less than the closing price of our Common Shares on the NASDAQ on the trading day immediately preceding the applicable grant date.

A summary of activity under our stock option plans for the six months ended December 31, ~~2017~~2019 is as follows:


	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value ($’000s)		Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value ($’000s)
Outstanding at June 30, 2017	8,977,830		$	24.57
Outstanding at June 30, 2019								7,102,753		$	31.82
Granted	823,830		34.49					982,440		39.33
Exercised	(1,193,226	)	16.37					(414,682	)	27.39
Forfeited or expired	(156,004	)	31.23					(158,906	)	34.48
Outstanding at December 31, 2017	8,452,430		$	26.57	4.34	$	76,949
Exercisable at December 31, 2017	3,224,756		$	21.74	2.96	$	44,909
Outstanding at December 31, 2019								7,511,605		$	32.99	4.02	$	83,257
Exercisable at December 31, 2019								2,855,956		$	28.42	2.55	$	44,688

We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the Monte Carlo Valuation Method, consistent with the provisions of ASC Topic 718, "Compensation—Stock Compensation" (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and estimate the expected life of our stock options based upon historical data.

We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future events or the value ultimately realized by employees who receive equity awards.

For the periods indicated, the weighted-average fair value of options and weighted-average assumptions were as follows:



	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Weighted–average fair value of options granted	$	6.74		$	7.37		$	6.49		$	8.55
Weighted-average assumptions used:
Expected volatility	22.03		%	25.95		%	22.09		%	26.05		%
Risk–free interest rate	1.55		%	2.97		%	1.65		%	2.82		%
Expected dividend yield	1.64		%	1.73		%	1.67		%	1.49		%
Expected life (in years)	4.11			4.32			4.11			4.32
Forfeiture rate (based on historical rates)	7		%	6		%	7		%	6		%
Average exercise share price	$	41.13		$	33.97		$	39.33		$	38.56

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Weighted–average fair value of options granted $ 7.49
$ 6.58
$ 7.46
$ 6.54
Weighted-average assumptions used:
Expected volatility 26.64 % 28.53 % 27.11 % 29.29 %
Risk–free interest rate 1.95 % 1.22 % 1.81 % 1.06 %
Expected dividend yield 1.48 % 1.43 % 1.45 % 1.45 %
Expected life (in years) 4.58
4.34
4.42
4.33
Forfeiture rate (based on historical rates) 6 % 5 % 6 % 5 %
Average exercise share price $ 34.48
$ 30.37
$ 34.49
$ 29.83

As of December 31, ~~2017,~~2019, the total compensation cost related to the unvested stock option awards not yet recognized was approximately ~~$21.2~~$24.5 million, which will be recognized over a weighted-average period of approximately ~~2.4~~2.9 years.

NoNaN cash was used by us to settle equity instruments granted under share-based compensation arrangements in any of the periods presented.

We have ~~not~~0t capitalized any share-based compensation costs as part of the cost of an asset in any of the periods presented.

For the three and six months ended December 31, ~~2017,~~2019, cash in the amount of ~~$3.4~~$6.8 million and ~~$19.6~~$11.4 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and six months ended December 31, ~~2017~~2019 from the exercise of options eligible for a tax deduction was ~~$0.2~~$0.6 million and ~~$0.3~~$0.9 million, respectively.

For the three and six months ended December 31, ~~2016,~~2018, cash in the amount of ~~$2.1~~$1.8 million and ~~$4.5~~$14.2 million, respectively, was received as the result of the exercise of options granted under share-based payment arrangements. The tax benefit realized by us during the three and six months ended December 31, ~~2016~~2018 from the exercise of options eligible for a tax deduction was ~~$0.3~~$15.0 thousand and $0.9 million, ~~and $0.4 million,~~ respectively.

Long-Term Incentive Plans

We incentivize ~~our executive officers,~~certain eligible employees, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling three year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance criteria (the Performance Conditions) that are determined at the time of the grant. Target RSUs become vested when an eligible employee remains employed throughout the vesting period. LTIP grants that have recently vested, or have yet to vest, are described below. LTIP grants are referred to in this Quarterly Report on Form 10-Q based upon the year in which the grants are expected to vest.

~~Fiscal 2017 LTIP~~

Grants made in Fiscal 2015 under the LTIP (collectively referred to as Fiscal 2017 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2015 starting on September 4, 2014. We settled the Fiscal 2017 LTIP by issuing 312,651 Common Shares from treasury stock during the three months ended December 31, 2017, with a cost of $6.7 million.

~~Fiscal 2018 LTIP~~

Grants made in Fiscal 2016 under the LTIP (collectively referred to as Fiscal 2018 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2016 starting on August 23, 2015. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2018 LTIP. We expect to settle the Fiscal 2018 LTIP awards in stock.

~~Fiscal 2019 LTIP~~

Grants made in Fiscal 2017 under the LTIP (collectively referred to as Fiscal 2019 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2017 starting on August 14, 2016. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2019 LTIP. We expect to settle the Fiscal 2019 LTIP awards in stock.

~~Fiscal 2020 LTIP~~

Grants made in Fiscal 2018 under the LTIP (collectively referred to as Fiscal 2020 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2018 starting on August 7, 2017. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2020 LTIP. We expect to settle the Fiscal 2020 LTIP awards in stock.

PSUs and RSUs granted under the LTIPs have been measured at fair value as of the effective date, consistent with Topic 718, and will be charged to share-based compensation expense over the remaining life of the plan. Stock options granted under the LTIPs have been measured using the Black-Scholes option-pricing model, consistent with Topic 718. We estimate the fair value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value.

As of December 31, ~~2017,~~2019, the total expected compensation cost related to the unvested LTIP awards not yet recognized was ~~$19.0~~$24.1 million, which is expected to be recognized over a weighted average period of 2.1 years.

LTIP grants that have recently vested, or have yet to vest, are described below. LTIP grants are referred to in this Quarterly Report on Form 10-Q based upon the year in which the grants are expected to vest.

Fiscal 2019 LTIP

Grants made in Fiscal 2017 under the LTIP (collectively referred to as Fiscal 2019 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2017 starting on August 14, 2016. We settled the Fiscal 2019 LTIP awards by issuing 255,502 Common Shares from treasury stock during the three months ended December 31, 2019, with a cost of $9.1 million.

Fiscal 2020 LTIP

Fiscal 2021 LTIP

Grants made in Fiscal 2019 under the LTIP (collectively referred to as Fiscal 2021 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2019 starting on August 6, 2018. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2021 LTIP. We expect to settle the Fiscal 2021 LTIP awards in stock.

Fiscal 2022 LTIP

Grants made in Fiscal 2020 under the LTIP (collectively referred to as Fiscal 2022 LTIP), consisting of PSUs and RSUs, took effect in Fiscal 2020 starting on August 5, 2019. The Performance Conditions for vesting of the PSUs are based solely upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2022 LTIP. We expect to settle the Fiscal 2022 LTIP awards in stock.

Restricted Share Units (RSUs)

During the three and six months ended December 31, ~~2017,~~2019, we ~~granted 1,496 and 4,464~~did 0t grant any RSUs ~~respectively,~~ to employees in accordance with employment and other non-LTIP related agreements (three and six months ended December 31, ~~2016—nil and 7,800, respectively)~~2018—NaN). ~~The~~ RSUs vest over a specified contract date, typically three years from the respective date of grants. We expect to settle ~~the~~RSU awards in stock.

During the three and six months ended December 31, ~~2017,~~2019, we ~~issued 66,460 and 74,792~~did 0t issue any Common Shares ~~respectively,~~ from treasury stock ~~with a cost of $1.4 million and $1.6 million, respectively,~~ in connection with the settlement of ~~these~~ vested RSUs (three and six months ended December 31, ~~2016—1,666~~2018—5,826 and ~~10,000,~~8,794 Common Shares, respectively, with a cost of ~~$20.5 thousand~~$0.2 million and ~~$0.1~~$0.3 million, respectively).

Deferred Stock Units (DSUs)

During the three and six months ended December 31, ~~2017,~~2019, we granted ~~77,606~~70,609 and ~~80,809~~74,408 DSUs, respectively, to certain non-employee directors (three and six months ended December 31, ~~2016—73,254~~2018—90,184 and ~~75,696,~~93,342 DSUs, respectively). The DSUs were issued under our Deferred Share Unit Plan. DSUs granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board.

Employee Share Purchase Plan (ESPP)

Our ESPP offers employees a purchase price discount of 15%.

During the three and six months ended December 31, ~~2017, 146,248~~2019, 139,462 and ~~338,617~~327,543 Common Shares, respectively, were eligible for issuance to employees enrolled in the ESPP (three and six months ended December 31, ~~2016—116,224~~2018—160,088 and ~~219,856,~~336,162 Common Shares, respectively).

During the three and six months ended December 31, ~~2017,~~2019, cash in the amount of approximately ~~$4.4~~$5.2 million and ~~$10.1~~$11.7 million, respectively, was received from employees relating to the ESPP (three and six months ended December 31, ~~2016—~~2018—$~~3.3~~4.4 million and ~~$6.2~~$10.1 million, respectively).

NOTE ~~13—~~14—GUARANTEES AND CONTINGENCIES

We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:



	Payments due between
	Total		January 1, 2020— June 30, 2020		July 1, 2020— June 30, 2022		July 1, 2022— June 30, 2024		July 1, 2024 and beyond
Long-term debt obligations ⁽¹⁾	$	3,449,651	$	223,222	$	277,680	$	1,031,371	$	1,917,378
Purchase obligations for contracts not accounted for as lease obligations ⁽²⁾	60,978		23,135		32,843		5,000		—
	$	3,510,629	$	246,357	$	310,523	$	1,036,371	$	1,917,378

Payments due between
Total January 1, 2018—
June 30, 2018 July 1, 2018—
June 30, 2020 July 1, 2020—
June 30, 2022 July 1, 2022
and beyond
Long-term debt obligations ⁽¹⁾
$ 3,548,840
$ 444,606
$ 256,925
$ 952,559
$ 1,894,750
Operating lease obligations ⁽²⁾
376,430
38,543
128,976
96,213
112,698
Purchase obligations 20,515
5,158
14,776
581
—
$ 3,945,785
$ 488,307
$ 400,677
$ 1,049,353
$ 2,007,448

⁽¹⁾ Includes interest up to maturity and principal payments. ~~We currently have borrowings outstanding under the Revolver ($375 million as of December 31, 2017), which we expect to repay within the next 12 months.~~ Please see note 1011 "Long-Term Debt" for more details.

⁽²⁾ ~~Net of $7.2 million of sublease income~~ For contractual obligations relating to ~~be received from properties which we have subleased to third parties.~~leases and purchase obligations accounted for under Topic 842, please see note 6 "Leases".

Guarantees and Indemnifications

We have entered into customer agreements which may include provisions to indemnify our customers against third party claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification provisions and have not accrued any liabilities related to these indemnification provisions in our Condensed Consolidated Financial Statements.

Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements have not had a material effect on our results of operations, financial position or cash flows.

Litigation

We are currently involved in various claims and legal proceedings.

Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.

If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Quarterly Report on Form 10-Q, the aggregate of such ~~estimated losses~~accrued liabilities was not material to our consolidated financial position or ~~result~~results of operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As described more fully below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Contingencies

IRS Matter

As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Condensed Consolidated Financial Statements.

AsWe previously disclosed that, as part of these examinations, ~~which remain ongoing,~~ on July 17, 2015 we received from the IRS an initial Notice of Proposed Adjustment (NOPA) in draft form, ~~proposing~~that, as revised by the IRS on July 11, 2018 proposes a one-time approximately ~~$280~~$335 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 ~~and proposing~~(the 2010 NOPA), plus penalties equal to 20% of the additional proposed taxes ~~plus~~for Fiscal 2010, and interest at the applicable statutory rate ~~(which will continue to accrue until~~published by the ~~matter is resolved and may be substantial). A NOPA is an IRS~~IRS.

~~position and does not impose an obligation to pay tax. The~~On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA may be changed before the final NOPA is issued, including because the IRS reserved the right in the draft NOPA to increase the adjustment. Based on discussions with the IRS, we expect we will receive an additional NOPA proposing ana one time approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of Global 360 Holding Corp. into the structure that resulted from the internal reorganization ~~accompanied by~~in Fiscal 2010, plus penalties equal to 40% of the additional proposed taxes for Fiscal 2012, and interest.

On January 7, 2019, we received from the IRS official notification of proposed adjustments to our taxable income for Fiscal 2010 and Fiscal 2012, together with the 2010 NOPA and 2012 NOPA in final form. In each case, such documentation was as expected and on substantially the same terms as provided for in the previously disclosed respective draft NOPAs, with the exception of an additional proposed penalty as part of the 2012 NOPA.

A NOPA is an IRS position and does not impose an obligation to pay tax. We continue to strongly disagree with the IRS’ positions within the NOPAs and we are vigorously contesting the proposed adjustments to our taxable income, along with any proposed penalties and ~~interest (although there can be no assurance that this will be~~interest.

As of our receipt of the ~~amount reflected in the~~final 2010 NOPA ~~when received, including because~~and 2012 NOPA, our estimated potential aggregate liability, as proposed by the IRS, ~~may assign a higher value to our intellectual property). Depending upon the outcome of these matters,~~including additional state income taxes plus penalties and interest that may be ~~due. We currently estimate that, as of December 31, 2017, adjustments under the draft NOPA in its present form and the anticipated additional NOPA could result in an aggregate liability~~due, was approximately $770 million, comprised of approximately ~~$600~~$455 million ~~inclusive of~~in U.S. federal and state taxes, approximately $130 million of penalties, and approximately $185 million of interest. ~~The increase from~~Interest will continue to accrue at the ~~initially~~applicable statutory rates until the matter is resolved and may be substantial.

As previously disclosed ~~estimated aggregate liability is solely due to an estimate of interest that has accrued.~~

Weand noted above, we strongly disagree with the IRS’ ~~position~~positions and ~~intend to~~we are vigorously ~~contest~~contesting the proposed adjustments to our taxable ~~income.~~income, along with the proposed penalties and interest. We are examining various alternatives available to taxpayers to contest the proposed ~~adjustments.~~adjustments, including through IRS Appeals and U.S. Federal court. Any such alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any material accruals in respect of these examinations in our Condensed Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.

For additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in our Annual Report on Form 10-K for Fiscal 2018.

CRA Matter

As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer pricing methodology used for certain intercompany transactions with our international ~~subsidiaries. The CRA~~subsidiaries and has issued ~~a notice~~notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of December 31, 2019, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million.

The notices of reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014 would, as drafted, increase our taxable income ~~for that year~~ by approximately $90 million ~~(offset by~~to $100 million for each of those years, as well as impose a 10% penalty on the ~~tax attributes referred~~proposed adjustment to ~~below) and is expected to propose related penalties of approximately 10%.~~ income.

We strongly disagree with the ~~CRA position~~CRA's positions and believe the ~~reassessment~~reassessments of Fiscal 2012, Fiscal 2013 and Fiscal 2014 (including any ~~related proposed penalties~~penalties) are without merit. We ~~will continue to vigorously contest both the proposed adjustments to our taxable income and the penalty assessment. We~~ have filed ~~a notice~~notices of objection for Fiscal 2012, Fiscal 2013 and ~~will also seek~~Fiscal 2014, and we are currently seeking competent authority consideration under applicable international treaties in respect of ~~this reassessment.~~these reassessments.

Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012, Fiscal 2013 and Fiscal 2014, or potential reassessments that may be proposed for subsequent years currently under audit, we have elective deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.

We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest assessments. As of the date of this Quarterly Report on Form 10-Q, we have not recorded any accruals in respect of ~~this reassessment~~these reassessments in our Condensed Consolidated Financial Statements.

Even if we are unsuccessful in challenging the CRA’s reassessment to increase our taxable income for Fiscal 2012, we have elective deductions available in Fiscal 2012 that would offset such increased amount so that no additional cash tax would be payable for Fiscal 2012, exclusive of any proposed penalties. Audits by the CRA of our tax returns for fiscal years prior to Fiscal 2012 have been completed with no reassessment of our income tax liability in respect of our international transactions, including the transfer pricing methodology applied to them. The CRA is currently auditing Fiscal ~~2013, 2014~~2015, Fiscal 2016 and ~~2015,~~Fiscal 2017 and ~~has~~have proposed to reassess Fiscal ~~2013~~2015 in a manner consistent with ~~the reassessment of~~ Fiscal ~~2012.~~2012, Fiscal 2013 and Fiscal 2014. We are engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit ~~position.~~

~~GXS Brazil Matter~~

As part of our acquisition of GXS, we inherited a tax dispute in Brazil between the Company’s subsidiary, GXS Tecnologia da Informação (Brasil) Ltda. (GXS Brazil), and the municipality of São Paulo, in connection with GXS Brazil’s judicial appeal of a tax claim. During the first quarter of Fiscal 2018 the courts ruled in favour of the municipality of São Paulo. The Company has decided not to pursue further appeal. On October 1, 2017, the Company reached a settlement with the municipality and paid $1.4 million.

Historically, prior to our acquisition of GXS, GXS would charge certain costs to its subsidiaries, including GXS Brazil, primarily based on historical transfer pricing studies that were intended to reflect the costs incurred by subsidiaries in relation to services provided by the parent company to the subject subsidiary. GXS recorded taxes on amounts billed, that were considered to be due based on the intercompany charges. GXS subsequently re-evaluated its intercompany charges to GXS Brazil and related taxes and, upon taking into consideration the current environment and judicial proceedings in Brazil, concluded that it was probable that certain indirect taxes would be assessable and payable based upon the accrual of such intercompany charges and has approximately $3.9 million accrued for the probable amount of a settlement related to the indirect taxes, interest and penalties.positions.

GXS India Matter

Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax advisors, we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have filed appeals

and anticipate an eventual settlement with the Indian tax authorities. We have accrued $1.3 million to cover our anticipated financial exposure in this matter.

Carbonite Class Action Complaint

On August 1, 2019, prior to our acquisition of Carbonite, a purported stockholder of Carbonite filed a putative class action complaint against Carbonite, its former Chief Executive Officer, Mohamad S. Ali, and its former Chief Financial Officer, Anthony Folger, in the United States District Court for the District of Massachusetts captioned Ruben A. Luna, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19-cv-11662-LTS). The complaint alleges violations of the federal securities laws under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The complaint generally alleges that the defendants made materially false and misleading statements in connection with Carbonite’s Server Backup VM Edition, and seeks, among other things, the designation of the action as a class action, an award of unspecified compensatory damages, costs and expenses, including counsel fees and expert fees, and other relief as the court deems appropriate. On August 23, 2019, a nearly identical complaint was filed in the same court captioned William Feng, Individually and on Behalf of All Others Similarly Situated v. Carbonite, Inc., Mohamad S. Ali, and Anthony Folger (No. 1:19- cv-11808-LTS) (together with the Luna Complaint, the “Securities Actions”). On November 21, 2019, the court consolidated the Securities Actions, appointed a lead plaintiff, and designated a lead counsel. On January 15, 2020, the lead plaintiff filed a consolidated amended complaint generally making the same allegations and seeking the same relief as the complaint filed on August 1, 2019. The defendants' answer or responsive pleading is due by March 10, 2020. In light of, among other things, the early stage of the litigation, we are unable to predict the outcome of this action and are unable to reasonably estimate the amount or range of loss, if any, that could result from this proceeding.

Carbonite vs Realtime Data

On February 27, 2017, prior to our acquisition of Carbonite, a non-practicing entity named Realtime Data LLC (“Realtime Data”) filed a lawsuit against Carbonite in the U.S. District Court for the Eastern District of Texas "Realtime Data LLC v. Carbonite, Inc. et al (No 6:17-cv-00121-RWS-JDL)", alleging that certain of Carbonite’s cloud storage services infringe upon certain patents held by Realtime Data. Realtime Data’s complaint against Carbonite sought damages in an unspecified amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the asserted patents against other companies around the country. In one of those suits, filed in the U.S. District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit. As to the fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending Carbonite vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.

Please also see ~~Part II, Item 1A~~ "Risk Factors" ~~elsewhere~~included in ~~this Quarterly~~our Annual Report on Form ~~10-Q.~~10-K for Fiscal 2019.

NOTE ~~14—~~15—INCOME TAXES

Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a wide range of income tax rates.

The effective tax rate increased to a provision of 30.3% for the three months ended December 31, 2019, compared to 25.8% for the three months ended December 31, 2018. The increase in tax expense of $10.6 million was primarily due to (i) an increase of $16.8 million relating mainly to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020, (ii) an increase in tax filings in excess of estimates of $6.0 million and (iii) an increase in net income taxed at foreign rates of $3.3 million. These were partially offset by (i) a decrease of $11.6 million in reserves for unrecognized tax benefits resulting from clarifications provided by tax regulations and taxation years becoming statute barred and (ii) a decrease of $4.5 million related to tax costs of internal reorganizations that did not recur in Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate decreased to a provision of 27.8% for the six months ended December 31, 2019, compared to 31.9% for the six months ended December 31, 2018. Tax expense increased by $3.8 million primarily due to (i) the increase in net income taxed at foreign rates of $11.8 million, (ii) an increase of $14.9 million relating to a one-time reversal of accruals for repatriations from subsidiaries in the United States in Fiscal 2019 that did not recur in Fiscal 2020 and (iii) an increase in tax filing in excess of estimates of $7.3 million. These were partially offset by (i) a decrease of $22.4 million in reserves for unrecognized tax benefit resulting from clarifications provided by tax regulations and taxation years becoming statute barred and (ii) a decrease of $7.9 million relating to the tax impact of internal reorganizations of subsidiaries that did not reoccur Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

We recognize interest expense and penalties related to income tax matters in income tax expense.

For the three and six months ended December 31, ~~2017~~2019 and ~~2016,~~2018, we recognized the following amounts as income tax-related interest expense and penalties:



	Three Months Ended December 31,					Six Months Ended December 31,
	2019			2018		2019		2018
Interest expense (recoveries)	$	2,652		$	1,570	$	1,234	$	4,607
Penalties expense (recoveries)	(156		)	67		75		559
Total	$	2,496		$	1,637	$	1,309	$	5,166

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Interest expense $ 1,811
$ 1,501
$ 3,897
$ 2,783
Penalties expense (recoveries) (624 ) (218 ) (543 ) (324 )
Total $ 1,187
$ 1,283
$ 3,354
$ 2,459

~~As of December 31, 2017 and June 30, 2017, the~~The following amounts have been accrued on account of income tax-related interest expense and penalties:


	As of December 31, 2017		As of June 30, 2017		As of December 31, 2019		As of June 30, 2019
Interest expense accrued *	$	52,105	$	47,402	$	65,870	$	64,530
Penalties accrued *	$	2,230	$	2,160	$	2,526	$	2,525


*	~~These balances have been included within "Long-term income taxes payable" within the~~ ~~Condensed Consolidated Balance Sheets~~. * These balances are primarily included within "Long-term income taxes payable" within the Condensed Consolidated Balance Sheets.

We believe that it is reasonably possible that the gross unrecognized tax benefits, as of December 31, ~~2017,~~2019, could decrease tax expense in the next 12 months by ~~$2.0~~$7.1 million, relating primarily to the expiration of competent authority relief and tax years becoming statute barred for purposes of future tax examinations by local taxing jurisdictions.

Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings relate. The earliest fiscal years open for examination are ~~2009~~2012 for Germany, 2010 for the United States, ~~2011~~2012 for Luxembourg, and 2012 for Canada.

