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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2002.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-27544
OPEN TEXT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ontario, Canada 98-0154400
- ------------------------------------------ ---------------------------------
(State or other jurisdiction (IRS employer
of incorporation or organization) identification no.)
185 Columbia Street West
Waterloo, Ontario, Canada N2L 5Z5
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (519) 888-7111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
---------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the Registrant's Common Shares held by
non-affiliates as of September 17, 2002 was approximately $339 million. The
number of the Registrant's Common Shares outstanding as of September 17, 2002
was 19,277,795.
Page 1 of 84
Exhibit Index Appears at Page i
Table of Contents
Page #
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Part I
Item 1 - Business 3
Item 2 - Properties 13
Item 3 - Legal Proceedings 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Part II
Item 5 - Market for Registrant's Common Equity
and Related Stock Matters 14
Item 6 - Selected Consolidated Financial Data 19
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 7a - Quantitiative and Qualitative Disclosure
about Market Risk 37
Item 8 - Financial Statements and Supplementary Data 39
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 69
Part III
Item 10 - Directors and Executive Officers of the Registrant 69
Item 11 - Executive Compensation 72
Item 12 - Security Ownership of Certain Beneficial
Owners of the Registrant 75
Item 13 - Certain Relationships and Related Transactions 76
Item 14 - Controls and Procedures 76
Part IV
Item 14 - Exhibits and Reports on Form 8-K 76
Signatures 82
2
PART I
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements that express or involve
discussions with respect to predictions, expectations, beliefs, plans,
projections, objectives, assumptions or future events or performance or the
outcome of litigation (often, but not always, using words or phrases such as
"believes", "expects" or "does not expect", "is expected", "anticipates" or
"does not anticipate", or "intends" or stating that certain actions, events or
results "may", "could", "would", "might" or "will" be taken or achieved) are not
statements of historical fact and may be "forward-looking statements". Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or developments in the Company's business or in its industry, to
differ materially from the anticipated results, performance, achievements or
developments expressed or implied by such forward- looking statements. Any
forward-looking statements should be considered in light of the risks and
uncertainties discussed in Item 7 under "Cautionary Statements" beginning on
page 32 of this Annual Report on Form 10-K. Readers should not place undue
reliance on any such forward-looking statements, which speak only as of the date
they are made. Forward-looking statements are based on management's current
plans, estimates, opinions and projections, and the Company assumes no
obligation to update forward-looking statements if assumptions of these plans,
estimates, opinions and projections should change.
Item 1. Business
The Company
Open Text Corporation was incorporated on June 26, 1991 pursuant to
articles of incorporation under the Business Corporations Act (Ontario). The
Company amended its articles on August 1, 1995 and November 16, 1995,
respectively, and filed articles of amalgamation on June 30, 1992, December 29,
1995, July 1, 1997, July 1, 1998, July 1, 2000, and July 1, 2002. References
herein to the "Company" or "Open Text" refer to Open Text Corporation and its
subsidiaries. The Company's principal executive offices are located at 185
Columbia Street West, Waterloo, Ontario, Canada N2L 5Z5, and its telephone
number at that location is (519) 888-7111. The Company's World Wide Web homepage
address is www.opentext.com. Throughout this Form 10-K, the term "fiscal 2002"
means the Company's fiscal year beginning on July 1, 2001 and ending on June 30,
2002 and the term "fiscal 2001" means the Company's fiscal year beginning July
1, 2000 and ending on June 30, 2001.
BUSINESS OF THE COMPANY
Open Text develops, markets, licenses and supports collaboration and
knowledge management software for use on intranets, extranets and the Internet,
enabling users to find electronically stored information, work together in
creative and collaborative processes, perform group calendaring and scheduling,
and distribute or make available to users across networks or the Internet the
resulting work product and other information. The Company's software enables
thousands of organizations to effectively address a diverse range of business
needs including managing information, unifying globally distributed teams,
capturing market opportunities, accelerating product cycles, improving customer
and partner relationships, and altering business strategies.
Open Text(TM) delivers Web-based software that provides a
collaborative work environment and an integrated knowledge management system to
enable organizations to capitalize on their collective knowledge, work more
effectively across geographies and functional boundaries, and leverage best
practices across the enterprise. Open Text provides integrated solutions that
enable people to use information and technology more effectively at departmental
levels and across enterprises. The Company offers its solutions both as end-user
stand-alone products and as fully integrated modules, which together provide a
complete solution that is easily incorporated into existing
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enterprise business systems. Although most of the Company's technology is
proprietary in nature, the Company does include certain third party software in
its products.
The Company's principal product line is Livelink(R), a leading
collaboration and knowledge management software for global enterprises. By
effectively managing people, processes and information, Livelink enables
companies to be more efficient and innovative in managing their intellectual
property. Livelink integrates several engines including, but not limited to,
search, collaboration, workflow, group calendaring and scheduling, and document
management. Its tightly integrated functionalities deliver true dynamic
collaboration and knowledge sharing between individuals, teams and
organizations. This collaborative environment enables ad hoc teams to form
quickly across functional and organizational boundaries, which enables
information to be accessed by employees using any standard Web browser. Fully
Web-based and open-architectured, Livelink provides rapid out-of-the-box
deployment, accelerated adoption, and low cost of ownership.
Livelink's architecture is three-tiered, standards-based and modular
in design, providing organizations with the highest levels of scalability,
extensibility, openness and security. A modular backplane architecture in
Livelink lets Open Text and third parties add new functionality without having
to wait for new releases. New functionality can be added by building a Livelink
module with the Livelink SDK(TM), which are easily installed, removed and
upgraded. When installed, they dynamically register themselves with Livelink and
take on the Livelink look and feel, comply with Livelink structure and behave as
part of the inherent feature set of Livelink. Open Text has designed, developed,
and tested solutions that provide enterprise scalability based on Livelink's
modular architecture.
The Company believes that two key factors distinguish Livelink from
competing alternatives. First, unlike collaborative software developed for
client/server environments, Livelink was designed from the outset to run on the
Internet. As Web-based technology, Livelink scales easily and rapidly to
thousands of users, gigabytes of data, and millions of documents. Second, unlike
solutions offering tools for users to build custom collaborative applications,
Livelink is a ready-to-install application. It has open architecture, is easy to
customize and requires no special development for project teams to quickly
become productive. As a result, companies may enhance their ability to realize
their return on investment quickly.
As an extension to its solutions-based offerings, the Company also
provides professional services, training, documentation and technical support
services to accelerate its customers implementation of, and satisfaction with,
its products. Open Text believes that its ability to offer a high level of
customer support and service is critical to its success. Most of Open Text's
customer support and service activities are provided through telephone support,
as most software problems can be serviced remotely. The Company's major products
are typically licensed with an annual maintenance contract, which for a fee
generally around 18.5% of the list price of the licensed software system,
entitles the customer to remote support, product updates and maintenance
releases. For additional fees, Open Text also offers training and consulting
services and provides integration services for the purpose of customizing the
Company's software to specific customer needs. Open Text also maintains a
"business partner support program" that provides training and support for
original equipment manufacturers ("OEMs") and value-added resellers ("VARs").
The Company is expanding its customer support and professional services staff.
As of June 30, 2002, Open Text employed 333 customer support and professional
service personnel.
In the six years since the introduction of the Livelink product line,
Livelink has achieved significant market acceptance. Organizations with tens of
thousands of users are deploying Livelink for business-critical applications.
Numerous VARs, solution providers, technology partners, application service
providers ("ASPs"), and systems integrators have joined Open Text's Livelink
Affinity Partner program since its inception. Business, technical, and marketing
relationships have also been formed with industry leaders such as Adobe(TM),
Hewlett Packard(TM), Microsoft(TM), Netscape(TM), Oracle(TM), Sun(TM), and
SAP(TM). Open Text's Affinity ASP program offers organizations a cost-effective
way to deploy and support mission critical applications.
Open Text has consistently sought to broaden its technology base and
product offerings and to strengthen its sales and customer support capabilities
through acquisitions. Open Text assesses each potential acquisition target with
specific emphasis on three main factors. First, the Company seeks to acquire
businesses with technologies that can be integrated with its existing
technologies to create new products and enhance the existing product family.
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Second, the Company seeks to acquire businesses with experienced IT development
and management personnel that may have specific domain expertise. Third, the
Company seeks to acquire businesses that offer a new distribution channel or
customer base for Open Text's products.
Products and Technology
In February 2002, Open Text released Livelink 9.1, the latest release
of the Company's flagship product. The Livelink Web server runs on a variety of
computing platforms, including Microsoft(TM) Windows NT(TM), Microsoft Windows
2000(TM), Sun SPARC/Solaris(TM), and Hewlett-Packard HP-UX(TM) operating
systems. Livelink 9.1 provides a combination of collaborative knowledge
management services, custom workspaces, and a modular architecture with
value-added application modules. This latest release of Livelink includes
English, French, German, and Japanese language versions. Livelink 9.1 is
certified with a variety of relational database management systems: Microsoft
SQL Server(TM), Oracle 9i(TM), and Sybase Adaptive Server(TM), HTTP servers
(iPlanet Web Server Enterprise Edition(TM) and Microsoft Internet Information
Server(TM)), and Web browsers (Netscape Navigator(TM) and Microsoft Internet
Explorer(TM)).
In November 2001, the Company released Livelink MeetingZone(TM), a
product that adds real-time collaboration capabilities to Livelink's already
extensive asynchronous collaboration capabilities. It enables members of
geographically dispersed teams, including customers, suppliers, consultants, and
other trading partners, to attend real-time virtual Web meetings, regardless of
their location, using a standard Web browser. During a live meeting session,
attendees can view applications shared by the presenter, conduct group chats,
have private conversations, use the whiteboard tool, and create and view agenda
items, notes, tasks, and Web links. When the meeting ends, all of this
information, including a meeting summary, is captured in Livelink automatically,
becoming a permanent part of an organization's knowledge capital and providing
benefits long after the meeting is over.
In April 2001, the Company released Livelink Wireless(TM), a product
that delivers one-click access to Livelink's dynamic content and collaboration,
allowing users to stay in constant contact with the important events taking
place in an organization. This module also allows users to personalize their
wireless access. The Livelink Wireless product enables quick and easy
configuration of menu items, the set up of shortcuts to favorite Livelink items,
and storage of a user's contact file for one-touch dialing and e-mailing from a
wireless device.
Collaborative Management Services
Livelink offers the power of tightly integrated knowledge management
services--Knowledge Library Management, Information Retrieval, Virtual Team
Collaboration, and Business Process Automation. Other services including,
Enterprise Group Scheduling, Document Collection Management, Library Automation,
Records Management, Content Management and High Volume Workflow and Imaging
Solutions are available as standalone products, or as fully integrated and
comprehensive Livelink solutions.
. Knowledge Library Management - Open Text's corporate document
management technology provides a secure, central repository where
organizations store and manage documents and other objects (workflow
maps, discussions, tasks or news) in an organized, hierarchical
structure. The Knowledge Library is accessible from multiple
locations, allowing users to access, browse, search, store and manage
virtually any type of object in a controlled, secure environment.
The Knowledge Library includes support for compound documents,
document aliases, version control, audit trails, reserve,
check-in/out, and eight levels of permission for each object. The
technology also allows organizations to create their own custom
document categories and attributes.
. Information Retrieval - The Livelink's Information Retrieval
functionality helps users find and access information from anywhere
throughout the enterprise--including the corporate information
repository, corporate Web sites and across the Internet. Authorized
users have on-demand access to information even if their
knowledge-base spans distributed and diverse network environments.
More than full-text search and
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retrieval, Livelink provides an integrated set of information retrieval
tools, including intelligent agents and sophisticated reports that give
users unprecedented insight into the knowledge, actions and activities
being developed throughout an organization.
Livelink's Information Retrieval provides high performance and linear
scaling, even across millions of documents and terabytes of information.
Livelink allows an organization to build searchable databases of virtually
any size by indexing documents, files and other objects in any standard
format, including XML, HTML, PDF and other popular file formats. It
recognizes that documents are often characterized by complex structures.
For example, documents often contain titles, headings, sections,
subsections and paragraphs. Open Text's search engine can search any number
of different user-defined document structures. It supports SGML and XML,
the key international standards for structured documents.
Sophisticated search features include the ability to search a subset of the
index ("slices"), contextual/proximity searching, an advanced query builder
interface, thesaurus support, word stemming, "sounds like" searching, and a
powerful end-user query language. Livelink's Data Flows facilitate moving
information between Livelink and other data sources (e.g., a user could
create a data flow which crawls a number of competitor's Web sites,
converts all the information to PDF format, and indexes it as different
slices for searching).
In addition to the information retrieval capabilities that are part of
Livelink, the Company also offers BRS/Search(TM) and Query Server(TM) from
the Company's BRS Products division. BRS/Search is a search engine for
publishing large quantities of dynamic, customized information in all
Web-based applications requiring sophisticated functionality and
appearance. BRS/Search incorporates flexible filtering and state-of-the-art
search, control, and presentation tools for enterprise information
retrieval. It has been used by thousands of organizations to quickly
design, prototype, and develop applications that provide real-time access
to the organization's islands of information, memos, reports, competitive
intelligence, documents, or any other type of unstructured data. Query
Server is an advanced meta search tool that broadcasts a single query
across a set of Web-enabled search engines, unifying access to multiple
information sources, including repositories, news feeds, document
management systems, intranets, and the Internet.
.. Virtual Team Collaboration - Livelink's Virtual Team Collaboration enables
people who work together to share information and experiences, and to
achieve common business objectives. Every project in Livelink has its own
secure project workspace, including a home page, knowledge library,
workflows, task lists, channels, discussions, participant list and project
outline, to give users and workgroups everything they need to coordinate
all aspects of a project. Livelink accommodates every type of project--from
ongoing processes such as quality assurance, to short-term events such as
joint marketing campaigns with external partners. Livelink projects provide
a valuable online focal point for "virtual teams" in either centralized or
highly distributed environments worldwide.
.. Business Process Automation - Open Text's workflow technology enables users
to graphically create, modify, manage and deploy simple or complex business
processes. Livelink's Business Process Automation services route a complete
work package to appropriate users, providing the information they need to
do their job and to keep projects and processes on track.
Sophisticated workflow features include a graphical Java-based Workflow
Designer, serial or parallel routing, rendezvous and loop back conditions,
sub-workflows, conditional branching with true/false statements, user
dispositions and/or custom workflow attribute values, multiple end points,
intelligent electronic forms, milestones, audit trails, and graphical
workflow status. For example, Livelink's Workflows can manage standard
operating procedures such as travel requests, payroll increases and
vacation requests.
.. Enterprise Group Scheduling - Open Text also offers group scheduling and
calendaring services. Using OnTime(R), anyone with a Web browser can access
calendar information, schedule meetings, respond to meeting invitations and
view public calendars from anywhere on the Internet.
The scheduling technology includes the ability to view, add and modify
appointments, group meetings and tasks, notes, attendee lists, RSVP status
and meeting frequency, as well as the ability to view and search other
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people's calendars, event schedules, resource (rooms, rentals, etc.)
schedules, or any other schedule "published" to the Web. Daily, weekly and
monthly planners provide a detailed listing of a user's appointments and
tasks for the selected day, week or month.
OnTime is available as an integrated enterprise group scheduling Livelink
module. Livelink and OnTime integration adds project and personal calendar
capability to Livelink, enabling Livelink users to keep track of critical
project milestones and schedule activities with full knowledge of each
participant's calendar--considerably enhancing Livelink's virtual team
collaboration capabilities.
.. Document Collections Management - Open Text also offers the BASIS(R)
software product line to support the management of specialized corporate
and government document collections. Designed for comprehensive library
control, BASIS provides a solution for companies who need access to hybrid
document collections consisting of both documents and metadata. Used by
major commercial and government information centers, BASIS provides library
automation, research and records management, litigation support,
intellectual property protection, content management and competitive
intelligence.
BASIS is available as a stand-alone product or as part of a fully
integrated solution with Livelink. The Livelink Activator for BASIS(TM)
integrates the collaborative features of Livelink with the collection
management features of BASIS. This module extends BASIS information
management and library automation functionality to fully exploit Livelink's
rich collaborative features, enabling users to easily access BASIS library
objects and incorporate them into the Livelink environment.
.. Library Automation - The Techlib(R) product is a specific application that
utilizes BASIS to automate and integrate the main functions of a corporate
or government library. Techlib is an integrated, Web-based solution for
managing, automating and delivering a complete range of library services.
From access and cataloging to circulation, serials control and
acquisitions, Techlib provides users with the ability to manage digital
collections and make the corporate library the focus of an organization's
knowledge resources.
Techlib can be implemented as a component of BASIS, or as an integrated
solution with Livelink, as the Livelink Cataloged Library(TM) module.
Techlib and Livelink integration gives users consolidated access to
knowledge resources on the intranet, extranet and in the corporate library,
to support decisions, smooth workflow and automate processes.
Web browser interfaces have made BASIS applications more economical to
deploy since more people can easily access and exploit the available
information. Furthermore, as organizations continue to encounter
information overload, library science expertise in subject categorization
and classification is being deployed to improve the usability of enterprise
intranet and extranet applications.
.. Records Management - iRIMS(TM)gives users comprehensive, full lifecycle
management of all corporate records and information holdings, in both paper
and electronic format. iRIMS allows users to access records management
functions from any standard Web browser. By providing a common interface to
access all forms of information, such as images, paper records and other
physical objects, word processing, spreadsheets, and e-mail, iRIMS provides
an automated system that removes the complexities of electronic records
management and streamlines processes for end users. iRIMS helps global
enterprises to secure critical information, ensure file control,
consistency, and collaboration by supporting record classification,
retention and disposition rules, searching, reporting, and security access.
When integrated with Livelink, iRIMS brings the control of records
management into a larger intranet or extranet environment. This integration
allows individuals or groups to easily access and share corporate
information.
As an alternative to the Livelink-iRIMS integration, the Company also
offers Livelink Records Management(TM), which embeds records management
functionality, from both the user and records manager perspective, in
Livelink as a Livelink module.
.. Content Management - Developing a Content Management System to manage
corporate knowledge assets allows organizations to easily find, use and
reuse this content in a way that maximizes its value to the
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organization and minimizes the cost to create, maintain and assemble it for
a particular business need. Open Text provides comprehensive services for
the conversion of an organization's mainstream publishing system to XML or
SGML, an e-business framework using smart XML transactions and forms, and
other line-of-business solutions in which XML and SGML play an integral
part. Open Text offers comprehensive XML/SGML solutions to provide
organizations with the tools needed to create their own Content Management
System.
.. High-Volume Workflow and Imaging Solutions - Through its Bluebird Systems
division, the Company offers ODOC(R)and Open Image(R), which provide
high-volume workflow and imaging solutions. ODOC is a powerful, Window
NT-based, Web-enabled object management and workflow system designed to
give organizations the power to replace labor intensive paper-based work
processes with highly efficient PC-based ones. Offering tight integration
with PeopleSoft(R)technology, the client/server, multi-tier, open
architecture of the ODOC suite enables organizations to achieve the
performance and security they demand in mission-critical, high volume, and
highly distributed environments. Open Image is a high-volume workflow,
imaging and document management solution designed for the financial
services industry.
Development Tools
Livelink is highly scalable, extensible and customizable through the
use of the Livelink SDK(TM) (Software Development Kit). The Livelink SDK
consists of the Livelink Application Program Interface(TM) ("API") and the
Livelink Builder(TM), an object-oriented application development environment
designed specifically for building collaborative intranet solutions. Livelink
Builder offers customers the ability to customize and extend the features of
Livelink to meet their particular needs. Livelink Builder provides OScript, a
robust, Java-like extensible scripting language for developing application
logic.
Advanced Optional Modules
Open Text offers a wide selection of optional modules that allow
organizations to easily extend and enhance the functionality of Livelink to suit
their evolving business requirements. The following modules are available:
.. Livelink Activator(TM) for BASIS(R) enables organizations to integrate
their corporate library into a collaborative enterprise knowledge network.
This module provides an ideal solution for combining the collaborative
features of Livelink with the collection management features of BASIS.
.. Livelink Activator(TM) for CORBA(R) Development Kit enables organizations
to create applications that extend Livelink's functionality and integrate
Livelink with external systems using Common Object Request Broker
Architecture (CORBA) services.
.. Livelink Activator(TM) for Lotus Notes(R) makes indexing and retrieving
information stored within Lotus Notes quick and easy.
.. Livelink Activator(TM) for SAP/R3(R) allows users to leverage their
existing legacy systems, providing seamless connectivity between the
Livelink Server and the R/3 System.
.. Livelink Archive(TM) for SAP(R) R/3(R): Certified by SAP, Livelink Archive
for SAP R/3 is based on SAP's ArchiveLink(R) interface, which links SAP
applications to external storage systems such as Livelink. Livelink Archive
for SAP R/3 enables Livelink to be used as the archive for SAP R/3
documents.
.. Livelink Brokered Search(TM) allows users to submit a single search query
to multiple data sources and receive a unified set of results. Brokered
Search combines results from multiple Livelink repositories, Microsoft(R)
Exchange Public Folders, public and internal search engines, as well as
from legacy data sources and other authenticated sites.
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.. Livelink Cataloged Library(TM) allows organizations to extend the reach of
their library and its functionality by making it an integral part of their
enterprise knowledge architecture.
.. Livelink Classifications(TM) allows Classification Librarians to define a
taxonomy of classifications in Livelink. When documents are added to the
Livelink repository, they can be associated with a particular
classification by one of the following means: manual, assisted, or
automatic.
.. Livelink Directory Services(TM) allows organizations to administer users
and groups for each Livelink server from within a central directory. This
module synchronizes with a central directory service and provides single
logon access for network users.
.. Livelink eLink(TM) can be integrated with any standard e-mail application
and enables users to participate in Livelink discussions and receive
enhanced e-mail notification of Livelink events.
.. Livelink eSign(TM) adds electronic signature capabilities to Livelink and
also provides enhanced audit trails for signing events, enhanced security
features such as the ability to lock users out after multiple failed log-in
attempts, and the ability to initiate a signing approval workflow from a
document.
.. Livelink Explorer(TM) provides Livelink users with access to Livelink
content and functionality from their Microsoft Windows(R) desktop. In
Microsoft Windows Explorer, users can navigate the Livelink hierarchy and
perform all Livelink functions. Users also have direct access to Livelink
from popular desktop productivity tools, such as Microsoft Word(R),
Excel(R), and Outlook(R). In addition, mobile users can also mark content
in Livelink for offline viewing in Microsoft Windows Explorer when they are
not connected to the corporate network.
.. Livelink MeetingZone(TM) enables members of geographically dispersed teams,
including customers, suppliers, consultants, and other trading partners, to
attend real-time virtual Web meetings, regardless of their location, using
a standard Web browser, and then save the virtual meeting content in
Livelink automatically.
.. Livelink OnTime(TM) allows users to schedule group and project team
meetings. Fully integrated with Livelink, this module provides users with
secure access to other users' personal calendar information, project team
calendars and resources.
.. Livelink PDF Forms Professional(TM) enables organizations and users to
collaboratively create, manage and track electronic forms and data
integrating them into standard corporate business processes by creating an
e-form warehouse in Livelink, reducing costs and improving customer
satisfaction.
.. Livelink Prospectors(TM) allows users to create their own personalized,
virtual research assistants. Based on custom user preferences, prospectors
scour internal networks and targeted Web sites for information users need
to get their jobs done.
.. Livelink Records Management(TM) adds records management functions and
capabilities to Livelink, enabling it to become the first comprehensive,
Web-based, full lifecycle knowledge management and records management
solution for the entire enterprise.
.. Livelink Remote Cache(TM) reduces network traffic and improves access speed
for remote users by caching documents, HTML renditions and graphical
content at remote sites.
.. Livelink SDK(TM) is specifically designed for creating scalable,
enterprise-wide, collaborative knowledge management solutions and Livelink
SDK provides built-in tools for rapid development and deployment.
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.. Livelink Secure Connect(TM) secures user communications between the
Livelink server and non-Web clients such as Livelink Explorer using
industry-standard cryptographic encryption technology.
.. Livelink Spider(TM) crawls across an organization's intranet and/or
targeted sites on the World Wide Web and automatically finds and indexes
new or modified documents, enabling Livelink to maintain an up-to-date,
searchable knowledge base.
.. Livelink Transit Central e-Publisher(TM) allows users to repurpose content
in Livelink to build Web publications that can be published in Livelink or
to their intranet, extranet or the Internet.
.. Livelink UNITE(TM) provides users with a unified, personalizable interface
to one or more Livelink systems. With Livelink UNITE, users can filter
access to Livelink content and services, including workspaces, documents,
meetings, discussions, search, and more, by organizing them into a
personalized set of virtual workspaces and context maps arranged on a
series of tabbed pages.
.. Livelink Virtualteams(TM) is a comprehensive team environment built on
Livelink that combines a time-tested methodology for virtual teamwork with
Livelink's collaboration technology. Tools, utilities, content, and meeting
support co-exist in an intuitive environment that encourages people to work
together, while capturing the team's work in the Livelink knowledge
management system.
.. Livelink WebDAV(TM) provides a standard-based gateway to Livelink via the
Web Distributed Authoring and Versioning (WebDAV) protocol. Livelink users
can access, create, and manage Livelink folders and documents directly from
popular desktop applications that support WebDAV, including Microsoft(R)
Office and WebFolders and Adobe(R) applications.