We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in Canada, the United States, ~~France,~~ Germany, India, ~~Italy, Malaysia,~~ and the United Kingdom. On a quarterly basis we assess the status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and other taxes. Statements regarding the United States and Canada audits are included in note 1314 "Guarantees and Contingencies".

The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that

within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For more information relating to certain tax audits, please refer to note 1314 "Guarantees and Contingencies".

As at December 31, ~~2017,~~2019, we have ~~provided $28.0~~recognized a provision of $19.3 million (June 30, ~~2017—~~2019—$~~22.1~~17.4 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries and planned periodic repatriations from certain ~~United States and~~ German subsidiaries, that will be subject to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered permanently invested in those subsidiaries or are not subject to withholding taxes. It is not practicable to reasonably estimate the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings be distributed in the future.

The effective tax rate decreased to a provision of 38.5% for the three months ended December 31, 2017, compared to a provision of 40.6% for the three months ended December 31, 2016. The increase in tax expense of $22.3 million was primarily due to (i) the impact of changes in US tax legislation in Fiscal 2018 resulting in a provisional charge of $15.3 million (see below), (ii) an increase of $13.3 million on account of the Company having higher income before taxes, including the impact of foreign tax rates, and (iii) an increase of $1.6 million resulting from the reversals of reserves in Fiscal 2017 that did not reoccur in Fiscal 2018, offset by (i) a decrease of $4.8 million relating to differences in tax filings from provisions, and (ii) a decrease of $1.1 million relating to a decrease in amortization of deferred charges. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate increased to a provision of 39.8% for the six months ended December 31, 2017, compared to a recovery of 640.6% for the six months ended December 31, 2016. The increase in tax expense of $909.1 million was primarily due to (i) a significant tax benefit of $876.1 million resulting from the Fiscal 2017 internal reorganization as described below which did not reoccur in Fiscal 2018, (ii) the impact of changes in US tax legislation in Fiscal 2018 resulting in a provisional charge of $15.3 million (see below), (iii) an increase of $17.1 million on account of the Company having higher income before taxes, including the impact of foreign tax rates, and (iv) an increase of $5.2 million resulting from the reversals of reserves in Fiscal 2017 that did not reoccur in Fiscal 2018, offset by (i) a decrease of $2.6 million relating to differences in tax filings from provisions, and (ii) a decrease of $2.1 million relating to a decrease in amortization of deferred charges. The remainder of the difference was due to normal course movements and non-material items.

On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which significantly changes the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21%, and the transition of US international taxation from a worldwide tax system to a territorial tax system. As a result of the enactment of the legislation, the Company incurred a provisional one-time tax expense of $15.3 million in the second quarter of Fiscal 2018, primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain deferred tax assets and liabilities. The portion of this anticipated increase to tax expense attributable to the transition tax is payable over a period of up to eight years. The impact of the $15.3 million adjustment resulting from the US legislation on the effective tax rate is an increase of 11.1% for the three months ended December 31, 2017 and 7.6% for the six months ended December 31, 2017.

The $15.3 million is a provisional amount in respect of rate change, Alternative Minimum Tax (AMT), and foreign earnings in accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). The finalization of the provisional one-time amount is pending finalization of the re-assessment of the timing of reversals of certain deferred tax assets and liabilities and additional considerations related to undistributed foreign earnings and evaluating whether any portion of our existing AMT credit carryforwards are not expected to be refundable as a result of the repeal of corporate AMT. Additional information such as final Fiscal 2018 income and detailed earnings and profits calculations for foreign subsidiaries may result in changes to the provisional amount during the SAB 118 measurement period.

The Company continues to assess the impact of the new law on its consolidated financial statements and anticipates finalizing the determination on or before December 22, 2018 in accordance with SAB 118.

NOTE ~~15—~~16—FAIR VALUE MEASUREMENT

ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own credit risk.

In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:

Our financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of instruments as of December 31, ~~2017~~2019 and June 30, ~~2017:~~2019:

December 31, 2019

June 30, 2019

Fair Market Measurements using:

December 31, 2019

Quoted prices

in active

markets for

identical

assets/

(liabilities)

Significant

other

observable

inputs

Significant

unobservable

inputs

June 30, 2019

Quoted prices

in active

markets for

identical

assets/

(liabilities)

Significant

other

observable

inputs

Significant

unobservable

inputs

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Financial Assets:

Foreign currency forward contracts designated as cash flow hedges (note 17)

1,005

N/A

1,005

N/A

736

N/A

736

N/A

December 31, 2017 June 30, 2017
Fair Market Measurements using: Fair Market Measurements using:
December 31, 2017
Quoted prices
in active
markets for
identical
assets/
(liabilities)

Significant
other
observable
inputs

Significant
unobservable
inputs
June 30, 2017
Quoted prices
in active
markets for
identical
assets/
(liabilities)

Significant
other
observable
inputs

Significant
unobservable
inputs
(Level 1) (Level 2) (Level 3) (Level 1) (Level 2) (Level 3)
Financial Assets:
Marketable securities N/A
N/A N/A
N/A $ 3,023
N/A $ 3,023
N/A
Derivative financial instrument asset (note 16) 1,078
N/A 1,078
N/A 1,174
N/A 1,174
N/A
$ 1,078
N/A $ 1,078
N/A $ 4,197
N/A $ 4,197
N/A

Our valuation techniques used to measure the fair values of the derivative instruments, the counterparty to which has high credit ratings, were derived from pricing models including discounted cash flow techniques, with all significant inputs derived

from or corroborated by observable market data, as no quoted market prices exist for these instruments. Our discounted cash flow techniques use observable market inputs, such as, where applicable, foreign currency spot and forward rates.

Our cash and cash equivalents, along with our accounts receivable and accounts payable and accrued liabilities balances, are measured and recognized in our Condensed Consolidated Financial Statements at an amount that approximates their fair value (a Level 2 measurement) due to their short maturities.

If applicable, we will recognize transfers between levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. During the three and six months ended December 31, ~~2017~~2019 and ~~2016,~~2018, we did not have any transfers between Level 1, Level 2 or Level 3.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the three and six months ended December 31, ~~2017~~2019 and ~~2016,~~2018, no indications of impairment were identified and therefore no fair value measurements were required.

~~Marketable Securities~~

Marketable securities are classified as available for sale securities and are recorded within "Other assets" on our Condensed Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of Accumulated other comprehensive income. We did not hold any marketable securities as of December 31, 2017.

~~A summary of our marketable securities outstanding as of December 31, 2017 and June 30, 2017 is as follows:~~

As of December 31, 2017 As of June 30, 2017
Cost Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value Cost Gross Unrealized Gains Gross Unrealized (Losses) Estimated Fair Value
Marketable securities N/A N/A N/A N/A $ 2,406
$ 617
$ —
$ 3,023

NOTE ~~16—~~17—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Foreign Currency Forward Contracts

We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our payroll exposure with typical maturities of between one and twelve months. We do not use ~~derivatives~~foreign currency forward contracts for speculative purposes.

We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives and Hedging” (Topic 815). As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized gains or losses on the effective portion of these forward contracts have been included within other comprehensive income. The fair value of the contracts, as of December 31, ~~2017~~2019, is recorded within "Prepaid expenses and other current ~~assets”~~assets".

As of December 31, ~~2017~~,2019, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian dollars was ~~$46.8~~$64.0 million (June 30, ~~2017~~2019—$~~39.0~~62.0 million).

Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance

The effect of these derivative instruments on our Condensed Consolidated Financial Statements for the periods indicated below were as follows (amounts presented do not include any income tax effects).

Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheets (see note 1516 "Fair Value Measurement")



		As of December 31, 2019		As of June 30, 2019
Derivatives	Balance Sheet Location	Fair Value Asset (Liability)		Fair Value Asset (Liability)
Foreign currency forward contracts designated as cash flow hedges	Prepaid expenses and other current assets (Accounts payable and accrued liabilities)	$	1,005	$	736

As of December 31, 2017 As of June 30, 2017
Derivatives Balance Sheet Location Fair Value
Asset (Liability) Fair Value
Asset (Liability)
Foreign currency forward contracts designated as cash flow hedges Prepaid expenses and other current assets $ 1,078
$ 1,174

Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI)



Three and Six Months Ended December 31, 2019
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended December 31, 2019			Six Months Ended December 31, 2019				Three Months Ended December 31, 2019			Six Months Ended December 31, 2019
Foreign currency forward contracts	$	1,134		$	356		Operating expenses	$	98		$	87

Three and Six Months Ended December 31, 2018
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)						Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended December 31, 2018			Six Months Ended December 31, 2018				Three Months Ended December 31, 2018			Six Months Ended December 31, 2018
Foreign currency forward contracts	$	(2,554	)	$	(1,871	)	Operating expenses	$	(636	)	$	(1,134	)

Three and Six Months Ended December 31, 2017
Derivatives in Cash Flow Hedging Relationship
Amount of Gain or (Loss)
Recognized in OCI on
Derivatives
(Effective
Portion)

Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)

Amount of Gain or
(Loss) Reclassified from
Accumulated OCI into
Income (Effective
Portion)

Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)

Amount of Gain or (Loss) Recognized in
Income on Derivatives
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
Three Months Ended December 31, 2017 Six Months Ended December 31, 2017 Three Months Ended December 31, 2017 Six Months Ended December 31, 2017 Three Months Ended December 31, 2017 Six Months Ended December 31, 2017
Foreign currency forward contracts $ (228 ) $ 1,520
Operating
expenses $ 532
$ 1,616
N/A $ —
$ —

Three and Six Months Ended December 31, 2016
Derivatives in Cash Flow Hedging Relationship Amount of Gain or (Loss)
Recognized in OCI on
Derivatives
(Effective
Portion) Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion) Amount of Gain or
(Loss) Reclassified from
Accumulated OCI into
Income (Effective
Portion) Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing) Amount of Gain or (Loss) Recognized in
Income on Derivatives
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)
Three Months Ended December 31, 2016 Six Months Ended December 31, 2016 Three Months Ended December 31, 2016 Six Months Ended December 31, 2016 Three Months Ended December 31, 2016 Six Months Ended December 31, 2016
Foreign currency forward contracts $ (950 ) $ (1,433 ) Operating
expenses $ 124
$ 146
N/A $ —
$ —

NOTE ~~17—~~18—SPECIAL CHARGES (RECOVERIES)

Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges.



	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Fiscal 2019 Restructuring Plan	$	23		$	5,993		$	1,679		$	26,239
Fiscal 2018 Restructuring Plan	65			(25		)	86			510
Restructuring Plans prior to Fiscal 2018 Restructuring Plan	(481		)	(79		)	(282		)	475
Acquisition-related costs	7,779			3,197			10,445			3,704
Other charges (recoveries)	2,686			294			3,245			1,763
Total	$	10,072		$	9,380		$	15,173		$	32,691

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Fiscal 2018 Restructuring Plan $ 1,965
$ —
$ 8,354
$ —
Fiscal 2017 Restructuring Plan (942 ) 761
3,422
1,856
Restructuring Plans prior to Fiscal 2017 Restructuring Plan 339
(2,627 ) 256
(1,804 )
Acquisition-related costs 1,197
3,892
3,453
10,666
Other charges (recoveries) (1,844 ) 9,091
3,261
12,853
Total $ 715
$ 11,117
$ 18,746
$ 23,571
Fiscal 2019 Restructuring Plan

During Fiscal 2019, we began to implement restructuring activities to streamline our operations (Fiscal 2019 Restructuring Plan), including in connection with our acquisitions of Catalyst Repository Systems Inc. (Catalyst) and Liaison Technologies, Inc. (Liaison), to take further steps to improve our operational efficiency. The Fiscal 2019 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

Since the inception of the plan, approximately $30.0 million has been recorded within "Special charges (recoveries)" to date. We do not expect to incur any further significant charges relating to this plan.

A reconciliation of the beginning and ending liability for the six months ended December 31, 2019 is shown below.



Fiscal 2019 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2019	$	1,819		$	5,288		$	7,107
Adjustment for Topic 842 (note 1 and note 6)	—			(5,288		)	(5,288		)
Accruals and adjustments	589			1,090			1,679
Cash payments	(1,555		)	(1,090		)	(2,645		)
Foreign exchange and other non-cash adjustments	(211		)	—			(211		)
Balance payable as at December 31, 2019	$	642		$	—		$	642

Fiscal 2018 Restructuring Plan

During ~~the first quarter of~~ Fiscal 2018 and in the context of our acquisitions of Covisint Corporation, Guidance Software Inc. and ~~Guidance (each defined below)~~Hightail, Inc., we ~~began to implement~~implemented restructuring activities to streamline our operations (collectively referred to as the Fiscal 2018 Restructuring Plan). The Fiscal 2018 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

AsSince the inception of ~~December 31, 2017, we expect total costs to be incurred in conjunction with~~ the ~~Fiscal 2018 Restructuring Planto be~~plan, approximately ~~$12.0 million, of which $8.4~~$10.7 million has ~~already~~ been recorded within "Special charges (recoveries)" to date. We do not expect to incur any further significant charges relating to this plan.

A reconciliation of the beginning and ending liability for the six months ended December 31, ~~2017~~2019 is shown below.



Fiscal 2018 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2019	$	150		$	486		$	636
Adjustment for Topic 842 (note 1 and note 6)	—			(486		)	(486		)
Accruals and adjustments	(62		)	148			86
Cash payments	(39		)	(148		)	(187		)
Foreign exchange and other non-cash adjustments	(9		)	—			(9		)
Balance payable as at December 31, 2019	$	40		$	—		$	40

Fiscal 2018 Restructuring Plan
Workforce
reduction
Facility costs Total
Balance payable as at June 30, 2017 $ —
$ —
$ —
Accruals and adjustments 7,535
819
8,354
Cash payments (7,859 ) (73 ) (7,932 )
Foreign exchange and other non-cash adjustments 930
6
936
Balance payable as at December 31, 2017 $ 606
$ 752
$ 1,358

~~Fiscal 2017 Restructuring Plan~~

During Fiscal 2017 and in the context of our acquisitions of Recommind, CCM Business and ECD Business (each as defined below), we began to implement restructuring activities to streamline our operations (collectively referred to as the Fiscal 2017 Restructuring Plan). The Fiscal 2017 Restructuring Plan charges relate to workforce reductions and facility consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our assumptions and estimates as appropriate.

As of December 31, 2017, we expect total costs to be incurred in conjunction with the Fiscal 2017 Restructuring Plan to be approximately $45.0 million, of which $37.0 million has already been recorded within "Special charges (recoveries)" to date.

~~A reconciliation of the beginning and ending liability for the six months ended December 31, 2017 is shown below.~~

Fiscal 2017 Restructuring Plan
Workforce
reduction
Facility costs Total
Balance payable as at June 30, 2017 $ 10,045
$ 1,369
$ 11,414
Accruals and adjustments 2,880
542
3,422
Cash payments (10,539 ) (914 ) (11,453 )
Foreign exchange and other non-cash adjustments 600
4
604
Balance payable as at December 31, 2017 $ 2,986
$ 1,001
$ 3,987

~~Acquisition-related costs~~

Included within "Special charges (recoveries)" for the three and six months ended December 31, 2017 are costs incurred directly in relation to acquisitions in the amount of $1.2 million and $3.5 million, respectively (three and six months ended December 31, 2016—$3.9 million and $10.7 million, respectively).

~~Other charges (recoveries)~~

~~ERP Implementation Costs~~

~~During Fiscal 2018, we implemented a broad enterprise resource planning (ERP) system.~~

For the three and six months ended December 31, 2017, we recorded a recovery of $0.2 million and a charge of $3.5 million, respectively, relating to the implementation of this project (three and six months ended December 31, 2016—$2.3 million and $4.7 million, respectively).

Other charges (recoveries)

For the three months ended December 31, ~~2017,~~2019, "Other ~~recoveries" is primarily due to a recovery of $2.3~~charges" includes $0.1 million relating to ~~certain pre-acquisition sales~~the write-off of ROU assets and ~~use tax liabilities that were recovered outside of the acquisition's one year measurement period. This recovery was partially offset by $0.7~~$2.6 million ofrelating to other miscellaneous ~~other~~ charges.

For the six months ended December 31, ~~2017,~~2019, "Other charges" includes ~~a recovery of $2.3~~$0.7 million relating to ~~certain pre-acquisition sales~~the write-off of ROU assets and ~~use tax liabilities that were recovered outside of the acquisition's one year measurement period, partially offset by $2.1~~approximately $2.6 million relating to other miscellaneous ~~other~~ charges.

For the three months ended December 31, ~~2016,~~2018, "Other charges" ~~primarily~~ include ~~(i) $8.2~~$0.3 million relating to commitment fees and (ii) $0.1 million relating to certain interest on pre-acquisition liabilities. These charges were partially offset by (i) a recovery of $1.4 million relating to certain pre-acquisition sales and use tax liabilities being released upon becoming statute barred and (ii) a recovery of $0.2 million relating to post-acquisition integration costs necessary to streamline an acquired company into our operations. The remaining amounts relate toother miscellaneous ~~other~~ charges.

For the six months ended December 31, ~~2016,~~2018, "Other charges" ~~primarily~~ include (i) ~~$9.2 million relating to commitment fees and (ii)~~ $1.1 million relating to ~~post-acquisition integration~~one-time system implementation costs ~~necessary to streamline an acquired company into our operations. These charges were partially offset by a recovery of $2.6~~and (ii) $0.7 million relating to ~~certain pre-acquisition sales and use tax liabilities being released upon becoming statute barred. The remaining amounts relate to~~other miscellaneous ~~other~~ charges.

NOTE ~~18—~~19—ACQUISITIONS

Fiscal ~~2018~~2020 Acquisitions

Acquisition of ~~Guidance Software,~~Carbonite, Inc.

On ~~September 14, 2017,~~December 24, 2019, we acquired all of the equity interest in ~~Guidance,~~Carbonite, a leading provider of ~~forensic~~cloud-based subscription backup, disaster recovery and endpoint security ~~solutions,~~to small and medium-sized businesses (SMB), consumers, and a wide variety of partners. Total consideration for Carbonite was approximately ~~$240.5 million.~~$1.4 billion, comprised of $1.3 billion paid in cash (inclusive of cash acquired) and approximately $0.1 billion currently held back and unpaid in accordance with the purchase agreement. In accordance with ~~ASC~~Accounting Standards Codification (ASC) Topic 805 "Business Combinations" (Topic 805), this acquisition was accounted for as a business combination. We believe ~~this~~the acquisition ~~complements~~will increase our position in the data protection and ~~extends~~

endpoint security space, further strengthen our ~~Enterprise Information Management (EIM) portfolio.~~cloud capabilities and open a new route to connect with customers through Carbonite's marquee SMB and consumer channels and products.

The results of operations of ~~this acquisition~~Carbonite have been consolidated with those of OpenText beginning ~~September 14, 2017.~~

The following tables summarize the preliminary consideration paid for Guidance and the amount of the assets acquired and liabilities assumed, as well as the goodwill recorded as of the acquisition date:

Cash consideration* $ 237,291
Guidance shares already owned by OpenText through open market purchases (at fair value) 3,247
Preliminary purchase consideration $ 240,538

*Inclusive of $2.3 million accrued for but unpaid as of December ~~31, 2017. See "Appraisal Proceedings" below for more information.~~

24, 2019.

Preliminary Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of ~~September 14, 2017,~~December 24, 2019, are set forth below:



Current assets (inclusive of cash acquired of $62.9 million)	$	131,119
Non-current tangible assets (inclusive of restricted cash acquired of $2.4 million)	93,111
Intangible customer assets	549,000
Intangible technology assets	291,000
Liabilities assumed	(578,747		)
Total identifiable net assets	485,483
Goodwill	885,547
Net assets acquired	$	1,371,030

Current assets (inclusive of cash acquired of $5.7 million) $ 24,754
Non-current tangible assets 10,540
Intangible customer assets 71,230
Intangible technology assets 51,851
Liabilities assumed (48,776 )
Total identifiable net assets 109,599
Goodwill 130,939
Net assets acquired $ 240,538

The goodwill of ~~$130.9~~approximately $885.5 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately ~~$1.9~~$6.9 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of ~~$26.6~~approximately $171.5 million, which represents our estimate of the fair value of the contractual obligations ~~assumed based on a preliminary valuation.~~assumed. In arriving at this fair value, we reduced the acquired company’s original carrying value by ~~$7.6~~approximately $74.9 million.

The fair value of current assets acquired includes accounts receivable with a fair value of ~~$10.3~~$49.8 million. The gross amount receivable was ~~$11.8~~$51.2 million of which ~~$1.5~~$1.4 million of this receivable iswas expected to be uncollectible.

An amount of $0.8 million, representing the mark to market gain on the shares we held in Guidance prior to the acquisition, was recorded to "Other income" in our Condensed Consolidated Statements of Income for the six months ended December 31, 2017.

Acquisition-related costs for ~~Guidance~~Carbonite included in "Special charges (recoveries)" in the Condensed Consolidated Financial Statements for the three and six months ended December 31, ~~2017~~2019 were ~~$1.1 million and $2.3~~$7.4 million, respectively.

The finalization of the above purchase price allocation is pending the finalization of the valuation of fair value for the assets acquired and liabilities assumed, including intangible assets and taxation-related balances as well as for potential unrecorded liabilities. We expect to finalize this determination on or before our quarter ending December 31, 2020.

The amount of Carbonite's revenues and net income included in our Condensed Consolidated Statements of Income for the three months ended December 31, 2019 is set forth below:



	December 24, 2019 - December 31, 2019
Revenues	$	9,511
Net Loss *	(3,654		)

* Net loss includes one-time fees of approximately $2.6 million on account of special charges and $4.2 million of amortization charges relating to intangible assets, all net of tax.

The unaudited pro forma revenues and net income (loss) of the combined entity for the three and six months ended December 31, 2019 and 2018, respectively, had the acquisition been consummated on July 1, 2018, are set forth below:



	Three Months Ended December 31,		Six Months Ended December 31,
	2019	2018	2019	2018
Supplemental Unaudited Pro Forma Information⁽¹⁾
Total Revenues	887,563	812,197	1,710,047	1,557,036
Net Income (loss) ^{(2) (3)}	78,571	76,024	117,789	(9,748	)

⁽¹⁾Carbonite had recently purchased Webroot Inc. in March 2019. The supplemental pro forma revenues and net income (loss) shown above do not include the results of operations of Webroot Inc. for periods prior to the Webroot acquisition date.

⁽²⁾ Included in pro forma net income (loss) for the six months ended December 31, 2018 are approximately $127 million of one-time expenses incurred by Carbonite on account of the acquisition and the related tax effect of approximately $33 million. These one-time expenses included i) approximately $74 million related to the accelerated vesting of historical Carbonite equity

awards, ii) approximately $29 million of one time fees, primarily related to transaction costs triggered by the closing of the acquisition, iii) $21 million related to the extinguishment of certain of Carbonite's historical debt and interest rate swaps and iv) approximately $3 million in employee severance costs.

⁽³⁾Included in pro forma net income for the three and six months ended December 31, 2019 and 2018 are estimated amortization charges relating to the allocated value of intangible assets.

The unaudited pro forma financial information in the table above is presented for information purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented or the results that may be realized in the future.

Acquisition of Dynamic Solutions Group Inc. (The Fax Guys)

On December 2, 2019, we acquired certain assets and assumed certain liabilities of The Fax Guys, for approximately $5.3 million, of which $1.2 million is currently held back and unpaid in accordance with the terms of the purchase agreement. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our Enterprise Information Management (EIM) portfolio.

The results of operations of The Fax Guys have been consolidated with those of OpenText beginning December 2, 2019.

Since the date of acquisition, the acquisition had no significant impact on revenues and net earnings for the three and six months ended December 31, ~~2017 since the date of acquisition.~~

2019. Pro forma results of operations for this acquisition have not been presented because they are not material to ~~the~~our consolidated results of operations.

The finalization of the purchase price allocation is pending the finalization of the valuation of fair value for assets acquired and liabilities assumed, including tax balances. We expect to finalize this determination on or before September 30, 2018.

~~Appraisal Proceedings~~

Under Section 262 of the Delaware General Corporation Law, shareholders who did not tender their shares in connection with our tender offer were entitled to have their shares appraised by the Delaware Court of Chancery and receive payment of the “fair value” of such shares. On August 31, 2017 we received notice from the record holder of approximately 1,519,569 shares or 5% of the issued and outstanding Guidance shares as of the date of acquisition, demanding an appraisal of the fair value of Guidance shares as they believed the price we paid for Guidance shares was less than its fair value. We accrued $10.8 million in connection with these claims, which is equivalent to paying $7.10 per Guidance share, the amount these Guidance shareholders otherwise would have received had they tendered their shares in our offer. During the second quarter of Fiscal 2018, we paid $8.5 million to the trust account of dissenting shareholders’ attorney, leaving $2.3 million accrued and unpaid for this matter. The amount accrued has been included within "Accounts payable and accrued liabilities" in the Condensed Consolidated Balance Sheets, with no impact to our Condensed Consolidated Statements of Income provided the courts rule within the open measurement period of 12 months from acquisition date.2019 Acquisitions

Acquisition of ~~Covisint Corporation~~Catalyst Repository Systems Inc.

On ~~July 26, 2017,~~January 31, 2019, we acquired all of the equity interest in ~~Covisint,~~Catalyst for approximately $70.8 million in an all cash transaction. Catalyst is a leading provider of eDiscovery that designs, develops and supports market-leading cloud ~~platform for building Identity, Automotive, and Internet of Things applications, for approximately $102.8 million.~~eDiscovery software. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition have been consolidated with those of OpenText beginning ~~July 26, 2017.~~January 31, 2019.

Preliminary Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as of ~~July 26, 2017,~~January 31, 2019, are set forth below:


Current assets (inclusive of cash acquired of $31.5 million)	$	41,586
Current assets				$	9,699
Non-current tangible assets	3,426			5,754
Intangible customer assets	36,600			30,607
Intangible technology assets	17,300			11,658
Liabilities assumed	(23,033		)	(17,891		)
Total identifiable net assets	75,879			39,827
Goodwill	26,905			30,973
Net assets acquired	$	102,784		$	70,800

The goodwill of ~~$26.9~~approximately $31.0 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately ~~$26.8~~$3.1 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of ~~$12.2~~$0.8 million, which represents our estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. In arriving at this fair value, we reduced the acquired company’s original carrying value by ~~$4.6 million.~~an insignificant amount.

The fair value of current assets acquired includes accounts receivable with a fair value of ~~$7.8~~$10.8 million. The gross amount receivable was ~~$7.9~~$11.8 million, of which ~~$0.1~~$1.0 million ~~of this receivable~~ is expected to be uncollectible.

Acquisition-related costs for Covisint included in "Special charges (recoveries)" in the Condensed Consolidated Financial Statements for the three and six months ended December 31, 2017 were $0.1 million and $0.9 million, respectively.

~~The acquisition had no significant impact on revenues and net earnings for the three and six months ended December 31, 2017 since the date of acquisition.~~

~~Pro forma results of operations for this acquisition have not been presented because they are not material to the consolidated results of operations.~~

The finalization of the purchase price allocation is pending the finalization of the valuation of fair value ~~for~~ assets acquired and liabilities assumed, including tax balances. We expect to finalize this determination ~~on or before June 30, 2018.~~during the three months ended March 31, 2020.

~~Fiscal 2017 Acquisitions~~

~~Purchase~~Acquisition of ~~an Asset Group Constituting a Business - ECD Business~~Liaison Technologies, Inc.

On ~~January 23, 2017,~~December 17, 2018, we acquired ~~certain assets and assumed certain liabilities~~all of the ~~enterprise content division~~equity interest in Liaison, a leading provider of ~~EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred~~cloud-based business to ~~as Dell-EMC (ECD Business)~~business integration, for approximately ~~$1.62 billion.~~$310.6 million in an all cash transaction. In accordance with Topic 805, this acquisition was accounted for as a business combination. ~~ECD Business offers OpenText a suite of leading Enterprise Content Management solutions with deep industry focus, including the Documentum~~^TM~~, InfoArchive~~^TM~~, and LEAP~~^TM ~~product families.~~ We believe this acquisition complements and extends our EIM portfolio.

The results of operations of this acquisition ~~were~~have been consolidated with those of OpenText beginning ~~January 23, 2017.~~December 17, 2018.

Purchase Price Allocation

The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of ~~January 23, 2017,~~December 17, 2018, are set forth below:


Current assets	$	11,339		$	23,006
Non-current tangible assets	103,672			5,168
Intangible customer assets	407,000			68,300
Intangible technology assets	459,000			107,000
Liabilities assumed	(182,301		)	(57,265		)
Total identifiable net assets	798,710			146,209
Goodwill	823,684			164,434
Net assets acquired	$	1,622,394		$	310,643

The goodwill of ~~$823.7~~approximately $164.4 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately ~~$378.5~~$2.2 million is expected to be deductible for tax purposes.

Included in total identifiable net assets is acquired deferred revenue with a fair value of ~~$163.8~~$7.6 million, which represents our estimate of the fair value of the contractual obligations ~~assumed based on a preliminary valuation.~~assumed. In arriving at this fair value, we reduced the acquired company’s original carrying value by ~~$52.0 million.~~

Further, included within total identifiable net assets are also certain contract assets which represent revenue earned by the ECD Business on long-term projects for which billings had not yet occurred as of January 23, 2017. As these long-term projects have now been inherited by OpenText, we will be responsible for billing and collecting cash on these projects at the appropriate time, yet we will not recognize revenue for these billings. The fair value assigned to these contract assets as of January 23, 2017 was $8.4 million.

~~Purchase of~~ an ~~Asset Group Constituting a Business - CCM Business~~

On July 31, 2016, we acquired certain customer communications management software and services assets and liabilities from HP Inc. (CCM Business) for approximately $315.0 million. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our current software portfolio, and allows us to better serve our customers by offering a wider set of CCM capabilities.

~~The results of operations of this acquisition were consolidated with those of OpenText beginning July 31, 2016.~~

~~Purchase Price Allocation~~

~~The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 31, 2016, are set forth below:~~

Current assets $ 683
Non-current deferred tax asset 11,861
Non-current tangible assets 2,348
Intangible customer assets 64,000
Intangible technology assets 101,000
Liabilities assumed (38,090 )
Total identifiable net assets 141,802
Goodwill 173,198
Net assets acquired $ 315,000

The goodwill of $173.2 million is primarily attributable to the synergies expected to arise after the acquisition. Of this goodwill, approximately $105.1 million is expected to be deductible for tax purposes.

~~Acquisition of Recommind, Inc.~~

On July 20, 2016, we acquired all of the equity interest in Recommind, Inc. (Recommind), a leading provider of eDiscovery and information analytics, for approximately $170.1 million. In accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition complements our EIM solutions, and through eDiscovery and analytics, provides increased visibility into structured and unstructured data.

~~The results of operations of Recommind, were consolidated with those of OpenText beginning July 20, 2016.~~

~~Purchase Price Allocation~~

~~The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 20, 2016, are set forth below:~~

Current assets $ 30,034
Non-current tangible assets 1,245
Intangible customer assets 51,900
Intangible technology assets 24,800
Long-term deferred tax liabilities (1,780 )
Other liabilities assumed (27,497 )
Total identifiable net assets 78,702
Goodwill 91,405
Net assets acquired $ 170,107

~~The goodwill of $91.4 million is primarily attributable to the synergies expected to arise after the acquisition. No portion of this goodwill is expected to be deductible for tax purposes.~~insignificant amount.

The fair value of current assets acquired includes accounts receivable with a fair value of ~~$28.7~~$20.5 million. The gross amount receivable was ~~$29.6~~$22.2 million, of which ~~$0.9~~$1.7 million ~~of this receivable was~~is expected to be uncollectible.

The finalization of the purchase price allocation during the three months ended December 31, 2019 did not result in any significant changes to the preliminary amounts previously disclosed.

NOTE ~~19—~~20—SUPPLEMENTAL CASH FLOW DISCLOSURES



	Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018
Cash paid during the period for interest	$	34,685	$	36,136	$	68,129	$	68,763
Cash received during the period for interest	$	3,474	$	2,624	$	7,423	$	3,359
Cash paid during the period for income taxes	$	23,037	$	31,445	$	33,372	$	39,812

Three Months Ended December 31, Six Months Ended December 31,
2017 2016 2017 2016
Cash paid during the period for interest $ 34,398
$ 24,394
$ 64,864
$ 53,585
Cash received during the period for interest $ 247
$ 700
$ 541
$ 1,470
Cash paid during the period for income taxes $ 19,252
$ 32,862
$ 28,834
$ 39,682

NOTE ~~20—~~21—EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income, attributable to OpenText, by the weighted average number of Common Shares outstanding during the period. Diluted earnings per share are computed by dividing net income, attributable to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the computation of diluted earnings per share if their effect is anti-dilutive.


	Three Months Ended December 31,				Six Months Ended December 31,					Three Months Ended December 31,				Six Months Ended December 31,
	2017		2016		2017		2016			2019		2018		2019		2018
Basic earnings per share
Net income attributable to OpenText	$	85,111	$	45,022	$	121,707	$	957,906	(1)	$	107,467	$	104,432	$	181,868	$	140,756
Basic earnings per share attributable to OpenText	$	0.32	$	0.18	$	0.46	$	3.92		$	0.40	$	0.39	$	0.67	$	0.52
Diluted earnings per share
Net income attributable to OpenText	$	85,111	$	45,022	$	121,707	$	957,906	(1)	$	107,467	$	104,432	$	181,868	$	140,756
Diluted earnings per share attributable to OpenText	$	0.32	$	0.18	$	0.46	$	3.89		$	0.40	$	0.39	$	0.67	$	0.52
Weighted-average number of shares outstanding
Weighted-average number of shares outstanding (in 000's)
Basic	265,504		245,653		265,153		244,282			270,450		268,524		270,232		268,276
Effect of dilutive securities	1,353		1,848		1,396		1,841			1,140		876		1,096		1,120
Diluted	266,857		247,501		266,549		246,123			271,590		269,400		271,328		269,396
Excluded as anti-dilutive⁽²⁾⁽¹⁾	2,795		1,618		2,635		1,445			2,541		3,171		2,360		2,597

⁽¹⁾ Please also see note 14 "Income Taxes" for details relating to a one-time tax benefit of $876.1 million recorded during the three months ended September 30, 2016 in connection with an internal reorganization of our subsidiaries.

⁽²⁾ Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period.

NOTE ~~21—~~22—RELATED PARTY TRANSACTIONS

Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other sources of comparable services or products.

During the six months ended December 31, ~~2017,~~2019, Mr. Stephen Sadler, a director, earned approximately $~~0.7~~0.4 million (six months ended December 31, ~~2016—~~2018—$~~0.7~~0.4 million) in consulting fees from OpenText for assistance with acquisition-related business activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.

NOTE ~~22—~~23—SUBSEQUENT ~~EVENT~~EVENTS

Cash Dividends

As part of our quarterly, non-cumulative cash dividend program, we declared, on January ~~30, 2018,~~29, 2020, a dividend of ~~$0.1320~~$0.1746 per Common Share. The record date for this dividend is ~~March 2, 2018~~February 28, 2020 and the payment date is March ~~23, 2018.~~20, 2020. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of our Board.

Fiscal 2020 Restructuring Plan

On January 29, 2020, our Board approved a restructuring plan that will impact our global workforce and consolidate certain real estate facilities in an effort to further streamline our operations, inclusive of Carbonite (Fiscal 2020 Restructuring Plan). The total size of the plan is expected to be approximately $26 million to $34 million and is proposed to be undertaken in phases throughout calendar year 2020 and the first half of calendar year 2021. We currently expect to incur charges related to this plan in the following amounts:

Workforce restructurings of approximately $13 million to $17 million; and

Facility consolidations of approximately $13 million to $17 million.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q, including this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securities Act), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements.

When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, "might", "will" and other similar language, as they relate to Open Text Corporation (“OpenText” or the “Company”), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to: (i) statements about our focus in the fiscal year beginning July 1, ~~2017~~2019 and ending June 30, ~~2018~~2020 (Fiscal ~~2018)~~2020) on growth in earnings and cash flows; (ii) creating value through investments in broader ~~Enterprise~~ Information Management ~~(EIM)~~(IM) capabilities; (iii) our future business plans and business planning process; (iv) statements relating to business trends; (v) statements relating to distribution; (vi) the Company’s presence in the cloud and in growth markets; (vii) product and solution developments, enhancements and releases and the timing thereof; (viii) the Company’s financial conditions, results of operations and earnings; (ix) the basis for any future growth and for our financial performance; (x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory ~~environment including the new tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States and its impact on our business;~~environment; (xiii) annual recurring revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of intellectual property and other proprietary rights; (xviii) existing and foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; (xxii) statements about ~~the impact of OpenText Magellan~~acquisitions and ~~OpenText Release 16;~~their expected impact; and (xxiii) other matters.

In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify, source and ~~source~~finance attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from ~~the new U.S. administration)~~trade and tariff disputes); (vi) delays in the purchasing decisions of the Company’s customers; (vii) the competition the Company faces in its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United States, Canada or elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services; (xi) the continuous commitment of the Company’s customers; (xii) demand for the Company’s products and services; (xiii) increase in exposure to international business risks (including as a result of the impact of Brexit and any policy changes resulting from the ~~new U.S. administration)~~transition from the North American Free Trade Agreement to the United States-Mexico-Canada Agreement) as we continue to increase our international operations; (xiv) inability to raise capital at all or on not unfavorable terms in the future; (xv) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xvi) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new products and services to market and to

increase sales; (iii) the strength of the Company’s product

development pipeline; (iv) failure to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to ~~implement;~~implement including General Data Protection Regulation (GDPR) and Country by Country Reporting; (vii) the Company’s growth and other profitability prospects; (viii) the estimated size and growth prospects of the ~~EIM~~IM market; (ix) the Company’s competitive position in the ~~EIM~~IM market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products and services to be realized by customers; (xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the ~~EIM~~IM marketplace; (xii) the Company’s financial condition and capital requirements; (xiii) system or network failures or information security breaches in connection with the Company's ~~offerings;~~offerings and information technology systems generally; and (xiv) failure to attract and retain key personnel to develop and effectively manage the Company's business.

For additional information with respect to risks and other factors which could occur, see Part II, Item 1A "Risk Factors" herein and the Company's Annual Report on Form 10-K, including Part I, Item 1A "Risk Factors" therein; Quarterly Reports on Form 10-Q, including Item 1A herein and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Unless otherwise required by applicable securities laws, the

Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new

information, future events or otherwise.

The following MD&A is intended to help readers understand our results of operations and financial condition, and is

provided as a supplement to, and should be read in conjunction with, our Condensed Consolidated Financial Statements and

the accompanying Notes to our Condensed Consolidated Financial Statements under Part I, Item 1 of this Quarterly Report on

Form 10-Q.

All dollar and percentage comparisons made herein ~~generally~~ refer to the three and six months ended December 31, ~~2017~~2019 compared with the three and six months ended December 31, ~~2016,~~2018, unless otherwise noted.

Where we say “we”, “us”, “our”, “OpenText” or “the Company”, we mean Open Text Corporation or Open Text Corporation and its subsidiaries, as applicable.

EXECUTIVE OVERVIEW

~~We operate in~~OpenText is an information management company, historically focused primarily on enabling the ~~EIM market. We develop enterprise software for digital transformation. OpenText’s~~intelligent and connect enterprise. With our recent acquisition of Carbonite Inc. (Carbonite), we believe we have entered into the next phase of our Total Growth strategy where we have an opportunity to take advantage of Carbonite's world-class channel organization and partners, to bring our information management (IM) solutions to all size customers, including small and medium businesses (SMB) and consumers. The comprehensive OpenText IM platform and suite of software products and services provide secure and scalable solutions for global ~~companies. Our~~companies, SMBs, governments and consumers around the world. With our software, ~~assists~~ organizations manage a valuable asset - information: information that is made more valuable by connecting it to digital business processes, information that is enriched with ~~finding, utilizing~~analytics, information that is protected and ~~sharing business~~secure throughout its entire lifecycle, information ~~from any device~~that captivates customers, and information that connects and fuels some of the world's largest digital supply chains in ways that are intuitive, efficient and productive. We also help ensure that information remains secure and private, as demanded in today’s highly regulated climate. In addition, we provide solutions that facilitate the exchange of information and transactions between supply chain participants, such as manufacturers, retailers, distributorsmanufacturing, retail, and financial ~~institutions. These~~services. Our IM solutions are ~~central to a company’s ability to collaborate effectively with its partners. Our focus is to help customers automate processes. The algorithms embedded in our software aim~~designed to enable ~~customers~~organizations and professional consumers to ~~unlock massive amounts~~secure their information so that they can collaborate with confidence, validate endpoints with all machines and the Internet of ~~data~~Things (IoT), stay ahead of the regulatory technology curve, identify threats that cross their networks, leverage discovery with information forensics, and gain ~~better~~ insight ~~into their business, which ultimately can lead to better decision making.~~and action through analytics, artificial intelligence (AI) and automation.

We offer software through traditional ~~on-premise~~on-premises solutions, cloud solutions or a combination of ~~both on-premise~~both. We believe our customers will operate in hybrid on-premises and cloud ~~solutions (hybrid). We~~environments, and we are ~~agnostic as~~ready to ~~which~~support the delivery method athe customer prefers. ~~We believe giving customers~~In providing choice and flexibility, ~~will help us to~~we strive to ~~obtain long-term customer value.~~maximize the lifetime value of the relationship with our customers.

Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998. We are a multinational company and as of December 31, ~~2017,~~2019, employed approximately ~~12,100~~14,600 people worldwide.

Our ticker symbol on both the NASDAQ and the TSX is "OTEX".

Quarterly Summary:

During the second quarter of Fiscal 2020 we saw the following activity:

Total revenue was ~~$734.4~~$771.6 million, up ~~35.3%~~4.9% compared to the same period in the prior fiscal year; up ~~32.6%~~6.3% after factoring the impact of ~~$14.6~~$10.2 million of foreign exchange rate changes.

Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was ~~$516.2~~$563.8 million, up ~~30.8%~~6.5% compared to the same period in the prior fiscal year; up ~~28.8%~~7.8% after factoring the impact of ~~$7.8~~$6.9 million of foreign exchange rate changes.

Cloud services and subscriptions revenue was ~~$208.1~~$248.3 million, up ~~18.9%~~13.3% compared to the same period in the prior fiscal year; up ~~18.3%~~14.1% after factoring the impact of ~~$0.9~~$1.8 million of foreign exchange rate changes.

License revenue was ~~$135.2~~$138.1 million, up ~~38.3%~~4.0% compared to the same period in the prior fiscal year; up ~~33.6%~~5.6% after factoring the impact of ~~$4.7~~$2.1 million of foreign exchange rate changes.

GAAP-based EPS, diluted, was ~~$0.32~~$0.40 compared to ~~$0.18~~$0.39 in the same period in the prior fiscal year.

Non-GAAP-based EPS, diluted, was ~~$0.76~~$0.84 compared to ~~$0.54~~$0.80 in the same period in the prior fiscal year.

GAAP-based gross margin was ~~67.3%~~69.9% compared to 69.0% in the same period in the prior fiscal year.

~~GAAP-based operating~~Non-GAAP-based gross margin was ~~22.7%~~75.5% compared to ~~19.7% in the same period in the prior fiscal year.~~

~~Non-GAAP-based operating margin was 36.5% compared to 34.0%~~75.7% in the same period in the prior fiscal year.

GAAP-based net income attributable to OpenText was ~~$85.1~~$107.5 million compared to ~~$45.0~~$104.4 million in the same period in the prior fiscal year.

Non-GAAP-based net income attributable to OpenText was $227.0 million compared to $215.7 million in the same period in the prior fiscal year.

Adjusted EBITDA was ~~$290.1~~$317.0 million compared to ~~$199.8~~$308.3 million in the same period in the prior fiscal year.

Operating cash flow was ~~$233.7~~$344.7 million for the six months ended December 31, ~~2017, up 29.5%~~2019, down 4.4% from the same period in the prior fiscal year.

Cash and cash equivalents was ~~$476.0~~$675.4 million as of December 31, ~~2017,~~2019, compared to ~~$443.4~~$941.0 million as of June 30, ~~2017.~~2019.

See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.

See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.

Acquisitions

Our competitive position in the marketplace requires us to maintain ~~a complex and~~an evolving array of technologies, products, services and capabilities. In light of the continually evolving marketplace in which we operate, on an ongoing basis we regularly evaluate acquisition opportunities within ~~the EIM~~our market and at any time may be in various stages of discussions with respect to such opportunities.

Acquisition of ~~Guidance Software,~~Carbonite, Inc.

On ~~September 14, 2017,~~December 24, 2019, we acquired all of the equity interest in ~~Guidance Software~~Carbonite, Inc. ~~(Guidance)~~(Carbonite), a leading provider of ~~forensic~~cloud-based subscription backup, disaster recovery and endpoint security ~~solutions,~~to SMB, consumers, and a wide variety of partners. Total consideration for Carbonite was approximately ~~$240.5 million. This~~$1.4 billion, comprised of $1.3 billion paid in cash (inclusive of cash acquired) and approximately $0.1 billion currently held back and unpaid in accordance with the purchase agreement. We believe the acquisition ~~complements~~will increase our position in the data protection and ~~extends~~endpoint security space, further strengthen our ~~EIM portfolio.~~cloud capabilities and open a new route to connect with customers through Carbonite's marquee SMB and consumer channels and products. The results of operations of ~~this acquisition~~Carbonite have been consolidated with those of OpenText beginning ~~September 14, 2017.~~December 24, 2019.

Acquisition of ~~Covisint Corporation~~Dynamic Solutions Group Inc. (The Fax Guys)

On ~~July 26, 2017,~~December 2, 2019, we acquired ~~all~~certain assets and certain liabilities of The Fax Guys, for approximately $5.3 million, of which $1.2 million is currently held back and unpaid in accordance with the terms of the equity interest in Covisint Corporation (Covisint), a leading cloud platform for building Identity, Automotive, and Internet of Things applications, for approximately $102.8 million. This acquisition complements and extends our EIM portfolio.purchase agreement. The results of operations of ~~this acquisition~~The Fax Guys have been consolidated with those of OpenText beginning ~~July 26, 2017.~~December 2, 2019.

We believe our acquisitions support our long-term strategic direction, strengthen our competitive position, expand our customer base, provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business. Our acquisitions, particularly significant ones, can affect the period-to-period comparability of our results. See note 1819 "Acquisitions" to our Condensed Consolidated Financial Statements for more details.