.. Livelink Wireless(TM) gives mobile professionals access to Livelink's
Web-based collaborative features using a variety of handheld and wireless
devices, including a Web-enabled WAP or iMode cellular telephone, Palm
OS(R) device or RIM Blackberry(TM) pager.
Business Applications Based on Livelink
Open Text offers a selection of business applications built on the
Livelink collaboration and knowledge management software that enable
organizations to address particular business needs. The following Livelink-based
applications are available:
.. Livelink for Learning Management(TM) delivers a comprehensive application
for training management within Livelink. It allows organizations to provide
a virtual classroom and collaborative environment with the advantages of a
Web-based training experience.
.. Livelink for Program Management(TM) is a Web-based enterprise program
management application based on Livelink that integrates all areas of an
enterprise-level project into one comprehensive solution. It enables
organizations to automate proprietary program management methodologies
according to predefined "stages" and corresponding "gate" review cycles.
.. Livelink for Skills Management(TM) provides the ability within Livelink to
catalog, maintain, and assess levels of expertise possessed by employees.
It allows an organization to determine where knowledge required to meet
business objectives already exists within the organization and identifies
where shortfalls exist and training is required to meet the requirements of
the organization.
Product Development
Open Text intends to pursue its strategy of growing the capabilities
of its software offerings through the in-house research and development of new
product offerings as well as the addition of technologies and expertise through
the acquisition of other companies, technologies, or products.
10
During fiscal 2002, the Company developed several new product
offerings internally, including Livelink MeetingZone, a real-time meeting and
collaboration tool that allows valuable meeting content to be captured,
searched, and reused. The Company also released a completely re-architectured,
next generation version of its Livelink Explorer module, which tightly
integrated features of its previous generation desktop integration offerings.
Other new products released during fiscal 2002 included Livelink WebDAV,
Livelink Classifications, Livelink eSign, Livelink for Learning Management,
Livelink for Skills Management, Livelink for Program Management, Livelink
virtualteams, and Livelink UNITE, all of which are described above. In addition,
Open Text continues to develop and release new versions of all of its product
offerings. Updates of Livelink, BASIS, Techlib, and iRIMS were all released
during fiscal 2002.
As of June 30, 2002, the Company's research and development team
included 214 employees. During fiscal 2001, through the acquisitions of
Bluebird, the BRS search assets of LeadingSide, Open Image, and Base4, the
Company acquired new technologies that have been integrated with its Livelink
technology with the goal of producing a more diverse product offering. Amounts
spent on research and development during fiscal 2002, fiscal 2001, and fiscal
2000 were $24.1 million, $24.3 million, and $17.7 million, respectively.
Customer Support and Professional Services
Open Text provides most of its customer support activities through
telephone support, since it is able to service most software problems remotely.
The Company's major products are typically licensed in conjunction with a
twelve-month maintenance contract which renews each year thereafter. The annual
maintenance and support fee is typically 18.5% of the list price of the licensed
software and entitles the customer to remote support as well as product updates
and maintenance releases. Customers pay for their annual maintenance contracts
up-front, and the Company recognizes revenues relating to these services ratably
over the term of the related contract. As of June 30, 2002, the Company's
customer support team included 102 employees.
Open Text offers training and consulting services and provides
integration services for the purpose of customizing the Company's software to
specific customer needs. Although the Company's software is ready to use
"out-of-the-box", customers often desire further customization or similar
professional services work to further tailor the Company's products to their
specifications. Engagements performed by the Company's professional services
organization are typically billed on a time and material basis. As of June 30,
2002, the Company's professional service group included 231 employees.
Competition
Open Text's products and services compete both at a functional level
and at a market segment level. As a result of Livelink's broad spectrum of
functionality, it has a number of competitors for each of its functions. In the
market for workflow and document management software, the Company competes with
vendors of document management software, including Documentum, Inc., FileNet
Corporation, and PC DOCS Group (a division of Hummingbird Communications Ltd.),
which offer highly specialized document management technology suitable for
building application-specific document management needs. Companies like
Microsoft and IBM/Lotus offer e-mail based collaborative messaging applications.
The Company also competes with vendors of collaboration software solutions such
as Lotus Notes/Domino(R), iManage(R) and eRoom(R). Open Text has positioned its
products in the new and emerging "collaborative commerce" (c-Commerce) and
"collaborative knowledge management" (CKM) markets which are intensely
competitive and subject to rapid technological change. These markets are
becoming fiercely competitive as major and smaller industry players jockey for
position with offerings that fall into several different segments. The
c-Commerce and CKM markets are defined by high-end, specialized document
management solutions, collaboration and knowledge management applications, and
e-mail centric messaging systems.
The Company expects competition to increase in the future as the
markets for Open Text's products develop and as additional players enter the
market. The Company believes that the principal competitive factors in this
market include the ability to provide:
11
. full support for intranets;
. functionality with document management solutions;
. integration of document management with workflow management
applications and related enabling technologies;
. vendor and product reputation;
. product quality and performance;
. OEM and other relationships with providers of database and
information systems to organizations; and o quality of product
support and price.
The Company's competitors can be expected to enhance their existing
products or to develop new products that will further integrate workflow,
document management and collaborative computing features.
Open Text's markets are the subject of intense industry interest, and
the Company is aware of numerous other major software developers as well as
smaller entrepreneurial companies focusing significant resources on developing
and marketing software products and services that may compete with Open Text
products and services. Numerous releases of products and services that compete
with those of Open Text can be expected in the near future. Moreover, certain of
the Company's current and potential competitors may bundle their products with
other software in a manner that may discourage users from licensing products
offered by Open Text.
Many of Open Text's current and potential competitors in each of its
markets have longer operating histories and significantly greater financial,
technical and marketing resources, name recognition and installed product base
than the Company. There can be no assurance that the Company will be able to
compete effectively with current and future competitors. Increased competition
from existing or potential competitors could result in the reduction of prices
and revenues, reduced margins, and loss of customers and market share, any one
of which would negatively impact the Company's operating results.
Sales and Marketing
Open Text employs multiple distribution channels, including direct
sales, distributors, OEMs and VARs, in order to market and sell its products and
services. Given the significant investment and commitment of resources required
by an organization in order to implement the Company's software, the Company's
sales cycle tends to take considerable time to complete. Particularly in the
current economic environment of reduced information technology spending, it can
take several months, or even quarters, for sales opportunities to translate into
revenue. It was the Company's experience throughout most of fiscal 2002 that
customers were more hesitant to commit to large, enterprise-wide deployments of
the Company's software and as a result, the Company has experienced a
lengthening of its sales cycles.
Direct Sales. The Company employs a direct sales force as the primary
method to market and sell its products and services. As of June 30, 2002, Open
Text's worldwide sales organization consisted of 219 employees located in 107
cities. Historically, a significant percentage of the Company's revenues have
been generated through its direct sales force.
Distributors. Open Text has distribution agreements with Canon Inc.
and ITX Corporation, pursuant to which each of them markets and sells Open Text
products and services in Japan.
OEMs. Open Text markets and licenses its products to select OEMs,
including independent software vendors, in order to have its products embedded
in products marketed by manufacturers with better access to specific target
markets or large installed customer bases.
Livelink Affinity Partners. Open Text's Livelink Affinity Partner
program has more than 45 VARs, solution providers, technology partners, ASPs,
and systems integrators. Open Text's Livelink Affinity Partners re-
12
sell, customize, configure and install the Company's software products with
complementary hardware, software and services. In combining these products and
services, the Livelink Affinity Partners are able to deliver complete knowledge
management solutions to address specific customer needs.
Employees
As of June 30, 2002, the Company employed a total of 980 individuals.
The composition of this employee base is approximately as follows: 257 employees
in sales and marketing, 214 employees in product development, 231 employees in
professional services, 102 employees in customer support, and 176 employees in
general and administrative roles. The Company's employees are not subject to a
labor union or collective bargaining agreement. The Company is of the opinion
that relations with its employees are strong.
Intellectual Property Rights
The Company's success and ability to compete are dependent on our
ability to develop and maintain our intellectual property and proprietary
technology and to operate without infringing on the proprietary rights of
others. Open Text's software products are generally licensed to customers on a
nonexclusive basis for internal use in a customer's organization. The Company
also grants rights in its intellectual property to third parties that allows
them to market certain of the Company's products on a nonexclusive or
limited-scope exclusive basis for a particular application of the product(s) or
to a particular geographic area.
Open Text relies on a combination of copyright, trademark and trade
secret laws, non-disclosure agreements and other contractual provisions to
establish and maintain its proprietary rights. Historically, the Company has not
sought patent protection for its products, though it may do so in the future.
Enforcement of the Company's intellectual property rights may be difficult,
particularly in some nations outside of the United States and Canada in which
the Company seeks to market its products. Certain of the Company's license
arrangements have required the Company to make a limited confidential disclosure
of portions of the source code for its products, or to place such source code
into an escrow for the protection of another party. Despite the precautions
taken by the Company, it may be possible for unauthorized third parties to copy
certain portions of the Company's products or to reverse engineer or obtain and
use information that the Company regards as proprietary. Also, there can be no
assurance that the Company's competitors will not independently develop
technologies that are perceived to be substantially equivalent or superior to
the Company's technologies. The Company's competitive position may be affected
by its ability to protect its intellectual properties. Although the Company does
not believe it is infringing on the intellectual property rights of others,
claims of infringement are becoming increasingly common as the industry develops
and related legal protections, including patents, are applied to software
products.
Although most of the Company's technology is proprietary in nature,
the Company does include certain third party software in its products. In these
cases, this software is licensed from the entity holding its intellectual
property rights. Although the Company believes that it has secured proper
licenses for all third-party software that has been integrated into its
products, third parties may assert infringement claims against the Company in
the future, and any such assertion may result in litigation, which may be costly
and require the Company to obtain a license for the software. Such licenses may
not be available on reasonable terms or at all.
Item 2. Properties
The Company leases approximately 82,600 square feet of office space in
three facilities in Waterloo, Ontario, Canada including its corporate
headquarters pursuant to two leases that terminate on June 30, 2003, one that
terminates on June 30, 2006, and one that terminates on August 24, 2010. The
Company has also leased approximately 36,000 square feet in its operational
headquarters in Bannockburn, Illinois for its product development, marketing,
consulting, support, administration and sales operations until April 30, 2004.
The Company also leases Canadian field offices in Mississauga, Ontario, and
Ottawa, Ontario; US field offices in Albany, New York; Dublin, Ohio; Livonia,
Michigan; McLean, Virginia; Redmond, Washington; Los Angeles,
13
California and Carlsbad, California; and international field offices in
Amsterdam, The Netherlands; Paris, France; Frankfurt, Germany; Munich, Germany;
Beaconsfield, United Kingdom; St. Gallen, Switzerland; and Sydney, Australia.
The current annualized total rent for the Company, excluding operating costs, is
approximately $4.4 million.
Item 3. Legal Proceedings
The Harold Tilbury and Yolanda Tilbury Family Trust has brought an
action against Open Text Corporation, before a single arbitrator under the
Ontario Arbitrations Act. The complaint alleges failure to pay amounts owing
under a stock purchase agreement. The claim is for $10 million, plus $5 million
in punitive damages. Open Text Corporation was not a party to the stock purchase
agreement, and has defended the arbitration claiming no amount is owing by the
Company thereunder. No claim has been made against the Company's subsidiary who
was a party to the agreement. The Company believes that this claim is without
merit, and intends to defend the action vigorously. The arbitration process is
inherently uncertain and unpredictable, and accordingly there can be no
guarantee as to the ultimate outcome of this pending arbitration.
In the normal course of business the Company is subject to various
other legal matters. While the results of litigation and claims cannot be
predicted with certainty, the Company believes that the final outcome of these
other matters will not have a materially adverse effect on its consolidated
results of operations or financial conditions.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Shares have traded on the NASDAQ National Market since
January 23, 1996 under the symbol "OTEX". The Common Shares have traded on the
Toronto Stock Exchange ("TSX") since June 26, 1998 under the symbol "OTC". The
following table sets forth the high and low sales prices for the Common Shares,
as reported by the TSX, and the high and low bid prices, as reported by NASDAQ,
for the periods indicated below.
On June 30, 2002, the closing price of the Company's Common Shares on
NASDAQ was $19.61 USD per share. On June 30, 2002, the closing price of the
Company's Common Shares on the TSX was $30.10 CDN per share.
Nasdaq TSX
-------------------- ---------------------
High Low High Low
--------- --------- --------- ---------
(in U.S. dollars) (in Canadian dollars)
Year Ending June 30, 2002:
Fourth Quarter $ 25.44 $ 16.85 $ 39.70 $ 28.00
Third Quarter 30.70 22.64 49.80 32.50
Second Quarter 31.75 20.55 49.23 36.30
First Quarter 25.86 17.85 40.94 26.00
Year Ending June 30, 2001:
Fourth Quarter $ 27.00 $ 15.94 $ 41.19 $ 25.00
Third Quarter 38.69 17.19 55.15 27.07
Second Quarter 26.38 15.88 40.25 25.80
First Quarter 29.82 18.06 44.35 27.75
On September 17, 2002, the closing price of the Company's Common Shares on
NASDAQ was $22.26 per share. As at September 17, 2002, there were approximately
6,250 shareholders of record of the Company's Common
Shares. As at September 17, 2002, there were approximately 2,050 U.S.
shareholders of record, holding 6,944,664 Common Shares.
Dividend Policy
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
Exchange Controls and Other Limitations Affecting Holders of Common Shares
Investment Canada Act
Canada has no system of exchange controls. There is no law, government
decree or regulation in Canada restricting the export or import of capital or
affecting the remittance of dividends, interest or other payments to a
non-resident holder of Common Shares, other than withholding tax requirements.
There is no limitation imposed by Canadian law or by the articles or
other charter documents of the Company on the right of a non-resident to hold or
vote Common Shares or Preferred Shares of the Company with voting rights
(collectively, "Voting Shares"), other than as provided in the Investment Canada
Act (the "Investment Act"), as amended by the World Trade Organization Agreement
Implementation Act (the "WTOA Act"). The Investment Act generally prohibits
implementation of a reviewable investment by an individual, government or agency
thereof, corporation, partnership, trust or joint venture that is not a
"Canadian," as defined in the Investment Act (a "non-Canadian"), unless, after
review, the minister responsible for the Investment Act is satisfied that the
investment is likely to be a net benefit to Canada. An investment in Voting
Shares of the Company by a non-Canadian (other than a "WTO Investor," as defined
below) would be reviewable under the Investment Act if it were an investment to
acquire control of the Company, and the value of the assets of the Company were
$5.0 million or more. Except for certain economic sectors with respect to which
the lower threshold would apply, an investment in Voting Shares of the Company
by a WTO Investor would be reviewable under the Investment Act if it were an
investment to acquire direct control of the Company, and the value of the assets
of the Company equaled or exceeded $172 million. A non-Canadian, whether a WTO
Investor or otherwise, would acquire control of the Company for purposes of the
Investment Act if he or she acquired a majority of the Voting Shares of the
Company. The acquisition of less than a majority, but at least one-third of the
Voting Shares of the Company, would be presumed to be an acquisition of control
of the Company, unless it could be established that the Company was not
controlled in fact by the acquirer through the ownership of Voting Shares. In
general, an individual is a WTO Investor if he or she is a "national" of a
country (other than Canada) that is a member of the World Trade Organization
("WTO Member") or has a right of permanent residence in a WTO Member. A
corporation or other entity will be a WTO investor if it is a "WTO
investor-controlled entity" pursuant to detailed rules set out in the Investment
Act. The United States is a WTO Member.
Certain transactions involving Voting Shares of the Company would be
exempt from the Investment Act, including: (a) an acquisition of Voting Shares
of the Company if the acquisition were made in connection with the person's
business as a trader or dealer in securities; (b) an acquisition of control of
the Company in connection with the realization of a security interest granted
for a loan or other financial assistance and not for any purpose related to the
provisions of the Investment Act; and (c) an acquisition of control of the
Company by reason of an amalgamation, merger, consolidation or corporate
reorganization, following which the ultimate direct or indirect control of the
Company, through the ownership of voting interests, remains unchanged.
Canadian Federal Income Tax Considerations
The following summary is based upon the current provisions of the
Income Tax Act (Canada) (the "ITA") and the regulations thereunder, all proposed
amendments to the ITA and the regulations thereunder publicly announced by the
Department of Finance, Canada prior to the date hereof, the current published
administrative and
15
assessing practices of the Canada Customs and Revenue Agency ("CCRA"), and the
Canada-United States Income Tax Convention (1980), as amended by the 1983, 1984,
1995 and 1997 Protocols thereto (the "Convention"). Except for the foregoing,
this summary does not take into account or anticipate changes in the law or the
administrative or assessing practices of the CCRA whether by legislative,
governmental or judicial action and does not take into account or anticipate
provincial, territorial or foreign tax considerations.
This summary relates to the principal Canadian income tax
considerations under the ITA and the regulations thereunder generally applicable
to purchasers of Common Shares hereunder who: (i) for purposes of the ITA, are
not, have not been and will not be or be deemed to be resident in Canada at any
time while they held or hold Common Shares, deal at arm's length with the
Company, will hold their Common Shares as capital property, and do not use or
hold, and will not and will not be deemed to use or hold their Common Shares in,
or in the course of carrying on a business in Canada through a permanent
establishment or in connection with a fixed base in Canada, and (ii) for
purposes of the Convention, are residents of the United States and not residents
of Canada.
Amounts in respect of Common Shares paid or credited or deemed to be
paid or credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a non-resident holder will generally be subject to Canadian
non-resident withholding tax. Such withholding tax is levied at a basic rate of
25%, which may be reduced pursuant to the terms of an applicable tax treaty
between Canada and the country of residence of the non-resident holder.
Currently, under the Convention, the rate of Canadian non-resident withholding
tax on the gross amount of dividends beneficially owned by a person who is a
resident of the United States for the purpose of the Convention and who does not
have a "permanent establishment" or "fixed base" in Canada is 15% except where
such beneficial owner is a company which owns at least 10% of the voting stock
of the Company (in which case the rate of such withholding is 5%).
A purchase of Common Shares by the Company (other than a purchase of
Common Shares by the Company on the open market in the manner in which shares
would be purchased by any member of the public in the open market) will give
rise to a deemed dividend under the ITA equal to the difference between the
amount paid by the Company on the purchase and the paid-up capital of such
shares determined in accordance with the ITA. The paid-up capital of such shares
may be less than the non-resident holder's cost of such shares. Any such
dividend deemed to have been received by a non-resident holder would be subject
to a non-resident withholding tax as described above. The amount of any such
deemed dividend will reduce the proceeds on disposition of the Common Shares to
the non-resident holder for purposes of computing the amount of the non-resident
holder's capital gain or loss under the ITA.
A holder who is not resident in Canada for purposes of the ITA will
generally not be subject to tax under the ITA in respect of any capital gain or
entitled to deduct any capital loss realized on a disposition of Common Shares
unless at the time of such disposition such Common Shares constitute "taxable
Canadian property" of the holder for purposes of the ITA and the holder is not
entitled to relief under the Convention. If the Common Shares are listed on a
prescribed stock exchange (which includes the NASDAQ National Market) at the
time they are disposed of, they will generally not constitute "taxable Canadian
property" of the non-resident holder at the time of a disposition of such shares
unless such holder uses or holds or is deemed to use or hold such shares in or
in the course of carrying on business in Canada or, at any time during the five
year period immediately preceding the disposition of the Common Shares, 25% or
more of the issued shares of any class or series of the Company were owned by
the non-resident holder, by persons with whom the non-resident holder did not
deal at arm's length or by the non-resident holder and persons with whom the
non-resident holder did not deal at arm's length. In any event, under the
Convention, gains derived by a resident of the US from the disposition of Common
Shares will generally not be taxable in Canada unless such US resident has a
permanent establishment or fixed base in Canada or unless the value of the
Common Shares is derived principally from real property situated in Canada.
When a non-resident holder dies holding Common Shares, such holder
will be deemed to have disposed of such Common Shares for an amount equal to the
fair market value thereof immediately before such holder's death and will be
subject to the tax treatment with respect to dispositions described above. Any
person who acquires such Common Shares as a consequence of the death of such
holder will be deemed to have acquired such shares for their fair market value
at that time.
16
United States Federal Income Taxation
The following discussion summarizes certain US federal income tax
considerations relevant to an investment in the Common Shares by individuals and
corporations who, for income tax purposes, are resident in the US and not in
Canada, hold Common Shares as capital assets, do not use or hold the Common
Shares in carrying on a business through a permanent establishment or in
connection with a fixed base in Canada and, in the case of individual investors,
are also US citizens (collectively, "Unconnected US Shareholders"). The tax
consequences of an investment in the Common Shares by investors who are not
Unconnected US Shareholders may be expected to differ substantially from the tax
consequences discussed herein. Further, this summary is not a comprehensive
description of all of the tax considerations that may be relevant to an
Unconnected US Shareholder based on such Shareholder's particular circumstances.
In particular, this discussion does not address the potential application of the
alternative minimum tax. In addition, this discussion does not address the US
federal income tax consequences to Unconnected US Shareholders that are subject
to special treatment under US federal income tax laws, including, but not
limited to:
. broker-dealers;
. banks or insurance companies;
. taxpayers who have elected mark-to-market accounting;
. tax-exempt organizations;
. financial institutions;
. taxpayers who hold ordinary shares as part of a "straddle", "hedge",
or "conversion transaction" with other investments;
. individual retirement or other tax-deferred accounts;
. holders owning directly, indirectly or by attribution at least 10% of
our voting power; and
. taxpayers whose functional currency is not the US dollar.
This discussion does not address any aspect of US federal gift or estate tax, or
of state, local or non-U.S. tax laws.
The discussion is based upon the provisions of the US Internal Revenue
Code of 1986, as amended (the "Code"), the existing and proposed Treasury
regulations promulgated thereunder, the Convention, the administrative practices
published by the US Internal Revenue Service ("IRS") and US judicial decisions,
all of which are subject to change. This discussion does not consider the
potential effects, both adverse and beneficial, of any recently proposed
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.
Unconnected US Shareholders generally will treat the gross amount of
dividends paid by the Company equal to the US dollar value of such dividends on
the date the dividends are received or treated as received (based on the
exchange rate on such date), without reduction for the Canadian withholding tax,
as dividend income for US federal income tax purposes to the extent of the
Company's current and accumulated earnings and profits. However, the amount of
Canadian tax withheld (calculated in accordance with U.S. federal income tax
principles) generally will give rise to a foreign tax credit or deduction for US
federal income tax purposes. Investors should be aware that dividends paid by
the Company generally will constitute "passive income" for purposes of the
foreign tax credit, which could reduce the amount of the foreign tax credit
available to a US shareholder. The Code applies various limitations on the
amount of foreign tax credit that may be available to a US taxpayer. Investors
should consult their own tax advisors with respect to the potential consequences
of those limitations. Dividends paid on the Common Shares will not generally be
eligible for the "dividends received" deduction. An investor that is a
corporation may, under certain circumstances, be entitled to a 70% deduction of
the US-source portion of dividends received from the Company if such investor
owns shares representing at least 10% of the voting power and value of the
Company. To the extent that distributions exceed current and accumulated
earnings and profits of the Company, they will be treated first as a return of
capital, up to the investor's adjusted basis in Common Shares and thereafter as
gain from the sale or exchange of the Common Shares.
In the case of foreign currency received as a dividend that is not
converted by the recipient into US dollars on the date of receipt, an
Unconnected US Shareholder will have a tax basis in the foreign currency equal
to its US
17
dollar value on the date the dividends are received or treated as received. Any
gain or loss recognized upon a subsequent sale or other disposition of the
foreign currency, including an exchange for US dollars, will be ordinary income
or loss.
The sale of Common Shares generally will result in the recognition of
gain or loss to the holder in an amount equal to the difference between the
amount realized and the holder's adjusted basis in the Common Shares. The tax
basis will initially equal its cost to the Unconnected US Shareholder, as
reduced by any distributions on the shares treated as return of capital. The
Unconnected US Shareholder that is an individual will be taxed on the net amount
of his or her capital gain at a maximum rate of 20% provided the Common Shares
were held for more than 12 months. Such rate for capital gains on shares held
for more than five years is generally 18% if the shares are acquired after
December 31, 2000 (or, in the case of shares that are acquired pursuant to an
option, such shares are acquired pursuant to an option granted after December
31, 2000). Special rules (and generally lower maximum rates) apply to
individuals in lower tax brackets.
Corporate taxpayers may deduct capital losses to the extent of capital
gains. Non-corporate taxpayers may deduct excess capital losses, whether
short-term or long-term, up to an additional US$3,000 a year (US$1,500 in the
case of a married individual filing separately). Non-corporate taxpayers may
carry forward unused capital losses indefinitely. Unused capital losses of a
corporation (other than an S corporation) may be carried back three years and
carried forward five years.