Outlook for remainder of Fiscal ~~2018~~2020

As an organization, our management believes in delivering “Total Growth”, meaning we strive towards delivering value through organic initiatives, innovations and acquisitions, as well as financial performance. This growth is further enhanced

through our direct and indirect sales distribution channels. With an emphasis on improving productivity, increasing recurring revenues and expanding our margins, we believe our “Total Growth” strategy will ultimately drive overall cash flow generation, thus helping to fuel our disciplined capital allocation approach and further drive our ability to deepen our account coverage and identify and execute strategic acquisitions. With strategic acquisitions, we are better positioned to expand our product portfolio and improve our ability to innovate and grow organically, which then further helps us to meet our long-term growth targets. We believe this “Total Growth” strategy is a durable model that will create shareholder value over both the near and long-term.

We ~~expect~~are committed to continuous innovation. Our investments in research and development (R&D) drive product innovation, increasing the value of our offerings to our installed customer base, which includes Global 10,000 companies, SMBs and consumers. More valuable products, coupled with our established global partner program, lead to greater distribution and cross-selling opportunities which further help us to achieve organic growth. On a fiscal year to date basis, we have invested approximately $161 million or approximately 11% of revenue in R&D, in line with our target to spend approximately 11% to 13% of revenues for R&D this fiscal year.

The cloud is quickly becoming a business imperative. What used to be discussed as a potential option for managing budgets, is now a strategic direction that drives competitive positioning, product innovation, business agility, and cost management. We are committed to continue our investment in The OpenText Cloud, which is a purpose-built cloud environment for solutions spanning Information Management, Compliance, and B2B Integration. Supported by a global, scalable, and secure infrastructure, OpenText Cloud includes a foundational platform of technology services, and packaged business applications for industry and business processes. The OpenText Cloud enables organizations to ~~pursue strategic acquisitions~~protect and manage information in ~~the future to strengthen our service offerings in the EIM market, and at any time may be in various stages of discussions with respect to such opportunities.~~ public, private or hybrid deployments.

We ~~believe we are~~remain a value oriented and disciplined strategic acquirer, having efficiently deployed approximately ~~$5.8~~$7.5 billion on acquisitions over the last 10 years. Mergers and acquisitions are one of our leading growth drivers. We believe in creating value by focusing on acquiring strategic businesses, integrating them into our business model and using our acquired assets to innovate. We have developed a philosophy, which we refer to as “The OpenText Business System”, that is designed to create value by leveraging a clear set of operational mandates for integrating newly acquired companies and assets. We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our ~~growth~~Total Growth strategy. ~~During Fiscal 2018, we further demonstrated the implementation of this strategy by acquiring Covisint and Guidance.~~

While continuing to acquire companies is our leading growth driver, our growth strategy also includes organic growth through internal innovation. This quarter we invested approximately $80 million in research and development (R&D) or approximately 11% of revenue and we target to spend approximately 11% to 13% of revenues for R&D this fiscal year. We believe our ability to leverage our global presence is helpful to our organic growth initiatives.

We have released an Artificial Intelligence (AI) platform called “OpenText Magellan” (Magellan). Our approach to AI is via an open source code and we believe in making long-term, strategic investments to developing AI. As our enterprise

software has historically been focused on managing data and content archives, we believe we are well positioned to turn these archives of data into active “data lakes” and we believe we can develop AI to transform this digital information into useful knowledge and insight for our customers.

We see an opportunity to help our customers become “digital businesses” and, with Magellan and OpenText Release 16 as well as our recent acquisitions, we believe we have a strong platform to integrate personalized analytics and insights onto our OpenText EIM suites of products, which will further our vision to enable “the digital world” and strengthen our position among leaders in EIM.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the ~~Condensed~~ Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that ~~time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.~~time. Actual results may differ materially from those estimates. The policies listed below are areas that may contain key components of our results of operations and are based on complex rules requiring us to make judgments and estimates and consequently, we consider these to be our critical accounting policies. Some of these accounting policies involve complex situations and require a higher degree of judgment, either in the application and interpretation of existing accounting literature or in the development of estimates that ~~reflect~~affect our ~~more significant estimates, judgments and assumptions and~~financial statements. The critical accounting policies which we believe are the most ~~critical~~important to aid in fully understanding and evaluating our reported financial results include the following:


(i)	Revenue recognition,


(ii)	~~Capitalized software,~~Goodwill,


(iii)	~~Business combinations,~~Acquired intangibles, and


(iv)	~~Goodwill,~~


~~(v)~~	~~Acquired intangibles,~~


~~(vi)~~	~~Restructuring charges,~~


~~(vii)~~	~~Foreign currency, and~~


~~(viii)~~	Income taxes.

~~During the second quarter~~For a full discussion of ~~Fiscal 2018, there were no significant changes~~all our accounting policies, please see Note 2 "Accounting Policies and Recent Accounting Pronouncements" to our critical accounting policies and estimates. However, income tax estimates were impacted by the Tax Cuts and Jobs Act which was enacted in the United States on December 22, 2017. The Company recorded a provisional charge in the second quarter of Fiscal 2018 and continues to assess the effect of the new law on its consolidated financial statements in accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). For more details related to this matter, please refer to note 14 "Income Taxes" to our Condensed Consolidated Financial Statements. Furthermore, for a detailed discussion of our critical accounting and estimates, please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations containedStatements included in ~~Part II, Item 7 of~~ our Annual Report on Form 10-K for our fiscal year ended June 30, ~~2017.~~2019.

RESULTS OF OPERATIONS

The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product type, revenues by major geography, cost of revenues by product type, total gross margin, total operating margin, gross margin by product type, and their corresponding percentage of total revenue.

In addition, we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our Company's

performance. See "Use of Non-GAAP Financial Measures" below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.

Summary of Results of Operations



	Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Total Revenues by Product Type:
License	$	138,095		$	5,339		$	132,756		$	215,993		$	6,350		$	209,643
Cloud services and subscriptions	248,340			29,107			219,233			485,605			58,289			427,316
Customer support	315,508			5,154			310,354			627,806			5,901			621,905
Professional service and other	69,614			(3,274		)	72,888			139,041			(4,483		)	143,524
Total revenues	771,557			36,326			735,231			1,468,445			66,057			1,402,388
Total Cost of Revenues	232,385			4,363			228,022			460,893			6,558			454,335
Total GAAP-based Gross Profit	539,172			31,963			507,209			1,007,552			59,499			948,053
Total GAAP-based Gross Margin %	69.9		%				69.0		%	68.6		%				67.6		%
Total GAAP-based Operating Expenses	354,432			21,155			333,277			690,299			15,405			674,894
Total GAAP-based Income from Operations	$	184,740		$	10,808		$	173,932		$	317,253		$	44,094		$	273,159

% Revenues by Product Type:
License	17.9		%				18.1		%	14.7		%				15.0		%
Cloud services and subscriptions	32.2		%				29.8		%	33.1		%				30.5		%
Customer support	40.9		%				42.2		%	42.8		%				44.3		%
Professional service and other	9.0		%				9.9		%	9.4		%				10.2		%

Total Cost of Revenues by Product Type:
License	$	3,050		$	(605	)	$	3,655		$	5,373		$	(2,154	)	$	7,527
Cloud services and subscriptions	103,644			14,946			88,698			205,806			29,405			176,401
Customer support	29,788			(1,485		)	31,273			59,175			(2,563		)	61,738
Professional service and other	53,604			(2,426		)	56,030			107,942			(4,884		)	112,826
Amortization of acquired technology-based intangible assets	42,299			(6,067		)	48,366			82,597			(13,246		)	95,843
Total cost of revenues	$	232,385		$	4,363		$	228,022		$	460,893		$	6,558		$	454,335

% GAAP-based Gross Margin by Product Type:
License	97.8		%				97.2		%	97.5		%				96.4		%
Cloud services and subscriptions	58.3		%				59.5		%	57.6		%				58.7		%
Customer support	90.6		%				89.9		%	90.6		%				90.1		%
Professional service and other	23.0		%				23.1		%	22.4		%				21.4		%

Total Revenues by Geography:⁽¹⁾
Americas ⁽²⁾	$	450,691		$	29,995		$	420,696		$	870,401		$	60,365		$	810,036
EMEA⁽³⁾	252,268			8,331			243,937			462,435			4,023			458,412
Asia Pacific⁽⁴⁾	68,598			(2,000		)	70,598			135,609			1,669			133,940
Total revenues	$	771,557		$	36,326		$	735,231		$	1,468,445		$	66,057		$	1,402,388

% Revenues by Geography:
Americas ⁽²⁾	58.4		%				57.2		%	59.3		%				57.8		%
EMEA⁽³⁾	32.7		%				33.2		%	31.5		%				32.7		%
Asia Pacific⁽⁴⁾	8.9		%				9.6		%	9.2		%				9.5		%

Three Months Ended December 31, Six Months Ended December 31,
(In thousands) 2017 Change increase (decrease) 2016 2017 Change increase (decrease) 2016
Total Revenues by Product Type:
License $ 135,244
$ 37,480
$ 97,764
$ 213,475
$ 55,055
$ 158,420
Cloud services and subscriptions 208,121
33,060
175,061
401,974
57,226
344,748
Customer support 308,070
88,414
219,656
603,474
173,612
429,862
Professional service and other 82,970
32,742
50,228
156,169
54,826
101,343
Total revenues 734,405
191,696
542,709
1,375,092
340,719
1,034,373
Total Cost of Revenues 240,312
72,279
168,033
463,812
131,426
332,386
Total GAAP-based Gross Profit 494,093
119,417
374,676
911,280
209,293
701,987
Total GAAP-based Gross Margin % 67.3 % 69.0 % 66.3 % 67.9 %
Total GAAP-based Operating Expenses 327,485
59,966
267,519
657,549
136,781
520,768
Total GAAP-based Income from Operations $ 166,608
$ 59,451
$ 107,157
$ 253,731
$ 72,512
$ 181,219

% Revenues by Product Type:
License 18.4 % 18.0 % 15.5 % 15.3 %
Cloud services and subscriptions 28.3 % 32.2 % 29.2 % 33.3 %
Customer support 42.0 % 40.5 % 43.9 % 41.6 %
Professional service and other 11.3 % 9.3 % 11.4 % 9.8 %

Total Cost of Revenues by Product Type:
License $ 4,587
$ 2,196
$ 2,391
$ 7,547
$ 1,311
$ 6,236
Cloud services and subscriptions 90,418
17,268
73,150
174,748
31,306
143,442
Customer support 33,194
5,845
27,349
65,985
12,898
53,087
Professional service and other 64,985
24,690
40,295
124,444
42,806
81,638
Amortization of acquired technology-based intangible assets 47,128
22,280
24,848
91,088
43,105
47,983
Total cost of revenues $ 240,312
$ 72,279
$ 168,033
$ 463,812
$ 131,426
$ 332,386

% GAAP-based Gross Margin by Product Type:
License 96.6 % 97.6 % 96.5 % 96.1 %
Cloud services and subscriptions 56.6 % 58.2 % 56.5 % 58.4 %
Customer support 89.2 % 87.5 % 89.1 % 87.7 %
Professional service and other 21.7 % 19.8 % 20.3 % 19.4 %

Total Revenues by Geography:⁽¹⁾

Americas ⁽²⁾
$ 418,723
$ 101,659
$ 317,064
$ 796,126
$ 182,926
$ 613,200
EMEA⁽³⁾
243,025
66,751
176,274
439,838
115,933
323,905
Asia Pacific⁽⁴⁾
72,657
23,286
49,371
139,128
41,860
97,268
Total revenues $ 734,405
$ 191,696
$ 542,709
$ 1,375,092
$ 340,719
$ 1,034,373

% Revenues by Geography:
Americas ⁽²⁾
57.0 % 58.4 % 57.9 % 59.3 %
EMEA⁽³⁾
33.1 % 32.5 % 32.0 % 31.3 %
Asia Pacific⁽⁴⁾
9.9 % 9.1 % 10.1 % 9.4 %


	Three Months Ended December 31,						Six Months Ended December 31,							Three Months Ended December 31,							Six Months Ended December 31,
	2017			2016			2017			2016
(In thousands)														2019			Change increase (decrease)	2018			2019			Change increase (decrease)	2018
Other Metrics:
GAAP-based gross margin	67.3		%	69.0		%	66.3		%	67.9		%		69.9		%		69.0		%	68.6		%		67.6		%
GAAP-based operating margin	22.7		%	19.7		%	18.5		%	17.5		%
GAAP-based EPS, diluted	$	0.32		$	0.18		$	0.46		$	3.89		⁽⁶⁾	$	0.40			$	0.39		$	0.67			$	0.52
Net income, attributable to OpenText	$	85,111		$	45,022		$	121,707		$	957,906		⁽⁶⁾	$	107,467			$	104,432		$	181,868			$	140,756
Non-GAAP-based gross margin ⁽⁵⁾	73.9		%	73.8		%	73.1		%	72.7		%		75.5		%		75.7		%	74.4		%		74.6		%
Non-GAAP-based operating margin ⁽⁵⁾	36.5		%	34.0		%	34.1		%	32.5		%
Non-GAAP-based EPS, diluted⁽⁵⁾	$	0.76		$	0.54		$	1.30		$	0.97			$	0.84			$	0.80		$	1.48			$	1.40
Adjusted EBITDA ⁽⁵⁾	$	290,142		$	199,798		$	510,064		$	366,440			$	317,015			$	308,287		$	571,227			$	554,543



(1)	Total revenues by geography are determined based on the location of our end customer.
(2)	Americas consists of countries in North, Central and South America.
(3)	EMEA primarily consists of countries in Europe, the Middle East and Africa.
(4)	Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.
(5)	See "Use of Non-GAAP Financial Measures" (discussed later in ~~the~~this MD&A) for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.
~~(6)~~	We recorded a significant tax benefit in the first quarter of Fiscal 2017 of $876.1 million. This significant tax benefit is specifically tied to the Company's internal reorganization and applied to the first quarter of Fiscal 2017 only and as a result, has not and will not continue in future periods.

Revenues, Cost of Revenues and Gross Margin by Product Type

1) License:

~~License revenues consist~~Our license revenue can be broadly categorized as perpetual licenses, term licenses and subscription licenses, all of ~~fees earned from~~which are deployed on the ~~licensing of software products to customers.~~customer’s premises (on-premise). Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions. Cost of license revenues consists primarily of royalties payable to third parties.


	Three Months Ended December 31,								Six Months Ended December 31,								Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017			Change increase (decrease)		2016			2017			Change increase (decrease)		2016			2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
License Revenues:
Americas	$	60,244		$	12,658	$	47,586		$	101,555		$	22,980	$	78,575		$	66,261		$	137		$	66,124		$	105,497		$	100		$	105,397
EMEA	54,807			13,691		41,116			80,179			17,861		62,318			58,101			9,236			48,865			84,793			7,584			77,209
Asia Pacific	20,193			11,131		9,062			31,741			14,214		17,527			13,733			(4,034		)	17,767			25,703			(1,334		)	27,037
Total License Revenues	135,244			37,480		97,764			213,475			55,055		158,420			138,095			5,339			132,756			215,993			6,350			209,643
Cost of License Revenues	4,587			2,196		2,391			7,547			1,311		6,236			3,050			(605		)	3,655			5,373			(2,154		)	7,527
GAAP-based License Gross Profit	$	130,657		$	35,284	$	95,373		$	205,928		$	53,744	$	152,184		$	135,045		$	5,944		$	129,101		$	210,620		$	8,504		$	202,116
GAAP-based License Gross Margin %	96.6		%			97.6		%	96.5		%			96.1		%	97.8		%				97.2		%	97.5		%				96.4		%

% License Revenues by Geography:
Americas	44.5		%			48.7		%	47.6		%			49.6		%	48.0		%				49.8		%	48.8		%				50.3		%
EMEA	40.5		%			42.1		%	37.6		%			39.3		%	42.1		%				36.8		%	39.3		%				36.8		%
Asia Pacific	15.0		%			9.2		%	14.8		%			11.1		%	9.9		%				13.4		%	11.9		%				12.9		%

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

License revenues increased by ~~$37.5~~$5.3 million or 4.0% during the three months ended December 31, 2019 as compared to the same period in the prior fiscal year; up 5.6% after factoring the impact of $2.1 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in EMEA of $9.2 million and an increase in Americas of $0.1 million, partially offset by a decrease in Asia Pacific of $4.0 million.

During the second quarter of Fiscal 2020, we closed 37 license deals greater than $0.5 million, of which 19 deals were greater than $1.0 million, contributing approximately $54.1 million of license revenues. This was compared to 45 deals greater

than $0.5 million closed during the second quarter of Fiscal 2019, of which 19 deals were greater than $1.0 million, contributing $51.7 million of license revenues.

Cost of license revenues decreased by $0.6 million during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year, ~~inclusive~~primarily as a result of lower third party technology costs. Overall, the ~~positive~~gross margin percentage on license revenues increased to approximately 98% from approximately 97%.

Six Months Ended December 31, 2019 Compared to Six Months Ended December 31, 2018

License revenues increased by $6.4 million or 3.0% during the six months ended December 31, 2019 as compared to the same period in the prior fiscal year; up 4.6% after factoring the impact of $3.4 million of foreign exchange ~~of approximately $4.7 million.~~rate changes. Geographically, the overall ~~increase~~change was attributable to an increase in EMEA of ~~$13.7~~$7.6 million and an increase in Americas of ~~$12.7~~$0.1 million, ~~and an increase~~partially offset by a decrease in Asia Pacific of ~~$11.1~~$1.3 million. ~~The number~~

During the first six months of Fiscal 2020, we closed 62 license deals greater than $0.5 million, ~~that closed during the second quarter of Fiscal 2018 was 38 deals,~~ of which 1624 deals were greater than $1.0 million, contributing approximately $73.6 million of license revenues. This was compared to 4171 deals ingreater than $0.5 million closed during the ~~second quarter~~first six months of Fiscal ~~2017,~~2019, of which 1724 deals were greater than $1.0 ~~million. The average size~~million, contributing $72.5 million of ~~the deals greater than $1.0 million that closed during the second quarter~~license revenues.

Cost of ~~Fiscal 2018, however, was slightly higher than what it was in the same period in the prior fiscal year. License revenue, as a proportion of our total~~license revenues ~~remained stable at approximately 18%.~~

~~License revenues increased~~decreased by ~~$55.1~~$2.2 million during the six months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year, inclusive of the positive impact of foreign exchange of approximately $5.7 million. Geographically, the overall increase was attributable to an increase in Americas of $23.0 million, an increase in EMEA of $17.9 million, and an increase in Asia Pacific of $14.2 million. The number of license deals remained relatively stable compared to the same period in the prior fiscal year, with 63 deals greater than $0.5 million, of which 23 deals were greater than $1.0 million, that closed during the first six months of Fiscal 2018, compared to 64 deals in the same period in Fiscal 2017, of which 24 deals were greater than $1.0 million. The average size of the deals greater than $1.0 million that closed during the first six months of Fiscal 2018, however, was slightly higher than what it was in the same period in the prior fiscal year. License revenue, as a proportion of our total revenues, remained stable at approximately 15%.

~~Cost of license revenues increased by $2.2 million during the three months ended December 31, 2017 as compared to the same period in the prior fiscal year~~primarily as a result of ~~an increase in royalties payable to~~lower third ~~parties.~~party technology costs. Overall, the gross margin percentage on license revenues ~~decreased slightly~~increased to approximately ~~97%~~98% from ~~approximately 98%.~~

Cost of license revenues increased by $1.3 million during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year as a result of an increase in royalties payable to third parties. Overall, the gross margin percentage on license revenues remained stable at approximately 96%.

2) Cloud Services and Subscriptions:

Cloud services and ~~subscription~~subscriptions revenues ~~consist~~are from hosting arrangements where in connection with the licensing of ~~(i)~~software, the end user doesn’t take possession of the software, as a service offerings, (ii) managed service arrangements and (iii) subscription revenues relating to on premise offerings. These offerings allow our customers to make use of OpenText software, services and content over Internet enabled networks supported by OpenText data centers. These web applications allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure. Revenues are generated on several transactional usage-based models, are typically billed monthly in arrears, and can therefore fluctuatewell as from period to period. Certain service fees are occasionally charged to customize hosted software for some customers and are either amortized over the estimated customer life, in the case of setup fees, or recognized in the period they are provided.

~~In addition, we offer~~end-to-end fully outsourced business-to-business (B2B) integration solutions ~~such~~to our customers (collectively referred to as ~~messaging services,~~cloud arrangements). The software application resides on our hardware or that of a third party, and the customer accesses and uses the software on an as-needed basis via an identified line. Our cloud arrangements can be broadly categorized as "platform as a service" (PaaS), "software as a service" (SaaS), cloud subscriptions and managed services. Messaging services allow for the automated and reliable exchange of electronic transaction information, such as purchase orders, invoices, shipment notices and other business documents, among businesses worldwide. Managed services provide an end-to-end fully outsourced B2B integration solution to our customers, including program implementation, operational management, and customer support. These services enable customers to effectively manage the flow of electronic transaction information with their trading partners and reduce the complexity of disparate standards and communication protocols. Revenues are primarily generated through transaction processing. Transaction processing fees are recurring in nature and are recognized on a per transaction basis in the period in which the related transactions are processed. Revenues from contracts with monthly, quarterly or annual minimum transaction levels are recognized based on the greater of the actual transactions or the specified contract minimum amounts during the relevant period. Customers who are not committed to multi-year contracts generally are under contracts for transaction processing solutions that automatically renew every month or year, depending on the terms of the specific contracts.

Cost of Cloud services and subscriptions revenues is comprised primarily of third party network usage fees, maintenance of in-house data hardware centers, technical support personnel-related costs, ~~amortization of customer set up and implementation costs,~~ and some third party royalty costs.


	Three Months Ended December 31,								Six Months Ended December 31,								Three Months Ended December 31,								Six Months Ended December 31,
(In thousands)	2017			Change increase (decrease)		2016			2017			Change increase (decrease)		2016			2019			Change increase (decrease)		2018			2019			Change increase (decrease)		2018
Cloud Services and Subscriptions:
Americas	$	139,901		$	21,667	$	118,234		$	268,714		$	34,366	$	234,348		$	170,519		$	25,302	$	145,217		$	337,075		$	53,242	$	283,833
EMEA	48,823			8,797		40,026			92,255			15,393		76,862			56,054			2,092		53,962			104,497			1,816		102,681
Asia Pacific	19,397			2,596		16,801			41,005			7,467		33,538			21,767			1,713		20,054			44,033			3,231		40,802
Total Cloud Services and Subscriptions Revenues	208,121			33,060		175,061			401,974			57,226		344,748			248,340			29,107		219,233			485,605			58,289		427,316
Cost of Cloud Services and Subscriptions Revenues	90,418			17,268		73,150			174,748			31,306		143,442			103,644			14,946		88,698			205,806			29,405		176,401
GAAP-based Cloud Services and Subscriptions Gross Profit	$	117,703		$	15,792	$	101,911		$	227,226		$	25,920	$	201,306		$	144,696		$	14,161	$	130,535		$	279,799		$	28,884	$	250,915
GAAP-based Cloud Services and Subscriptions Gross Margin %	56.6		%			58.2		%	56.5		%			58.4		%	58.3		%			59.5		%	57.6		%			58.7		%

% Cloud Services and Subscriptions Revenues by Geography:
Americas	67.2		%			67.5		%	66.8		%			68.0		%	68.7		%			66.2		%	69.4		%			66.4		%
EMEA	23.5		%			22.9		%	23.0		%			22.3		%	22.5		%			24.6		%	21.5		%			24.0		%
Asia Pacific	9.3		%			9.6		%	10.2		%			9.7		%	8.8		%			9.2		%	9.1		%			9.6		%

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

Cloud services and subscriptions revenues increased by ~~$33.1~~$29.1 million or 13.3% during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, inclusive~~year; up 14.1% after factoring the impact of ~~the positive impact~~ $1.8 million

of foreign exchange ~~of approximately $0.9 million.~~rate changes. Geographically, the overall change was attributable to an increase in Americas of ~~$21.7~~$25.3 million, an increase in EMEA of ~~$8.8~~$2.1 million and an increase in Asia Pacific of ~~$2.6~~$1.7 million.

The number of Cloud services deals greater than $1.0 million that closed during the second quarter of Fiscal ~~2018~~2020 was 1416 deals, ~~compared to 8~~consistent with the number of deals ingreater than $1.0 million that closed during the second quarter of Fiscal ~~2017.~~2019.

Cost of Cloud services and subscriptions revenues increased by ~~$57.2~~$14.9 million during the ~~six~~three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year. This was primarily due to an increase in labour-related costs of $12.7 million, an increase in third party network usage fees of $2.1 million and an increase in other miscellaneous costs of $0.1 million. The ~~net impact of foreign exchange for~~increase in labour-related costs was primarily due to increased headcount from recent acquisitions.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to approximately 58% from approximately 60%.

Six Months Ended December 31, 2019 Compared to Six Months Ended December 31, 2018

Cloud services and subscriptions revenues increased by $58.3 million or 13.6% during the six months ended December 31, ~~2017 was immaterial.~~2019 as compared to the same period in the prior fiscal year; up 14.5% after factoring the impact of $3.9 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in Americas of ~~$34.4~~$53.2 million, ~~an increase in EMEA of $15.4 million and~~ an increase in Asia Pacific of ~~$7.5~~$3.2 million and an increase in EMEA of $1.8 million.

The number of Cloud services deals greater than $1.0 million that closed during the first six months of Fiscal ~~2018,~~2020 was 23 deals, compared to 25 deals during the ~~same period in~~first six months of Fiscal ~~2017, remained stable at 21 deals.~~2019.

Cost of Cloud services and subscriptions revenues increased by ~~$17.3~~$29.4 million during the ~~three~~six months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year,~~year. This was primarily due to an increase in labour-related costs of ~~approximately $17.2~~$22.9 million, ~~predominantly on account~~an increase in third party network usage fees of ~~recent acquisitions,~~$6.3 million and an increase in other miscellaneous costs of ~~$0.1~~$0.2 million. ~~Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased slightly to approximately 57% from approximately 58%.~~

~~Cost of Cloud services and subscriptions revenues increased by $31.3 million during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year, primarily due to an~~The increase in labour-related costs ~~of approximately $31.5 million, predominantly on account of~~was primarily due to increased headcount from recent ~~acquisitions, partially offset by a decrease in other miscellaneous costs of $0.2 million.~~ acquisitions.

Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to approximately ~~57%~~58% from approximately ~~58%~~59%.

3) Customer Support:

Customer support revenues consist of revenues from our customer support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available. Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, ~~with customer renewal options.~~and are renewable, generally on an annual basis, at the option of the customer. Our management reviews our Customer support renewal rates on a quarterly basis and we use these rates as a method of monitoring our customer service performance. For the quarter ended December 31, ~~2017,~~2019, our Customer support renewal rate was approximately ~~90%~~93%, ~~consistent~~up slightly compared with the Customer support renewal rate of 91% during the quarter ended December 31, ~~2016.~~2018.

Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs.


	Three Months Ended December 31,								Six Months Ended December 31,								Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017			Change increase (decrease)		2016			2017			Change increase (decrease)		2016			2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Customer Support Revenues:
Americas	$	179,152		$	49,363	$	129,789		$	349,606		$	95,626	$	253,980		$	181,563		$	3,559		$	178,004		$	361,006		$	4,615		$	356,391
EMEA	103,606			32,224		71,382			203,365			63,081		140,284			108,128			1,075			107,053			215,075			214			214,861
Asia Pacific	25,312			6,827		18,485			50,503			14,905		35,598			25,817			520			25,297			51,725			1,072			50,653
Total Customer Support Revenues	308,070			88,414		219,656			603,474			173,612		429,862			315,508			5,154			310,354			627,806			5,901			621,905
Cost of Customer Support Revenues	33,194			5,845		27,349			65,985			12,898		53,087			29,788			(1,485		)	31,273			59,175			(2,563		)	61,738
GAAP-based Customer Support Gross Profit	$	274,876		$	82,569	$	192,307		$	537,489		$	160,714	$	376,775		$	285,720		$	6,639		$	279,081		$	568,631		$	8,464		$	560,167
GAAP-based Customer Support Gross Margin %	89.2		%			87.5		%	89.1		%			87.7		%	90.6		%				89.9		%	90.6		%				90.1		%

% Customer Support Revenues by Geography:
Americas	58.2		%			59.1		%	57.9		%			59.1		%	57.5		%				57.4		%	57.5		%				57.3		%
EMEA	33.6		%			32.5		%	33.7		%			32.6		%	34.3		%				34.5		%	34.3		%				34.5		%
Asia Pacific	8.2		%			8.4		%	8.4		%			8.3		%	8.2		%				8.1		%	8.2		%				8.2		%

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

Customer support revenues increased by ~~$88.4~~$5.2 million or 1.7% during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, inclusive~~year; up 3.3% after factoring the impact of ~~the positive impact~~$5.1 million of foreign exchange ~~of approximately $6.9 million.~~rate changes. Geographically, the overall ~~increase~~change was attributable to an increase in Americas of ~~$49.4~~$3.6 million, an increase in EMEA of ~~$32.2~~$1.1 million and an increase in Asia Pacific of ~~$6.8~~$0.5 million.

Cost of Customer support revenues ~~increased~~decreased by ~~$173.6~~$1.5 million during the ~~six~~three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, inclusive~~year. This was primarily due to a decrease in labour-related costs of $1.2 million and a decrease in other miscellaneous costs of $0.3 million. Overall, the ~~positive~~gross margin percentage on Customer support revenues increased to approximately 91% from approximately 90%.

Six Months Ended December 31, 2019 Compared to Six Months Ended December 31, 2018

Customer support revenues increased by $5.9 million or 0.9% during the six months ended December 31, 2019 as compared to the same period in the prior fiscal year; up 2.6% after factoring the impact of $10.1 million of foreign exchange ~~of approximately $10.0 million.~~rate changes. Geographically, the overall ~~increase~~change was attributable to an increase in Americas of ~~$95.6~~$4.6 million, ~~an increase in EMEA of $63.1 million and~~ an increase in Asia Pacific of ~~$14.9~~$1.1 million and an increase in EMEA of $0.2 million.

Cost of Customer support revenues ~~increased~~decreased by ~~$5.8~~$2.6 million during the ~~three~~six months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year, due to ~~(i) an increase~~a decrease in labour-related costs of approximately ~~$5.4~~$2.1 million ~~which was predominantly due to recent acquisitions~~ and ~~(ii) an increase~~a decrease in ~~the installed base~~other miscellaneous costs of ~~third party products of approximately $0.4~~$0.5 million. Overall, the gross margin percentage on Customer support revenues increased ~~slightly~~ to approximately ~~89%~~91% from approximately ~~88%.~~

Cost of Customer support revenues increased by $12.9 million during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year, due to (i) an increase in labour-related costs of approximately $11.2 million, which was predominantly due to recent acquisitions, (ii) an increase in the installed base of third party products of approximately $1.6 million, and (iii) an increase in other miscellaneous costs of $0.1 million. Overall, the gross margin percentage on Customer support revenues increased slightly to approximately 89% from approximately 88%90%.

4) Professional Service and Other:

Professional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware ~~revenues. These~~ revenues, which are grouped within the “Professional service and other” category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses. Professional service and other revenues can vary from period to period based on the type of engagements as well as those implementations that are assumed by our partner network.

Cost of professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third party subcontracting.


	Three Months Ended December 31,								Six Months Ended December 31,								Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017			Change increase (decrease)		2016			2017			Change increase (decrease)		2016			2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Professional Service and Other Revenues:
Americas	$	39,426		$	17,971	$	21,455		$	76,251		$	29,954	$	46,297		$	32,348		$	997		$	31,351		$	66,823		$	2,408		$	64,415
EMEA	35,789			12,039		23,750			64,039			19,598		44,441			29,985			(4,072		)	34,057			58,070			(5,591		)	63,661
Asia Pacific	7,755			2,732		5,023			15,879			5,274		10,605			7,281			(199		)	7,480			14,148			(1,300		)	15,448
Total Professional Service and Other Revenues	82,970			32,742		50,228			156,169			54,826		101,343			69,614			(3,274		)	72,888			139,041			(4,483		)	143,524
Cost of Professional Service and Other Revenues	64,985			24,690		40,295			124,444			42,806		81,638			53,604			(2,426		)	56,030			107,942			(4,884		)	112,826
GAAP-based Professional Service and Other Gross Profit	$	17,985		$	8,052	$	9,933		$	31,725		$	12,020	$	19,705		$	16,010		$	(848	)	$	16,858		$	31,099		$	401		$	30,698
GAAP-based Professional Service and Other Gross Margin %	21.7		%			19.8		%	20.3		%			19.4		%	23.0		%				23.1		%	22.4		%				21.4		%

% Professional Service and Other Revenues by Geography:
Americas	47.5		%			42.7		%	48.8		%			45.7		%	46.5		%				43.0		%	48.1		%				44.9		%
EMEA	43.1		%			47.3		%	41.0		%			43.9		%	43.1		%				46.7		%	41.8		%				44.4		%
Asia Pacific	9.4		%			10.0		%	10.2		%			10.4		%	10.4		%				10.3		%	10.1		%				10.7		%

Three Months Ended December 31, 2019 Compared to Three Months Ended December 31, 2018

Professional service and other revenues ~~increased~~decreased by ~~$32.7~~$3.3 million or 4.5% during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, inclusive~~year; down 2.9% after factoring the impact of ~~the positive impact~~$1.1 million of foreign exchange ~~of approximately $2.1 million.~~rate changes. Geographically, the overall ~~increase~~change was attributable to an increase in Americas of ~~$18.0~~$1.0 million, ~~an increase~~offset by a decrease in EMEA of ~~$12.0~~$4.1 million and ~~an increase~~a decrease in Asia Pacific of ~~$2.7~~$0.2 million.

Cost of Professional service and other revenues ~~increased~~decreased by ~~$54.8~~$2.4 million during the ~~six~~three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, inclusive of the positive impact of foreign exchange~~year. This was due to a decrease in labour-related costs of approximately ~~$3.7 million. Geographically,~~$2.5 million resulting primarily from a reduction in the ~~overall increase was attributable to~~use of external labour resources, partially offset by an increase in ~~Americas~~other miscellaneous costs of ~~$30.0 million, an increase in EMEA of $19.6 million and an increase in Asia Pacific of $5.3~~$0.1 million.

~~Cost of~~Overall, the gross margin percentage on Professional service and other revenues ~~increased~~remained at approximately 23%. We continue to be selective about the professional service engagements we accept to strategically optimize margins.

Six Months Ended December 31, 2019 Compared to Six Months Ended December 31, 2018

Professional service and other revenues decreased by ~~$24.7~~$4.5 million or 3.1% during the ~~three~~six months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal ~~year, primarily~~year; down 1.4% after factoring the impact of $2.5 million of foreign exchange rate changes. Geographically, the overall change was attributable to an increase in Americas of $2.4 million, offset by a decrease in EMEA of $5.6 million and a decrease in Asia Pacific of $1.3 million.

Cost of Professional service and other revenues decreased by $4.9 million during the six months ended December 31, 2019 as compared to the same period in the prior fiscal year. This was due to a ~~result of an increase~~decrease in labour-related costs of approximately ~~$22.9~~$5.3 million ~~which was predominantly due to recent acquisitions, and~~resulting primarily from a reduction in the use of external labour resources, partially offset by an increase in other miscellaneous costs of ~~$1.8~~$0.4 million.

Overall, the gross margin percentage on Professional service and other revenues increased to approximately 22% from approximately ~~20%~~21%.

Cost of Professional service and other revenues increased by $42.8 million during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year, primarily as a result of an increase in labour-related costs of approximately $40.2 million, which was predominantly due to recent acquisitions, and an increase in other miscellaneous costs of $2.6 million. Overall, the gross margin percentage on Professional service and other revenues increased to approximately 20% from approximately 19%.

Amortization of Acquired Technology-based Intangible Assets


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended December 31,							Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)		2016		2017		Change increase (decrease)		2016		2019		Change increase (decrease)			2018		2019		Change increase (decrease)			2018
Amortization of acquired technology-based intangible assets	$	47,128	$	22,280	$	24,848	$	91,088	$	43,105	$	47,983	$	42,299	$	(6,067	)	$	48,366	$	82,597	$	(13,246	)	$	95,843

Amortization of acquired technology-based intangible assets ~~increased~~decreased during the three and six months ended December 31, ~~2017~~2019 by ~~$22.3~~$6.1 million and ~~$43.1~~$13.2 million, respectively, as compared to the same periods in the prior fiscal year. This was due to a reduction of $13.8 million and $27.5 million, respectively, relating to intangible assets from certain previous acquisitions becoming fully amortized, partially offset by an increase in amortization of ~~$24.3~~$7.7 million and ~~$46.6~~$14.3 million,

respectively, primarily relating to newly acquired technology-based intangible assets from our recent acquisitions of ~~Guidance, Covisint, certain assets~~Catalyst, Liaison and liabilities of the enterprise content division of EMC Corporation (ECD Business), certain customer communication management software assets and liabilities from HP Inc. (CCM Business), and Recommind Inc. The increase in amortization was partially offset by a reduction of $2.0 million and $3.5 million, respectively, relating to intangible assets pertaining to certain previous acquisitions becoming fully amortized.Carbonite.

Operating Expenses


	Three Months Ended December 31,									Six Months Ended December 31,									Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017			Change increase (decrease)			2016			2017			Change increase (decrease)			2016			2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Research and development	$	80,304		$	15,583		$	64,721		$	157,933		$	34,640		$	123,293		$	80,283		$	4,530		$	75,753		$	161,461		$	8,238		$	153,223
Sales and marketing	129,142			26,491			102,651			251,964			54,165			197,799			137,310			11,117			126,193			265,928			19,553			246,375
General and administrative	48,985			9,071			39,914			97,900			19,789			78,111			54,595			2,397			52,198			106,130			3,008			103,122
Depreciation	22,071			6,770			15,301			40,949			10,378			30,571			20,712			(3,122		)	23,834			40,989			(6,699		)	47,688
Amortization of acquired customer-based intangible assets	46,268			12,453			33,815			90,057			22,634			67,423			51,460			5,541			45,919			100,618			8,823			91,795
Special charges (recoveries)	715			(10,402		)	11,117			18,746			(4,825		)	23,571			10,072			692			9,380			15,173			(17,518		)	32,691
Total operating expenses	$	327,485		$	59,966		$	267,519		$	657,549		$	136,781		$	520,768		$	354,432		$	21,155		$	333,277		$	690,299		$	15,405		$	674,894

% of Total Revenues:
Research and development	10.9		%				11.9		%	11.5		%				11.9		%	10.4		%				10.3		%	11.0		%				10.9		%
Sales and marketing	17.6		%				18.9		%	18.3		%				19.1		%	17.8		%				17.2		%	18.1		%				17.6		%
General and administrative	6.7		%				7.4		%	7.1		%				7.6		%	7.1		%				7.1		%	7.2		%				7.4		%
Depreciation	3.0		%				2.8		%	3.0		%				3.0		%	2.7		%				3.2		%	2.8		%				3.4		%
Amortization of acquired customer-based intangible assets	6.3		%				6.2		%	6.5		%				6.5		%	6.7		%				6.2		%	6.9		%				6.5		%
Special charges (recoveries)	0.1		%				2.0		%	1.4		%				2.3		%	1.3		%				1.3		%	1.0		%				2.3		%

Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses, and facility costs. Research and development assists with organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary driver is typically budgeted software upgrades and software development.


	Quarter-over-Quarter Change between Fiscal			YTD-over-YTD Change between Fiscal			Change between Three Months Ended December 31, 2019 and 2018			Change between Six Months Ended December 31, 2019 and 2018
(In thousands)	2018 and 2017			2018 and 2017			increase (decrease)			increase (decrease)
Payroll and payroll-related benefits	$	13,368		$	24,836		$	3,319		$	8,122
Contract labour and consulting	(1,143		)	2,433			82			540
Share-based compensation	(408		)	(525		)	(21		)	(159		)
Travel and communication	93			140			29			(35		)
Facilities	3,480			7,590			798			(555		)
Other miscellaneous	193			166			323			325
Total year-over-year change in research and development expenses	$	15,583		$	34,640
Total change in research and development expenses							$	4,530		$	8,238

Research and development expenses increased by ~~$15.6~~$4.5 million during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year. This was primarily due to (i) an increase in payroll and payroll-related benefits of $3.3 million, driven primarily by increased headcount from recent acquisitions and (ii) an increase of $0.8 million in facility related expenses. Overall, our research and development expenses, as a percentage of total revenues, remained stable compared to the same period in the prior fiscal year at approximately 10%.

Research and development expenses increased by $8.2 million during the six months ended December 31, 2019 as compared to the same period in the prior fiscal year. This was primarily due to (i) an increase in payroll and payroll-related benefits of $8.1 million, driven primarily by increased headcount from recent acquisitions and (ii) an increase of $0.5 million relating to the use of external labour resources. These were partially offset by a decrease in facility related expenses of $0.6 million. Overall, our research and development expenses, as a percentage of total revenues, remained stable compared to the same period in the prior fiscal year at approximately 11%.

Our research and development labour resources increased by 504 employees, from 3,542 employees at December 31, 2018 to 4,046 employees at December 31, 2019.

Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing events and trade shows.



	Change between Three Months Ended December 31, 2019 and 2018			Change between Six Months Ended December 31, 2019 and 2018
(In thousands)	increase (decrease)			increase (decrease)
Payroll and payroll-related benefits	$	7,210		$	12,065
Commissions	4,297			7,300
Contract labour and consulting	(871		)	(799		)
Share-based compensation	169			484
Travel and communication	106			1,487
Marketing expenses	1,719			2,622
Facilities	912			1,548
Bad debt expense	(2,865		)	(4,586		)
Other miscellaneous	440			(568		)
Total change in sales and marketing expenses	$	11,117		$	19,553

Sales and marketing expenses increased by $11.1 million during the three months ended December 31, 2019 as compared to the same period in the prior fiscal year. This was primarily due to (i) an increase in payroll and payroll-related benefits of $7.2 million, (ii) an increase in commissions expense of $4.3 million, and (iii) an increase in marketing expenses of $1.7 million. These were partially offset by a decrease in bad debt expense of $2.9 million. Overall, our sales and marketing expenses, as a percentage of total revenues, increased to approximately 18% from approximately 17% in the same period in the prior fiscal year.

Sales and marketing expenses increased by $19.6 million during the six months ended December 31, 2019 as compared to the same period in the prior fiscal year. This was primarily due to (i) an increase in payroll and payroll-related benefits of $12.1 million, (ii) an increase in commissions expense of $7.3 million and (iii) an increase in marketing expenses of $2.6 million. These were partially offset by a decrease in bad debt expense of $4.6 million. Overall, our sales and marketing expenses, as a percentage of total revenues, as compared to the same period in the prior fiscal year, remained stable at approximately 18%.

Our sales and marketing labour resources increased by 491 employees, from 2,027 employees at December 31, 2018 to 2,518 employees at December 31, 2019.

General and administrative expenses consist primarily of payroll and payroll related benefits expenses, related overhead, audit fees, other professional fees, contract labour and consulting expenses and public company costs.



	Change between Three Months Ended December 31, 2019 and 2018			Change between Six Months Ended December 31, 2019 and 2018
(In thousands)	increase (decrease)			increase (decrease)
Payroll and payroll-related benefits	$	3,912		$	6,762
Contract labour and consulting	(531		)	(1,149		)
Share-based compensation	715			1,073
Travel and communication	391			20
Facilities	(704		)	(380		)
Other miscellaneous	(1,386		)	(3,318		)
Total change in general and administrative expenses	$	2,397		$	3,008

General and administrative expenses increased by $2.4 million during the three months ended December 31, 2019 as compared to the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of ~~$13.4~~$3.9 million, ~~an increase in the use of facility and related resources of $3.5 million, which were predominantly the result of recent acquisitions. These were~~ partially offset by a decrease in ~~contract labour~~other miscellaneous expenses of $1.4 million, which includes professional fees such as legal, audit and ~~consulting~~tax related expenses. The remainder of ~~$1.1 million.~~the change was attributable to other activities associated with normal growth in our business operations. Overall, ~~our research~~general and ~~development~~administrative expenses, as a percentage of total revenues, ~~decreased~~remained stable compared to the same period in the prior fiscal year at approximately ~~11% from approximately 12%~~7%.

~~Research~~General and ~~development~~administrative expenses increased by ~~$34.6~~$3.0 million during the six months ended December 31, ~~2017~~2019 as compared to ~~the same period in~~ the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of ~~$24.8~~$6.8 million, an increase in the use of facility and related resources of $7.6 million, which were predominantly the result of recent acquisitions, and an increase in contract labour and consulting of $2.4 million. Overall, our research and development expenses, aspartially offset by a ~~percentage of total revenues, decreased slightly to approximately 11% from approximately 12%.~~

Our research and development labour resources increased by 725 employees, from 2,447 employees at December 31, 2016 to 3,172 employees at December 31, 2017, primarily as a result of our recent acquisitions.

~~Sales and marketing expenses~~ ~~consist primarily of personnel expenses and costs associated with advertising, marketing and trade shows.~~

Quarter-over-Quarter Change between Fiscal YTD-over-YTD
Change between Fiscal
(In thousands) 2018 and 2017 2018 and 2017
Payroll and payroll-related benefits $ 13,773
$ 29,434
Commissions 6,540
12,831
Contract labour and consulting (109 ) 739
Share-based compensation (234 ) 34
Travel and communication 1,900
2,947
Marketing expenses 1,267
2,381
Facilities 2,207
4,654
Other miscellaneous 1,147
1,145
Total year-over-year change in sales and marketing expenses $ 26,491
$ 54,165

Sales and marketing expenses increased by $26.5 million during the three months ended December 31, 2017 as compared to the same period in the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $13.8 million and an increase in facility and related resources of $2.2 million, both of which were predominantly the result of recent acquisitions. Additionally, commissions expense increased by $6.5 million in conjunction with higher revenues. The remainder of the change was primarily attributable to normal growth in our business operations. Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to approximately 18% from approximately 19%.

Sales and marketing expenses increased by $54.2 million during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $29.4 million and an increase in facility and related resources of $4.7 million, both of which were predominantly the result of recent acquisitions. Additionally, commissions expense increased by $12.8 million in conjunction with higher revenues. The remainder of the change was primarily attributable to normal growth in our business operations. Overall, our sales and marketing expenses, as a percentage of total revenues, decreased to approximately 18% from approximately 19%.

Our sales and marketing labour resources increased by 373 employees, from 1,638 employees at December 31, 2016 to 2,011 employees at December 31, 2017, primarily as a result of our recent acquisitions.