In general, dividends paid on Common Shares and payments of the
proceeds of a sale of Common Shares, paid within the US or through certain
US-related financial intermediaries, are subject to information reporting and
may be subject to backup withholding at a 30% rate (or lower rate then in effect
as established by the Economic Growth and Tax Relief Reconciliation Act of 2001)
unless (i) the payor is entitled to, and does in fact, presume that the
Unconnected US Shareholder of common shares is a corporation or other exempt
recipient or (ii) the Unconnected US Shareholder provides a taxpayer
identification number on a properly completed Form W-9 and certifies that no
loss of exemption from backup withholding has occurred. The amount of any backup
withholding will be allowed as a credit against an Unconnected US Shareholder's
US federal income tax liability and may entitle such holder to a refund,
provided that the required information is furnished to the IRS.
Passive Foreign Investment Company
A non-US corporation will be classified as a passive foreign
investment company (a "PFIC") for US federal income tax purposes if it satisfies
either of the following two tests: (i) 75% or more of its gross income for the
taxable year is "passive income" (generally, interest, dividends, royalties,
rent and similar income, and gains on disposition of assets that generate such
income) or (ii) 50% or more of its assets produce or are held for the production
of passive income on average for the taxable year (by value or, if the Company
so elects, by adjusted basis). If the corporation owns, directly or indirectly,
at least 25% by value of the stock of another corporation, it will be treated as
if it holds directly its proportionate share of assets, and receives directly
its proportionate share of income of such other corporation. Accordingly, the
classification of the Company as a PFIC in any taxable year will depend on the
character of the income and the assets of the Company and its subsidiaries.
The Company does not believe that it is currently a PFIC. If the
Company were to be a PFIC for any taxable year, US investors would be required
to do as follows (i) at disposition or when such investor receives an "excess
distribution", to pay a penalty tax equivalent to US federal income tax at
ordinary income rates, calculated as if any gain on that sale were realized (or
the excess distribution were made) ratably over that holding period, plus an
interest charge on taxes that are deemed due during the period that the investor
owned that stock, (ii) if a Qualified Electing Fund ("QEF") election is made, to
include currently in their taxable income certain undistributed amounts of the
Company's income, or (iii) if a mark-to-market election is made, to include
currently an amount of ordinary income or loss (which loss is subject to
limitations) each year in an amount equal to the difference between the fair
market value of such investor's shares in the Company and such investor's
adjusted tax basis therein.
18
Controlled Foreign Corporation
If more than 50% of the voting power of all classes of stock or the
total value of the stock of the Company is owned, directly or indirectly, by US
persons including citizens or residents of the US, US domestic partnerships and
corporations or estates or trusts other than foreign estates or trusts, each of
whom owns 10% or more of the total combined voting power of all classes of stock
of the Company ("10% US Shareholders"), the Company could be treated as a
"controlled foreign corporation" under Subpart F of the Code. This
classification would have many complex results, including the required inclusion
by such 10% US Shareholders in income of their pro rata shares of "Subpart F
income" (as specifically defined by the Code) of the Company. In addition, under
Section 1248 of the Code, gain from the sale or exchange of Common Shares by a
holder who is or was a 10% US Shareholder at any time during the five-year
period ending with such sale or exchange would be treated as dividend income
(treated for US tax purposes as ordinary income rather than capital gain) to the
extent of earnings and profits of the Company attributable to the stock sold or
exchanged. The Company does not believe that it is currently a controlled
foreign corporation.
Item 6 - Selected Consolidated Financial Data
The following table sets forth selected consolidated financial data of
the Company for the periods indicated. The financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements and
related notes of the Company appearing elsewhere in this Annual Report on Form
10-K. The selected consolidated statements of operations data set forth below
for the fiscal years ended June 30, 2002, 2001 and 2000 and the consolidated
balance sheet data as of June 30, 2002 and 2001 are derived from our
consolidated financial statements, which have been audited for 2002 and 2001 by
KPMG LLP and for 2000 by PricewaterhouseCoopers LLP, both of which are
independent public accountants, and are included elsewhere in this Annual Report
on Form 10-K.
19
Fiscal Year Ended June 30,
2002 2001/(2)/ 2000/(2)/ 1999/(2)/ 1998/(2)/
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
License & networking $ 65,984 $ 73,752 $ 57,574 $ 53,657 $ 29,644
Customer support & service 86,493 73,947 55,371 38,880 15,656
----------------------------------------------------------------------
Total revenues 152,477 147,699 112,945 92,537 45,300
Cost of revenues:
License & networking 5,341 5,878 2,685 1,819 1,500
Customer support & service 33,880 32,597 29,951 18,005 7,554
----------------------------------------------------------------------
Total cost of revenues 39,221 38,475 32,636 19,824 9,054
Gross profit 113,256 109,224 80,309 72,713 36,246
Operating expenses:
Research and development 24,071 24,311 17,743 11,373 7,906
Sales and marketing 51,084 51,317 42,928 36,441 21,906
General and administrative 12,498 13,191 19,832 5,921 4,645
Depreciation 5,587 5,178 4,586 4,225 2,374
Amortization of acquired intangible assets 6,506 5,460 2,962 2,194 618
Restructuring costs - - 1,774 329 -
----------------------------------------------------------------------
Total operating expenses 99,746 99,457 89,825 60,483 37,449
----------------------------------------------------------------------
Income (loss) from operations 13,510 9,767 (9,516) 12,230 (1,203)
Other income (loss) 1,613 (2,417) 48,965 427 280
Interest income 1,853 4,736 6,161 2,342 1,745
Interest expense (16) (61) (109) (47) (125)
----------------------------------------------------------------------
Income before income taxes 16,960 12,025 45,501 14,952 697
Provision for (recovery of) income taxes 289 1,229 20,422 (8,637) (1,000)
----------------------------------------------------------------------
Net income for the year $ 16,671 10,796 25,079 23,589 1,697
======================================================================
Net income per share, basic $ 0.83 $ 0.54 $ 1.12 $ 1.13 $ 0.10
======================================================================
Net income per share, diluted $ 0.78 $ 0.50 $ 1.03 $ 0.99 $ 0.10
======================================================================
Weighted average Common Shares
outstanding/(1)/, basic 19,979 20,032 22,349 20,914 17,680
======================================================================
Weighted average Common Shares
outstanding/(1)/, diluted 21,239 21,466 24,421 23,729 17,680
======================================================================
June 30,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Balance Sheet Data: (in thousands)
Cash and cash equivalents $ 109,895 87,526 113,918 140,256 40,390
Working capital 103,897 82,030 98,008 197,595 39,640
Total assets 186,847 175,002 183,250 264,774 100,582
Long-term liabilities - - - - -
Shareholders' equity 144,031 133,027 137,983 232,825 73,074
Footnotes to Selected Financial Data:
(1) See Note 2 of Notes to Consolidated Financial Statements for a description
of the calculation of the weighted average number of Common Shares
outstanding used in computing net income (loss) per share.
(2) Reflects the results of the Acquired Businesses in 2001, 2000, 1999, and
1998 from the time of acquisition. See Note 14 of Notes to Consolidated
Financial Statements.
20
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
Company's consolidated financial statements and related notes and other
financial information appearing elsewhere in this Annual Report on Form 10-K.
This Annual Report on Form 10-K, including the following discussion, contains
trend analysis and other forward-looking statements within the safe harbour
provisions of the Private Securities Litigation Reform Act of 1995. Any
statements in this Annual Report on Form 10-K that are not statements of
historical fact are forward-looking statements. These forward-looking statements
are based on a number of assumptions and involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company, or developments in the Company's business or its
industry, to differ materially from the anticipated results, performance,
achievements or developments expressed or implied by such forward-looking
statements. These risks, uncertainties, and factors include, but are not limited
to, those set forth under "Cautionary Statements" and elsewhere in this Annual
Report on Form 10-K. Forward-looking statements are based on management's
current plans, estimates, opinions and projections, and the Company assumes no
obligation to update forward-looking statements if assumptions or these plans,
estimates, opinions or projections should change.
Overview
The Company's Consolidated Financial Statements are prepared in
accordance with generally accepted accounting principles in the United States
("US GAAP") and are presented in United States dollars unless otherwise
indicated. All references in this report to financial information concerning the
Company refer to such information in accordance with US GAAP and all dollar
amounts in this report are in United States dollars unless otherwise indicated.
Open Text develops, markets, licenses and supports collaboration and
knowledge management software for use on intranets, extranets and the Internet,
enabling users to find electronically stored information, work together in
creative and collaborative processes, perform group calendaring and scheduling,
and distribute or make available to users across networks or the Internet the
resulting work product and other information. The Company's software enables
thousands of organizations to effectively address a diverse range of business
needs including managing information, unifying globally distributed teams,
capturing market opportunities, accelerating product cycles, improving customer
and partner relationships, and altering business strategies.
The Company's principal product line is its Livelink(R) software, a
leading collaboration and knowledge management software for global enterprises.
By effectively managing people, processes and information, Livelink enables
companies to be more efficient and innovative in managing their intellectual
property. Livelink integrates several engines including, but not limited to,
search, collaboration, workflow, group calendaring and scheduling, and document
management. Its tightly integrated functionalities deliver true dynamic
collaboration and knowledge sharing between individuals, teams and
organizations. This collaborative environment enables ad hoc teams to form
quickly across functional and organizational boundaries, which enables
information to be accessed by employees using any standard Web browser. Fully
Web-based and open-architectured, Livelink provides rapid out-of-the-box
deployment, accelerated adoption, and low cost of ownership.
In fiscal 2002, the Company recorded revenues of $152.5 million, its
largest amount to date, partially due to an increase in new customers, as well
as strong additional licenses to existing customers. The Company achieved
overall profitability in fiscal 2002 for the fourth straight year, while it
achieved profitability from operations for the second straight year. In
addition, cash and cash equivalents increased to $109.9 million, with positive
cash flow from operations in fiscal 2002. During fiscal 2002, the Company
completed a buy-back of 620,200 Common Shares in the open market for a total
purchase price of $13.8 million. The Company's days sales outstanding (DSO)
decreased slightly from 76 days at June 30, 2001 to 72 days at June 30, 2002.
Geographical segment information regarding the Company is presented in Note 13
to the Company's Consolidated Financial Statements.
21
Critical Accounting Policies and Estimates
The Company's Consolidated Financial Statements are prepared in
accordance with US GAAP. The preparation of the Consolidated Financial
Statements in accordance with US GAAP necessarily requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to revenues, bad debts, investments, intangible assets,
income taxes, contingencies and litigation. The Company bases its estimates on
historical experience and on various other assumptions that are believed at the
time to be reasonable under the circumstances. Under different assumptions or
conditions, the actual results will differ, potentially materially, from those
previously estimated. Many of the conditions impacting these assumptions and
estimates are outside of the Company's control.
The Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
Consolidated Financial Statements.
Revenue Recognition. The Company recognizes revenue in accordance with
Statement of Position ("SOP") 97-2, "Software Revenue Recognition", issued by
the American Institute of Certified Public Accountants ("AICPA") in October 1997
and as amended by SOP 98-9 issued in December 1998.
The Company records product revenue from software licenses and
products when persuasive evidence of an arrangement exists, the software product
has been shipped, there are no significant uncertainties surrounding product
acceptance, the fees are fixed and determinable and collection is considered
probable. The Company uses the residual method to recognize revenue when a
license agreement includes one or more elements to be delivered at a future date
if evidence of the fair value of all undelivered elements exists. If an
undelivered element for the arrangement exists under the license arrangement,
revenue related to the undelivered element is deferred based on vendor-specific
objective evidence ("VSOE") of the fair value of the undelivered element.
The Company's multiple-element sales arrangements include arrangements
where software licenses and the associated post-contract customer support
("PCS") are sold together. The Company has established VSOE of the fair value of
the undelivered PCS element based on the contracted price for renewal PCS
included in the original multiple element sales arrangement, as substantiated by
contractual terms and the Company's significant PCS renewal experience, from its
large installed base of over 5 million users worldwide. The Company's multiple
element sales arrangements generally include rights for the customer to renew
PCS after the bundled term ends. These rights are irrevocable to the customer's
benefit, are for specified prices and the customer is not subject to any
economic or other penalty for failure to renew. Further, the renewal PCS options
are for services comparable to the bundled PCS and cover similar terms.
It is the Company's experience that customers generally exercise their
renewal PCS option. In the renewal transaction, PCS is sold on a stand-alone
basis to the licensees one year or more after the original multiple element
sales arrangement. The renewal PCS price is consistent with the renewal price in
the original multiple element sales arrangement although an adjustment to
reflect consumer price changes are not uncommon.
If VSOE of fair value does not exist for all undelivered elements, all
revenue is deferred until sufficient evidence exists or all elements have been
delivered.
Service revenues consist of revenues from consulting contracts as well
as training and integration services contracts. Contract revenues are derived
from contracts to develop applications and to provide consulting services.
Contract revenues are recognized under the percentage of completion method,
using a methodology that accounts for costs incurred under the contract in
relation to the total estimated costs under the contract, after providing for
any anticipated losses under the contract. Revenues from training and
integration services are recognized in the period in which the services are
performed.
Customer support revenues consist of revenue derived from contracts to
provide technical support to license holders. These revenues are recognized
ratably over the term of the contract.
22
Network revenues consist of revenues earned from customers under an
application service provider ("ASP") model. Under this model, customers pay a
monthly fee that entitles them to use of the Company's software on a secure,
hosted, third-party server. These revenues are recognized as the services are
provided on a monthly basis over the term of the customer's contract. With
respect to these revenues, the Company's customers pay exclusively for the right
to use the software. The Company's customers do not receive the right to take
possession of the Company's software. Further, it is not possible for customers
to either run the software on their own hardware or for them to contract with
another party unrelated to the Company to host the software.
Allowance for Doubtful Accounts. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The Company performs ongoing credit
evaluations of its customer's financial condition and if the financial condition
of the Company's customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances would likely be required.
Actual collections could differ materially from our estimates.
Investments. From time to time the Company may hold minority interests
in companies having operations or technology in areas within its strategic
focus, some of which are publicly traded and have highly volatile share prices.
The Company records an investment impairment charge when it believes an
investment has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions or poor operating results of
companies in whom the Company has invested could result in losses or an
inability to recover the carrying value of the investments that may not be
reflected in an investment's current carrying value, thereby possibly requiring
an impairment charge in the future.
Valuation Allowance. The Company records a valuation allowance to
reduce its deferred tax assets to the amount that is considered to be more
likely than not to be realized. At June 30, 2002, no net deferred tax asset has
been recognized. The Company considers estimated future taxable income by taxing
jurisdictions and ongoing tax planning strategies in assessing the need for and
size of the valuation allowance. If the Company were to conclude that it was
able to realize its deferred tax assets in the future in an amount that differs
from its net recorded amount, an adjustment to the deferred tax asset would be
required with the change generally recognized in the determination of income for
the period.
Long-Lived Assets. The Company accounts for the impairment and
disposition of long-lived assets in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." In accordance
with SFAS No. 121, long-lived assets to be held are reviewed for events or
changes in circumstances that indicate that their carrying value may not be
recoverable. In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets." This statement addresses financial accounting and reporting for the
impairment of long-lived assets and for the disposal of long-lived assets. SFAS
No. 144 supersedes SFAS No. 121 and is effective for fiscal years beginning
after December 15, 2001. The Company evaluates the carrying value of intangible
assets for impairment of value based on undiscounted future cash flows. While
the Company has not experienced the impairment of intangible assets in prior
periods, the Company cannot guarantee that there will not be impairment in the
future.
Litigation. The Company is a party, from time to time, in legal
proceedings. For such cases, the Company assesses the likelihood that a loss
will result, as well as the amount of such loss and the financial statements
provide for the Company's best estimate of such losses. To the extent that any
of these legal proceedings are resolved and result in the Company being required
to pay an amount in excess of what has been provided for in the financial
statements, the Company would be required to record, against earnings, such
excess amount at that time. If the resolution resulted in a gain to the Company,
or a loss less than that provided for, such gain is recognized when received or
receivable.
23
Results of Operations
The following table presents, for the periods indicated, certain
components of the selected financial data of the Company as a percentage of
total revenues. The historical results are not necessarily indicative of results
to be expected for any future period.
Year Ended June 30,
--------------------------------
2002 2001 2000
-------- -------- --------
Revenues:
License & networking 43.3% 50.0% 51.0%
Customer support 31.9 27.3 23.6
Service 24.8 22.7 25.4
-------- -------- --------
Total revenues 100.0 100.0 100.0
Cost of revenues:
License & networking 3.5 4.0 2.4
Customer support 5.5 5.2 5.1
Service 16.7 16.8 21.4
-------- -------- --------
Total cost of revenues 25.7 26.0 28.9
-------- -------- --------
Gross profit 74.3 74.0 71.1
Operating expenses:
Research and development 15.8 16.5 15.7
Sales and marketing 33.5 34.8 38.1
General and administrative 8.2 8.9 17.5
Depreciation 3.7 3.5 4.1
Amortization of acquired intangible assets 4.3 3.7 2.6
Restructuring costs - - 1.6
-------- -------- --------
Total operating expenses 65.5 67.4 79.6
-------- -------- --------
Income (loss) from operations 8.8 6.6 (8.5)
Other income (loss) 1.1 (1.6) 43.4
Interest income 1.2 3.2 5.5
Interest expense - - (0.1)
-------- -------- --------
Income before income taxes 11.1 8.2 40.3
Provision for income taxes 0.2 0.8 18.1
-------- -------- --------
Net income 10.9% 7.4% 22.2%
======== ======== ========
Fiscal 2002 Compared with Fiscal 2001
Revenues. Total revenues included license and networking revenues,
customer support revenues, and service revenues. The Company recognized license
revenue in accordance with Statement of Position ("SOP") 97-2, "Software Revenue
Recognition", issued by the American Institute of Certified Public Accountants
("AICPA") in October 1997 and SOP 98-9 issued in December 1998. The Company
recorded product revenue from software licenses and products when persuasive
evidence of an arrangement existed, the software product had been shipped, there
were no significant uncertainties surrounding product acceptance, the fees were
fixed and determinable and collection was considered probable. Software
maintenance revenues were deferred and recognized ratably over the life of the
service contract, which is typically one year. Service revenue consisted of
revenues from consulting contracts, as well as training and integration services
contracts. Service revenues were derived from service contracts to develop
applications and to provide consulting services. Service revenues were
recognized under the
24
percentage of completion method, using a methodology that accounts for costs
incurred in relationship to total estimated costs under the contract after
providing for any anticipated losses under the contract. Revenues from training
and integration services were recognized in the period in which the services
were performed.
Total revenues increased 3% from $147.7 million in the year ended June
30, 2001 to $152.5 million in the year ended June 30, 2002. Revenues from
licenses and networking decreased 11% from $73.8 million in the year ended June
30, 2001 to $66.0 million in the year ended June 30, 2002. The decrease in
license and networking revenues was a result of the overall slowdown in
information technology spending which was, in part, accelerated by the September
11th terrorist activities which then continued throughout fiscal 2002. Though
all aspects of the Company's revenues were affected by this overall economic
slowdown, revenues relating to the Company's licenses were most strongly
impacted. It was the Company's experience throughout most of fiscal 2002 that
customers were more hesitant to commit to large, enterprise-wide deployments of
the Company's software and as a result, the Company has experienced a
lengthening of its sales cycles. Some potentially larger deals were replaced by
smaller deals, while other large deals were simply deferred by customers.
Several of these large deals were ultimately completed during the fourth quarter
of fiscal 2002, when certain customer opportunities that had been worked on
throughout the year finally closed. At this point, the Company is uncertain as
to whether the increased license activity experienced in the fourth quarter of
fiscal 2002 is indicative of license revenue activity that will continue into
fiscal 2003. Also during fiscal 2001, the Company began actively promoting the
rental of Livelink to customers through an Application Service Provider (ASP)
model. Under this model, users are granted use of Livelink on a secure, hosted
third-party server, for which they pay a monthly fee on a per user basis.
Revenues earned from this service have been classified as Networking Revenues.
During fiscal 2002 networking revenues totaled $1.7 million, as compared with
$0.6 million in fiscal 2001.
Customer support revenues increased 21% from $40.3 million in the year
ended June 30, 2001 to $48.7 million in the year ended June 30, 2002. The
increase in customer support revenues resulted from several factors. The
licenses granted throughout fiscal 2002, as well as strong renewal rates for
maintenance contracts for existing accounts, had a positive impact on customer
support revenues. Also, in fiscal 2001, the Company completed a number of
acquisitions during the middle of the year. As a result, fiscal 2001's customer
support revenue includes only a partial year of revenues from these
acquisitions, while fiscal 2002 contains a full year's customer support revenues
for the acquired businesses. The impact on fiscal 2002 customer service revenues
of having a full year of revenue relating to these acquired businesses as
opposed to a partial year in fiscal 2001 was approximately $1.5 million.
Service revenues increased 13% from $33.6 million in the year ended
June 30, 2001 to $37.8 million in the year ended June 30, 2002. The increase in
service revenues was primarily attributable to an increase in consulting and
integration services provided to new license customers. Additionally, a full
year's inclusion of service revenues relating to fiscal 2001 acquisitions had a
positive impact on service revenues during fiscal 2002. During fiscal 2001,
approximately 6 months of revenues were recognized as a result of the timing of
the Company's acquisitions, whereas fiscal 2002 included a full year's revenue
from these businesses. The impact on fiscal 2002 customer service revenues of
having a full year of revenue relating to these acquired businesses as opposed
to a partial year in fiscal 2001 was approximately $2 million.
Cost of revenues. Cost of license and networking revenues consisted
primarily of the costs associated with the royalties payable to third parties
whose software is bundled in the Company's products, as well as product media,
duplication, manuals and packaging expenses. Cost of license and networking
revenues decreased 10% from $5.9 million in the year ended June 30, 2001 to $5.3
million in the year ended June 30, 2002. As a percentage of license and
networking revenues, the cost of license and networking revenues remained
constant at 8% for both fiscal 2001 and fiscal 2002. The decrease in cost of
license and networking revenues in total dollars was partially due to a
third-party product cost of approximately $400,000 associated with a large
license transaction that was recorded in during fiscal 2001. Typically, license
transactions entered into by the Company do not involve large amounts of
third-party product cost, thus this particular transaction caused an increase in
cost of license and networking revenues in fiscal 2001. This decrease in cost of
license and networking revenues from fiscal 2001 is also due to the fact that
license revenue has decreased since the prior year. The decrease in cost of
license and networking revenues is generally consistent with the decrease in
license revenue. Cost of networking revenues were $277,000 in fiscal 2002
compared with $300,000 in fiscal 2001.
25
Cost of customer support revenues is comprised primarily of technical
support personnel and their related costs. Cost of customer support revenues
increased 11% from $7.6 million in the year ended June 30, 2001 to $8.4 million
in the year ended June 30, 2002, mostly as a result of increased headcount costs
in fiscal 2002 as compared with fiscal 2001. As a percentage of customer support
revenues, customer support costs decreased from 19% in the year ended June 30,
2001 to 17% in the year ended June 30, 2002. This decrease as a percentage of
customer support revenues resulted from certain cost reduction and efficiency
measures that were taken during fiscal 2002, which provided for the
rationalization of certain roles within the Company's support organization.
Cost of service revenues consisted primarily of the costs of providing
integration, customization and training. Cost of service revenues increased 2%
from $25.0 million in the year ended June 30, 2001 to $25.5 million in the year
ended June 30, 2002. This slight increase is primarily due to some additional
headcount costs incurred during fiscal 2002 to support the expanded activities
of the integration and consulting departments. Cost of service revenues as a
percentage of service revenues decreased from 74% in the year ended June 30,
2001 to 68% in the year ended June 30, 2002, as a result of improved utilization
rates experienced over the past year.
Research and development expenses. Research and development expenses
consisted primarily of engineering personnel expenses, contracted research and
development expenses, and facilities and equipment costs. To date the Company
has expensed all research and development costs as incurred. See Note 2 of Notes
to Consolidated Financial Statements. Research and development expenses
decreased by 1% from $24.3 million in the year ended June 30, 2001 to $24.1
million in the year ended June 30, 2002 and, as a percentage of total revenues,
decreased slightly from 17% in fiscal 2001 to 16% in fiscal 2002. Although the
total dollars spent on research and development activities decreased slightly
since the prior year, the amount spent on labour costs actually increased
slightly. This was a result of the Company entering into fewer subcontracting
arrangements during fiscal 2002, as well as using fewer consultants. Both of
these initiatives were part of Company-wide cost containment measures regarding
discretionary spending undertaken during the year. This increase in labour costs
was offset by lower spending on travel and training, as well as the recognition
of investment tax credits recorded as a reduction to research and development
expenses.
Sales and marketing expenses. Sales and marketing expenses consisted
primarily of compensation of sales and marketing personnel, as well as expenses
associated with advertising, trade shows, facilities and other expenses related
to the sales and marketing of the Company's products and services. Sales and
marketing expenses remained relatively constant at $51.3 million in the year
ended June 30, 2001 compared with $51.1 million in the year ended June 30, 2002.
Sales and marketing expenses decreased as a percentage of total revenues from
35% in the year ended June 30, 2001 to 34% in the year ended June 30, 2002.
Although the total dollars spent on sales and marketing activities were about
the same in both fiscal 2001 and fiscal 2002, the allocation of those costs
varied slightly between years. In fiscal 2002, the Company experienced a slight
increase in labor costs, mostly attributable to annual remuneration increases
for the Company's sales and marketing personnel. This increase though, was more
than offset by decreases in a number of discretionary areas, specifically
recruiting costs, consulting expenses, and external marketing spending.