~~General and administrative expenses~~ ~~consist primarily of payroll and payroll related benefits expenses, related overhead, audit fees, other professional fees, consulting expenses and public company costs.~~

Quarter-over-Quarter Change between Fiscal YTD-over-YTD
Change between Fiscal
(In thousands) 2018 and 2017 2018 and 2017
Payroll and payroll-related benefits $ 7,123
$ 12,060
Contract labour and consulting (2,838 ) (1,733 )
Share-based compensation (214 ) (678 )
Travel and communication 626
1,070
Facilities 475
1,849
Other miscellaneous 3,899
7,221
Total year-over-year change in general and administrative expenses $ 9,071
$ 19,789

General and administrative expenses increased by $9.1 million during the three months ended December 31, 2017 as compared to the same period in the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $7.1 million and an increase in facilities expense of $0.5 million, which were predominantly the result of recent acquisitions, and an increasedecrease in other miscellaneous expenses of ~~$3.9~~$3.3 million, which includes professional fees such as legal, audit and tax related expenses. ~~These increases were partially offset by a $2.8 million reduction in contract labour and consulting.~~ The remainder of the change was attributable to other activities associated with normal growth

in our business operations. Overall, general and administrative expenses, as a percentage of total ~~revenue~~revenues, remained stable ~~at approximately 7%.~~

~~General and administrative expenses increased by $19.8 million during the six months ended December 31, 2017 as~~ compared to the same period in the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $12.1 million and an increase in facilities expense of $1.8 million, which was predominantly the result of recent acquisitions, and an increase in other miscellaneous expenses of $7.2 million, which includes professional fees such as legal,

audit and tax related expenses. These were partially offset by a $1.7 million reduction in contract labour and consulting. The remainder of the change was attributable to normal growth in our business operations. Overall, general and administrative expenses, as a percentage of total revenue decreased slightly toyear at approximately 7% ~~from approximately 8%~~.

Our general and administrative labour resources increased by ~~276~~426 employees, from ~~1,246~~1,574 employees at December 31, ~~2016~~2018 to ~~1,522~~2,000 employees at December 31, ~~2017, primarily as a result of our recent acquisitions.~~2019.

Depreciation expenses:


	Three Months Ended December 31,						Six Months Ended December 31,			Three Months Ended December 31,							Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)		2016		2017	Change increase (decrease)	2016	2019		Change increase (decrease)			2018		2019		Change increase (decrease)			2018
Depreciation	$	22,071	$	6,770	$	15,301	40,949	10,378	30,571	$	20,712	$	(3,122	)	$	23,834	$	40,989	$	(6,699	)	$	47,688

Depreciation expenses ~~increased by $6.8 million and $10.4 million, respectively,~~decreased during the three and six months ended December 31, ~~2017~~2019 by $3.1 million and $6.7 million, respectively, as compared to the same periods in the prior fiscal ~~year, in accordance with increased capital asset expenditures.~~year. Depreciation expense, ~~remained relatively stable~~ as a percentage of total revenue, remained at approximately 3%. for each such period.

Amortization of acquired customer-based intangibleassets:


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)		2016		2017		Change increase (decrease)		2016		2019		Change increase (decrease)		2018		2019		Change increase (decrease)		2018
Amortization of acquired customer-based intangible assets	$	46,268	$	12,453	$	33,815	$	90,057	$	22,634	$	67,423	$	51,460	$	5,541	$	45,919	$	100,618	$	8,823	$	91,795

~~Acquired~~Amortization of acquired customer-based intangible assets ~~amortization expense~~ increased ~~by $12.5 million and $22.6 million, respectively,~~ during the three and six months ended December 31, ~~2017~~2019 by $5.5 million and $8.8 million, respectively, as compared to the same periods in the prior fiscal year. This was ~~primarily~~ due to an increase in amortization of ~~$14.4~~$5.7 million and ~~$27.6~~$9.4 million respectively, relating to newly acquired customer-based intangible assets from our recent acquisitions of ~~Guidance, Covisint, ECD Business, CCM Business,~~Catalyst, Liaison and ~~Recommind. This~~Carbonite. The increase in amortization was partially offset by a reduction of ~~$2.0~~$0.2 million and ~~$5.0~~$0.6 million, respectively, relating to ~~certain customer-based~~ intangible assets ~~pertaining to~~from certain previous acquisitions becoming fully amortized.

Special charges (recoveries):

Special chargestypically relate to amounts that we expect to pay in connection with restructuring plans, ~~relating to employee workforce reduction and abandonment of excess facilities,~~ acquisition-related costs and other similar ~~one-time~~ charges and recoveries. Generally, we implement such plans in the context of integrating acquired entities with existing OpenText ~~operations with that of acquired entities.~~operations. Actions related to such restructuring plans are typically completed within a period of one year. In certain limited situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record a recovery of the originally recorded expense to Special charges.


	Three Months Ended December 31,							Six Months Ended December 31,							Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)			2016		2017		Change increase (decrease)			2016		2019		Change increase (decrease)		2018		2019		Change increase (decrease)			2018
Special charges (recoveries)	$	715	$	(10,402	)	$	11,117	$	18,746	$	(4,825	)	$	23,571	$	10,072	$	692	$	9,380	$	15,173	$	(17,518	)	$	32,691

Special charges ~~decreased~~increased by ~~$10.4~~$0.7 million during the three months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year. ~~The decrease~~This was primarily due to (i) ~~a reduction in expense~~an increase of ~~$8.2~~$4.6 million ~~relating to one-time commitments fees incurred during Fiscal 2017 that did not reoccur in Fiscal 2018, (ii) a reduction~~ in acquisition related costs and (ii) an increase in other miscellaneous charges of $2.7 million, (iii) a reduction in expense of $2.5 million relating to an Enterprise Resource Planning (ERP) implementation project that was implemented in early July 2017, and (iv) a decrease of $1.0 million relating to a higher net impact of reversals from certain pre-acquisition sales and use tax liabilities and interest being settled, or in certain instances, becoming statute barred, as compared to the prior fiscal year.$2.4 million. These ~~decreases~~ were partially offset by ~~(i)~~ a ~~$3.2 million increase~~decrease in restructuring activities ~~and (ii) an increase~~ of ~~$0.2 million relating to post-acquisition integration costs necessary to streamline acquired companies into our operations. The remainder of the change is due to miscellaneous items.~~$6.3 million.

Special charges decreased by ~~$4.8~~$17.5 million during the six months ended December 31, ~~2017~~2019 as compared to the same period in the prior fiscal year. ~~The decrease~~This was primarily due to ~~(i)~~ a ~~reduction~~decrease in ~~expense~~restructuring activities of ~~$9.2~~$25.7 million, ~~relating to commitments fees incurred during Fiscal 2017 that did not reoccur in Fiscal 2018, (ii) a reduction~~partially offset by an increase in acquisition related costs of

$7.2 million, (iii) a reduction in expenses of $1.2 million relating to post-acquisition integration costs necessary to streamline acquired companies into our operations and (iv) a reduction in expense of $1.2 million relating to an ERP implementation project that was implemented in early July 2017. These decreases were partially offset by (i) a $12.0 million increase in restructuring activities and (ii) $0.1 million relating to a lower net impact of reversals from certain pre-acquisition sales and use tax liabilities and interest being settled, or in certain instances, becoming statute barred, as compared to the prior fiscal year. $6.7 million. The remainder of the change is due to other miscellaneous items.

For more details on Special charges (recoveries), see note 1718 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements.

Other Income (Expense), Net

Other income (expense), net relates to certain non-operational charges primarily consisting ~~primarily~~of income or losses in our share of marketable equity securities accounted for under the equity method and of transactional foreign exchange gains (losses). ~~This~~The income (expense) from foreign exchange is dependent upon the change in foreign currency exchange rates vis-à-vis the functional currency of the legal entity. ~~Other income (expense), net also includes our share of income or losses in non-marketable equity securities accounted for under the equity method.~~


	Three Months Ended December 31,							Six Months Ended December 31,						Three Months Ended December 31,								Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)		2016			2017		Change increase (decrease)		2016		2019		Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Other income (expense), net	$	5,547	$	9,105	$	(3,558	)	$	15,771	$	12,630	$	3,141
Foreign exchange gains (losses)														$	352	$	5,568		$	(5,216	)	$	(3,307	)	$	2,850		$	(6,157	)
OpenText share in net income (loss) of equity investees (note 9)														1,266		(4,225		)	5,491			1,948			(5,915		)	7,863
Other miscellaneous income (expense)														354		251			103			546			352			194
Total other income (expense), net														$	1,972	$	1,594		$	378		$	(813	)	$	(2,713	)	$	1,900

For the three months ended December 31, 2017, Other income, net included (i) a gain of $5.0 million in connection with the settlement of a certain breach of contractual arrangement, (ii) foreign exchange gains of $0.3 million on our inter-company transactions compared to $4.0 million in foreign exchange losses during the same period in the prior fiscal year, and (iii) a net gain of approximately $0.3 million relating to our share of net income (loss) in non-marketable equity investments accounted for under the equity method, compared to a gain of $0.5 million during the same period in the prior fiscal year.

For the six months ended December 31, 2017, Other income, net included (i) a gain of $5.0 million in connection with the settlement of a certain breach of contractual arrangement, (ii) foreign exchange gains of $9.1 million on our inter-company transactions compared to $2.9 million in foreign exchange losses during the same period in the prior fiscal year; (iii) a net loss of approximately $0.2 million relating to our share of net income (loss) in non-marketable equity investments accounted for under the equity method compared to income of $6.0 million during the same period in the prior fiscal year, and (iv) a gain of $0.8 million, representing the mark to market on the shares we held in Guidance prior to the acquisition.

Interest and Other Related Expense, Net

Interest and other related expense, net is primarily comprised of interest paid and accrued on our debt facilities, offset by interest income earned on our cash and cash equivalents.


	Three Months Ended December 31,						Six Months Ended December 31,						Three Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017		Change increase (decrease)		2016		2017		Change increase (decrease)		2016		2019			Change increase (decrease)			2018			2019			Change increase (decrease)			2018
Interest and other related expense, net	$	34,092	$	6,349	$	27,743	$	67,380	$	12,362	$	55,018
Interest expense related to total outstanding debt ⁽¹⁾													$	33,778		$	(601	)	$	34,379		$	67,944		$	(278	)	$	68,222
Interest income													(3,474		)	(850		)	(2,624		)	(7,423		)	(4,064		)	(3,359		)
Other miscellaneous expense													2,072			214			1,858			4,065			784			3,281
Total interest and other related expense, net													$	32,376		$	(1,237	)	$	33,613		$	64,586		$	(3,558	)	$	68,144

Interest and other related expense, net increased by $6.3 million and $12.4 million, respectively, during the three and six months ended December 31, 2017 as compared to the same periods in the prior fiscal year. This was primarily due to additional interest expense incurred relating to the reopening of Senior Notes 2026 (as defined herein), issued in December 2016, of $3.1 million and $6.8 million, respectively, and additional interest incurred relating to outstanding balances on the Revolver (as defined herein) of $2.8 million and $4.6 million, respectively.

⁽¹⁾For more details see note 1011 "Long-Term Debt" to our Condensed Consolidated Financial Statements.

Provision for (Recovery of) Income Taxes

We operate in several tax jurisdictions and are exposed to various foreign tax rates. We also note that we are subject to tax rate discrepancies between our domestic tax rate and foreign tax rates that are significant and these discrepancies are primarily related to earnings in the United States.

Please also see Part ~~II,~~I, Item 1A "Risk Factors" ~~elsewhere~~ in ~~this Quarterly~~our Annual Report on Form ~~10-Q.~~

10-K for Fiscal 2019.

Three Months Ended December 31, Six Months Ended December 31,
(In thousands) 2017 Change increase (decrease) 2016 2017 Change increase (decrease) 2016
Provision for (recovery of) income taxes $ 53,146
$ 22,324
$ 30,822
$ 80,515
$ 909,118
$ (828,603 )

In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our IP in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operating legal entity in each jurisdiction. We believe our reorganization also reduces our exposure to global political and tax uncertainties, particularly in Europe. We believe that further consolidating our IP in Canada will continue to ensure appropriate legal protections for our consolidated IP, simplify legal, accounting and tax compliance, and improve our global cash management. A significant tax benefit of $876.1 million, associated primarily with the recognition of a net deferred tax asset arising from the entry of the IP into Canada, was recognized in the first quarter of Fiscal 2017. We believe it is more likely than not that the deferred tax asset will be realized and therefore no valuation allowance was required. We continue to evaluate our taxable position quarterly and consider factors by taxing jurisdiction, including but not limited to factors such as estimated taxable income, any historical experience of losses for tax purposes and the future growth of OpenText. This significant tax benefit is specifically tied to the reorganization and applied to the first quarter of Fiscal 2017 only and as a result, has not and will not continue in future periods.



	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2019		Change increase (decrease)		2018		2019		Change increase (decrease)		2018
Provision for (recovery of) income taxes	$	46,818	$	10,582	$	36,236	$	69,909	$	3,823	$	66,086

The effective tax rate ~~decreased~~increased to a provision of ~~38.5%~~30.3% for the three months ended December 31, ~~2017,~~2019, compared to ~~a provision of 40.6%~~25.8% for the three months ended December 31, ~~2016.~~2018. The increase in tax expense of ~~$22.3~~$10.6 million was primarily due to (i) an increase of $16.8 million relating to a one-time reversal of accruals for repatriations from subsidiaries in the ~~impact of changes in US tax legislation~~United States that did not recur in Fiscal ~~2018 resulting in a provisional charge of $15.3 million,~~2020, (ii) an increase in tax filings in excess of ~~$13.3~~estimates of $6.0 million ~~on account of the Company having higher income before taxes, including the impact of foreign tax rates,~~ and (iii) an increase in net income taxed at foreign rates of ~~$1.6 million resulting from the reversals of reserves in Fiscal 2017 that did not reoccur in Fiscal 2018,~~$3.3 million. These were partially offset by (i) a decrease of ~~$4.8~~$11.6 million ~~relating to differences~~ in reserves for unrecognized tax ~~filings~~benefits resulting from ~~provisions,~~clarifications provided by tax regulations and taxation years becoming statute barred and (ii) a decrease of ~~$1.1~~$4.5 million ~~relating~~related to ~~a decrease~~tax costs of internal reorganizations that did not recur in ~~amortization of deferred charges.~~Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

The effective tax rate ~~increased~~decreased to a provision of ~~39.8%~~27.8% for the six months ended December 31, ~~2017,~~2019, compared to ~~a recovery of 640.6%~~31.9% for the six months ended December 31, ~~2016.~~2018. The increase in tax expense of ~~$909.1~~$3.8 million was primarily due to (i) the increase in net income taxed at foreign rates of $11.8 million, (ii) an increase of $14.9 million relating to a ~~significant tax benefit~~one-time reversal of ~~$876.1 million resulting~~accruals for repatriations from subsidiaries in the ~~Fiscal 2017 internal reorganization as described above which~~United States in fiscal 2019 that did not ~~reoccur~~recur in Fiscal ~~2018, (ii) the impact of changes in US tax legislation in Fiscal 2018 resulting in a provisional charge of $15.3 million,~~2020 and (iii) an increase in tax failing in excess of ~~$17.1 million on account~~estimates of the Company having higher income before taxes, including the impact of foreign tax rates, and (iv) an increase of $5.2 million resulting from the reversals of reserves in Fiscal 2017 that did not reoccur in Fiscal 2018,$7.3 million. These were partially offset by (i) a decrease of ~~$2.6~~$22.4 million ~~relating to differences~~ in reserves for unrecognized tax ~~filings~~benefit resulting from ~~provisions,~~ clarifications provided by tax regulations and taxation years becoming statute barred

and (ii) a decrease of ~~$2.1~~$7.9 million relating to ~~a decrease in amortization~~the tax impact of ~~deferred charges.~~internal reorganizations of subsidiaries that did not reoccur Fiscal 2020. The remainder of the difference was due to normal course movements and non-material items.

For information with regards to certain potential tax contingencies, see note 1314 "Guarantees and Contingencies" to our Condensed Consolidated Financial Statements.

The $15.3 million is a provisional amount in respect of rate change, Alternative Minimum Tax (AMT), and foreign earnings in accordance with SAB 118. The finalization of the provisional one-time amount is pending finalization of the re-assessment of the timing of reversals of certain deferred tax assets and liabilities and additional considerations related to undistributed foreign earnings and evaluating whether any portion of our existing AMT credit carryforwards are not expected to be refundable as a result of the repeal of corporate AMT. Additional information such as final Fiscal 2018 income and detailed earnings and profits calculations for foreign subsidiaries may result in changes to the provisional amount during the SAB 118 measurement period.

Use of Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its Condensed Consolidated Financial Statements, all of which should be considered when evaluating the Company's results.

The Company uses these Non-GAAP financial measures to supplement the information provided in its Condensed Consolidated Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.

Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, ~~are~~is consistently calculated as GAAP-based net income or earnings per share, attributable to OpenText, on a diluted basis, ~~after giving effect to~~excluding the effects of the amortization of acquired intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based compensation expense. ~~Non-GAAP-based operating margin is calculated as Non-GAAP-based income from operations expressed as a percentage of total revenue.~~

Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is consistently calculated as GAAP-based net income, attributable to OpenText excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).

The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions taken by the Company's ~~management and is~~management. These items are excluded based upon the way the Company's management evaluates the performance of the Company's business for use in the Company's internal reports. In the course of such evaluation and for the purpose of making operating decisions, the Company's management excludes certain items from its analysis, including amortization of acquired intangible assets, Special charges (recoveries), share-based compensation, other income (expense), and the taxation impact of these items. These items are excluded based upon the manner in which management evaluates the business of the Companyreports and are not excluded in the sense that they may be used under U.S. GAAP.

The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years, primarily due to acquisitions, that have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special Charges (recoveries)” caption on the Condensed Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying operational trends.

In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.

The following charts provide unaudited reconciliations of U.S. GAAP-based financial measures to Non-GAAP-based financial measures for the following periods ~~presented:~~presented.

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the three months ended December 31, ~~2017~~2019

(in thousands except for per share data)


	Three Months Ended December 31, 2017										Three Months Ended December 31, 2019
	GAAP-based Measures		GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue	GAAP-based Measures		GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue
Cost of revenues
Cloud services and subscriptions	$	90,418		$	(462	)	(1)	$	89,956		$	103,644		$	(371	)	(1)	$	103,273
Customer support	33,194			(327		)	(1)	32,867			29,788			(297		)	(1)	29,491
Professional service and other	64,985			(603		)	(1)	64,382			53,604			(346		)	(1)	53,258
Amortization of acquired technology-based intangible assets	47,128			(47,128		)	(2)	—			42,299			(42,299		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	494,093		67.3%	48,520			(3)	542,613		73.9%	539,172		69.9%	43,313			(3)	582,485		75.5%
Operating expenses
Research and development	80,304			(1,587		)	(1)	78,717			80,283			(1,255		)	(1)	79,028
Sales and marketing	129,142			(2,095		)	(1)	127,047			137,310			(2,383		)	(1)	134,927
General and administrative	48,985			(2,084		)	(1)	46,901			54,595			(3,131		)	(1)	51,464
Amortization of acquired customer-based intangible assets	46,268			(46,268		)	(2)	—			51,460			(51,460		)	(2)	—
Special charges (recoveries)	715			(715		)	(4)	—			10,072			(10,072		)	(4)	—
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)	166,608		22.7%	101,269			(5)	267,877		36.5%
GAAP-based income from operations / Non-GAAP-based income from operations											184,740			111,614			(5)	296,354
Other income (expense), net	5,547			(5,547		)	(6)	—			1,972			(1,972		)	(6)	—
Provision for (recovery of) income taxes	53,146			(22,095		)	(7)	31,051			46,818			(9,861		)	(7)	36,957
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	85,111			117,817			(8)	202,928			107,467			119,503			(8)	226,970
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.32		$	0.44		(8)	$	0.76		$	0.40		$	0.44		(8)	$	0.84



(1)	Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)	Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)	GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)	Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include ~~one-time, non-recurring~~certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. See note 1718 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.
(5)	GAAP-based and Non-GAAP-based income from operations stated in ~~dollars and operating margin stated as a percentage of total revenue.~~dollars.
(6)	Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates ~~primarily~~ to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)	Adjustment relates to differences between the GAAP-based tax provision rate of approximately ~~38%~~30% and a Non-GAAP-based tax rate of approximately ~~13%~~14%; these rate differences are due to the income tax effects of ~~expenses~~items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded ~~expenses~~items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization ~~(see note 14 "Income Taxes")~~that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately ~~13%~~14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. In addition, as a result of the changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act, the Company has reassessed its Non-GAAP-based tax rate to be approximately 14% for the six months ended December 31, 2017, down from 15%. Pursuant to this, the Non-GAAP-based tax rate of approximately 13% for the three months ended December 31, 2017 includes a one-time cumulative catch up of recoveries and charges, as though the Company's Non-GAAP-based tax rate was 14% as of July 1, 2017.



(8)	Reconciliation of GAAP-based net income to Non-GAAP-based net income:


	Three Months Ended December 31, 2017						Three Months Ended December 31, 2019
				Per share diluted						Per share diluted
GAAP-based net income, attributable to OpenText	$	85,111		$	0.32		$	107,467		$	0.40
Add:
Amortization	93,396			0.35			93,759			0.35
Share-based compensation	7,158			0.03			7,783			0.03
Special charges (recoveries)	715			—			10,072			0.04
Other (income) expense, net	(5,547		)	(0.02		)	(1,972		)	(0.01		)
GAAP-based provision for (recovery of ) income taxes	53,146			0.20
GAAP-based provision for (recovery of) income taxes							46,818			0.17
Non-GAAP-based provision for income taxes	(31,051		)	(0.12		)	(36,957		)	(0.14		)
Non-GAAP-based net income, attributable to OpenText	$	202,928		$	0.76		$	226,970		$	0.84

Reconciliation of Adjusted EBITDA


	Three Months Ended December 31, 2017			Three Months Ended December 31, 2019
GAAP-based net income, attributable to OpenText	$	85,111		$	107,467
Add:
Provision for (recovery of) income taxes	53,146			46,818
Interest and other related expense, net	34,092			32,376
Amortization of acquired technology-based intangible assets	47,128			42,299
Amortization of acquired customer-based intangible assets	46,268			51,460
Depreciation	22,071			20,712
Share-based compensation	7,158			7,783
Special charges (recoveries)	715			10,072
Other (income) expense, net	(5,547		)	(1,972		)
Adjusted EBITDA	$	290,142		$	317,015

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the three months ended December 31, ~~2016~~2018

(in thousands except for per share data)


	Three Months Ended December 31, 2016											Three Months Ended December 31, 2018
	GAAP-based Measures			GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue	GAAP-based Measures		GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue
Cost of revenues
Cloud services and subscriptions	$	73,150			$	(211	)	(1)	$	72,939		$	88,698		$	(265	)	(1)	$	88,433
Customer support	27,349				(270		)	(1)	27,079			31,273			(271		)	(1)	31,002
Professional service and other	40,295				(468		)	(1)	39,827			56,030			(358		)	(1)	55,672
Amortization of acquired technology-based intangible assets	24,848				(24,848		)	(2)	—			48,366			(48,366		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	374,676			69.0%	25,797			(3)	400,473		73.8%	507,209		69.0%	49,260			(3)	556,469		75.7%
Operating expenses
Research and development	64,721				(1,995		)	(1)	62,726			75,753			(994		)	(1)	74,759
Sales and marketing	102,651				(2,329		)	(1)	100,322			126,193			(1,615		)	(1)	124,578
General and administrative	39,914				(2,299		)	(1)	37,615			52,198			(3,382		)	(1)	48,816
Amortization of acquired customer-based intangible assets	33,815				(33,815		)	(2)	—			45,919			(45,919		)	(2)	—
Special charges (recoveries)	11,117				(11,117		)	(4)	—			9,380			(9,380		)	(4)	—
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)	107,157			19.7%	77,352			(5)	184,509		34.0%
GAAP-based income from operations / Non-GAAP-based income from operations												173,932			110,550			(5)	284,482
Other income (expense), net	(3,558		)		3,558			(6)	—			378			(378		)	(6)	—
Provision for (recovery of) income taxes	30,822				(7,319		)	(7)	23,503			36,236			(1,114		)	(7)	35,122
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	45,022				88,229			(8)	133,251			104,432			111,286			(8)	215,718
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.18			$	0.36		(8)	$	0.54		$	0.39		$	0.41		(8)	$	0.80



(1)	Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)	Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)	GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)	Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include ~~one-time, non-recurring~~certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. See note 1718 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.
(5)	GAAP-based and Non-GAAP-based income from operations stated in ~~dollars and operating margin stated as a percentage of total revenue.~~dollars.
(6)	Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates ~~primarily~~ to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)	Adjustment relates to differences between the GAAP-based tax provision rate of approximately ~~41%~~26% and a Non-GAAP-based tax rate of approximately ~~15%~~14%; these rate differences are due to the income tax effects of ~~expenses~~items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded ~~expenses~~items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization ~~(see note 14 "Income Taxes")~~that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately ~~15%~~14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.