General and administrative expenses. General and administrative
expenses consisted primarily of the salaries of administrative personnel and
related overhead and facilities expenses. General and administrative expenses
decreased 5% from $13.2 million in the year ended June 30, 2001 to $12.5 million
in the year ended June 30, 2002 and decreased as a percentage of total revenues
from 9% in the year ended June 30, 2001 to 8% in the year ended June 30, 2002.
During fiscal 2002, the Company initiated a series of cost reduction measures
affecting a number of discretionary and controllable areas. Specifically, the
Company realized cost savings with respect to travel, consulting, and legal
expenses that totaled approximately $1.9 million during fiscal 2002 as compared
with fiscal 2001.
Depreciation expenses. Depreciation expense increased 8% from $5.2
million in the year ended June 30, 2001 to $5.6 million in the year ended June
30, 2002. This increase was the result of new capital expenditures during fiscal
2002 as well as a full year's depreciation on assets purchased or acquired in
fiscal 2001.
26
Amortization of acquired intangible assets. Included in amortization
of acquired intangible assets is amortization of core technology, purchased
software and goodwill on the acquisitions of Bluebird, LeadingSide, Open Image,
Base4, OnTime, Information Dimensions, Lava, PS Software and Microstar.
Amortization of acquired intangible assets increased 18% from $5.5 million for
the year ended June 30, 2001 to $6.5 million for the year ended June 30, 2002.
The increase in amortization was due to the Company's acquisition activity in
fiscal 2001. During fiscal 2001, only a partial year of amortization expenses
was recorded on the intangible assets acquired during that year, whereas a full
year's amortization expenses was recorded for those same intangible assets
during fiscal 2002.
Other income (loss). Other income represented a loss of $2.4 million
for the year ended June 30, 2001, compared to income of $1.6 million for the
year ended June 30, 2002. During fiscal 2002, the gain of $1.6 million related
primarily to the Company's attempted acquisition of Accelio Corporation, a
software company located in Ottawa, Ontario. The gain that the Company realized
on this acquisition arose from the sale of shares of Accelio common stock owned
by the Company, and gains realized in connection with certain lock-up agreements
in connection with the attempted acquisition, partially offset by the costs
incurred. The $2.4 million loss in fiscal 2001 included $3.0 million of
write-offs of certain Internet industry investments and was partially offset by
a recovery of an acquisition accrual relating to the favorable settlement of
certain claims totaling $734,000, as well as a gain on the sale of shares of
About.com of $52,000. This gain was the result of the Company realizing $154,000
on the sale of these shares, net of its cost of $102,000 on the related
securities.
Interest. Interest income was $4.7 million in the year ended June 30,
2001, compared to $1.9 million in the year ended June 30, 2002. The decrease was
due to lower interest rates realized during fiscal 2002 as compared with fiscal
2001.
Income taxes. The provision for income taxes was $0.3 million in
fiscal 2002 compared with $1.3 million in fiscal 2001. The net deferred tax
asset as of June 30, 2002 and June 30, 2001 was nil. During fiscal 2002, the
Company utilized $7.7 million of deferred tax assets, of which $7.2 million were
used to offset current income with losses from prior years. In accordance with
US GAAP, a valuation allowance of $9.3 million is recorded against the deferred
tax asset, as it is not considered to be more likely than not that the benefit
of the asset will be realized. The decrease of $7.8 million from the valuation
allowance as at June 30, 2001 of $17.1 million mainly represented the
utilization of prior years' losses against the current year's taxable income.
The Company continues to evaluate its taxable position quarterly and considers
factors such as estimated taxable income, the history of losses for tax purposes
and the growth of the Company, among others. Please see Note 12 in Notes to
Consolidated Financial Statements.
Fiscal 2001 Compared with Fiscal 2000
Revenues. Total revenues included license revenues and service
revenues, which consisted of consulting contracts, customer support agreements
and training revenues, and integration services contracts. The Company
recognized revenue in accordance with Statement of Position ("SOP") 97-2,
"Software Revenue Recognition", issued by the American Institute of Certified
Public Accountants ("AICPA") in October 1997 and SOP 98-9 issued in December
1998. The Company recorded product revenue from software licenses and products
when persuasive evidence of an arrangement existed, the software product had
been shipped, there were no significant uncertainties surrounding product
acceptance, the fees were fixed and determinable and collection was considered
probable. Service revenue consisted of revenues from consulting contracts,
customer support agreements, and training and integration services contracts.
Contract revenues were derived from contracts to develop applications and to
provide consulting services. Contract revenues were recognized under the
percentage of completion method, using a methodology that accounts for costs
incurred in relationship to total estimated costs under the contract after
providing for any anticipated losses under the contract. Software maintenance
revenues were deferred and recognized ratably over the life of the service
contract. Revenues from training and integration services were recognized in the
period in which the services were performed.
27
Total revenues increased 31% from $112.9 million in the year ended
June 30, 2000 to $147.7 million in the year ended June 30, 2001. Revenues from
licenses and networking increased 28% from $57.6 million in the year ended June
30, 2000 to $73.8 million in the year ended June 30, 2001. Customer support
revenues increased 51% from $26.6 million in the year ended June 30, 2000 to
$40.3 million in the year ended June 30, 2001. Service revenues increased 17%
from $28.7 million in the year ended June 30, 2000 to $33.6 million in the year
ended June 30, 2001. In fiscal 2001 the Company achieved what was at the time
its highest license revenue in its history, fueled by a large increase in new
accounts, as well as strong additional sales to existing accounts. There were no
price declines as a result of new accounts. Furthermore, during fiscal 2001 the
Company began actively promoting the rental of Livelink to customers through an
Application Service Provider (ASP) model. Under this model, customers pay a
monthly fee per user that grants them use of Livelink on a secure, hosted
third-party server. Revenues earned from this service have been classified as
Networking Revenues. This line of business is still in its infancy, but is an
area that management feels has the potential to grow significantly in subsequent
years. The increase in customer support revenue was a direct result of continued
strong license sales, as well as strong renewal rates for maintenance contracts
for existing accounts. The increase in service revenues was primarily
attributable to an increase in consulting and integration services provided to
new license customers.
Cost of revenues. Cost of license and networking revenues consists
primarily of the costs associated with the royalties payable to third parties
whose software is bundled in the Company's products, as well as product media,
duplication, manuals and packaging expenses. Cost of license and networking
revenues increased 119% from $2.7 million in the year ended June 30, 2001 to
$5.9 million in the year ended June 30, 2000. Costs of revenues increased as a
percentage of license revenue from 5% to 8%. This increase was primarily due to
a one-time third party software charge associated with a large license
transaction that was incurred in during fiscal 2001. Typically, license
transactions entered into by the Company do not involve large amounts of third
party product cost, and as a result this particular transaction represents
caused an increase in cost of license revenues in fiscal 2001. Costs of
networking revenues were $300,000 during fiscal 2001, the first year that the
Company began marketing its networking offering. As a result, there was no cost
of networking revenues during fiscal 2000.
Cost of support revenues increased 33% from $5.7 million in the year
ended June 30, 2000 to $7.6 million in the year ended June 30, 2001. Cost of
support revenues is comprised primarily of technical support personnel. As a
percentage of customer support revenues, customer support costs decreased from
22% in the year ended June 30, 2000 to 19% in the year ended June 30, 2001.
Cost of service revenues consisted primarily of the costs of
integration, product support and training. Cost of service revenues increased 3%
from $24.2 million in the year ended June 30, 2000 to $25.0 million in the year
ended June 30, 2001, primarily due to the additional personnel hired to support
the expanded activities of the integration and consulting departments. Cost of
service revenues as a percentage of service revenues decreased from 84% in the
year ended June 30, 2000 to 74% in the year ended June 30, 2001, as a result of
improved utilization rates. The Company believes that it must continue to
enhance its integration and consulting capabilities as its customer base
expands.
Research and development expenses. Research and development expenses
consisted primarily of engineering personnel expenses, contracted research and
development expenses and facilities and equipment costs. The Company presently
expenses all research and development costs as incurred. See Note 2 of Notes to
Consolidated Financial Statements.
Research and development costs increased by 37% from $17.7 million in
the year ended June 30, 2000 to $24.3 million in the year ended June 30, 2001
and, as a percentage of revenue, remained constant between the two years at 16%.
The increase of $6.6 million in fiscal 2001 was primarily the result of the
increased labor costs that resulted from the hiring of additional employees in
the Company's research and development facilities, as well as the additional
personnel added as a result of acquisitions in 2001. The fiscal 2000 amount
includes a one-time expense of $475,000 relating to the purchase of audio
technology from Communities.com.
Sales and marketing expenses. Sales and marketing expenses consisted
primarily of compensation of sales and marketing personnel, as well as expenses
associated with advertising, trade shows, facilities and other expenses related
to the sales and marketing of the Company's products and services. Sales and
marketing expenses increased
28
20% from $42.9 million in the year ended June 30, 2000 to $51.3 million in the
year ended June 30, 2001. Sales and marketing expenses decreased as a percentage
of total revenues from 38% in the year ended June 30, 2000 to 35% in the year
ended June 30, 2001. The increase in absolute dollars was due principally to
expenses associated with increases in the number of sales and marketing
personnel and related salaries and commissions, as well as expenses related to
marketing, public relations activities, marketing materials, advertising and
trade shows.
General and administrative expenses. General and administrative
expenses consisted primarily of the salaries of administrative personnel and
related overhead and facilities expenses. General and administrative expenses
decreased 33% from $19.8 million in the year ended June 30, 2000 to $13.2
million in the year ended June 30, 2001 and decreased as a percentage of total
revenues from 18% in the year ended June 30, 2000 to 9% in the year ended June
30, 2001. During fiscal 2001, the Company expanded its administration staff and
continued to invest in its infrastructure, resulting in an increase in salaries
and communication costs. In fiscal 2000, the Company's non-recurring Year 2000
legal, testing and compliance costs significantly impacted that year's general
and administrative expenditures. Also during fiscal 2000 the Company wrote-off a
significant amount of accounts receivable that were determined not to be
collectible. Generally, these bad debts were a result of the Company's
determining that its respective customers did not have the capacity to pay their
respective amounts due. In addition, the Company incurred non-recurring legal
costs from its NetSys legal proceedings during fiscal 2000. The Netsys legal
proceeding relates to an arbitration action launched by the Company against one
of its distributors in which the Company claimed that the distributor has made
sales outside of its territory. In March 2000, the Company was awarded hosting
and arbitration cost compensation from Netsys, but to date no recovery has been
accrued in the Company's Consolidated Financial Statements due to the lack of
collection assurance.
Depreciation expenses. Depreciation expense was $4.6 million in the
year ended June 30, 2000 and increased to $5.2 million in the year ended June
30, 2001. This increase was the result of increased capital expenditures during
fiscal 2001 as well as increased capital equipment acquired through
acquisitions.
Amortization of acquired intangible assets. Amortization of acquired
intangible assets was $3.0 million for the year ended June 30, 2000 and $5.5
million for the year ended June 30, 2001. Included in amortization of acquired
intangible assets is amortization of core technology, purchased software and
goodwill on the acquisition of Bluebird, LeadingSide, Open Image, Base4, OnTime,
Information Dimensions and Lava, PS Software and Microstar. The increase in
amortization was due to the Company's acquisition activity in fiscal 2001.
Restructuring costs. During fiscal 2000, the Company recorded a
restructuring charge of $1.8 million. The restructuring charges reflect the
closure of the Company's Toronto, Ontario office and the London, UK office. In
addition, in connection therewith, 45 employees were terminated: 31 in North
America and 14 in Europe. At June 30, 2000, two employee severance amounts,
totaling $201,000 remained outstanding. These amounts were settled during the
first and second quarters of fiscal 2001.
Other income (loss). Other income was $49 million for the year ended
June 30, 2000, compared to a $2.4 million loss for the year ended June 30, 2001.
Fiscal 2000 included a $49 million gain on the sale of investments and net
expenditures of $51,000 comprised mainly of gains and losses on the disposal of
fixed assets and foreign exchange. The $49 million gain related to the Company's
disposition of most of its investment in About.com. This gain was a result of
the Company having realized proceeds of $49.2 million on this investment, which
had a cost of $200,000. The $2.4 million loss in fiscal 2001 included $3.0
million of write-offs of certain dot-com investments which was partially offset
by a recovery of an acquisition accrual relating to the favorable settlement of
certain claims totaling $734,000, as well as a gain on the sale of shares of
About.com of $52,000. This gain was the result of the Company realizing $154,000
on the sale of these shares, net of its cost of $102,000 on the related
securities.
Interest. Interest income was $6.2 million in the year ended June 30,
2000, compared to $4.7 million in the year ended June 30, 2001. The decrease was
due to lower average cash balances held by the Company during fiscal 2001,
largely a result of the repurchase of its common stock during the year.
Income taxes. A total net deferred tax asset of $2.1 million was
recorded as of June 30, 2000 and no deferred tax asset was recorded at June 30,
2001. During fiscal 2001, the Company utilized $6 million of deferred tax
assets, mainly by offsetting current income with losses from prior years. In
accordance with US GAAP, a
29
valuation allowance of $17.1 million is recorded against the deferred tax asset
as reasonable assurance on the use of the remaining portion of the asset has not
been obtained. The increase of $4.8 million from the valuation allowance as at
June 30, 2000 of $12.3 million mainly represented the unrealized benefit of
prior years losses acquired on acquisitions (see Note 15 in Notes to
Consolidated Financial Statements).
Quarterly Results
The following table summarizes selected quarterly financial data over the past
two fiscal years:
Fiscal 2002
--------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
---------------- --------------- ---------------- ---------------
(in thousands, except per share data)
Total Revenues $41,192 $36,797 $39,173 $35,315
---------------- --------------- ---------------- ---------------
Gross Profit 31,190 27,723 28,720 25,623
---------------- --------------- ---------------- ---------------
Net income $ 7,255 $ 4,282 $ 3,493 $ 1,641
================ =============== ================ ===============
Net income per share
Basic $ 0.36 $ 0.21 $ 0.18 $ 0.08
---------------- --------------- ---------------- ---------------
Diluted $ 0.34 $ 0.20 $ 0.16 $ 0.08
---------------- --------------- ---------------- ---------------
Fiscal 2001
--------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
---------------- --------------- ---------------- ---------------
(in thousands, except per share data)
Total Revenues $40,523 $39,300 $37,826 $30,050
---------------- --------------- ---------------- ---------------
Gross Profit 30,424 29,572 27,523 21,705
---------------- --------------- ---------------- ---------------
Net income $ 3,462 $ 2,007 $ 3,182 $ 2,145
================ =============== ================ ===============
Net income per share
Basic $ 0.17 $ 0.10 $ 0.16 $ 0.11
---------------- --------------- ---------------- ---------------
Diluted $ 0.16 $ 0.09 $ 0.15 $ 0.10
---------------- --------------- ---------------- ---------------
The Company has experienced, and is likely to continue to experience,
significant fluctuations in quarterly results that have been caused by many
factors, including changes in demand for the Company's products, the
introduction or enhancement of products by the Company and its competitors,
market acceptance of products or enhancements, delays in the introduction of
products or enhancements by the Company or its competitors, customer order
deferrals in anticipation of upgrades and new products, changes in the Company's
pricing policies or those of its competitors, delays involved in installing
products with customers, the mix of distribution channels through which products
are licensed, the mix of products and services sold, the mix of international
and North American revenues, foreign currency exchange rates and general
economic conditions. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. In addition,
like many other software companies, the Company has generally recognized a
substantial portion of its revenues in the last weeks of each quarter. The
Company's revenues for the quarter ended September 30 of each fiscal year
generally have been lower than revenues for other quarters, however, it is
uncertain whether this trend will continue in current or future periods. Due to
all of the foregoing factors, the Company's operating results in a particular
quarter may fail to meet market expectations, which could result in a decrease
in the price of Common Shares and a loss to shareholders.
30
Liquidity and Capital Resources
Other than the cash generated through its operations, the Company has
traditionally financed its cash needs primarily through the issuance of the
Company's Common Shares and Special Warrants. At June 30, 2002, the Company had
working capital of $103.9 million compared to working capital of $82.0 million
at June 30, 2001, primarily as a result of increases in cash and cash
equivalents that resulted from profits earned during the past fiscal year. Cash
and cash equivalents increased from $87.5 million at June 30, 2001 to $109.9
million at June 30, 2002, primarily due to cash provided by operating
activities.
The Company has a CDN $10.0 million (USD$6.6 million) line of credit with a
Canadian chartered bank, under which no borrowings were outstanding at June 30,
2002, the entire amount of which was available for use. The line of credit bears
interest at the lender's prime rate plus 0.5%. The Company has pledged all of
its assets including an assignment of accounts receivable as collateral for
outstanding amounts under this line of credit.
Cash provided by operations during the year ended June 30, 2002 was $28.5
million, compared to $11.8 million for the year ended June 30, 2001. This
increase is largely a function of higher net income during fiscal 2002, as well
as cash generated from a number of operating asset and liability accounts.
Net cash used for investment activities was $467,000 for fiscal 2002,
consisting primarily of acquisitions of furniture and equipment totaling $2.2
million, offset by proceeds on the sale of other investments of $2.7 million.
This compares to $22.3 million used in investment activities for fiscal 2001,
consisting primarily of acquisitions of furniture and equipment totaling $5.8
million and $15.6 million for the purchase of the following companies: Bluebird,
LeadingSide, Open Image, and Base4.
Net cash used in financing activities was $6.3 million in fiscal 2002,
primarily resulting from the repurchase for cancellation of 620,200 Common
Shares on the open market at a cost of $13.8 million, of which $6.3 million has
been charged to share capital and $7.5 million has been charged to accumulated
deficit, partially offset by proceeds of $7.5 million from the sale of Common
Shares related to the exercise of Company stock options. During fiscal 2001, net
cash used in financing activities was $15.3 million, primarily resulting from
the repurchase for cancellation of 886,000 Common Shares on the open market at a
cost of $21.3 million, of which $9.1 million has been charged to share capital
and $12.2 million has been charged to deficit, partially offset by proceeds of
$6.0 million from the sale of Common Shares related to the exercise of the
Company's stock options.
The Company earns interest on its cash and cash equivalents, which consist
of highly liquid investments with an original maturity of three months or less
at the date of acquisition. Interest income earned from these investments
totaled $1.9 million during fiscal 2002 and $4.7 million during fiscal 2001, due
to lower interest rates in fiscal 2002.
The Company currently anticipates that its operating expenses for the year
ending June 30, 2003 will be relatively consistent with those incurred in fiscal
2002. Similarly, the Company currently anticipates that amounts expended on
capital assets for the year ending June 30, 2003 will be generally consistent
with those incurred during fiscal 2002. These expectations, however, are subject
to change based on a number of factors, including the possibility of completing
acquisitions and other strategic transactions.
As of June 30, 2002, the Company had future commitments and contractual
obligations as summarized in the following table (in millions). These
commitments are principally comprised of operating leases for the Company's
leased premises.
31
2003 $ 4.7
2004 3.1
2005 2.1
2006 2.0
Thereafter 4.9
-----------
$ 16.8
===========
The Company anticipates that its cash and cash equivalents and available
credit facilities will be sufficient to fund its anticipated cash requirements
for working capital and capital expenditures for at least the next 12 months.
The Company may need to raise additional funds, however, in order to fund more
rapid expansion of its business, develop new and enhance existing products and
services, or acquire complementary products, businesses or technologies. If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of the Company's shareholders may be
reduced, the Company's shareholders may experience additional dilution, and such
securities may have rights, preferences, and privileges senior to those of it's
the Company's current shareholders. Additional financing may not be available on
terms favorable to the Company, or at all. If adequate funds are not available
or are not available on acceptable terms, the Company's ability to fund its
expansion, take advantage of unanticipated opportunities or develop or enhance
the Company's services or products would be significantly limited.
Cautionary Statements
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, including those set forth in the
following cautionary statements and elsewhere in this Annual Report on Form
10-K, that may cause the actual results, performance or achievements of the
Company, or developments in the Company's industry, to differ materially from
the anticipated results, performance, achievements or developments expressed or
implied by such forward-looking statements. The following factors, as well as
all of the other information set forth herein, should be considered carefully in
evaluating Open Text and its business. If any of the following risks were to
occur, the Company's business, financial condition and results of operations
would likely suffer. In that event, the trading price of the Company's Common
Shares would likely decline.
If the Company does not continue to develop new technologically advanced
products, future revenues will be negatively affected
Open Text's success will depend on its ability to design, develop, test,
market, license and support new software products and enhancements of current
products on a timely basis in response to both competitive products and evolving
demands of the marketplace. In addition, new software products and enhancements
must remain compatible with standard platforms and file formats. Presently, Open
Text is continuing to enhance the capability of its Livelink to enable users to
form workgroups and collaborate on intranets and the Internet. The Company
increasingly must integrate software licensed from third parties with its own
software to create or improve intranet and Internet products. These products are
key to the success of the Company's strategy, and the Company may not be
successful in developing and marketing these and other new software products and
enhancements. If the Company is unable to successfully integrate the
technologies licensed from third parties, to develop new software products and
enhancements to existing products, or to complete products currently under
development, or if such integrated or new products or enhancements do not
achieve market acceptance, the Company's operating results will materially
suffer. In addition, if new industry standards emerge that the Company does not
anticipate or adapt to, the Company's software products could be rendered
obsolete and its business would be materially harmed.
32
If the Company's products and services do not gain market acceptance, the
Company may not be able to increase its revenues
Open Text is continually working on the development of, and improvements
to, new versions of Livelink and other products. In November 2001, the Company
released Livelink MeetingZone(TM), and in April 2001, the Company released
Livelink Wireless(TM). In February 2002, Open Text released Livelink 9.1, the
latest release of the Company's flagship product. The primary market for Open
Text's software and services is rapidly evolving. As is typical in the case of a
new and rapidly evolving industry, demand for and market acceptance of products
and services that have been released recently or that are planned for future
release are subject to a high level of uncertainty. If the markets for the
Company's products and services fail to develop, develop more slowly than
expected or become saturated with competitors, the Company's business will
suffer. The Company may be unable to successfully market its current products
and services, develop new software products, services and enhancements to
current products and services, complete customer installations on a timely
basis, or complete products and services currently under development. If the
Company's products and services or enhancements do not achieve and sustain
market acceptance, the Company's business and operating results will be
materially harmed.
The Company's products may contain defects that could harm the Company's
reputation, be costly to correct, delay revenues, and expose the Company to
litigation
The Company's products are highly complex and sophisticated and, from time
to time, may contain design defects or software errors that are difficult to
detect and correct. Errors may be found in new software products or improvements
to existing products after commencement of commercial shipments, or, if
discovered, the Company may not be able to successfully correct such errors in a
timely manner, or at all. In addition, despite tests carried out by the Company
on all its products, the Company may not be able to fully simulate the
environment in which its products will operate and, as a result, the Company may
be unable to adequately detect design defects or software errors inherent in its
products and which only become apparent when the products are installed in an
end-user's network. The occurrence of errors and failures in the Company's
products could result in loss of or delay in market acceptance of the Company's
products, and alleviating such errors and failures in the Company's products
could require significant expenditure of capital and other resources by the
Company. Because the Company's end-user base consists of a limited number of
end-users, the harm to the Company's reputation resulting from product errors
and failures would be damaging to the Company. The Company regularly provides a
warranty with its products and the financial impact of these warranty
obligations may be significant in the future. The Company's agreements with its
strategic partners and end-users typically contain provisions designed to limit
the Company's exposure to claims, such as exclusions of all implied warranties
and limitations on damage remedies and the availability of consequential or
incidental damages. However, such provisions may not effectively protect the
Company against claims and related liabilities and costs. Although the Company
maintains errors and omissions insurance coverage and comprehensive liability
insurance coverage, such coverage may not be adequate and all claims may not be
covered. Accordingly, any such claim could negatively affect the Company's
financial condition.
The Company currently depends on certain third-party software, the loss of which
could result in increased costs of, or delays in, licenses of the Company's
products
The Company relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
which is used in its products to perform key functions. These third-party
software licenses may not continue to be available to us on commercially
reasonable terms, and the related software may not continue to be appropriately
supported, maintained, or enhanced by the licensors. The loss of license to use,
or the inability of licensors to support, maintain, and enhance any of such
software, could result in increased costs, delays, or reductions in product
shipments until equivalent software is developed or licensed, if at all, and
integrated.
Current and future competitors could have a significant impact on the Company's
ability to generate future revenue and profits
The markets for the Company's products are new, intensely competitive,
subject to rapid technological change and are evolving rapidly. The Company
expects competition to increase and intensify in the future as the markets for
the Company's products continue to develop and as additional companies enter
each of its markets.
33
Numerous releases of products and services that compete with those of the
Company can be expected in the near future. The Company may not be able to
compete effectively with current and future competitors. If competitors were to
engage in aggressive pricing policies with respect to competing products, or
significant price competition were to otherwise develop, the Company would
likely be forced to lower its prices. This could result in lower revenues,
reduced margins, loss of customers, or loss of market share for the Company.