(8)	Reconciliation of GAAP-based net income to Non-GAAP-based net income:


	Three Months Ended December 31, 2016						Three Months Ended December 31, 2018
				Per share diluted						Per share diluted
GAAP-based net income, attributable to OpenText	$	45,022		$	0.18		$	104,432		$	0.39
Add:
Amortization	58,663			0.24			94,285			0.35
Share-based compensation	7,572			0.03			6,885			0.03
Special charges (recoveries)	11,117			0.04			9,380			0.03
Other (income) expense, net	3,558			0.01			(378		)	—
GAAP-based provision for (recovery of ) income taxes	30,822			0.12
GAAP-based provision for (recovery of) income taxes							36,236			0.13
Non-GAAP-based provision for income taxes	(23,503		)	(0.08		)	(35,122		)	(0.13		)
Non-GAAP-based net income, attributable to OpenText	$	133,251		$	0.54		$	215,718		$	0.80

Reconciliation of Adjusted EBITDA


	Three Months Ended December 31, 2016		Three Months Ended December 31, 2018
GAAP-based net income, attributable to OpenText	$	45,022	$	104,432
Add:
Provision for (recovery of) income taxes	30,822		36,236
Interest and other related expense, net	27,743		33,613
Amortization of acquired technology-based intangible assets	24,848		48,366
Amortization of acquired customer-based intangible assets	33,815		45,919
Depreciation	15,301		23,834
Share-based compensation	7,572		6,885
Special charges (recoveries)	11,117		9,380
Other (income) expense, net	3,558		(378		)
Adjusted EBITDA	$	199,798	$	308,287

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the six months ended December 31, ~~2017~~2019

(in thousands except for per share data)


	Six Months Ended December 31, 2017										Six Months Ended December 31, 2019
	GAAP-based Measures		GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue	GAAP-based Measures			GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue
Cost of revenues
Cloud services and subscriptions	$	174,748		$	(984	)	(1)	$	173,764		$	205,806			$	(754	)	(1)	$	205,052
Customer support	65,985			(656		)	(1)	65,329			59,175				(613		)	(1)	58,562
Professional service and other	124,444			(1,200		)	(1)	123,244			107,942				(589		)	(1)	107,353
Amortization of acquired technology-based intangible assets	91,088			(91,088		)	(2)	—			82,597				(82,597		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	911,280		66.3%	93,928			(3)	1,005,208		73.1%	1,007,552			68.6%	84,553			(3)	1,092,105		74.4%
Operating expenses
Research and development	157,933			(3,213		)	(1)	154,720			161,461				(2,476		)	(1)	158,985
Sales and marketing	251,964			(5,183		)	(1)	246,781			265,928				(4,499		)	(1)	261,429
General and administrative	97,900			(4,157		)	(1)	93,743			106,130				(5,743		)	(1)	100,387
Amortization of acquired customer-based intangible assets	90,057			(90,057		)	(2)	—			100,618				(100,618		)	(2)	—
Special charges (recoveries)	18,746			(18,746		)	(4)	—			15,173				(15,173		)	(4)	—
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)	253,731		18.5%	215,284			(5)	469,015		34.1%
GAAP-based income from operations / Non-GAAP-based income from operations											317,253				213,062			(5)	530,315
Other income (expense), net	15,771			(15,771		)	(6)	—			(813		)		813			(6)	—
Provision for (recovery of) income taxes	80,515			(24,286		)	(7)	56,229			69,909				(4,707		)	(7)	65,202
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	121,707			223,799			(8)	345,506			181,868				218,582			(8)	400,450
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	0.46		$	0.84		(8)	$	1.30		$	0.67			$	0.81		(8)	$	1.48



(1)	Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)	Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)	GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)	Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include ~~one-time, non-recurring~~certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. See note 1718 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.
(5)	GAAP-based and Non-GAAP-based income from operations stated in ~~dollars and operating margin stated as a percentage of total revenue.~~dollars.
(6)	Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates ~~primarily~~ to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)	Adjustment relates to differences between the GAAP-based tax provision rate of approximately ~~40%~~28% and a Non-GAAP-based tax rate of approximately 14%; these rate differences are due to the income tax effects of ~~expenses~~items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded ~~expenses~~items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization ~~(see note 14 "Income Taxes")~~that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense. ~~We also took into consideration changes in US tax reform legislation that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.~~



(8)	Reconciliation of GAAP-based net income to Non-GAAP-based net income:


	Six Months Ended December 31, 2017						Six Months Ended December 31, 2019
				Per share diluted						Per share diluted
GAAP-based net income, attributable to OpenText	$	121,707		$	0.46		$	181,868		$	0.67
Add:
Amortization	181,145			0.68			183,215			0.68
Share-based compensation	15,393			0.06			14,674			0.05
Special charges (recoveries)	18,746			0.07			15,173			0.06
Other (income) expense, net	(15,771		)	(0.06		)	813			—
GAAP-based provision for (recovery of ) income taxes	80,515			0.30
GAAP-based provision for (recovery of) income taxes							69,909			0.26
Non-GAAP-based provision for income taxes	(56,229		)	(0.21		)	(65,202		)	(0.24		)
Non-GAAP-based net income, attributable to OpenText	$	345,506		$	1.30		$	400,450		$	1.48

Reconciliation of Adjusted EBITDA


	Six Months Ended December 31, 2017			Six Months Ended December 31, 2019
GAAP-based net income, attributable to OpenText	$	121,707		$	181,868
Add:
Provision for (recovery of) income taxes	80,515			69,909
Interest and other related expense, net	67,380			64,586
Amortization of acquired technology-based intangible assets	91,088			82,597
Amortization of acquired customer-based intangible assets	90,057			100,618
Depreciation	40,949			40,989
Share-based compensation	15,393			14,674
Special charges (recoveries)	18,746			15,173
Other (income) expense, net	(15,771		)	813
Adjusted EBITDA	$	510,064		$	571,227

Reconciliation of selected GAAP-based measures to Non-GAAP-based measures

for the six months ended December 31, ~~2016~~2018

(in thousands except for per share data)


	Six Months Ended December 31, 2016											Six Months Ended December 31, 2018
	GAAP-based Measures			GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue	GAAP-based Measures		GAAP-based Measures % of Total Revenue	Adjustments			Note	Non-GAAP-based Measures		Non-GAAP-based Measures % of Total Revenue
Cost of revenues
Cloud services and subscriptions	$	143,442			$	(571	)	(1)	$	142,871		$	176,401		$	(582	)	(1)	$	175,819
Customer support	53,087				(505		)	(1)	52,582			61,738			(571		)	(1)	61,167
Professional service and other	81,638				(913		)	(1)	80,725			112,826			(882		)	(1)	111,944
Amortization of acquired technology-based intangible assets	47,983				(47,983		)	(2)	—			95,843			(95,843		)	(2)	—
GAAP-based gross profit and gross margin (%) / Non-GAAP-based gross profit and gross margin (%)	701,987			67.9%	49,972			(3)	751,959		72.7%	948,053		67.6%	97,878			(3)	1,045,931		74.6%
Operating expenses
Research and development	123,293				(3,738		)	(1)	119,555			153,223			(2,353		)	(1)	150,870
Sales and marketing	197,799				(5,149		)	(1)	192,650			246,375			(3,416		)	(1)	242,959
General and administrative	78,111				(4,836		)	(1)	73,275			103,122			(5,636		)	(1)	97,486
Amortization of acquired customer-based intangible assets	67,423				(67,423		)	(2)	—			91,795			(91,795		)	(2)	—
Special charges (recoveries)	23,571				(23,571		)	(4)	—			32,691			(32,691		)	(4)	—
GAAP-based income from operations and operating margin (%) / Non-GAAP-based income from operations and operating margin (%)	181,219			17.5%	154,689			(5)	335,908		32.5%
GAAP-based income from operations / Non-GAAP-based income from operations												273,159			233,769			(5)	506,928
Other income (expense), net	3,141				(3,141		)	(6)	—			1,900			(1,900		)	(6)	—
Provision for (recovery of) income taxes	(828,603		)		870,698			(7)	42,095			66,086			(4,656		)	(7)	61,430
GAAP-based net income / Non-GAAP-based net income, attributable to OpenText	957,906				(719,150		)	(8)	238,756			140,756			236,525			(8)	377,281
GAAP-based earnings per share / Non-GAAP-based earnings per share-diluted, attributable to OpenText	$	3.89			$	(2.92	)	(8)	$	0.97		$	0.52		$	0.88		(8)	$	1.40



(1)	Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded from our internal analysis of operating results.
(2)	Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3)	GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4)	Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries) are generally incurred in the periods relevant to an acquisition and include ~~one-time, non-recurring~~certain charges or recoveries that are not indicative or related to continuing operations, and are therefore excluded from our internal analysis of operating results. See note 1718 "Special Charges (Recoveries)" to our Condensed Consolidated Financial Statements for more details.
(5)	GAAP-based and Non-GAAP-based income from operations stated in ~~dollars and operating margin stated as a percentage of total revenue.~~dollars.
(6)	Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally relates ~~primarily~~ to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments as we do not believe they are reflective of our ongoing business and operating results.
(7)	Adjustment relates to differences between the GAAP-based tax ~~recovery~~provision rate of approximately ~~641%~~32% and a Non-GAAP-based tax rate of approximately ~~15%~~14%; these rate differences are due to the income tax effects of ~~expenses~~items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income. Such excluded ~~expenses~~items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits arising from the internal reorganization ~~(see note 14 "Income Taxes")~~that occurred in Fiscal 2017 assumed to be allocable to the current period based on the forecasted utilization period. In arriving at our Non-GAAP-based tax rate of approximately ~~15%~~14%, we analyzed the individual adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.



(8)	Reconciliation of GAAP-based net income to Non-GAAP-based net income:


	Six Months Ended December 31, 2016						Six Months Ended December 31, 2018
				Per share diluted						Per share diluted
GAAP-based net income, attributable to OpenText	$	957,906		$	3.89		$	140,756		$	0.52
Add:
Amortization	115,406			0.47			187,638			0.70
Share-based compensation	15,712			0.06			13,440			0.05
Special charges (recoveries)	23,571			0.10			32,691			0.12
Other (income) expense, net	(3,141		)	(0.01		)	(1,900		)	(0.01		)
GAAP-based provision for (recovery of ) income taxes	(828,603		)	(3.37		)
GAAP-based provision for (recovery of) income taxes							66,086			0.25
Non-GAAP-based provision for income taxes	(42,095		)	(0.17		)	(61,430		)	(0.23		)
Non-GAAP-based net income, attributable to OpenText	$	238,756		$	0.97		$	377,281		$	1.40

Reconciliation of Adjusted EBITDA


	Six Months Ended December 31, 2016			Six Months Ended December 31, 2018
GAAP-based net income, attributable to OpenText	$	957,906		$	140,756
Add:
Provision for (recovery of) income taxes	(828,603		)	66,086
Interest and other related expense, net	55,018			68,144
Amortization of acquired technology-based intangible assets	47,983			95,843
Amortization of acquired customer-based intangible assets	67,423			91,795
Depreciation	30,571			47,688
Share-based compensation	15,712			13,440
Special charges (recoveries)	23,571			32,691
Other (income) expense, net	(3,141		)	(1,900		)
Adjusted EBITDA	$	366,440		$	554,543

LIQUIDITY AND CAPITAL RESOURCES

The following tables set forth changes in cash flows from operating, investing and financing activities for the periods indicated:


(In thousands)	As of December 31, 2017		Change increase (decrease)		As of June 30, 2017		As of December 31, 2019		Change increase (decrease)			As of June 30, 2019
Cash and cash equivalents	$	476,014	$	32,657	$	443,357	$	675,403	$	(265,606	)	$	941,009
Restricted cash included in other assets							4,829		2,295			2,534
Total cash, cash equivalents and restricted cash							$	680,232	$	(263,311	)	$	943,543


	Six Months Ended December 31,									Six Months Ended December 31,
(In thousands)	2017			Change			2016			2019			Change			2018
Cash provided by operating activities	$	233,749		$	53,279		$	180,470		$	344,685		$	(15,819	)	$	360,504
Cash used in investing activities	$	(364,552	)	$	151,326		$	(515,878	)	$	(1,264,541	)	$	(911,140	)	$	(353,401	)
Cash provided by (used in) financing activities	$	155,914		$	(634,495	)	$	790,409
Cash used in financing activities										$	660,616		$	747,935		$	(87,319	)

Cash and cash equivalents

Cash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days or less.

We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends and operating needs for the next twelve months. Any further material or acquisition-related activities may require additional sources of financing and would be subject to the financial covenants established under our credit facilities. For more details, see "Long-term Debt and Credit Facilities" below.

As of December 31, ~~2017,~~2019, we ~~have provided $28.0~~recognized a provision of $19.3 million (June 30, ~~2017—~~2019—$~~22.1~~17.4 million) in respect of both additional foreign taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject to withholding taxes upon distribution.

Cash flows provided by operating activities

Cash flows from operating activities ~~increased~~decreased by ~~$53.3~~$15.8 million due to a decrease in changes from working capital of $69.5 million, partially offset by an increase in net income before the impact of non-cash items of ~~$154.7 million, partially offset by a decrease in changes from working capital of $101.4~~$53.7 million. The ~~decrease~~change in operating cash flow from changes in working capital was primarily due to the net impact of the following decreases: (i) ~~$49.9~~$30.9 million relating to higher accounts receivable balances, (ii) $18.2 million relating to changes in income taxes payable, (iii) $13.0 million relating to an increase in prepaid expenses and other current assets, (iv) $4.3 million relating to higher contract assets, (v) $3.5 million relating to a ~~higher accounts receivable balance, which is primarily due to increased billings associated with more revenue recognized during the six months of Fiscal 2018 as compared to the same period~~decrease in ~~the prior fiscal year, (ii) $48.5 million relating to a lower~~ accounts payable and accrued liabilities, ~~balance, (iii) $17.3~~(vi) $2.6 million relating to ~~prepaid and~~an increase in other ~~current~~ assets and ~~(iv) $1.1~~(vii) $2.1 million net operating lease assets and liabilities. These decreases in operating cash flows were partially offset by an increase of $5.1 million relating to deferred revenues. ~~These decreases were partially offset by the following increases: (i) $11.2 million relating to income taxes payable and deferred charges and credits, and (ii) $4.2 million relating to other assets.~~

During the second quarter of Fiscal ~~2018~~2020 our days sales outstanding (DSO) was 6357 days, compared to a DSO of 5259 days during the second quarter of Fiscal 2017. The increase in DSO is primarily attributable to an increase in unbilled receivables included in the Company's net accounts receivable balance. Please see note 3 "Allowance for Doubtful Accounts" to our Condensed Consolidated Financial Statements for more details.2019. The per day impact of our DSO in the second ~~quarters~~quarter of Fiscal ~~2018 and Fiscal 2017~~2020 on our cash flows was $8.5 million before the impact of acquired accounts receivable from Carbonite. The per day impact of our DSO in the second quarter of Fiscal 2019 was $8.2 ~~million and $6.1 million, respectively.~~million. In arriving at DSO, we exclude contract assets as these assets do not provide an unconditional right to the related consideration from the customer.

Cash flows used in investing activities

Our cash flows used in investing activities is primarily on account of acquisitions and additions of property and equipment.

Cash flows used in investing activities ~~decreased~~increased by ~~$151.3~~$911.1 million, primarily due to ~~a decrease of $191.7 million~~an increase in consideration paid for acquisitions during the six months ended December 31, 2017 as compared to the same period in the prior fiscal year. This was offset by (i) an increase of $23.7 million in additions of property and equipment, (ii) an increase of $9.2 million relating to the maturity of short term investments during the first ~~quarter~~half of Fiscal ~~2017 that did not reoccur in Fiscal 2018, and (iii) an increase in other investing activities~~2020, which included cash paid for the acquisition of ~~$7.5 million.~~Carbonite of approximately $1.2 billion.

Cash flows ~~provided by (used in)~~used in financing activities

Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock options exercised by our employees. These inflows are typically offset by scheduled and non-scheduled repayments of our long-term debt financing and, when applicable, the payment of dividends and/or the repurchases of our Common Shares.

Cash flows provided by financing activities ~~decreased~~increased by ~~$634.5~~$747.9 million. This was primarily due to (i) net proceeds from our public offering of Common Shares during the second quarter of Fiscal 2017 which resulted in a cash inflow of approximately $586.1 million and did not reoccur during Fiscal 2018, (ii) the issuance of an additional $250 million in aggregate principal amount of Senior Notes 2026 at an issue price of 102.75% during the second quarter of Fiscal 2017, which resulted in cash inflow of approximately $256.9 million and did not reoccur during Fiscal 2018, and (iii) an increase in dividend payments made to our shareholders of $14.2 million. These decreases were partially offset by (i) proceeds from drawings on the Revolver of ~~$200.0~~$750 million (ii) an increase of $18.9 million relating to cash collected from the issuance of Common Shares for the exercise of options and the OpenText Employee Share Purchase Plan (ESPP), and (iii) $4.2 million in debt issuance costs paid during the second quarter of Fiscal ~~2017, relating~~2020, which were used, in part, to ~~our Senior Notes 2026, which did not reoccur during Fiscal 2018. The remainder~~fund the acquisition of ~~the change was due to miscellaneous items.~~Carbonite.

Cash Dividends

During the three and six months ended December 31, ~~2017,~~2019, we declared and paid cash dividends of ~~$0.1320~~$0.1746 and ~~$0.2640~~$0.3492 per Common Share, respectively, ~~that totaled $34.8~~in the aggregated amount of $47.1 million and ~~$69.8~~$94.1 million, respectively. Future declarations of dividends and the establishment of future record and payment dates are subject to the final determination and discretion of the Board. See Item 5 "Dividend Policy" in our Annual Report on Form 10-K for Fiscal ~~2017~~2019 for more information.

Long-term Debt and Credit Facilities

Senior Unsecured Fixed Rate Notes

Senior Notes 2026

On May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes 2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.

We may redeem all or a portion of the Senior Notes 2026 at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes 2026 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. ~~In addition, we~~We may also, redeem up to 40% of the aggregate principal amount of Senior Notes 2026, on one or more occasions, prior to June 1, 2019, using the net proceeds from certain qualified equity offerings at a redemption price of 105.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasions, redeem Senior Notes 2026, in whole or in part, at any time on and after June 1, 2021 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2026, dated as of May 31, 2016, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (the 2026 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of changes of control triggering events specified in the 2026 Indenture, we will be required to make an offer to repurchase Senior Notes 2026 at a price equal to 101% of the principal amount of Senior Notes 2026, plus accrued and unpaid interest, if any, to the date of purchase.

The 2026 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of the notes; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2026 Indenture. The 2026 Indenture also provides for events of default, which, if any of them occurs, may permit or, in

certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding notes to be due and payable immediately.

Senior Notes 2026 are ~~initially~~ guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2026 and the guarantees rank equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of the our and our guarantors’ future subordinated debt. Senior Notes 2026 and the guarantees will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations under the senior credit facilities, to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2026 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2026 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on May 31, 2016.

Senior Notes 2023

On January 15, 2015, we issued $800 million in aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior Notes 2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015. Senior Notes 2023 will mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.

We may, redeem all or a portion of the Senior Notes 2023 at any time prior to January 15, 2018 at a redemption price equal to 100% of the principal amount of Senior Notes 2023 plus an applicable premium, plus accrued and unpaid interest, if any, to the redemption date. In addition, we may also redeem up to 40% of the aggregate principal amount of Senior Notes 2023, on one or more occasions, prior to January 15, 2018, using the net proceeds from certain qualified equity offerings at a redemption price of 105.625% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with certain conditions. We may, on one or more occasion, redeem Senior Notes 2023, in whole or in part, at any time ~~on and after January 15, 2018~~ at the applicable redemption prices set forth in the indenture governing the Senior Notes 2023, dated as of January 15, 2015, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon (as successor to Citibank N.A.), as U.S. trustee, and BNY Trust Company of Canada (as successor to Citi Trust Company Canada), as Canadian trustee (the 2023 Indenture), plus accrued and unpaid interest, if any, to the redemption date.

If we experience one of the kinds of changes of control triggering events specified in the 2023 Indenture, we will be required to make an offer to repurchase Senior Notes 2023 at a price equal to 101% of the principal amount of Senior Notes 2023, plus accrued and unpaid interest, if any, to the date of purchase.

The 2023 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i) create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional indebtedness of the Company or the subsidiary guarantors without such subsidiary becoming a subsidiary guarantor of Senior Notes 2023; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in the 2023 Indenture. The 2023 Indenture also provides for events of default, which, if any of them occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-outstanding notes to be due and payable immediately.

Senior Notes 2023 are ~~initially~~ guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2023 and the guarantees rank equally in right of payment with all of our and our subsidiary guarantors’ existing and future senior unsubordinated debt and will rank senior in right of payment to all of our and our subsidiary guarantors’ future subordinated debt. Senior Notes 2023 and the guarantees will be effectively subordinated to all of ours and our guarantors’ existing and future secured debt, including the obligations under the Revolver and Term Loan B (as defined herein), to the extent of the value of the assets securing such secured debt.

The foregoing description of the 2023 Indenture does not purport to be complete and is qualified in its entirety by reference to the full text of the 2023 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on January 15, 2015.

Notes due 2022

time) on February 27, 2020. During the period between our acquisition of Carbonite and that date, each $1,000 principal amount of Notes due 2022 surrendered for conversion will be converted into $1,068.7341 in cash.

Term Loan B

On ~~January 16, 2014,~~May 30, 2018, we entered into a credit facility, which provides for a ~~$800 million~~$1 billion term loan facility with certain lenders named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and ~~with Barclays and RBC Capital Markets~~ as lead ~~arrangers~~arranger and joint ~~bookrunners~~bookrunner (Term Loan B) and borrowed the full amount on May 30, 2018 to, among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on January 16,

2014. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity.

Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with the Revolver. Term Loan B has a seven year ~~term.~~term, maturing in May 2025.

Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s option, either (1) the eurodollar rate for the interest period relevant to such borrowing or (2) an ABR rate. The applicable margin for borrowings under Term Loan B is ~~2.00%~~1.75%, with respect to LIBOR advances and ~~1.00%~~0.75%, with respect to ABR advances. The interest on the current outstanding balance for Term Loan B is equal to ~~2.0%~~1.75% plus ~~LIBOR.~~LIBOR (subject to a 0.00% floor). As of December 31, ~~2017,~~2019, the outstanding balance on the Term Loan B bears an interest rate of approximately ~~3.35%~~3.45%.