The length of the Company's sales cycle can fluctuate significantly which could
result in significant fluctuations in license revenue being recognized from
quarter to quarter
Because the decision by a customer to purchase the Company's products often
involves relatively large-scale implementation across the customer's network or
networks, licenses of these products may entail a significant commitment of
resources by prospective customers, accompanied by the attendant risks and
delays frequently associated with significant expenditures and lengthy sales
cycle and implementation procedures. Given the significant investment and
commitment of resources required by an organization in order to implement the
Company's software, the Company's sales cycle tends to take considerable time to
complete. Particularly in the current economic environment of reduced
information technology spending, it can take several months, or even quarters,
for sales opportunities to translate into revenue. If installation of the
Company's products in one or more customers takes longer than originally
anticipated, the date on which revenue from these licenses could be recognized
would be delayed. Such delays could cause the Company's revenues to be lower
than expected in a particular period.
The Company may not achieve its anticipated revenues if it does not expand its
product line
Substantially all of Open Text's revenues are currently derived from its
Livelink and related products and services offered by the Company in the
Internet, intranet and extranet markets. Accordingly, the Company's future
results of operations will depend, in part, on expanding its product-line and
related services. To achieve its revenue goals, the Company must also continue
to enhance these products and services to meet the evolving needs of its
customers. A reduction in demand or increase in competition in the market for
Internet or intranet applications, or a decline in licenses of Livelink and
related services, would significantly harm the Company's business.
The Company must continue to manage its growth or its operating results could be
adversely affected
Over the past several years, Open Text has experienced growth in revenues,
operating expenses, and product distribution channels. In addition, Open Text's
markets have continued to evolve at a rapid pace. The total number of employees
of the Company has grown from 292 as of September 1, 1996 to 980, excluding
contractors, as of June 30, 2002. The Company believes that continued growth in
the breadth of its product lines and services and in the number of personnel
will be required in order to establish and maintain the Company's competitive
position. Moreover, the Company has grown significantly through acquisitions in
the past and continues to review acquisition opportunities as a means of
increasing the size and scope of its business. Open Text's growth, coupled with
the rapid evolution of the Company's markets, has placed, and is likely to
continue to place, significant strains on its administrative and operational
resources and increased demands on its internal systems, procedures and
controls. The Company's administrative infrastructure, systems, procedures and
controls may not adequately support the Company's operations and the Company's
management may not be able to achieve the rapid, effective execution of the
product and business initiatives necessary to successfully penetrate the markets
for the Company's products and services and to successfully integrate any
business acquisitions in the future. If the Company is unable to manage growth
effectively, the Company's operating results will likely suffer.
Future acquisitions, investments, joint ventures and other business initiatives
may negatively affect our operating results
Open Text continues to seek out opportunities to acquire or invest in
businesses, products and technologies that expand, complement or are otherwise
related to the Company's current business or products. The Company also
considers from time to time, opportunities to engage in joint ventures or other
business collaborations with third parties to address particular market
segments. These activities create risks such as the need to integrate and manage
the business acquired with the business of the Company, additional demands on
the Company's management, resources, systems, procedures and controls,
disruption of the Company's ongoing business, and diversion of
34
management's attention from other business concerns. Moreover, these
transactions could involve substantial investment of funds and/or technology
transfers, the acquisition or disposition of product lines or businesses. Also,
such activities could result in one-times charges and expenses and have the
potential to either dilute existing shareholders or result in the assumption of
debt. Such acquisitions, investments, joint ventures or other business
collaborations may involve significant commitments of financial and other
resources of the Company. Any such activity may not be successful in generating
revenue, income or other returns to the Company, and the financial or other
resources committed to such activities will not be available to the Company for
other purposes. The Company's inability to address these risks could negatively
affect the Company's operating results.
The Company's products rely on the stability of various infrastructure software
which, if not stable, could negatively impact the effectiveness of the Company's
products, resulting in harm to the reputation and business of the Company
Developments of internet and intranet applications by Open Text depends on
the stability, functionality and scalability of the infrastructure software of
the underlying intranet, such as that of Netscape, Microsoft and others. If
weaknesses in such infrastructure software exist, the Company may not be able to
correct or compensate for such weaknesses. If the Company is unable to address
weaknesses resulting from problems in the infrastructure software such that the
Company's products do not meet customer needs or expectations, the Company's
business and reputation may be significantly harmed.
The Company's quarterly revenues and operating results are likely to fluctuate
which could impact the price of the Company's Common Shares
The Company has experienced, and is likely to continue to experience,
significant fluctuations in quarterly revenues and operating results caused by
many factors, including changes in the demand for the Company's products, the
introduction or enhancement of products by the Company and its competitors,
market acceptance of enhancements or products, delays in the introduction of
products or enhancements by the Company or its competitors, customer order
deferrals in anticipation of upgrades and new products, changes in the Company's
pricing policies or those of its competitors, delays involved in installing
products with customers, the mix of distribution channels through which products
are licensed, the mix of products and services sold, the mix of international
and North American revenues, foreign currency exchange rates and general
economic conditions.
Like many other software companies, the Company has generally recognized a
substantial portion of its revenues in the last weeks of each quarter.
Accordingly, the cancellation or deferrals of even a small number of licenses or
delays in installations of the Company's products could have a material adverse
effect on the Company's results of operations in any particular quarter. The
Company also has noted historically lower sales in July and August than in other
months, which has resulted in proportionately lower revenues recorded in the
quarter ended September 30 than in other quarters. Because of the impact of the
timing of product introductions and the rapid evolution of the Company's
business and the markets it serves, the Company cannot predict whether seasonal
patterns experienced in the past will continue. For these reasons, no one should
rely on period-to-period comparisons of the Company's financial results to
forecast future performance. It is likely that the Company's quarterly revenue
and operating results will vary significantly in the future and if a shortfall
in revenue occurs or if operating costs increase significantly, the market price
of our Common Shares could decline.
Failure to protect our intellectual property could harm our ability to compete
effectively
The Company is highly dependent on its ability to protect its proprietary
technology. The Company's efforts to protect its intellectual property rights
may not be successful. The Company relies on a combination of copyright,
trademark and trade secret laws, non-disclosure agreements and other contractual
provisions to establish and maintain its proprietary rights. The Company has not
sought patent protection for its products. While US and Canadian copyright laws,
international conventions and international treaties may provide meaningful
protection against unauthorized duplication of software, the laws of some
foreign jurisdictions may not protect proprietary rights to the same extent as
the laws of Canada or the United States. Software piracy has been, and can be
expected to be, a persistent problem for the software industry. Enforcement of
the Company's intellectual property rights may be difficult, particularly in
some nations outside of the United States and Canada in which the Company seeks
to market its products. Despite the precautions taken by the Company, it may be
possible for unauthorized third parties,
35
including competitors, to copy certain portions of the Company's products or to
reverse engineer or obtain and use information that the Company regards as
proprietary. Although the Company does not believe that its products infringe on
the rights of third parties, third parties may assert infringement claims
against the Company in the future, and any such assertions may result in costly
litigation or require the Company to obtain a license for the intellectual
property rights of third parties, such licenses may not be available on
reasonable terms, or at all.
If the Company is not able to attract and retain top employees, the Company's
ability to compete may be harmed
The Company's performance is substantially dependent on the performance of
its executive officers and key employees. The loss of the services of any of its
executive officers or other key employees could significantly harm the Company's
business. The Company does not maintain "key person" life insurance policies on
any of its employees. The Company's success is also highly dependent on its
continuing ability to identify, hire, train, retain and motivate highly
qualified management, technical, sales and marketing personnel, including
recently hired officers and other employees. Specifically, the recruitment of
top research developers, along with experienced salespeople, remains critical to
the Company's success. Competition for such personnel is intense, and the
Company may not be able to attract, integrate or retain highly qualified
technical and managerial personnel in the future.
The volatility of the Company's stock price could lead to losses by shareholders
The market price of the Common Shares has been highly volatile and subject
to wide fluctuations. Such fluctuations in market price may continue in response
to quarterly variations in operating results, announcements of technological
innovations or new products by the Company or its competitors, changes in
financial estimates by securities analysts or other events or factors. In
addition, the financial markets have experienced significant price and volume
fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies or have resulted from the failure
of the operating results of such companies to meet market expectations in a
particular quarter. Broad market fluctuations or any failure of the Company's
operating results in a particular quarter to meet market expectations may
adversely affect the market price of the Common Shares, resulting in losses to
shareholders. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such a company. Due to the volatility of our stock price, the
Company could be the target of securities litigation in the future. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business and operating results.
A reduction in the number or sales efforts by distributors could materially
impact the Company's revenues
A portion of the Company's revenue is derived from the license of its
products through third parties. The Company's success will depend, in part, upon
its ability to maintain access to existing channels of distribution and to gain
access to new channels if and when they develop. The Company may not be able to
retain a sufficient number of its existing or future distributors. Distributors
may also give higher priority to the sale of other products (which could include
products of competitors) or may not devote sufficient resources to marketing the
Company's products. The performance of third party distributors is largely
outside the control of the Company and the Company is unable to predict the
extent to which these distributors will be successful in marketing and licensing
the Company's products. A reduction in sales efforts, or a decline in the number
of distributors, or the discontinuance of sales of the Company's products by its
distributors could lead to reduced revenue.
The Company's international operations expose the Company to business risks that
could cause the Company's operating results to suffer
Open Text intends to continue to make efforts to increase its international
operations and anticipates that international sales will continue to account for
a significant portion of its revenue. Revenues derived outside of North America
represented 40%, 41%, and 39% of total revenues for fiscal 2002, fiscal 2001,
and fiscal 2000, respectively. These international operations are subject to
certain risks and costs, including the difficulty and expense of administering
business abroad, compliance with foreign laws, compliance with domestic and
international import and export laws and regulations, costs related to
localizing products for foreign markets, and costs related to translating and
distributing products in a timely manner. International operations also tend to
expose
36
the Company to a longer sales and collection cycle, as well as potential losses
arising from currency fluctuations, and limitations regarding the repatriation
of earnings. Significant international sales may also expose the Company to
greater risk from political and economic instability, unexpected changes in
Canadian, US or other governmental policies concerning import and export of
goods and technology, and other regulatory requirements and tariffs and other
trade barriers. In addition, international earnings may be subject to taxation
by more than one jurisdiction, which could also materially adversely affect the
Company's results of operations. Moreover, international expansion may be more
difficult, time consuming, and costly. As a result, if revenues from
international operations do not offset the expenses of establishing and
maintaining foreign operations, the Company's operating results will suffer.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is primarily exposed to market risks associated with
fluctuations in interest rates and foreign currency exchange rates.
Interest rate risks
The Company's exposure to interest rate fluctuations relates primarily to
its investment portfolio, since the Company had no borrowings outstanding under
its line of credit at June 30, 2002. The Company primarily invests its cash in
short-term high-quality securities with reputable financial institutions. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing the income the Company receives from
its investments without significantly increasing risk. The Company does not use
derivative financial instruments in its investment portfolio. The interest
income from the Company's investments is subject to interest rate fluctuations,
which the Company believes would not have a material impact on the financial
position of the Company.
All highly liquid investments with a maturity of less than three months at
the date of purchase are considered to be cash equivalent. All investments with
maturities of three months or greater are classified as available-for-sale and
considered to be short-term investments. Some of the securities that the Company
has invested in may be subject to market risk. This means that a change in the
prevailing interest rates may cause the principal amount of the investment to
fluctuate. The impact on net interest income of a 100 basis point adverse change
in interest rates for the fiscal year ended June 30, 2002 would have been
approximately $1.0 million.
Foreign currency risk
The Company has net monetary asset and liability balances in foreign
currencies other than the U.S. Dollar, including the Canadian Dollar ("CDN"),
the Pound Sterling ("GBP"), the Australian dollar ("AUD"), the Swiss Franc
("CHF"), the German Mark ("DEM"), the French Franc ("FRF"), the Dutch Guilder
("NLG"), the Danish Kroner ("DKK"), the Arabian Durham ("AED"), and the Euro
("EUR"). The Company's cash and cash equivalents are primarily held in U.S.
Dollars.
The Company's net income is affected by fluctuations in the value of the
U.S. dollar as compared to foreign currencies as a result of transactions in
foreign markets. Approximately 40%, 41%, and 39% of the Company's total revenues
in fiscal 2002, 2001, and 2000, respectively, were derived from operations
outside of North America. Approximately 45%, 42%, and 44% of the Company's
operating expenses in fiscal 2002, 2001 and 2000, respectively, were incurred
from operations outside of North America. The Company does not currently use
financial instruments to hedge operating expenses in foreign currencies. The
Company intends to assess the need to utilize financial instruments to hedge
currency exposures on an ongoing basis.
The following tables provide a sensitivity analysis on the Company's
exposure to changes in foreign exchange rates. For foreign currencies where the
Company engages in material transactions, the following table quantifies the
impact that a 10% decrease against the U.S. dollar would have had on the
Company's total revenues, operating expenses, and net income for the year ended
June 30, 2002. This analysis is presented in both functional
37
and transactional currency. The impact of changes in foreign exchange rates for
those foreign currencies not presented in these tables is not material.
10% Change in Functional Currency
-------------------------------------------------
Total Operating Net
Revenue Expenses Income
------------- ------------- -------------
Euro $ 2,602 $ 1,880 $ 722
British Pound 1,989 1,228 761
Canadian Dollar 479 1,154 (675)
Swiss Franc 868 635 233
10% Change in Transactional Currency
-------------------------------------------------
Total Operating Net
Revenue Expenses Income
------------- ------------- -------------
Euro $ 2,090 $ 1,270 $ 820
British Pound 1,837 1,210 627
Canadian Dollar 994 2,345 (1,351)
Swiss Franc 405 644 (239)
38
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements and Supplementary Data Page Number
Management's Report 40
Auditors' Report by KPMG LLP Chartered Accountants 41
Auditors' Report by PricewaterhouseCoopers LLP Chartered Accountants 42
Consolidated Balance Sheets at June 30, 2002 and 2001 43
Consolidated Statements of Operations for the years
ended June 30, 2002, 2001, and 2000 44
Consolidated Statements of Shareholders' Equity for the years
ended June 30, 2002, 2001, and 2000 45
Consolidated Statements of Cash Flows for the years
ended June 30, 2002, 2001, and 2000 46
Notes to Consolidated Financial Statements 47
39
Management's Report
Management is responsible for all the information and representations contained
in the consolidated financial statements and other sections of this Form 10-K.
Management believes that the consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States and appropriate in the circumstances to reflect in all material
respects the substance of events and transactions that should be included, and
that the other information in this Form 10-K is consistent with those
statements. In preparing the consolidated financial statements, management makes
informed judgments and estimates of the expected effects of events and
transactions that are currently being accounted for.
In meeting its responsibility for the reliability of the consolidated financial
statements, management depends on the Company's system of internal accounting
control. This system is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with generally accepted
accounting principles. In designing control procedures, management recognizes
that errors or irregularities may nevertheless occur. Also, estimates and
judgments are required to assess and balance the relative cost and expected
benefits of the controls. Management believes that the Company's accounting
controls provide reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.
The Board of Directors pursues its oversight role for these consolidated
financial statements through the Audit Committee, which is comprised solely of
Directors who are not officers or employees of the Company. The Audit Committee
meets with management periodically to review their work and to monitor the
discharge of each of their responsibilities. The Audit Committee also meets
periodically with KPMG LLP, the independent auditors, who have free access to
the Audit Committee of the Board of Directors, without management present, to
discuss internal accounting control, auditing, and financial reporting
matters.
KPMG LLP is engaged to express an opinion on our consolidated financial
statements. Their opinion is based on procedures believed by them to be
sufficient to provide reasonable assurance that the consolidated financial
statements are in conformity with accounting principles generally accepted in
the United States of America.
/s/P. Thomas Jenkins /s/Alan Hoverd
P. Thomas Jenkins Alan Hoverd
Chief Executive Officer Chief Financial Officer
July 29, 2002
40
[LETTERHEAD OF KPMG]
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Open Text Corporation
We have audited the accompanying consolidated balance sheets of Open Text
Corporation as of June 30, 2002 and 2001 and the related consolidated statements
of income, shareholders' equity and cash flows for each of the years in the
two-year period ended June 30, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements as at June 30, 2000 and for the year then ended were
audited by other auditors who expressed an opinion without reservation on those
statements in their report dated August 4, 2000.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the company as at
June 30, 2002 and 2001 and the results of its operations and its cash flows for
each of the years in the two-year period ended June 30, 2002, in conformity with
accounting principles generally accepted in the United States of America.
On July 29, 2002, we reported separately to the shareholders of the company on
the consolidated financial statements for the same period, prepared in
accordance with Canadian generally accepted accounting principles.
KPMG LLP
Chartered Accountants
Toronto, Canada
July 29, 2002
41
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
Auditors' Report
To the Shareholders of
Open Text Corporation
We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Open Text Corporation for the year ended June 30, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of the company for
the year ended June 30, 2000 in accordance with United States generally
accepted accounting principles.
On August 4, 2000, we reported separately to the shareholders of Open Text
Corporation on the consolidated financial statements for the same period,
prepared in accordance with accounting principles generally accepted in Canada.
PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Canada
August 4, 2000
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
42
OPEN TEXT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of US Dollars, except share data)
June 30,
------------------------
2002 2001
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 109,895 $ 87,526
Accounts receivable trade, net of allowance for doubtful accounts
of $1,458 as at June 30, 2002 and June 30, 2001 33,094 34,212
Income taxes recoverable 1,194 -
Prepaid expenses and other current assets 2,530 2,267
---------- ---------
Total current assets 146,713 124,005
Capital assets (note 3) 8,401 11,815
Goodwill, net of accumulated amortization of $12,807 at June 30, 2002
and $8,096 at June 30, 2001 24,587 29,112
Other assets (note 4) 7,146 10,070
---------- ----------
Total assets $ 186,847 $ 175,002
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade and accrued liabilities (note 6) $ 18,889 $ 18,535
Deferred revenues 23,927 21,622
Income taxes payable - 1,818
---------- ----------
Total current liabilities 42,816 41,975
Shareholders' equity:
Share capital (note 7)
19,875,872 and 19,937,968 Common Shares issued and outstanding
at June 30, 2001 and June 30, 2002 respectively 204,815 203,636
Accumulated other comprehensive income:
Cumulative translation adjustment (780) (1,396)
Accumulated deficit (60,004) (69,213)
---------- ----------
Total shareholders' equity 144,031 133,027
---------- ----------
Commitments and contingencies (notes 9)
$ 186,847 $ 175,002
========== ==========
See accompanying notes to consolidated financial statements
43
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US Dollars, except share and per share data)
2002 2001 2000
-------------- ------------- --------------
Revenues:
License & networking $ 65,984 $ 73,752 $ 57,574
Customer support 48,707 40,316 26,641
Service 37,786 33,631 28,730
------------- ------------- --------------
Total revenues 152,477 147,699 112,945
Cost of revenues:
License & networking 5,341 5,878 2,685
Customer support 8,364 7,632 5,731
Service 25,516 24,965 24,220
------------- ------------- --------------
Total cost of revenues 39,221 38,475 32,636
------------- ------------- --------------
113,256 109,224 80,309
Operating expenses:
Research and development 24,071 24,311 17,743
Sales and marketing 51,084 51,317 42,928
General and administrative 12,498 13,191 19,832
Depreciation 5,587 5,178 4,586
Amortization of acquired intangible assets 6,506 5,460 2,962
Restructuring costs (note 16) - - 1,774
------------- ------------- --------------
Total operating expenses 99,746 99,457 89,825
------------- ------------- --------------
Income (loss) from operations 13,510 9,767 (9,516)
Other income (loss) (note 10) 1,613 (2,417) 48,965
Interest income 1,853 4,736 6,161
Interest expense (16) (61) (109)
------------- ------------- --------------
Income before income taxes 16,960 12,025 45,501
Provision for income taxes (note 11) 289 1,229 20,422
------------- ------------- --------------
Net income for the year $ 16,671 $ 10,796 $ 25,079
============= ============= ==============
Net income per share - basic (note 15) $ 0.83 $ 0.54 $ 1.12
============= ============= ==============
Net income per share - diluted (note 15) $ 0.78 $ 0.50 $ 1.03
============= ============= ==============
Weighted average number of Common Shares
outstanding - basic 19,978,719 20,032,092 22,349,268
============= ============= ==============
Weighted average number of Common Shares
outstanding - diluted 21,238,965 21,465,645 24,421,322
============= ============= ==============
See accompanying notes to consolidated financial statements
44
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Common Shares Special Warrants Capital Accumualted
-------------------- -------------------
Shares Amount Shares Amount Amount Deficit
-------- ---------- -------- --------- ------- -----------
Balance as of June 30, 1999 21,281 150,252 3,000 97,420 64 (45,875)
Issuance of Common Shares
Under employee stock option plans 768 5,659 - - - -
On acquisitions 40 1,015 - - - -
Conversion of special warrants 3,000 97,420 (3,000) (97,420) - -
Under employee stock purchase plans 111 1,961 - -
Repurchase and cancellation of shares (4,970) (49,704) - - - (47,000)
Reallocation of other capital - 64 - - (64) -
Comprehensive income:
Unrealized gain on available
for sale securities (net of tax of $54) - - - - - -
Realized gain on available
for sale securities (net of tax of $14,022) - - - - - -
Foreign currency translation adjustment - - - - - -
Net income for the year - - - - - 25,079
Total comprehensive income (loss) - - - - - -
------- ---------- -------- --------- ------ -----------
Balance as of June 30, 2000 20,230 $ 206,667 - $ - $ - $ (67,796)
Issuance of Common Shares
Under employee stock option plans 462 3,785 - - - -
Under employee stock purchase plans 132 2,237 - - - -
Repurchase and cancellation of shares (886) (9,053) - - - (12,213)
Comprehensive income:
Realized gain on available
for sale securities (net of tax of $54)
Foreign currency translation adjustment - - - - - -
Net income for the year - - - - - 10,796
Total comprehensive income (loss) - - - - - -
------- ---------- -------- --------- ------ -----------
Balance as of June 30, 2001 19,938 $ 203,636 - $ - $ - $ (69,213)
Issuance of Common Shares
Under employee stock option plans 419 2,600 - - - -
Under employee stock purchase plans 139 4,917 - - - -
Repurchase and cancellation of shares (620) (6,338) - - - (7,462)
Comprehensive income:
Foreign currency translation adjustment - - - - -
Net income for the year - - - - 16,671
Total comprehensive income (loss) - - - - -
------- ---------- -------- --------- ------ -----------
Balance as of June 30, 2002 19,876 204,815 - $ - $ - $ (60,004)
======= ========== ======== ========= ====== ===========
Comprehensive
Income (loss) Total
------------- ----------
Balance as of June 30, 1999 30,964 232,825
Issuance of Common Shares
Under employee stock option plans - 5,659
On acquisitions - 1,015
Conversion of special warrants - 1,961
Under employee stock purchase plans
Repurchase and cancellation of shares - (96,704)
Reallocation of other capital - -
Comprehensive income:
Unrealized gain on available
for sale securities (net of tax of $54) 130 130
Realized gain on available
for sale securities (net of tax of $14,022) (31,699) (31,699)
Foreign currency translation adjustment (283) (283)
Net income for the year - 25,079
----------
Total comprehensive income (loss) - (6,773)
------------- ----------
Balance as of June 30, 2000 $ (888) $ 137,983
Issuance of Common Shares
Under employee stock option plans - 3,785
Under employee stock purchase plans - 2,237
Repurchase and cancellation of shares - (21,266)
Comprehensive income:
Realized gain on available
for sale securities (net of tax of $54) (130) (130)
Foreign currency translation adjustment (378) (378)
Net income for the year - 10,796
----------
Total comprehensive income (loss) - 10,288
------------- ----------
Balance as of June 30, 2001 $ (1,396) $ 133,027
Issuance of Common Shares
Under employee stock option plans - 2,600
Under employee stock purchase plans - 4,917
Repurchase and cancellation of shares - (13,800)
Comprehensive income:
Foreign currency translation adjustment 616 616
Net income for the year - 16,671
----------
Total comprehensive income (loss) - 17,287
------------- ----------
Balance as of June 30, 2002 $ (780) $ 144,031
============= ==========
See accompanying notes to consolidated financial statements
45
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US Dollars)
Year ended June 30,
2002 2001 2000
----------- ------------ ------------
Cash flows from operating activities:
Net income for the year $ 16,671 $ 10,796 $ 25,079
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 12,093 10,638 7,942
Deferred taxes - 2,146 7,400
(Gain) loss on sale of other investments (1,012) 2,237 (48,130)
Other - 772 (126)
Changes in operating assets and liabilities:
Accounts receivable 4,462 13 5,463
Prepaid expenses and other assets (439) 459 6,330
Income tax payable (1,934) (8,481) 12,813
Income taxes recoverable (949) - -
Accounts payable and deferred revenues (783) (3,499) 9,606
Unrealized foreign exchange (gain) loss 389 (2,172) -
Other - (1,147) -
----------- ------------ ------------
Net cash provided by operating activities 28,498 11,762 26,377
Cash flows from investing activities:
Acquisitions of capital assets (2,248) (5,781) (7,055)
Purchase of other investments (709) (938) (1,775)
Proceeds from sale of other investments 2,702 - 1,762
Acquisitions of companies - (15,621) (6,611)
Payments against acquisition accruals (212) - -
Proceeds from available for sale securities - - 48,322
Sale of other assets - - 790
----------- ------------ ------------
Net cash provided by (used in) investment activities (467) (22,340) 35,433
Cash flow from financing activities:
Payment of obligations under capital leases (12) (55) (79)
Proceeds from issuance of Common Shares 7,517 6,022 9,157
Repurchase of Common Shares (13,800) (21,266) (97,226)
----------- ------------ ------------
Net cash used in financing activities (6,295) (15,299) (88,148)
Foreign exchange gain (loss) on cash held in foreign currency 633 (515) -
Increase(decrease) in cash and cash equivalents during the year 22,369 (26,392) (26,338)
Cash and cash equivalents at beginning of the year 87,526 113,918 140,256
----------- ------------ ------------
Cash and cash equivalents at end of the year $ 109,895 $ 87,526 $ 113,918
=========== ============ ============
Supplementary information (note 13)
See accompanying notes to consolidated financial statements
46
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 1--NATURE OF OPERATIONS
The Company develops, markets, licenses and supports collaborative knowledge
management application software for use on intranets, extranets and the
Internet, enabling users to find electronically stored information, work
together in creative and collaborative processes, engage in group calendaring
and scheduling and distribute or make available to users across networks or the
Internet the resulting work product and other information. The Company's
products are licensed primarily to Global 2000 customers. The Company's shares
trade publicly on the NASDAQ Stock Market - National market ("NASDAQ"), under
the symbol OTEX and on the Toronto Stock Exchange, under the symbol OTC.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These consolidated financial statements are expressed in US dollars and are
prepared in accordance with generally accepted accounting principles in the
United States ("US GAAP").
Basis of consolidation
The consolidated financial statements include the accounts of Open Text
Corporation and its subsidiaries, all of which are wholly-owned. All material
intercompany balances and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
All highly liquid investments with an original maturity of three months or less
at the date of acquisition are classified as cash equivalents.
Capital assets
Capital assets are stated at cost and are depreciated on a straight-line
basis over the estimated useful lives of the related assets, generally three to
five years. Gains and losses upon asset disposal are taken into income in the
year of disposition.
Impairment of long-lived assets
The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, in accordance with the provisions of Statement of
Financial Standard No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets or intangibles may not be recoverable. The Company considers factors
such as significant changes in the business climate and projected discounted
cash flows from the respective asset. Impairment losses are measured as the
amount by which the carrying amount of the asset exceeds its fair market value.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets." SFAS 142 requires goodwill to be tested for impairment at
least annually, and written off when impaired, rather than being amortized as
previous standards required. The Company will adopt SFAS 142 beginning in its
fiscal year 2003.
47
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The Company is currently assessing the impact of SFAS 142 on its operating
results and financial condition. In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets". This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes SFAS no. 121, "Accounting for the Impairment of Long-Lived Assets to
be Disposed Of", and the accounting and reporting requirements of ABP No 30,
"Reporting the Results of Operations for a Disposal of a Segment of a Business."
The Company will adopt SFAS 144 beginning in its fiscal year 2003. The Company
does not expect the adoption of SFAS 144 to have a material impact on its
financial position or results of operations.
Revenue recognition
a) License revenues
The Company recognizes revenue in accordance with Statement of Position ("SOP")
97-2, "Software Revenue Recognition", issued by the American Institute of
Certified Public Accountants ("AICPA") in October 1997 and as amended by SOP
98-9 issued in December 1998.
The Company records product revenue from software licenses and products when
persuasive evidence of an arrangement exists, the software product has been
shipped, there are no significant uncertainties surrounding product acceptance,
the fees are fixed and determinable and collection is considered probable. The
Company uses the residual method to recognize revenue when a license agreement
includes one or more elements to be delivered at a future date if evidence of
the fair value of all undelivered elements exists. If an undelivered element for
the arrangement exists under the license arrangement, revenue related to the
undelivered element is deferred based on vendor-specific objective evidence
("VSOE") of the fair value of the undelivered element.
The Company's multiple-element sales arrangements include arrangements where
software licenses and the associated post contract customer support ("PCS") are
sold together. The Company has established VSOE of the fair value of the
undelivered PCS element based on the contracted price for renewal PCS included
in the original multiple element sales arrangement, as substantiated by
contractual terms and the Company's significant PCS renewal experience, from its
large installed base of over 5 million users worldwide. The Company's multiple
element sales arrangements generally include rights for the customer to renew
PCS after the bundled term ends. These rights are irrevocable to the customer's
benefit, are for specified prices and the customer is not subject to any
economic or other penalty for failure to renew. Further, the renewal PCS options
are for services comparable to the bundled PCS and cover similar terms.
It is the Company's experience that customers generally exercise their renewal
PCS option. In the renewal transaction, PCS is sold on a stand-alone basis to
the licensees one year or more after the original multiple element sales
arrangement. The renewal PCS price is consistent with the renewal price in the
original multiple element sales arrangement although an adjustment to reflect
consumer price changes are not uncommon.
If VSOE of fair value does not exist for all undelivered elements, all revenue
is deferred until sufficient evidence exists or all elements have been
delivered.
The Company assesses whether payment terms are customary or extended payment
terms in accordance with normal practice relative to the market in which the
sale is occurring. The Company's sales arrangements generally include standard
payment terms. These terms effectively relate to all customers, products, and
arrangements regardless of customer type, product mix or arrangement size. The
only time exceptions are made to these standard terms is on certain sales in
parts of the world where local practice differs. In these jurisdictions, the
Company's customary payment terms are in line with local practice.
b) Service revenues
Service revenues consist of revenues from consulting contracts, customer support
agreements, and training and integration services contracts. Contract revenues
are derived from contracts to develop applications and to provide consulting
services. Contract revenues are recognized under the percentage of completion
method, using a
48
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
methodology that accounts for costs incurred under the contract in relation to
the total estimated costs under the contract, after providing for any
anticipated losses under the contract. Revenues from training and integration
services are recognized in the period in which the services are performed.
c) Customer support revenues
Customer support revenues consist of revenue derived from contracts to provide
post contract support to license holders. These revenues are recognized ratably
over the term of the contract.
d) Network revenues
Network revenues consist of revenues earned from customers under an application
service provider ("ASP") model. Under this model, customers pay a monthly fee
that entitles them to use the Company's software on a secure, hosted,
third-party server. These revenues are recognized as the services are provided
on a monthly basis over the term of the customer's contract. With respect to
these revenues, the Company's customers pay exclusively for the right to use the
software. The Company's customers do not receive the right to take possession of
the Company's software. Further, it is not possible for customers to either run
the software on their own hardware or for them to contract with another party
unrelated to the Company to host the software.
Deferred Revenue
Deferred revenue primarily relates to support agreements which have been paid
for by customers prior to the performance of those services. Generally, the
services will be provided in the next twelve months.
Research and development costs
Costs related to research, design and development of products are charged to
research and development expense as incurred. Software development costs are
capitalized beginning at the time when a product's technological feasibility has
been established, and ending when a product is available for general release to
customers. To date, completing a working model of the Company's products, and
general release of such products have substantially coincided. As a result, to
date the Company has not capitalized any software development costs since such
costs have not been significant.
Income taxes
The Company accounts for income taxes under the asset and liability method that
requires the recognition of deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and tax basis of assets and liabilities. Effects of changes in tax rates are
recognized in the period that includes the enactment date. The Company provides
a valuation allowance on net deferred tax assets when it is not more likely than
not that such assets will be realized.
Concentrations of credit risk
The Company maintains the majority of its cash and cash equivalents in US dollar
denominated Canadian federal government securities or short-term,
interest-bearing, investment-grade securities and demand accounts of a major
Canadian chartered bank or commercial paper.
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
allowances for potential losses, and to date, such losses have been within
management's expectations. No single customer accounted for more than 10% of the
accounts receivable balance at June 30, 2002 and June 30, 2001.
49
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Fair value of financial instruments
Carrying amounts of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable-trade and
accrued liabilities and income taxes payable approximate fair value due to their
short maturities. Available for sale securities are valued at the trading value
of the securities on the balance sheet date.
Foreign currency translation
Assets and liabilities of certain foreign subsidiaries, whose functional
currency is the local currency, are translated from their respective functional
currencies to US dollars at year-end exchange rates. Income and expense items
are translated at the average rates of exchange prevailing during the year.
Realized foreign exchange gains and losses are included in income or loss in the
year in which they occur. Unrealized foreign currency translation gains and
losses are included in other comprehensive income or loss in the year in which
they occur. The adjustment resulting from translating the financial statements
of such foreign subsidiaries is reflected as a separate component of
shareholders' equity.
Employee stock option plans
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and to
present the proforma information that is required by SFAS No. 123--"Accounting
for Stock-Based Compensation" ("SFAS 123"). APB 25 requires compensation cost
for stock-based employee compensation plans to be recognized over the vesting
period based on the difference, if any, on the grant date between the quoted
market price of the company's stock and the amount an employee must pay to
acquire the stock.
Earnings per share
Basic earnings per share are computed using the weighted average number of
common shares outstanding including contingently issuable shares where the
contingency has been resolved. Diluted earnings per share are computed using the
weighted average number of common shares and stock options (using the treasury
stock method) outstanding during the period.
50
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 3--CAPITAL ASSETS
June 30, 2002
------------------------------------------------
Accumulated
Cost Depreciation Net
-------------- ---------------- --------------
Furniture and fixtures $ 5,478 $ 4,223 $ 1,255
Office equipment 1,077 815 262
Computer hardware 27,784 22,885 4,899
Computer software 5,579 4,489 1,090
Leasehold improvements 2,418 1,523 895
-------------- ---------------- --------------
$ 42,336 $ 33,935 $ 8,401
============== ================ ==============
June 30, 2001
------------------------------------------------
Accumulated
Cost Depreciation Net
-------------- ---------------- --------------
Furniture and fixtures $ 5,258 $ 3,638 $ 1,620
Office equipment 983 718 265
Computer hardware 25,844 19,156 6,688
Computer software 5,995 3,723 2,272
Leasehold improvements 2,230 1,260 970
-------------- ---------------- --------------
$ 40,310 $ 28,495 $ 11,815
============== ================ ==============
NOTE 4--OTHER ASSETS
June 30,
--------------------------
2002 2001
------------ ------------
Available for sale securities $ 134 $ 1,086
Purchased software (net of accumulated amortization
of $3,925; 2001 - $1,680) 3,098 4,713
Core technology (net of accumulated amortization
of $1,726; 2001 - $1,079) 2,282 2,929
Other 1,632 1,342
------------ ------------
$ 7,146 $ 10,070
============ ============
51
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 5--BANK INDEBTEDNESS
The Company has a CDN $10.0 million (USD $6.6 million) line of credit with a
Canadian chartered bank, under which no borrowings were outstanding at June 30,
2002 and 2001. The line of credit bears interest at the lender's prime rate plus
0.5%. The Company has provided all of its assets including an assignment of
accounts receivable as collateral for this line of credit. During 2002, 2001,
and 2000 borrowings and interest cost on bank indebtedness were insignificant.
NOTE 6--ACCOUNTS PAYABLE - TRADE AND ACCRUED LIABILITIES
June 30,
------------------------
2002 2001
------------------------
Accounts payable - trade $ 2,288 $ 3,266
Accrued trade liabilities 8,300 6,637
Accrued liabilities related to acquisitions 871 1,425
Accrued salaries and commissions 7,376 7,087
Other liabilities 54 120
------------------------
$ 18,889 $ 18,535
========================
NOTE 7--SHARE CAPITAL
The authorized share capital of the Company includes an unlimited number of
Common Shares and an unlimited number of first preference shares. No preference
shares are issued.
During fiscal 2002, the Company repurchased for cancellation 620,200 common
shares at a cost of $13.8 million, of which $6.3 million has been charged to
share capital and $7.5 million has been charged to accumulated deficit.
During fiscal 2001, the Company repurchased for cancellation 886,000 common
shares at a cost of $21.3 million, of which $9.1 million has been charged to
share capital and $12.2 million has been charged to accumulated deficit.
During fiscal 2000, the Company repurchased for cancellation 4,849,300 common
shares at a cost of $96.7 million, of which $49.7 million has been charged to
share capital and $47 million has been charged to accumulated deficit.
NOTE 8--OPTION PLANS
1995 "Restated" Flexible Stock Incentive Plan
In June 1995, the Company adopted the 1995 Flexible Stock Incentive
Plan (the "Incentive Plan") for employees, officers, directors and consultants.
The plan allowed the grant of options to purchase an aggregate of 782,500 Common
Shares at an exercise price of $0.15 per share.
52
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Options granted under the Incentive Plan vest over a four or five year
period. Under the Incentive Plan, options are exercisable for a period of up to
seven years from the grant date. Vested options terminate immediately
upon an optionee's termination "for cause" and 90 days after termination for any
other reason. Unvested options terminate immediately upon the termination of an
optionee's employment or service to the Company.
During fiscal 1997, additional new options to purchase 3,902,514 Common
Shares were granted under the Incentive Plan at exercise prices between $4.25
and $10.25.
During fiscal 1998, additional new options to purchase 1,568,057 Common
Shares were granted under the Incentive Plan at exercise prices between $9.25
and $21.00. The Board of Directors increased the number of Common Shares
available under the Incentive Plan to accommodate these grants.
1995 Replacement Stock Option Plan
In October 1995, the Company adopted the 1995 Replacement Stock Option
Plan (the "Replacement Plan"). The Replacement Plan provides for the granting of
options to purchase an aggregate of 548,255 Common Shares to directors,
officers, employees and consultants of Odesta who held options under Odesta's
stock option plan. Options to purchase 548,255 Common Shares have been issued at
an exercise price of $0.0005 per share and vested immediately.
Under the Replacement Plan, options are exercisable for a period of ten
years from the grant date. Replacement Options terminate immediately upon the
termination of an optionee's employment or service to the Company "for cause"
and 90 days after termination for any other reason.
1995 Supplementary Stock Option Plan
In October 1995, the Company adopted the 1995 Supplementary Stock
Option Plan. This plan provides for the granting of options to purchase an
aggregate of 357,500 Common Shares to eligible former directors and employees of
Odesta. Options to purchase 357,500 Common Shares have been issued at an
exercise price of $14.00 per share. Options granted under the Supplementary Plan
vest over a two-year period. Under the Supplementary Plan, options are
exercisable for a period of ten years from the grant date. Vested options
terminate 90 days after termination of an optionee's employment or service to
the Company for any reason.
1995 Directors Stock Option Plan
The Directors Stock Option Plan (the "Directors Plan") provides for the
granting of options to purchase an aggregate of 50,000 Common Shares to eligible
non-employee directors of the Company. This was subsequently increased by
500,000. In accordance with the Directors Plan, the Plan Administrator
determines the non-employee directors of the Company to whom options are
granted, the number of Common Shares subject to each option, the exercise price
and vesting schedule of each option. At June 30, 2002, 524,000 options had been
granted to date and 143,000 had been cancelled to date under the Directors Plan
of which 149,500 options in total are outstanding and eligible to purchase
Common Shares as follows: 19,000 options at an exercise price of $11.18 vesting
over four years from the date of grant; 44,000 options at an exercise price of
$12.90 vesting over four years from the date of grant and 86,500 options at an
exercise price of $14.81 vesting over four years from the date of grant.
Option Exchange Program
On September 10, 1996, the Board of Directors authorized an option
exchange program (the "Program") whereby employees who have been granted options
to acquire Common Shares of the Company under the 1995 Flexible Stock Incentive
Plan (the "Flexible Plan") and the 1995 Supplementary Stock Option Plan (the
"Supplementary Plan") were permitted to exchange those options on a one-for-one
basis, for an option to acquire Common Shares of the Company with an exercise
price of $4.25 (the "Exchange Options"). This was subsequently approved by the
shareholders. The Exchange Options vest and become exercisable, as to 10% of the
Common Shares subject to option, the later of six months after the date of grant
or the date the original option was scheduled
53
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
to first vest (the "initial vesting date"), as to the next 10% of the Common
Shares subject to option, six months after the initial vesting date, and as to
the remainder of the Common Shares subject to option, 5% at the end of each
quarter following one year after the initial vesting date.
A total of 510,452 options to acquire Common Shares of the Company from
the Flexible and Supplementary plans were eligible for exchange under the
Program with an average exercise price of $12.89. A total of 140,830 options
under the Flexible Plan with a weighted average exercise price of $10.90 were
exchanged for 140,830 Exchange Options and 335,000 options under the
Supplementary Plan with an exercise price of $14.00 were exchanged for 335,000
Exchange Options.
1998 Stock Option Plan
On June 23, 1998, the Board of Directors adopted the Company's 1998
Stock Option Plan (the "New Option Plan"). Under the New Option Plan,
non-transferable options to purchase Common Shares may be granted to employees
and directors of, and persons providing services to, the Company and its
subsidiaries based on eligibility criteria set forth in the New Option Plan. The
exercise price of any option to be granted under the New Option Plan is to be
determined by the Board of Directors of the Company but shall not be less than
the closing price of the Common Shares on the day immediately preceding the date
of grant on the quotation system or stock exchange which had the greatest volume
of trading of Common Shares. The maximum number of Common Shares issuable
pursuant to the New Option Plan is 2,800,000 and the aggregate number of Common
Shares reserved for issuance to any one person pursuant to the options granted
under the New Option Plan or any other share compensation arrangement shall not
exceed five percent (5%) of the outstanding Common Shares. The number of Common
Shares reserved for issuance pursuant to all options granted to insiders under
the New Option Plan and other share compensation arrangements shall not exceed
fifteen percent (15%) of the outstanding Common Shares. In addition, the
issuance to any one insider and such insider's associates, within a one-year
period, of Common Shares issued pursuant to all share compensation arrangements
may not exceed five percent (5%) of the outstanding Common Shares and the
issuance to all insiders, within a one-year period, of Common Shares issued
pursuant to all share compensation arrangements may not exceed ten percent (10%)
of the outstanding Common Shares.
The New Option Plan provides that the Company may make loans, the
repayment of which shall be secured by the Common Shares purchased with the
proceeds of such loans, or provide guarantees for loans to assist option holders
to purchase Common Shares upon exercise of options granted pursuant to the New
Option Plan or to assist option holders in payment of taxes eligible upon
exercise of options granted pursuant to the New Option Plan. The terms of any
option granted under the New Option Plan will not be permitted to exceed ten
years.
Under the New Option Plan, the options for directors and senior
officers will vest over a period specified by the Board of Directors at the time
of grant. If an option holder resigns or ceases to be an employee or director of
the Company or ceases to be engaged by the Company other than for cause or
breach of duty, options held by such holder may be exercised prior to the 90th
day following such occurrence. If an option holder ceases to be an employee or
director of the Company or ceases to be engaged by the Company for cause or
breach of duty, no options held by such holder may be exercised, and the option
holder shall have no rights to any Common Shares in respect of such options
following the date of notice of such cessation or termination, except in
accordance with a written agreement with the Company.
The New Option Plan is administered by the Board of Directors, which
has the authority, subject to the terms of the New Option Plan, to determine the
persons to whom options may be granted, the exercise price and number of shares
subject to each option, the time or times at which all or a portion of each
option may be exercised and certain other provisions of each option, including
vesting provisions.
With the approval of the New Option Plan on June 23, 1998 by the Board,
no further options will be issued under any of the previous option plans.
During fiscal 2000, additional new options to purchase 561,386 Common
Shares were granted under the New Option Plan at an average exercise price of
$19.83.
54
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
During fiscal 2001, additional new options to purchase 184,750 Common
Shares were granted under the New Option Plan at an average exercise price of
$19.71.
During fiscal 2002, additional new options to purchase 1,019,750 Common
Shares were granted under the New Option Plan at an average exercise price of
$23.23.
Summary of Outstanding Stock Options
As of June 30, 2002, options to purchase an aggregate of 3,173,405
Common Shares were outstanding under all of the Company's stock option plans out
of an allowable pool of options totaling 10,007,424. There were exercisable
options outstanding to purchase 2,082,164 shares at an average price of $13.08.
At June 30, 2001, exercisable options to purchase 1,806,840 shares had an
average price of $11.19. At June 30, 2000, exercisable options to purchase
1,475,324 shares had an average price of $9.54.
A summary of option activity since June 30, 1999 is set forth below:
Options Outstanding
----------------------------------
Weighted
Average
Number Exercise Price
----------------- -----------------
Options outstanding at June 30, 1999 4,415,046 $ 11.35
Granted during fiscal 2000 561,386 19.83
Cancelled (839,230) 14.55
Exercised (768,402) 7.36
-----------------
Options outstanding at June 30, 2000 3,368,800 12.86
Granted during fiscal 2001 184,750 19.71
Cancelled (210,122) 19.91
Exercised (462,314) 8.19
-----------------
Options outstanding at June 30, 2001 2,881,114 13.54
Granted during fiscal 2002 1,019,750 23.23
Cancelled (308,411) 21.38
Exercised (419,048) 11.73
-----------------
Options outstanding at June 30, 2002 3,173,405 $ 16.15
=================
55
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The following table summarizes information regarding stock options outstanding
at June 30, 2002:
Options Outstanding Options Exercisable
---------------------------------------------------- ----------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Outstanding Exercise
Prices at June 30, 2002 Life Price at June 30, 2002 Price
- -------------------------- ------------------ -------------- ------------ ------------------ --------------
(years)
$ 0.15 - $ 6.63 359,481 4.18 $ 5.16 359,481 $ 5.16
7.88 - 11.88 652,508 5.11 9.34 649,613 9.34
12.19 - 18.50 924,235 6.52 14.37 648,931 14.12
18.56 - 25.50 832,675 8.06 21.69 305,052 21.46
25.69 - 29.13 234,776 8.87 28.14 41,945 28.68
30.00 - 40.00 169,730 7.74 31.59 77,142 31.21
------------------ -------------- ------------ ------------------ --------------
$ 0.15 - $ 40.00 3,173,405 6.61 $ 16.15 52,082,164 $ 13.08
================== ============== ============ ================== ==============
Employee Stock Purchase Plan
On March 5, 1998, the shareholders of the Company approved an Employee
Stock Purchase Plan ("ESPP") whereby employees of the Company can subscribe to
purchase Common Shares through payroll withholdings from the treasury of the
Company at 85% of the lessor of: (1) the average of the last five days of the
last ESPP period or (2) the average price of the last five days of the current
ESPP period. An aggregate 1,000,000 Common Shares have been reserved for
purchase under the ESPP, subject to adjustments in the event of stock dividends,
stock splits, combinations of shares, or other similar changes in capitalization
of the Company. During fiscal 2002, a total of 139,056 Common Shares were issued
under the ESPP, during fiscal 2001, a total of 131,732 Common Shares were issued
under the ESPP, and during fiscal 2000, a total of 111,057 Common Shares were
issued under the ESPP.
Pro Forma Information
The Company applies the intrinsic value method prescribed in APB No 25,
Accounting for Stock Issued to Employees in accounting for its stock-based
compensation plans. Had compensation cost for the Company's stock-based
compensation plans and the employee stock purchase plan have been determined
using the fair value approach set forth in SFAS No. 123, Accounting for
Stock-Based Compensation, the Company's net income for the year and net income
per share would have been in accordance with the pro forma amounts indicated
below:
Year ended June 30,
-------------------------------------------
2002 2001 2000
------------- ------------- -------------
(in thousands, except per share amounts)
Net income for the year
As reported $ 16,671 $ 10,796 $ 25,079
Pro forma $ 7,663 $ 5,801 $ 17,663
Net income per share - basic
As reported $ 0.83 $ 0.54 $ 1.12
Pro forma $ 0.38 $ 0.29 $ 0.79
Net income per share - diluted
As reported $ 0.78 $ 0.50 $ 1.03
Pro forma $ 0.36 $ 0.27 $ 0.75
56
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The fair value of each stock option grant on the date of grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions for the stock-based compensation plans:
Year ended June 30,
-------------------------------------------
2002 2001 2000
------------ ------------ -------------
Volatility 80% 71% 100%
Risk-free interest rate 6% 6% 6%
Dividend yield - - -
Expected lives (in years) 5.5 5.5 5.5
Weighted average fair value (in dollars) $ 12.63 $ 12.97 $ 15.78
NOTE 9--COMMITMENTS
The Company has entered into operating leases for premises and vehicles with
minimum annual payments as follows:
2003 $ 4,712
2004 3,107
2005 2,115
2006 2,030
Thereafter 4,942
----------------
$ 16,906
================
Rent expense amounted to $5.9 million in 2002, $5.1 million in 2001, and $4.2
million in 2000.
NOTE 10--OTHER INCOME (LOSS)
Year ended June 30,
-------------------------------------
2002 2001 2000
----------- ----------- -----------
Gain (loss) on sale of investments, net of disposal costs $ 1,012 $ (2,971) $ 49,016
Recovery of acquisition accrual - 734 -
----------- ----------- -----------
Gain on sale of investments 1,012 (2,237) 49,016
Balance of other income (expense) 601 (180) (51)
----------- ----------- -----------
Other income (loss) $ 1,613 $ (2,417) $ 48,965
=========== =========== ===========
During fiscal 2001 and 2000, the Company sold 8,900 and 876,301 shares,
respectively, of its investment in Primedia, representing its entire interest in
this investment.
During fiscal 2002, the Company realized a gain of $1.0 million related to the
Company's attempted acquisition of Accelio Corporation ("Accelio"), a software
company located in Ottawa, Ontario. The gain that the Company realized on this
attempted acquisition arose from the sale of shares of Accelio common stock
owned by the Company, and gains realized in connection with certain lock-up
agreements in connection with the attempted acquisition, partially offset by the
costs incurred.