Term Loan B has incremental facility capacity of (i) $250 million plus (ii) additional amounts, subject to meeting a “consolidated senior secured net leverage” ratio not exceeding 2.75:1.00, in each case subject to certain conditions. Consolidated senior secured net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, that is secured by our or any of our subsidiaries’ assets, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges.

Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation and other miscellaneous charges. As of December 31, ~~2017,~~2019, our consolidated net leverage ratio was 2.3:1.

~~For further details relating to our Term Loan B, please see note 10 "Long-Term Debt" to our Condensed Consolidated Financial Statements.~~

Revolver

~~We currently have a $450 million~~On October 31, 2019, we amended our committed revolving credit facility (the Revolver) ~~which matures on~~to increase the total commitments under the Revolver from $450 million to $750 million as well as to extend the maturity from May 5, ~~2022.~~2022 to October 31, 2024. Borrowings under the Revolver are secured by a first charge over substantially all of our assets, ~~and~~ on a pari passu basis with Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As of December 31, ~~2017,~~2019, the outstanding balance on the Revolver bears ~~a weighted average~~an interest rate of approximately ~~3.20%~~3.29%.

During the three months ended December 31, 2019 we drew down $750 million from the Revolver to partially fund the acquisition of Carbonite. As of December 31, 2019, the full amount drawn remains outstanding (June 30, 2019—nil). During the three and six months ended December 31, ~~2017,~~2019, we ~~drew down nil and $200~~recorded interest expense relating to amounts drawn of approximately $0.6 million, ~~respectively, from the Revolver to finance the acquisition of Guidance (three and six months ended December 31, 2016—nil).~~respectively.

As of December 31, ~~2017~~2018, we ~~have an~~had no outstanding balance on the ~~Revolver of $375 million (June 30, 2017—$175 million). We expect to repay the remaining balance within the next 12 months.~~

~~For the~~Revolver. There was no activity during three and six months ended December 31, ~~2017,~~2018 and we recorded no interest ~~expense of $2.8 million and $4.6 million, respectively,~~expense.

For further details relating to ~~amounts drawn on the Revolver (three and six months ended December 31, 2016—nil, respectively).~~our debt, please see note 11 "Long-Term Debt" to our Condensed Consolidated Financial Statements.

Shelf Registration Statement

On ~~August 30, 2017,~~November 29, 2019, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary offerings from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary shares, warrants, purchase contracts, units and subscription receipts. A base shelf short-form prospectus qualifying the distribution of such securities was concurrently filed with Canadian securities regulators on ~~August 30, 2017.~~November 29, 2019. The type

of securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable prospectus supplement to be filed separately with the SEC and Canadian securities regulators.

Pensions

As of December 31, ~~2017,~~2019, our total unfunded pension plan obligations were ~~$64.1~~$75.9 million, of which ~~$1.9~~$2.3 million is payable within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations in the normal course of operations.

Our anticipated payments under our most significant plans for the fiscal years indicated below are as follows:

Fiscal years ending June 30,
CDT GXS GER GXS PHP
2018 (six months ended June 30) $ 304
$ 484
$ 51
2019 674
997
131
2020 727
1,004
149
2021 821
1,047
240
2022 904
1,057
270
2023 to 2027 5,652
5,637
1,990
Total $ 9,082
$ 10,226
$ 2,831



	Fiscal years ending June 30,
	CDT		GXS GER		GXS PHP
2020 (six months ended June 30)	$	331	$	493	$	31
2021	739		985		268
2022	810		1,017		266
2023	909		1,017		222
2024	1,014		1,023		278
2025 to 2029	5,851		5,171		2,890
Total	$	9,654	$	9,706	$	3,955

For a detailed discussion on pensions, see note 1112 "Pension Plans and Other Post Retirement Benefits" to our Condensed Consolidated Financial Statements.

Commitments and Contractual Obligations

As of December 31, ~~2017,~~2019, we have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as follows:



	Payments due between
	Total		January 1, 2020— June 30, 2020		July 1, 2020— June 30, 2022		July 1, 2022— June 30, 2024		July 1, 2024 and beyond
Long-term debt obligations ⁽¹⁾	$	3,449,651	$	223,222	$	277,680	$	1,031,371	$	1,917,378
Purchase obligations for contracts not accounted for as lease obligations ⁽²⁾	60,978		23,135		32,843		5,000		—
	$	3,510,629	$	246,357	$	310,523	$	1,036,371	$	1,917,378

Guarantees and Indemnifications

Litigation

We are currently involved in various claims and legal proceedings.

status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar proceedings under similar circumstances.

operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already recognized will be incurred that would be material to our consolidated financial position or results of operations. As more fully described below, we are unable at this time to estimate a possible loss or range of losses in respect of certain disclosed matters.

Contingencies

IRS Matter

On July 11, 2018, we also received, consistent with previously disclosed expectations, a draft NOPA may be changed before the final NOPA is issued, including because the IRS reserved the right in the draft NOPA to increase the adjustment. Based on discussions with the IRS, we expect we will receive an additional NOPA proposing ana one time approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 (the 2012 NOPA) arising from the integration of Global 360 Holding Corp. into the structure that resulted from the internal reorganization ~~accompanied by~~in Fiscal 2010, plus penalties equal to 40% of the additional proposed taxes for Fiscal 2012, and interest.

As previously disclosed ~~estimated aggregate liability is solely due to an estimate of interest that has accrued.~~

For additional information regarding the history of this IRS matter, please see Note 13 "Guarantees and Contingencies" in our Annual Report on Form 10-K for Fiscal 2018.

CRA Matter

reassessment for Fiscal 2012, Fiscal 2013 and Fiscal 2014. Assuming the utilization of available tax attributes (further described below), we estimate our potential aggregate liability, as of December 31, 2019, in connection with the CRA's reassessments for Fiscal 2012, Fiscal 2013 and Fiscal 2014 to be limited to penalties and interest that may be due of approximately $25 million.

The notices of reassessment for Fiscal 2012, ~~that~~Fiscal 2013 and Fiscal 2014 would, as drafted, increase our taxable income ~~for that year~~ by approximately $90 million ~~(offset by~~to $100 million for each of those years, as well as impose a 10% penalty on the ~~tax attributes referred~~proposed adjustment to ~~below) and is expected to propose related penalties of approximately 10%.~~ income.

~~GXS Brazil Matter~~

judicial appeal of a tax claim. During the first quarter of Fiscal 2018 the courts ruled in favour of the municipality of São Paulo. The Company has decided not to pursue further appeal. On October 1, 2017, the Company reached a settlement with the municipality and paid $1.4 million.

GXS India Matter

Carbonite Class Action Complaint

Carbonite vs Realtime Data

amount and injunctive relief. On December 19, 2017, the U.S. District Court for the Eastern District of Texas transferred the case to the U.S District Court for the District of Massachusetts (No. 1:17-cv-12499). Realtime Data has also filed numerous other patent suits on the asserted patents against other companies around the country. In one of those suits, filed in the U.S. District Court for the District of Delaware, the Delaware Court on July 29, 2019 dismissed the lawsuit after declaring invalid three of the four patents asserted by Realtime Data against Carbonite. By way of Order dated August 19, 2019, the U.S. District Court for the District of Massachusetts stayed the action against Carbonite pending appeal of the dismissal in the Delaware lawsuit. As to the fourth patent, the U.S. Patent & Trademark Office Patent Trial and Appeal Board on September 24, 2019 invalidated certain claims of that patent. No trial date has been set in the action against Carbonite. The Company is defending Carbonite vigorously. We have not accrued a loss contingency related to this matter because litigation related to a non-practicing entity is inherently unpredictable. Although a loss is reasonably possible, an unfavorable outcome is not considered by management to be probable at this time and we remain unable to reasonably estimate a possible loss or range of loss associated with this litigation.

Please also see Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for Fiscal ~~2017.~~2019.

Off-Balance Sheet Arrangements

We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business, and the use of operating leases for office space, computer equipment, and vehicles. None of the operating leases described in the previous sentence has, and we currently do not believe that they potentially may have, a material effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. 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 criteria for capitalization.business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans and foreign currency exchange rates.

Interest rate risk

Our exposure to interest rate fluctuations relate primarily to our Term Loan B and the Revolver.

As of December 31, ~~2017,~~2019, we had an outstanding balance of ~~$768.2~~$982.5 million on Term Loan B. Term Loan B bears a floating interest rate of ~~2.0%~~1.75% plus LIBOR. As of December 31, ~~2017,~~2019, an adverse change of one percent on the interest rate would have the effect of increasing our annual interest payment on Term Loan B by approximately ~~$7.7~~$9.8 million, assuming that the loan balance as of December 31, ~~2017~~2019 is outstanding for the entire period (June 30, ~~2017—~~2019—$~~7.7~~9.9 million).

As of December 31, ~~2017,~~2019, we had an outstanding balance of ~~$375~~$750.0 million on the Revolver. Borrowings under the Revolver bear interest per annum at a floating rate of LIBOR plus a fixed rate that is dependent on our consolidated net leverage ratio ranging from 1.25% to 1.75%. As ofat December 31, ~~2017,~~2019, an adverse change of one percent on the interest rate would have the effect of increasing our annual interest payment on the Revolver by approximately ~~$3.8~~$7.5 million, assuming that the ~~loan~~full balance as of December 31, 2019 is outstanding for the entire ~~year~~period (June 30, ~~2017—$1.8 million)~~2019—nil).

Foreign currency risk

Foreign currency transaction risk

We transact business in various foreign currencies. Our foreign currency exposures typically arise from intercompany fees, intercompany loans and other intercompany transactions that are expected to be cash settled in the near term. We expect that we will continue to realize gains or losses with respect to our foreign currency exposures. Our ultimate realized gain or loss with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we enter into, the currency exchange rates associated with these exposures and changes in those rates. Additionally, we have hedged certain of our Canadian dollar foreign currency exposures relating to our payroll expenses in Canada.

Based on the foreign exchange forward contracts outstanding as of December 31, ~~2017,~~2019, a one cent change in the Canadian dollar to U.S. dollar exchange rate would have caused a change of approximately ~~$0.5~~$0.6 million in the mark to market on our existing foreign exchange forward contracts (June 30, ~~2017—~~2019—$~~0.4~~0.6 million).

Foreign currency translation risk

Our reporting currency is the U.S. dollar. Fluctuations in foreign currencies impact the amount of total assets and liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. In particular, the amount of cash and cash equivalents that we report in U.S. dollars for a significant portion of the cash held by these subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each

respective reporting period (the offset to which is recorded to accumulated other comprehensive income on our Condensed Consolidated Balance Sheets).

The following table shows our cash and cash equivalents denominated in certain major foreign currencies as of December 31, ~~2017~~2019 (equivalent in U.S. dollar):


(In thousands)	U.S. Dollar Equivalent at December 31, 2017		U.S. Dollar Equivalent at June 30, 2017		U.S. Dollar Equivalent at December 31, 2019		U.S. Dollar Equivalent at June 30, 2019
Euro	$	89,592	$	121,621	$	58,020	$	120,417
British Pound	34,146		30,425		30,603		33,703
Canadian Dollar	16,761		29,131		15,678		12,635
Swiss Franc	18,330		41,925		34,163		56,776
Other foreign currencies	93,447		87,144		97,856		105,273
Total cash and cash equivalents denominated in foreign currencies	252,276		310,246		236,320		328,804
U.S. dollar	223,738		133,111		439,083		612,205
Total cash and cash equivalents	$	476,014	$	443,357	$	675,403	$	941,009

If overall foreign currency exchange rates in comparison to the U.S. dollar uniformly weakened by 10%, the amount of cash and cash equivalents we would report in equivalent U.S. dollars would decrease by approximately ~~$25.2~~$23.6 million (June 30,

~~2017—~~ 2019—$~~31.0~~32.9 million), assuming we have not entered into any derivatives discussed above under "Foreign Currency Transaction Risk".

Item 4. Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, ~~2017,~~2019, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information required to be disclosed by us in the reports we file under the Exchange Act (according to Rule 13(a)-15(e)) is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(B) Changes in Internal Control over Financial Reporting (ICFR)

Based on the evaluation completed by our management, in which our Chief Executive Officer and Chief Financial Officer participated, our management has concluded that there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, ~~2017~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~PART~~

Part II - Other Information

Item 1A. Risk Factors

~~The following risk factors update, and are in addition to,~~You should carefully consider the risk factors discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for our fiscal year ended June 30, ~~2017, and should be read~~2019 in ~~conjunction therewith.~~addition to the risk factors set forth below. These are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies.

We may fail to realize all of the anticipated benefits of the acquisition of Carbonite or those benefits may take longer to realize than expected.

~~Our provision for income taxes~~

We may be required to devote significant management attention and ~~effective income tax rate~~resources to integrating the business practices and operations of OpenText and Carbonite. As we continue to integrate, we may ~~vary significantly~~experience disruptions to our business and, ~~may adversely affect~~if implemented ineffectively, it could restrict the realization of the full expected benefits. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the acquisition of Carbonite could cause an interruption of, or loss of momentum in, our ~~results of~~ operations and ~~cash resources~~

Significant judgment is required in determining our provision for income taxes. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes, income taxes receivable, and our effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, including the Tax Cuts and Jobs Act which was enacted in the United States on December 22, 2017, results of audits by tax authorities, changing interpretations of existing tax laws or regulations, changes in estimates of prior years' items, the impact of transactions we complete, future levels of research and development spending, changes in the valuation of our deferred tax assets and liabilities, transfer pricing adjustments, changes in the overall mix of income among the different jurisdictions in which we operate, and changes in overall levels of income before taxes. Changes in the tax laws of various jurisdictions in which we do business could result from the base erosion and profit shifting (BEPS) project being undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, a coalition of member countries, has been developing recommendations for international tax rules to address different types of BEPS, including situations in which profits are shifted (or payments are made) from higher tax jurisdictions to lower tax jurisdictions. Adoption of these recommendations (or other changes in law or policy) by the countries in which we do business could adversely affect our provision for income taxes and our effective tax rate. Furthermore, new accounting pronouncements or new interpretations of existing accounting pronouncements (such as those that may be described in note 2 “Recent Accounting Pronouncements” in our notes to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q), and/or any internal restructuring initiatives we may implement from time to time to streamline our operations, can have a material impact on our effective income tax rate. In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operational legal entity in each jurisdiction.

~~Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and our~~

transfer pricing methodology based upon our limited risk distributor model, the result of which could have a material adverse effect on our financial condition and results of operations. Although we believe our estimates are reasonable, the ultimate outcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements, and this difference may materially affect our financial position and financial results in the period or periods for which such determination is made.

For more details of tax audits to which we are subject and the impact of the recently enacted Tax Cuts and Jobs Act in the United States, see notes 13 "Guarantees and Contingencies" and 14 "Income Taxes", respectively, to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Certain of our products may be perceived as, or determined by the courts to be, a violation of privacy rights and related laws. Any such perception or determination could adversely affect our revenues and results of operations.

Because of the nature of certain of our products, including those relating to digital investigations, potential customers and purchasers of our products or the public in general may perceive that use of these products may result in violations of their individual privacy rights. In addition, certain courts or regulatory authorities could determine that the use of our software solutions or other products is a violation of privacy laws, particularly in jurisdictions outside of the United States. Any such determination or perception by potential customers, the general public, government entities or the judicial system could harm our reputation and adversely affect our business, financial condition and results of operations.

Furthermore, as we continue the integration of Carbonite, it may result in material unanticipated problems, expenses, charges, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s attention. Additional integration challenges may include:

Difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition;

Difficulties in the integration of operations and systems, including pricing and marketing strategies, which may hurt the sale of hybrid backup solutions which are sensitive to price; and

Difficulties in conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures.

Many of these factors will be outside of our control and any one of them could result in increased costs, including restructuring charges, decreases in the amount of expected revenues and diversion of management’s time and energy, which could adversely affect our business, financial condition and results of operations.

We may be unable to maintain or expand our base of SMB and professional consumer customers, which could adversely affect our anticipated future growth and operating results.

With the acquisition of Carbonite, we have expanded our presence in the SMB market as well as the consumer market. To expand in this market may require substantial resources and increased marketing efforts, different to what we are accustomed to. If we are unable to market and sell our solutions to the SMB market and consumers with competitive pricing and in a cost-effective manner, it may harm our ability to grow our revenues and adversely affect our results of operation. In addition, SMBs frequently have limited budgets and are more likely to be significantly affected by economic downturns than larger, more established companies. As such, SMBs may choose to spend funds on items other than our solutions, particularly during difficult economic times, which may hurt our projected revenues, business financial condition and results of operations.

Item 6. Exhibits ~~and Financial Statements Schedules~~

The following documents are filed as a part of this report:



Exhibit Number		Description of Exhibit
2.1		Agreement and Plan of Merger (1)
4.1		Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare Investor Services, Inc. dated September 4, 2019 (2)
4.2		Indenture (including form of Note), dated as of April 4, 2017, by and between Carbonite, Inc. and U.S. Bank National Association, as trustee
4.3		First Supplemental Indenture, dated as of December 24, 2019, by and between Carbonite, Inc. and U.S. Bank National Association, as trustee
10.1		Fourth Amended and Restated Credit Agreement (3)
31.1		Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(1) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on November 12, 2019 and incorporated herein by reference.

(2) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 4, 2019 and incorporated herein by reference.

(3) Filed as an Exhibit to Company's Current Report on Form 8-K, as filed with the SEC on November 5, 2019 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

OPEN TEXT CORPORATION

Date: January ~~31, 2018~~30, 2020



By:	/s/ MARK J. BARRENECHEA
	Mark J. Barrenechea Vice ~~Chairman,~~Chair, Chief Executive Officer and Chief Technology Officer (Principal Executive Officer)
	/s/ ~~JOHN M. DOOLITTLE~~MADHU RANGANATHAN
	~~John M. Doolittle~~Madhu Ranganathan Executive Vice President and Chief Financial Officer (Principal Financial Officer)
	~~/s/ ADITYA MAHESHWARI~~
	~~Aditya Maheshwari~~ ~~Senior Vice President and Chief Accounting Officer~~ (Acting Principal Accounting Officer)

6877



	December 31, 2017			June 30, 2017
ASSETS	(unaudited)
Cash and cash equivalents	$	476,014		$	443,357
Accounts receivable trade, net of allowance for doubtful accounts of $8,503 as of December 31, 2017 and $6,319 as of June 30, 2017 (note 3)	511,969			445,812
Income taxes recoverable (note 14)	23,861			32,683
Prepaid expenses and other current assets	101,063			81,625
Total current assets	1,112,907			1,003,477
Property and equipment (note 4)	260,896			227,418
Goodwill (note 5)	3,578,976			3,416,749
Acquired intangible assets (note 6)	1,468,378			1,472,542
Deferred tax assets (note 14)	1,158,836			1,215,712
Other assets (note 7)	96,612			93,763
Deferred charges (note 8)	39,204			42,344
Long-term income taxes recoverable (note 14)	23,412			8,557
Total assets	$	7,739,221		$	7,480,562
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 9)	$	318,008		$	342,120
Current portion of long-term debt (note 10)	382,760			182,760
Deferred revenues	557,873			570,328
Income taxes payable (note 14)	30,084			31,835
Total current liabilities	1,288,725			1,127,043
Long-term liabilities:
Accrued liabilities (note 9)	47,379			50,338
Deferred credits (note 8)	4,005			5,283
Pension liability (note 11)	62,213			58,627
Long-term debt (note 10)	2,385,709			2,387,057
Deferred revenues	68,934			61,678
Long-term income taxes payable (note 14)	176,222			162,493
Deferred tax liabilities (note 14)	77,182			94,724
Total long-term liabilities	2,821,644			2,820,200
Shareholders’ equity:
Share capital and additional paid-in capital (note 12)
265,625,515 and 264,059,567 Common Shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively; authorized Common Shares: unlimited	1,650,217			1,613,454
Accumulated other comprehensive income	47,521			48,800
Retained earnings	1,949,503			1,897,624
Treasury stock, at cost (714,169 shares at December 31, 2017 and 1,101,612 at June 30, 2017, respectively)	(19,250		)	(27,520		)
Total OpenText shareholders' equity	3,627,991			3,532,358
Non-controlling interests	861			961
Total shareholders’ equity	3,628,852			3,533,319
Total liabilities and shareholders’ equity	$	7,739,221		$	7,480,562



Balance as of June 30, 2017	$	6,319
Bad debt expense	3,591
Write-off /adjustments	(1,407		)
Balance as of December 31, 2017	$	8,503



Balance as of June 30, 2017	$	3,416,749
Acquisition of Guidance (note 18)	130,939
Acquisition of Covisint (note 18)	26,905
Adjustments relating to acquisitions prior to Fiscal 2018 with open measurement periods (note 18)	(1,458		)
Adjustments on account of foreign exchange	5,841
Balance as of December 31, 2017	$	3,578,976



	Fiscal years ending June 30,
2018 (six months ended June 30)	$	186,702
2019	346,701
2020	275,188
2021	187,202
2022	177,208
2023 and beyond	295,377
Total	$	1,468,378



	Payments due between
	Total		January 1, 2018— June 30, 2018		July 1, 2018— June 30, 2020		July 1, 2020— June 30, 2022		July 1, 2022 and beyond
Long-term debt obligations ⁽¹⁾	$	3,548,840	$	444,606	$	256,925	$	952,559	$	1,894,750
Operating lease obligations ⁽²⁾	376,430		38,543		128,976		96,213		112,698
Purchase obligations	20,515		5,158		14,776		581		—
	$	3,945,785	$	488,307	$	400,677	$	1,049,353	$	2,007,448



Fiscal 2018 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2017	$	—		$	—		$	—
Accruals and adjustments	7,535			819			8,354
Cash payments	(7,859		)	(73		)	(7,932		)
Foreign exchange and other non-cash adjustments	930			6			936
Balance payable as at December 31, 2017	$	606		$	752		$	1,358



Fiscal 2017 Restructuring Plan	Workforce reduction			Facility costs			Total
Balance payable as at June 30, 2017	$	10,045		$	1,369		$	11,414
Accruals and adjustments	2,880			542			3,422
Cash payments	(10,539		)	(914		)	(11,453		)
Foreign exchange and other non-cash adjustments	600			4			604
Balance payable as at December 31, 2017	$	2,986		$	1,001		$	3,987



Cash consideration*	$	237,291
Guidance shares already owned by OpenText through open market purchases (at fair value)	3,247
Preliminary purchase consideration	$	240,538



Current assets (inclusive of cash acquired of $5.7 million)	$	24,754
Non-current tangible assets	10,540
Intangible customer assets	71,230
Intangible technology assets	51,851
Liabilities assumed	(48,776		)
Total identifiable net assets	109,599
Goodwill	130,939
Net assets acquired	$	240,538



Current assets	$	683
Non-current deferred tax asset	11,861
Non-current tangible assets	2,348
Intangible customer assets	64,000
Intangible technology assets	101,000
Liabilities assumed	(38,090		)
Total identifiable net assets	141,802
Goodwill	173,198
Net assets acquired	$	315,000



Current assets	$	30,034
Non-current tangible assets	1,245
Intangible customer assets	51,900
Intangible technology assets	24,800
Long-term deferred tax liabilities	(1,780		)
Other liabilities assumed	(27,497		)
Total identifiable net assets	78,702
Goodwill	91,405
Net assets acquired	$	170,107