57
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 11--INCOME TAXES
The Company operates in several tax jurisdictions. Its income is subject to
varying rates of tax and losses incurred in one jurisdiction cannot be used to
offset income taxes payable in another.
The income (loss) before income taxes consisted of the following:
Year Ended June 30,
----------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Domestic income (loss) 3,931 (1,297) 46,486
Foreign income (loss) 13,029 13,322 (985)
-------------- -------------- --------------
Income before income taxes $ 16,960 $ 12,025 $ 45,501
============== ============== ==============
A reconciliation of the combined Canadian federal and provincial income tax rate
with the Company's effective income tax rate is as follows:
Year Ended June 30,
--------------------------------------------
2002 2001 2000
------------- ------------- --------------
Expected statutory rate 40.0% 43.0% 44.5%
Expected provision for income taxes $ 6,784 $ 5,171 $ 20,249
Effect of permanent differences 2,694 1,435 -
Effect of foreign tax rate differences (453) (1,035) 360
Non-taxable portion of capital gain (202) - (5,050)
Tax incentive for research and development (368) - (78)
Benefit of losses carried forward and back - (6,300) -
Future benefit of losses acquired on acquisitions - (3,400)
Change in valuation allowance (7,850) 4,800 4,604
Other items (316) 558 337
------------- ------------- --------------
$ 289 $ 1,229 $ 20,422
============= ============= ==============
58
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The provision (recovery) for income taxes consisted of the following:
Year Ended June 30,
-----------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Domestic:
Current income taxes $ - $ (600) $ 10,490
Deferred income taxes - 450 7,000
-------------- -------------- --------------
$ - $ (150) $ 17,490
-------------- -------------- --------------
Foreign:
Current income taxes $ 289 $ (371) $ 420
Deferred income taxes - 1,750 2,512
-------------- -------------- --------------
$ 289 $ 1,379 $ 2,932
-------------- -------------- --------------
Provision for income taxes $ 289 $ 1,229 $ 20,422
============== ============== ==============
The Company has approximately $15.1 million of foreign non-capital loss carry
forwards of which $7.9 million have no expiry date. Additionally, $2.8 million
of these losses are restricted and can only be used against the profits of a
previously acquired company in accordance with a statutory formula. The
remainder of these losses expire between 2004 and 2011. The Company also has
$1.9 million of foreign capital loss carryforwards that have no expiry date.
The primary temporary differences which gave rise to deferred taxes at June 30,
2002 and 2001 are:
Year Ended June 30,
-------------------------------------
2002 2001
--------------- ---------------
Deferred tax assets
Non-capital loss carryforwards $ 5,447 $ 12,600
Capital loss carryforwards 770 -
Employee stock options 113 900
Scientific research and development tax credits 600 1,500
Depreciation and amortization 2,410 1,900
Share issue costs 50 200
--------------- ---------------
Total deferred tax asset 9,390 17,100
Less, valuation allowance (9,250) (17,100)
--------------- ---------------
140 -
--------------- ---------------
Deferred tax liabilities
Scientific research and development tax credits 140 -
--------------- ---------------
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
The Company believes that sufficient uncertainty exists regarding the
realization of certain deferred tax assets that a valuation allowance is
required. The Company continues to evaluate its taxable position quarterly and
considers factors by taxing jurisdiction such as estimated taxable income, the
history of losses for tax purposes and the growth of the Company, among others.
59
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
NOTE 13--SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the reporting by public
business enterprises of information about operating segments, products and
services, geographic areas, and major customers. The method of determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operational decisions and
assessments of financial performance.
The Company has two reportable segments: North America, and Europe. The
Company evaluates operating segment performance based on total revenues and
operating costs of the segment. The accounting policies of the operating
segments are the same as those described in the summary of accounting policies.
No segments have been aggregated.
Information about reported segments is as follows:
North
America Europe Other Total
-------------- ------------ ------------ ---------------
2002
----
Total Revenues $ 91,176 $ 55,874 $ 5,427 $ 152,477
Operating costs 69,321 52,186 5,367 126,874
-------------- ------------ ------------ ---------------
Contribution margin $ 21,855 $ 3,688 $ 60 $ 25,603
============== ============ ============ ===============
Segment assets $ 52,577 $ 31,428 $ 2,235 $ 86,240
============== ============ ============ ===============
2001
----
Total Revenues $ 86,471 $ 54,778 $ 6,450 $ 147,699
Operating costs 73,483 50,127 3,684 127,294
-------------- ------------ ------------ ---------------
Contribution margin $ 12,988 $ 4,651 $ 2,766 $ 20,405
============== ============ ============ ===============
Segment assets $ 63,276 $ 30,244 $ 1,787 $ 95,307
============== ============ ============ ===============
2000
----
Total Revenues $ 68,351 $ 40,531 $ 4,063 $ 112,945
Operating costs 65,000 46,680 3,233 114,913
-------------- ------------ ------------ ---------------
Contribution margin $ 5,860 $ (6,149) $ 830 $ (1,968)
============== ============ ============ ===============
Segment assets $ 50,690 $ 28,841 $ 713 $ 80,244
============== ============ ============ ===============
Included in the above operating results are allocations of certain
operating costs which are incurred in one reporting segment but which relate to
all reporting segments. The allocations of these common operating costs are
consistent with the manner in which they are allocated for presentation to, and
analysis by, the chief operating decision maker of the Company. For the year
ended June 30, 2002, 2001 and 2000, the "Other" category consists of geographic
regions other than North America and Europe.
60
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
A reconciliation of the totals reported for the operating segments to the
applicable line items in the consolidated financial statements for the years
ended June 30, 2002, 2001, and 2000 is as follows:
Year Ended June 30,
2002 2001 2000
----------- ----------- ----------
Total contribution margin from operating
segments above $ 25,603 $ 20,405 $ (1,968)
Amortization and depreciation (12,093) (10,638) (7,548)
----------- ----------- ----------
Total operating income (loss) 13,510 9,767 (9,516)
Interest, other income (loss) and income taxes 3,161 1,029 34,595
----------- ----------- ----------
Net income for the year $ 16,671 $ 10,796 $ 25,079
=========== =========== ==========
As of June 30,
2002 2001
------------ ------------
Segment assets $ 86,240 $ 95,307
Investments 134 1,086
Cash and cash equivalents 100,473 78,609
------------ ------------
Total corporate assets $ 186,847 $175,002
============ ============
Contribution margin from operating segments does not include amortization
of intangible assets, acquired in-process research and development and
restructuring costs. Goodwill and intangibles have been assigned in segment
assets based on the location of the acquired business operations to which they
relate.
The distribution of net revenues determined by location of customer, and
identifiable assets, greater than 10%, by geographic areas for the years ended
June 30, 2002, 2001 and 2000 are as follows:
Year Ended June 30,
2002 2001 2000
------------ ------------- ------------
Total revenues:
Canada $ 12,167 $ 11,594 $ 10,717
United States 79,009 78,712 58,331
United Kingdom 19,915 19,905 15,746
Other 41,386 37,488 28,151
------------ ------------- ------------
Total revenues $ 152,477 $ 147,699 $ 112,945
============ ============= ============
61
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
As of June 30,
2002 2001
----------- -----------
Segment assets:
Canada $16,472 $ 17,211
United States 36,105 46,065
United Kingdom 9,556 10,266
Other 24,107 21,765
----------- -----------
Total segment assets $86,240 $ 95,307
=========== ===========
NOTE 13--SUPPLEMENTAL CASH FLOW DISCLOSURES
Year Ended June 30,
2002 2001 2000
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 19 $ 56 $ 97
Cash paid during the period for taxes 495 7,626 306
Supplemental schedule of non cash investing and
financing activities:
Conversion of special warrants to Common Shares - - 97,420
NOTE 14--ACQUISITIONS
Fiscal 2001
Bluebird Systems
In October 2000, Open Text acquired all of the issued and outstanding share
capital of Bluebird Systems ("Bluebird"), of Carlsbad, California. Consideration
for this acquisition is comprised of (1) cash of $8 million paid on closing; and
(2) additional cash consideration to be earned over the eight subsequent
three-month periods following the closing, contingent upon Bluebird meeting
certain revenue and net income targets.
The Company allocated the total purchase price to the assets and liabilities
acquired as follows:
62
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Tangible net liabilities $ (114)
Current software products 2,346
Core technology 1,156
Goodwill 4,612
---------------
$ 8,000
===============
Included in tangible net liabilities is an amount of $646 representing direct
acquisition costs, involuntary terminations, and office closure costs. The
liabilities included $504 of direct acquisition costs, $75 for involuntary
terminations, and $67 for office closures. An acquisition accrual of $188
remains on the balance sheet at June 30, 2002, which relates to certain direct
acquisition costs. It is the Company's expectation that this accrual will be
substantially utilized in the coming fiscal year.
The acquired software technology was valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return. Software technology was
divided into two categories:
current software products
core technology
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $2.3 million. This amount was recorded as an asset
and is being amortized on a straight-line basis over four years. The fair market
value of core technology was determined to be $1.2 million. This amount was
recorded as an asset and is being amortized on a straight-line basis over seven
years.
The excess of the purchase price over the fair market value of the acquired
identifiable assets and liabilities assumed has been recorded as goodwill in the
amount of $4.6 million which is being amortized on a straight-line basis over
ten years. Any additional consideration earned by the former shareholders of
Bluebird will be accounted for as part of the purchase price, and consequently
will be recorded as additional goodwill. As of June 30, 2002, no additional
consideration has been earned under the stock purchase agreement.
LeadingSide
In November 2000, Open Text acquired the product business of LeadingSide
Inc. ("LeadingSide") of Cambridge, Massachusetts, for cash consideration of $3
million. LeadingSide is an e-business solution provider that designs, develops
and deploys knowledge driven solutions to Global 2000 companies.
The Company allocated the total purchase price to the assets acquired as
follows:
Tangible net liabilities $(1,869)
Current software products 2,654
Goodwill 2,215
-----------
$ 3,000
===========
Included in tangible net liabilities is an amount of $1.8 million representing
direct acquisition costs, office closure costs, and certain contingencies. The
liabilities included $543 of direct acquisition costs, $80 for office closures,
and $1.2 million for potential legal disputes. An acquisition accrual of $334
remains on the balance sheet at June 30, 2002, which relates to potential legal
disputes that the Company expects will be substantially utilized in the coming
fiscal year.
63
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
The acquired software products were valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return.
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $2.7 million. This amount was recorded as an asset
and is being amortized on a straight-line basis over four years. The excess of
the purchase price over the fair market value of the acquired identifiable
assets and liabilities assumed has been recorded as goodwill in the amount of
$2.2 million which is being amortized on a straight-line basis over seven years.
Open Image
In November 2000, Open Text acquired all of the outstanding shares of Open
Image Systems Inc. ("Open Image") of Toronto, Ontario for cash consideration of
$2.1 million.
The Company allocated the total purchase price to the net assets acquired as
follows:
Tangible net liabilities $ (239)
Current products 302
Goodwill 1,992
-----------
$ 2,055
===========
Included in tangible net liabilities is an amount of $204 representing direct
acquisition costs, office closure costs, and certain contingencies. The
liabilities included $68 of direct acquisition costs, $38 for office closures,
and $98 for potential legal disputes. An acquisition accrual of $96 remains on
the balance sheet at June 30, 2002, relating to a potential legal dispute. It is
the Company's expectation that this accrual will be substantially utilized in
the coming fiscal year.
The acquired software products were valued using a stage of completion model.
Projected revenue net of operating expenses and income taxes were discounted to
a present value using a risk-adjusted rate of return.
Current software products include products currently in the marketplace as of
the acquisition date. The fair market value of the purchased current software
products was determined to be $302. This amount was recorded as an asset and is
being amortized on a straight-line basis over four years. The excess of the
purchase price over the fair market value of the acquired identifiable assets
and liabilities assumed has been recorded as goodwill in the amount of $2
million which is being amortized on a straight-line basis over five years.
Base 4
In January 2001, Open Text acquired all of the outstanding shares of Base 4
Inc. ("Base 4") of Toronto, Ontario for cash consideration of $529. Base 4's
PharMatrix product is designed to facilitate the capture, storage and
dissemination of knowledge generated during the complete project lifecycle of
the pharmaceutical discovery process.
The Company allocated the total purchase price to the net assets acquired as
follows:
Tangible net liabilities $ (701)
Goodwill 1,240
-----------
$ 539
===========
64
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Included in tangible net liabilities is an amount of $335 representing direct
acquisition costs, office closure costs, involuntary termination costs and
acquired commitments. The liabilities included $70 of direct acquisition costs,
$75 for office closures, $100 for involuntary terminations and $90 for certain
contingencies.
The excess of the purchase price over the fair market value of the acquired
identifiable assets and liabilities assumed has been recorded as goodwill in the
amount of $1.2 million which is being amortized on a straight-line basis over
five years.
Fiscal 2000
PS Software
In August 1999, Open Text acquired all the outstanding shares of PS
Software Solutions Ltd. ") for approximately $2.0 million in cash paid at
closing and 40,000 shares, valued at $1.0 million.
The Company allocated the total purchase price to the assets acquired as
follows:
Goodwill $ 3,201
Tangible net liabilities (201)
---------
$ 3,000
=========
Included in tangible net liabilities is an amount of $655,000 for direct
acquisition costs, involuntary terminations, costs to exit certain activities
and certain contingencies. The liabilities included $215,000 for direct
acquisition costs, $100,000 for involuntary terminations of management and
certain development, sales and administrative staff, $340,000 for lease
terminations and office closures. During fiscal 2000, the Company subleased the
vacated premises of PS Software for a portion of the outstanding lease term;
consequently, there is an adjustment to goodwill of $76,000. Management assessed
the reasonability of direct acquisition and involuntary terminations and
adjusted goodwill by $39,000 and $35,000 respectively. As at June 30, 2002, no
balance remains with respect to PS Software's acquisition costs.
The excess of the purchase price over the fair value of acquired identifiable
assets and liabilities assumed has been recorded as goodwill in the amount of
$3.2 million which is being amortized on a straight-line basis over ten years.
Microstar
In September 1999, 3557855 Canada Inc., a wholly owned subsidiary of Open
Text Corporation acquired 92.87% of Microstar Software Ltd.'s issued and
outstanding share capital for approximately $4.6 million in cash paid at
closing.
The Company allocated the total purchase price to the assets acquired as
follows:
Goodwill $ 4,763
Tangible net liabilities (159)
---------
$ 4,604
=========
Included in tangible net liabilities is an amount of $882,000 for direct
acquisition costs, involuntary terminations, costs to exit certain activities
and certain contingencies. The liabilities included $854,000 for direct
acquisition costs, $16,000 for involuntary terminations of management and
certain development, sales and administrative staff,
65
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
and $12,000 for office closures. As at June 30, 2002, $78 remains accrued
relating to direct acquisition costs that the Company expects will be
substantively utilized in the coming fiscal year.
The excess of the purchase price over the fair value of acquired identifiable
assets and liabilities assumed has been recorded as goodwill in the amount of
$4.8 million that is being amortized on a straight-line basis over ten years.
NOTE 15--NET INCOME PER SHARE
Year Ended June 30,
----------------------------------------
2002 2001 2000
---------- ----------- ------------
(in thousands, except per share data)
Basic income per share
Net income $ 16,671 $ 10,796 $ 25,079
========== =========== ============
Weighted average number of shares outstanding 19,979 20,032 21,791
Weighted average of special warrants - - 557
---------- ----------- ------------
Adjusted weighted average number of shares outstanding 19,979 20,032 22,348
========== =========== ============
Basic income per share $ 0.83 $ 0.54 $ 1.12
========== =========== ============
Diluted income per share
Net income $ 16,671 $ 10,796 $ 25,079
========== =========== ============
Weighted average number of shares outstanding 19,979 20,032 22,348
Dilutive effect of stock options * 1,260 1,434 2,073
---------- ----------- ------------
Adjusted weighted average number of shares outstanding 21,239 21,466 24,421
========== =========== ============
Diluted income per share $ 0.78 $ 0.50 $ 1.03
========== =========== ============
* anti-dilutive options of 423,283 have been excluded (fiscal 2001 - 322,529;
fiscal 2000 - 382,570)
NOTE 16--RESTRUCTURING COSTS
During the year ended June 30, 2000, the Company recorded a restructuring
charge of $1.8 million. The restructuring charge resulted from the closure of
the Company's Toronto, Ontario office and the London, UK office. In addition, 45
employees were terminated: 31 in North America and 14 in Europe. At June 30,
2000 severance amounts relating to two employees remained outstanding. These
amounts were paid as salary continuance in the first and second quarters of
fiscal 2001.
66
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Severance & Facilities
Related Costs Closure Total
------------- ---------- ----------
Charge during the year ended June 30, 2000 1,603 171 1,774
Paid during fiscal 2000 (1,382) (171) (1,553)
------------- ---------- ----------
Balance of the accrual as at June 30, 2000 221 - 221
Paid during fiscal 2001 (221) - (221)
------------- ---------- ----------
Balance of the accrual as at June 30, 2001 $ - $ - $ -
============= ========== ==========
NOTE 17--RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 141, "Business Combinations", ("SFAS
No. 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). SFAS No. 141 requires that the purchase method of accounting be used for
all business combinations. SFAS No. 141 specifies criteria that intangible
assets acquired in a business combination must meet to be recognized and
reported separately from goodwill. SFAS No. 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment
periodically.
The Company will adopt the provisions of SFAS No. 141 as of July 1, 2002,
and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible assets
determined to have an indefinite useful life acquired in a purchase business
combination completed after June 30, 2001, but before SFAS No. 142 is adopted in
full, are not amortized. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized and tested
for impairment prior to the full adoption of SFAS No. 142.
Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as a cumulative effect of
a change in accounting principle in the first interim period of 2002. The
Company is currently evaluating whether an impairment exists under the
provisions of SFAS No. 142.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred. The Company will adopt SFAS No. 143 on July 1, 2002. The Company does
not expect that the provisions of SFAS No. 143 will have a material impact on
its financial condition or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which replaces SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Company will adopt SFAS No. 144 on July 1, 2002. The
Company does not expect that the provisions of SFAS No. 143 will have a material
impact on its financial condition or results of operations.
In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44,
and 64, Amendment of SFAS No. 13, and Technical Corrections". Among other
things, SFAS 145 rescinds various pronouncements regarding early extinguishment
of debt and allows extraordinary accounting treatment for early extinguishment
only when the provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations-
67
OPEN TEXT CORPORATION
Notes to Consolidated Financial Statements
Tabular amounts in thousands, except per share data
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transaction", are met. The Company
adopted the provisions of SFAS 145 regarding early extinguishment of debt during
the second quarter of 2002, and does not expect that its provisions will have a
material impact on its financial condition or results of operations.
In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for
Restructuring Costs (SFAS 146). SFAS 146 applies to costs associated with an
exit activity (including restructuring) or with a disposal of long-lived assets.
Those activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for a cost associated with an exit
or disposal activity when that liability is incurred and can be measured at fair
value. SFAS 146 will require a company to disclose information about its exit
and disposal activities, the related costs, and changes in those costs in the
notes to the interim and annual financial statements that include the period in
which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
Under SFAS 146, a company may not restate its previously issued financial
statements and the new Statement grandfathers the accounting for liabilities
that a company had previously recorded under EITF Issue 94-3.
68
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information as to the directors and
executive officers of the Company as of June 30, 2002.
Name Age Position with Company Principal Occupation
- ---- --- --------------------- --------------------
P. Thomas Jenkins 42 Director and Chief Executive Officer Chief Executive Officer of the Company
Waterloo, Ontario,
Canada
John Shackleton 55 President and Director President of the Company
Burr Ridge, IL, USA
Richard C. Black/(1)/(2)/ 33 Director Managing Partner, RBC Capital Partners
Toronto, Ontario,
Canada
Randy Fowlie/(2)/ 42 Director Chief Operating Officer and Chief
Waterloo, Ontario, Financial Officer, Inscriber Technology
Canada Corporation (a computer software company)
Ken Olisa/(1)/ 50 Director Managing Director, Interregnum Venture
Surrey, UK Marketing Limited (an Information
Technology venture marketing company)
Stephen J. Sadler/(2)/ 51 Director Chairman and CEO, Enghouse Systems
Aurora, Ontario, Canada Limited (a software engineering company)
Michael Slaunwhite/(1)(2)(3)/ 41 Director Chairman and CEO, Halogen Software Inc.
Gloucester, Ontario, (a services and software company)
Canada
Paul J. Stoyan/(3)/ 43 Director Partner, Gardiner Roberts (a law firm)
Toronto, Ontario, Canada
Alan Hoverd 54 Chief Financial Officer Chief Financial Officer of the Company
Toronto, Ontario,
Canada
Anik Ganguly 43 Executive Vice President, Product Executive Vice President, Product
Northville, Michigan, Management Management of the Company
USA
69
Bill Forquer 44 Senior Vice President, Business Senior Vice President, Business
Dublin, Ohio Development Development of the Company
USA
Michael Farrell 48 Executive Vice President, Worldwide Executive Vice President, Worldwide Sales
Santa Rosa, California Sales of the Company
USA
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Corporate Governance Committee.
P. Thomas Jenkins has served as a director of the Company since December 1994
and as Chief Executive Officer of the Company from July 1997. From March 1995 to
July 1997, he served as the President of the Company. From January 1995 until
March 1995, he served as the acting President of the Company. From July 1994 to
June 1996, Mr. Jenkins also served as the Chief Operating Officer of the
Company. From August 1993 until June 1994, he served as the Senior Vice
President, Sales and Marketing, of DALSA, Inc., an electronic imaging
manufacturer. ("DALSA"). From December 1989 until August 1993, Mr. Jenkins
served as the Vice President/General Manager of DALSA.
John Shackleton has served as director of the Company since January 1999 and as
the President of the Company since November 1998. From July 1996 to 1998. Mr.
Shackleton served as President of the Platinum Solution division for Platinum
Technology Inc. Prior to that he served as Vice President of Professional
Services for the Central U.S. and South America at Sybase, Inc., as Vice
President of Worldwide Consulting at ViewStar Corp., a document management
imaging company, and he directed several consulting practices for Oracle Systems
Corp.
Richard C. Black has served as a director of the Company since December 1993.
From 1993 to the present, Mr. Black has served as a Vice President of Helix
Investments (Canada) Inc., a venture capital company. Mr. Black also serves as a
director of LogicVision Inc. and numerous private companies. From March 2001 to
the present Mr. Black has been a Managing Partner of RBC Capital Partners, a
private equity firm.
Randy Fowlie has served as a director of the Company since March 1998. From June
1999 to present, Mr. Fowlie has held the position of Chief Operating Officer and
Chief Financial Officer of Inscriber Technology Corporation. From February 1998
to June 1999, Mr. Fowlie was the Chief Financial Officer of Inscriber
Technology, a computer software company. Prior to that, Mr. Fowlie worked with
KPMG Chartered Accountants since 1984 and was a tax partner since 1995 and the
head of the firm's Information, Communication and Entertainment practice in the
Kitchener/Waterloo, Cambridge and Guelph offices. Mr. Fowlie is currently a
member of the board of CTT Communitech Technology Association and is a member of
the Canadian Tax Foundation.
Ken Olisa has served as a director of the Company since January 1998. Mr. Olisa
has been Chairman & CEO of Interregnum Plc., an information technology advisory
and investment company since 1992. From 1981 to 1992, Mr. Olisa held various
positions with Wang Laboratories Inc., lastly that of Senior Vice President and
General Manager, Europe, Africa and Middle East. Mr. Olisa is a director of
several privately held information technology companies and serves as a
Commissioner for the UK Postal Services Commission.
Stephen J. Sadler has served as a director of the Company since September 1997.
From April 2000 to present, Mr. Sadler has served as the Chairman and CEO of
Enghouse Systems Limited, a software engineering company that develops GIS
(Geographic Information Systems). Mr. Sadler was previously the Executive Vice
President and Chief Financial Officer of GEAC from 1987 to 1990, was President
and Chief Executive Officer of GEAC from 1990 to 1996, was Vice Chairman of GEAC
from 1996 to 1998, and was a Senior Advisor to GEAC on acquisitions until May
1999. Prior to Mr. Sadler's involvement with GEAC, he held executive positions
with Phillips Electronics Limited and Loblaws Companies Limited. Currently Mr.
Sadler is Chairman of Helix Investments, a position he has held since early
1998. Mr. Sadler is also currently a director of Enghouse Systems Limited and
Cyberplex Inc., as well as being a director of several private companies in the
high tech industry.
70
Michael Slaunwhite has served as a director of the Company since March 1998. Mr.
Slaunwhite has served as CEO and Chairman of Halogen Software Inc., a leading
vendor of products and services to the groupware marketplace, from 2000 to
present, and as President and Chairman from 1995 to 2000. From 1994 to 1995, Mr.
Slaunwhite was an independent consultant to a number of companies assisting them
with strategic and financing plans. Mr. Slaunwhite was Chief Financial Officer
of Corel Corporation from 1988 to 1993.
Paul J. Stoyan has served as a director of the Company since January 1998. Mr.
Stoyan has been a partner in the law firm of Gardiner Roberts since 1993
specializing in the areas of corporate/commercial and finance law with an
emphasis on mergers and acquisitions. Mr. Stoyan has acted as legal counsel to a
number of large and medium-sized corporations in Canada and abroad and has also
worked extensively with various venture capitalists and start-up companies.
Alan Hoverd was appointed Chief Financial Officer of Open Text Corporation in
April 2000. He joined the Company as the Vice President of Finance in July 1999.
Mr. Hoverd has over twenty-three years of high tech experience, including five
years as Vice President of Finance, Chief Financial Officer and a Director of
Digital Equipment of Canada. He was also Manager of Business Planning for ten
years at Digital Equipment of Canada. Mr. Hoverd has held several financial
positions with IBM Canada, including Manager of Finance for the Storage and
Peripherals division, and five years as Controller of Gulf Minerals of Canada.
Anik Ganguly was appointed Executive Vice President, Product Management in
September 1999. He has been with Open Text since December of 1997, when the
Company acquired Campbell Services Inc. where Mr. Ganguly was President and CEO.
From 1991 to 1997, he has been involved in Enterprise Software development and,
in particular, the application of Internet standards to facilitate collaboration
and communication across corporate boundaries. Mr. Ganguly has chaired an
Internet Engineering Task Force working group and continues to be a strong
proponent of open standards. Mr. Ganguly has a Bachelor of Engineering degree in
Mechanical Engineering and received his MBA from the University of Wisconsin,
Madison.
Bill Forquer was appointed Senior Vice President, Business Development in 2001.
Mr. Forquer has been involved with knowledge management systems his entire
career. He has been with Open Text since June 1998, when the Company acquired
Information Dimensions, Inc. (IDI) where Mr. Forquer was President. Prior to be
named President of IDI in 1996, Mr. Forquer held other executive management
positions at IDI. Mr. Forquer began his career in 1981 at Battelle Laboratories
developing software that subsequently was spun-off into IDI. Mr. Forquer has a
B.S. in Mathematics Education and a M.S. in Computer and Information Science,
both from The Ohio State University.
Michael Farrell has been with Open Text since 1992 and has served as Executive
VP, Worldwide Sales since January 2000. Previously, he served as Executive Vice
President, Global Business Development, based in the San Francisco, California
office, since October of 1994. After a number of years in software consulting,
marketing and sales, he founded Interleaf's Canadian-based operation in 1985,
using Canadian Venture Capital funding. As President of Interleaf Canada, Mr.
Farrell expanded the operation to four offices and fifty-five employees. Mr.
Farrell graduated with an honors degree in Computer Science in 1976.
71
Item 11. Executive Compensation
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the compensation
earned in the Company's last three fiscal years by the Chief Executive Officer
of the Company and the four most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers"):
===============================================================================================================
Annual Compensation Long Term
Compensation/(2)/
- ---------------------------------------------------------------------------------------------------------------
Awards
--------------------
Other Annual Securities Under All Other
Name and Principal Salary Bonus Compensation/(1)/ Options/SARs Granted Compensation
Position Year ($) ($) ($) (#) ($)
- ---------------------------------------------------------------------------------------------------------------
P. Thomas Jenkins 2002 288,093 287,969 8,892 150,000 -
Chief Executive 2001 229,385 197,462 14,752 - -
Officer 2000 195,602 98,731 19,558 - -
- ---------------------------------------------------------------------------------------------------------------
John Shackleton 2002 330,000 88,224 16,229 - -
President 2001 315,000 128,892 13,219 - -
2000 313,125 116,800 3,638 - -
- ---------------------------------------------------------------------------------------------------------------
Bill Forquer 2002 250,000 52,400 6,225 - -
Senior Vice 2001 195,809 32,985 10,016 - -
President, Business 2000 169,282 64,220 7,171 - -
Development
- ---------------------------------------------------------------------------------------------------------------
Michael Farrell 2002 200,000 86,480 281 - -
Executive Vice 2001 187,500 60,680 255 - -
President, World- 2000 162,500 88,467 1,310 50,000 -
wide Sales
- ---------------------------------------------------------------------------------------------------------------
Anik Ganguly 2002 180,000 87,350 151 10,000 -
Executive Vice 2001 170,000 54,550 142 - -
President, 2000 157,040 13,658 1,021 - -
Product Management
===============================================================================================================
Notes:
- ------------
(1) The amounts in "Other Annual Compensation" include pension and health
benefits, car allowances and club memberships paid by the Company.
(2) The Company has not granted restricted shares or stock appreciation rights
to Named Executive Officers and has no long term incentive plan.
72
Stock Option Information
Option Grants in Last Fiscal Year
The following table sets forth the options granted to the Named Executive
Officers in the fiscal year ended June 30, 2002. The exercise price per share of
each option was equal to the fair market value of the Common Stock on the grant
date as determined by the Board of Directors of the Company, and the options
become exercisable at the rate of 25% of the total option grant at the end of
each of 4 annual periods from the date the options begin to vest. The Company
did not grant any stock appreciation rights during fiscal 2002. The potential
realizable value represents amounts that may be realized upon exercise of the
options immediately prior to the expiration of their term assuming the specified
compounded rates of appreciation on the Common Shares over the term of the
options. These numbers are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect the Company's estimate of
future stock price growth. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Shares and the date on which the
options are exercised. There can be no assurance that the rates of appreciation
assumed in the table can be achieved or that the amounts reflected will be
received by the Named Officers.
===========================================================================================================
Potential realizable value
Individual Grants at assumed annual rates of
stock price appreciation
for option term
- -----------------------------------------------------------------------------------------------------------
Name Number of Percent of Exercise Expiration date 5% 10%
securities total price ($) ($)
underlying options/SARs ($/sh)
options/SARs granted to
granted (#) employees in
fiscal year
- -----------------------------------------------------------------------------------------------------------
P. Thomas Jenkins 150,000 14.71% $28.20 April 22, 2013 2,660,224 6,741,531
- -----------------------------------------------------------------------------------------------------------
Anik Ganguly 10,000 0.98% $22.17 December 3, 2012 139,426 353,333
- -----------------------------------------------------------------------------------------------------------
John Shackleton - - - - - -
- -----------------------------------------------------------------------------------------------------------
Bill Forquer - - - - - -
- -----------------------------------------------------------------------------------------------------------
Michael Farrell - - - - - -
===========================================================================================================
Aggregate Options Exercised in the Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth options exercised and the values of outstanding
options for Common Shares held by each of the Named Executive Officers:
=====================================================================================================================
Name Shares Aggregate Number of Common Shares Value of unexercised in-the-money
Acquired on Value underlying outstanding Options Options at June 30, 2002/(1)/
Exercise Received at June 30, 2002 ($)
--------------------------------------------------------------------
(#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
P. Thomas Jenkins - - 159,000 153,000 1,782,990 13,830
- ---------------------------------------------------------------------------------------------------------------------
John Shackleton - - 300,000 100,000 1,758,000 586,000
- ---------------------------------------------------------------------------------------------------------------------
Bill Forquer - - 21,250 13,750 122,563 59,088
- ---------------------------------------------------------------------------------------------------------------------
Michael Farrell - - 51,625 26,875 385,689 27,750
- ---------------------------------------------------------------------------------------------------------------------
Anik Ganguly - - 32,500 12,500 244,938 0
=====================================================================================================================
Note:
- ------------------
/(1)/ Based on the closing price of the Company's Common Shares on the NASDAQ
National Market on June 28, 2002.
73
Executive Officer Employment Agreements
The following is a brief description of the employment agreements entered
into between the Company or its subsidiaries and each of the Named Executive
Officers.
Effective January 1, 1999, the Company entered into a new employment
agreement with P. Thomas Jenkins. The agreement provides for an annual base
salary and for an annual performance bonus based upon goals established by the
Compensation Committee from time to time. The agreement expires on June 30, 2003
unless extended by mutual agreement of the parties. The employment agreement
provides that, upon termination without "just cause", the Company will pay Mr.
Jenkins a lump-sum payment equivalent to the lesser of 12 months base salary or
the base salary for the remaining balance of the term; and Mr. Jenkins will be
entitled to receive all other benefits to which he would have been entitled for
the following six months. If Mr. Jenkins is terminated as a result of a change
in control of the Company, the Company will pay Mr. Jenkins a lump-sum amount of
C$750,000.
Effective November 1998, the Company entered into an employment agreement
with John Shackleton, which provides for an annual base salary and for an annual
bonus upon the attainment of certain corporate, revenue, profit and other goals
established from time to time. The employment agreement provides that upon
termination without "just cause", the Company will pay Mr. Shackleton,
semi-monthly, an amount equivalent to 6 months base salary plus incentive
payments calculated on a prorated basis up to the date of the termination.
Effective March 7, 2000, the Company entered into an employment agreement
with Mike Farrell, which provides for an annual base salary and for an annual
bonus upon the attainment of certain corporate, revenue, profit and other goals
established from time to time. The employment agreement does not require the
Company to pay a penalty for terminating the agreement without "just cause".
Effective December 1997, the Company entered into an employment agreement
with Anik Ganguly, which provides for an annual base salary and for an annual
bonus upon the attainment of certain corporate, revenue, profit and other goals
established from time to time. The employment agreement provides that upon
termination without "just cause," the Company will make semi-annual payments
equivalent to 6 months base salary to Mr. Ganguly.
Effective May 2001, the Company entered into an employment agreement with
Bill Forquer, which provides for an annual base salary and for an annual bonus
upon the attainment of certain corporate, revenue, profit and other goals
established from time to time.
Effective June 1999, the Company entered into an employment agreement with
Alan Hoverd, which provides for an annual base salary and for an annual bonus
upon the attainment of certain corporate, revenue, profit and other goals
established from time to time. The employment agreement provides that upon
termination without "gross misconduct or cause", the Company will provide
severance equal to 3 months base salary to Mr. Hoverd.
The Company has also entered into separate Employee Confidentiality and
Non-Solicitation Agreements with each of the Named Executive Officers. Under
these agreements, each of the Named Executive Officers has agreed to keep in
confidence all proprietary information of the Company during his employment with
the Company and for a period of three years following the termination of his or
her employment with the Company.
Compensation Committee Interlocks and Insider Participation
During fiscal 2002, the Compensation Committee was comprised of Messrs.
Black, Olisa and Slaunwhite. None of the current members of the Compensation
Committee have been or are an officer or employee of the Company, however, Ken
Olisa provides consulting services to the Company through Interregnum Plc.
74
Director Compensation
Directors who are salaried officers or employees of the Company receive no
compensation for serving as directors. Non-employee directors of the Company
receive an annual retainer fee of $10,000 and an additional $1,250 fee for each
meeting attended, including committee meetings. Each committee chairman receives
an annual retainer of $5,000. The Company reimburses all directors for expenses
incurred by them in their capacity as directors. Certain members of the
Company's Board of Directors also act as consultants to the Company, for which
they are paid a fee not to exceed $2,000 per day with a limit of 25 days of
consulting per annum, resulting in a maximum of $50,000 per person for such
fees, except as may otherwise be approved by the Board.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 30, 2002
regarding Common Shares beneficially owned, directly or indirectly, or over
which control or direction is exercised by the following persons or companies:
(i) each person or company known by the Company to be the beneficial owner of,
or to exercise control or direction over, more than 5% of the outstanding Common
Shares, (ii) each director and proposed director of the Company, (iii) each
Named Executive Officer (as defined under "Executive Compensation and Other
Transactions" below) of the Company, and (iv) all directors and executive
officers as a group. Except as otherwise indicated, the Company believes that
the beneficial owners of the Common Shares listed below, based on the
information furnished by such owners, have sole investment and voting power with
respect to such Common Shares, subject to community property laws where
applicable. As of June 30, 2002, there were 19,875,872 Common Shares
outstanding.
Number of Shares Percent of Total
Beneficially Owned, Beneficially Owned,
Name and Address of Beneficial Owner Controlled or Directed Controlled or Directed
- ------------------------------------ ---------------------- ----------------------
Helix Investments (Canada) Inc. 2,097,271 9.54%
20 Great George Street
Charlottetown, PE C1A 7L1
P. Thomas Jenkins (1) 672,550 3.27%
Stephen J. Sadler (2) 419,000 2.06%
John Shackleton (3) 301,693 1.50%
Michael Farrell (4) 258,625 *
Ken Olisa (5) 62,000 *
Michael Slaunwhite (6) 50,000 *
Randy Fowlie (7) 42,500 *
Anik Ganguly (8) 34,899 *
Bill Forquer (9) 22,176 *
Paul J Stoyan (10) 8,500 *
Richard C. Black (11) 6,000 *
All executive officers and directors as a 1,946,693 8.92%
group (12 Persons) (12)
* Less than 1%
(1) Includes 510,550 Common Shares owned and options for 159,000 Common Shares
which are vested and options for 3,000 Common Shares which will vest within
60 days of June 30, 2002.
(2) Includes 25,000 Common Shares owned and options for 394,000 Common Shares
which are vested.
(3) Includes options for 300,000 Common Shares which are vested and 1,693
Common Shares owned.
(4) Includes 207,000 Common Shares owned and options for 51,625 Common Shares
which are vested.
(5) Includes 33,000 Common Shares owned and options for 29,000 Common Shares
which are vested.
(6) Includes 3,000 Common Shares owned and options for 47,000 Common Shares
which are vested.
(7) Includes options for 42,500 Common Shares which are vested.
(8) Includes options for 32,500 Common Shares which are vested and 2,399 Common
Shares owned.
(9) Includes options for 21,250 Common Shares which are vested and 926 Common
Shares owned.
(10) Includes 500 Common Shares owned and options for 8,000 Common Shares which
are vested.
75
(11) Includes options for 6,000 Common Shares which are vested.
(12) See notes (1)-(11).
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth summary information relating to the Company's
various stock options plans as of June 30, 2002:
================================================================================================================
Number of securities to Weighted average Number of securities
Plan Category be issued upon exercise exercise price of remaining available for
of outstanding options, outstanding options, issuance
warrants, and rights warrants, and rights
- ----------------------------------------------------------------------------------------------------------------
Equity compensation plans 3,173,405 $16.15 477,385
approved by security holders
- -----------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders - - -
- -----------------------------------------------------------------------------------------------------------------
Total 3,173,405 $16.15 477,385
=================================================================================================================
Item 13. Certain Relationships and Related Transactions
A consulting arrangement dated July 7, 1997 has been entered into by the
Company withStephen J. Sadler under which Mr. Sadler provides consulting
services to the Company in addition to serving as a director of the Company. Mr.
Sadler was granted options to purchase 300,000 Common Shares all of which have
vested. An additional grant of options to purchase 100,000 Common Shares was
made to Mr. Sadler on September 21, 1999 for his consulting services, which
options vest over four years from the date of grant. Mr. Sadler earns $2,000 per
day for consulting services and additional fees based on completion of specific
transactions as follows: (1) 1% of the first $10 million of an acquired
company's revenue in the 12 months prior to acquisition by the Company and 0.5%
of the acquired company's revenue which exceeds $10 million in the 12 months
prior to the acquisition by the Company; and (2) 2.5% of the sale price of any
of the Company's operations sold.
Mr. Olisa provides consulting services to the Company through Interregnum
Plc., an information technology advisory and investment company, in addition to
serving as a director of the Company. Mr. Olisa was granted options to purchase
36,000 Common Shares on September 21, 1999 for consulting services, which
options vest over four years from the date of grant.
One of the directors, Mr. Paul Stoyan, is a partner of the law firm,
Gardiner Roberts LLP, which receives legal fees for services provided to the
Company.
Item 14. Controls and Procedures
There have not been any significant changes to the Company's internal
controls or in other factors that could significantly affect our internal
controls subsequent to the date of the Company's Chief Executive Officer's and
Chief Financial Officer's most recent evaluation.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
a) The following documents are filed as a part of this report:
76
1) Consolidated Financial Statements and Report of
Independent Accountants and the related notes thereto
are included under Item 8, in Part II.
2) Consolidated Financial Statement Schedules and Report
of Independent Public Accountants in those schedules
are included as follows:
Schedule II - Valuation and Qualifying Accounts
3) Exhibits: The following exhibits are filed as part
of this Report.
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Articles of Incorporation of the Company.(1)
3.2 Articles of Amalgamation of the Company.(1)
3.3 Articles of Amendment of the Company.(1)
3.4 By-law No. 1 of the Company.(1)
3.5 Articles of Amendment of the Company.(1)
3.6 By-law No. 2 of the Company.(1)
3.7 By-law No. 3 of the Company.(1)
3.8 Articles of Amalgamation of the Company.(1)
3.9 Articles of Amalgamation of the Company, dated July
1, 2001(14)
3.10 Articles of Amalgamation of the Company, dated July
1, 2002
4.1 Form of Common Share Certificate.(1)
10.1 Restated 1995 Flexible Stock Incentive Plan.(3)
10.2 1995 Replacement Stock Option Plan.(1)
10.3 1995 Supplementary Stock Option Plan.(1)
10.4 1995 Directors Stock Option Plan.(1)
10.5 Amendment to Research Funding Agreement, dated
October 31, 1995, between the University of
Waterloo and the Company, and Research Funding
Agreement, dated July 1, 1991, between the
University of Waterloo and the Company.(1)
10.6 Technology Licensing Agreement, dated July 1, 1991,
between Dr. Frank Tompa and the Company.(1)
10.7 Assignment Agreement, dated August 25, 1995,
between Dr. Frank Tompa and 1136390 Ontario, Inc.
(1)
10.8 License Agreement, dated August 25, 1995, between
the University of Waterloo and the Company.(1)
10.9 Technology Development Agreement, dated August 25,
1995, between the University of Waterloo and the
Company, and Amendment No. 1 thereto.(1)
10.10 Letter of offer, dated January 19, 1994, between
the Canadian Strategic Software Consortium and the
Minister of Industry, Science and Technology,
Canada. (1)
10.11 Representation Letter, dated November 30, 1993, to
Helix Investments (Canada) Inc. from the Company.
(1)
10.12 License Agreement, dated August 1, 1995, between
Mortice Kern Systems Inc. and 1136299 Ontario
Limited.(1)
77
10.13 Amended and Restated Agreement and Plan of Merger, dated
October 10, 1995, between Open Text Acquisition Corporation,
Odesta Systems Corporation, Daniel Cheifetz, and the
Company. (1)
10.14 Purchase Agreement, dated October 12, 1995, between Intunix
AG and the Company. (1)
10.15 Security Agreement, dated May 29, 1992, between Royal Bank
of Canada and the Company. (1)
10.16 Lease, dated March 3, 1994, between Wiebe Property
Corporation Ltd. and the Company. (1)
10.17 Lease, dated October 6, 1994, between REGUS/Washington
Tysons, Inc. and the Company. (1)
10.18 Agreement, dated January 1, 1995, between P Thomas Jenkins
and the Company. (1)
10.19 Employment Agreement, dated October 13, 1995, between Marco
Palatini and the Company. (1)
10.20 Employment Agreement, dated October 19, 1995, between Daniel
Cheifetz and the Company. (1)
10.21 Form of Registration Rights Agreement, between Technology
Crossover Ventures, L.P., Technology Crossover Ventures,
C.V. and the Company. (1)
10.22 Confirmation letter, dated November 1, 1995, between
Netscape Communications Corporation and the Company. (1)
+10.23 OEM License Agreement, dated November 10, 1995, between
Netscape Communications Corporation and the Company. (1)
10.24 Amending Agreement, dated October 6, 1995, between Helix
(PEI) and the Company. (1)
10.25 Shareholders' Agreement, dated June 30, 1992, with certain
amendments. (1)
10.26 Forms of Compensation Option Agreement, dated July 19, 1995
between Yorkton Securities Inc., Midland Walwyn Capital
Inc., Griffiths McBurney & Partners Inc. and the Company.
(1)
10.27 Share Purchase Agreement dated June 28, 1996 between Open
Text Corporation and the shareholders of InfoDesign
Corporation. (2)
10.28 Documentation relating to stock option grants and subsequent
option exercises for P Thomas Jenkins. (3)
10.29 Letter Agreement, dated October 10, 1996 between the Company
and Marco Palatini. (4)
10.30 Letter Agreement, dated October 10, 1996 between the Company
and Daniel Cheifetz. (4)
10.31 Letter Agreement, dated May 27, 1997 between the Company and
Brett Newbold. (5)
10.32 Letter Agreement, dated November 14, 1996 between the
Company and Abraham Kleinfeld. (5)
10.33 Letter Agreement, dated April 25, 1997 between the Company
and Anthony Heywood. (5)
10.34 Letter Agreement, dated July 10, 1997 between the Company
and Kirk Roberts. (5)
10.35 Amendment to Agreement, dated January 22, 1997, between the
Company and P Thomas Jenkins. (5)
78
10.36 Separation Agreement, dated August 14, 1997 between the
Company and Keith Soley.(5)
10.37 Lease, dated December 18, 1996 between Unipark III Inc. and
the Company.(5)
10.38 Indemnity agreement dated December 18, 1996 between the Cora
Group Inc. and the Company.(5)
10.39 Lease, dated August 26, 1997, between CarrAmerica Realty
Corporation and the Company.(5)
10.40 Amendment to Agreement, dated June 27, 1997 between INSO
Corporation and the Company.(5)
10.41 Amendment to Agreement, dated June 10, 1997, between
Netscape Communications Corporation and the Company.(5)
10.42 Letter Agreement, dated October 1, 1997 between the Company
and Thomas J Hearne (5)
10.43 Commitment letter from Royal Bank of Canada dated July 20,
1998.(5)
10.44 Asset Purchase Agreement among Campbell Services, Inc. as
Seller, and FTP Software, Inc. and Open Text Inc. as Buyer,
and Open Text Corporation dated as of December 3, 1997.(6)
10.45 Agreement of Purchase and Sale of Assets by and among Open
Text Inc., Open Text Corporation, Information Dimensions,
Inc., the Stockholders of Information Dimensions
International Corp. and Gores Technology Group dated May 31,
1998.(7)
10.46 Employee Stock Purchase Plan.(7)
10.47 1998 Stock Option Plan.(7)
10.48 Lease effective February 3/rd/, 1998 between Bybatch
Enterprises Limited and Open Text UK Limited and Open Text
Corporation.(8)
10.49 Sublease Agreement dated November 10/th/, 1997 between
Compuserve Incorporated and Information Dimensions, Inc.(8)
10.50 Lease Agreement dated March 6/th/, 1998 between Open Text
Inc. and The Blain Group.(8)
10.51 Employment Agreement, dated October 12, 1998, between John
Shackleton and the Company.(10)
10.52 Employment Agreement, dated May 31, 1999, between Les McNeil
and the Company. (10)
10.53 Employment Agreement, dated January 19, 1999 between David
Lewis and the Company.(10)
10.54 Sublease, dated March 25, 1999, between Livingston Group
Inc. and the Company. (10)
10.55 Agreement of Purchase and Sale of Assets by and among Open
Text Corporation, as Buyer, and Richter & Partners Inc., the
receiver of Lava Systems Inc., as Seller. (9)
10.56 Agreement relating to the sale of the business and the
assets of Lava Systems (Europe) Limited and SCS Consulting
Ltd. between the Open Text UK Limited and Open Text
Corporation, as buyers and the receivers (Tracey Elizabeth
Callaghan and Peter John Robertson Souster), as sellers. (9)
10.57 Notice of agreement by Open Text Corporation to acquire all
of the outstanding shares of Microstar Software Ltd. (11)
79
10.58 Agreement of Share Purchase by Open Text Corporation, as
Purchaser, and David Gibbard, Brian MacLeod, The Brian
MacLeod Family Trust, The David Gibbard Family Trust,
1202605 Ontario Limited and 1202606 Ontario Limited, as
Vendors. (13)
10.59 Offer to Purchase by 3557855 Canada Inc., a wholly owned
subsidiary of Open Text Corporation, as Offeror, and
Microstar Software Ltd. (13)
10.60 Compromise Agreement, dated February 2, 2000 between the
Open Text UK Limited and Anthony Heywood. (13)
16.1 Letter re: Change in Certifying Accountant. (12)
21.1 List of the Company's Subsidiaries.
23.1 Consent of PricewaterhouseCoopers.
23.2 Consent of KPMG.
24.1 Power of Attorney (see page 82).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 Of the Sarbanes-Oxley Act of 2002 of
Chief Executive Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002 of
Chief Financial Officer.
______________
+ Portions of these exhibits, which are incorporated by reference to
Registration No. 33-98858, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
(1) Filed as an Exhibit to the Company's Registration Statement on Form F-1
(Registration Number 33-98858) as filed with the Securities and Exchange
Commission (the "SEC") on November 1, 1995 or Amendments 1, 2 or 3 thereto
(filed on December 28, 1995, January 22, 1996 and January 23, 1996
respectively), and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on July 15, 1996 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-8
(Registration Number 333-5474) as filed with the SEC on August 23, 1996 and
incorporated herein by reference.
(4) Filed as an Exhibit to amendment (1) to the Company's Annual Report on form
10-K as filed with the SEC on October 28, 1996 and incorporated herein by
reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10K as filed
with the SEC on September 29, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on December 17, 1997 and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on June 16, 1998 and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 28, 1998 and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on January 12, 1999 and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on August 20, 1999 and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on July 26, 1999 and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on April 5, 2001 and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 30, 2000 and incorporated herein by reference.
80
(14) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 28, 2001 and incorporated herein by reference.
b) Reports on Form 8-K.
None
c) Exhibits
The Company hereby files as part of this Annual Report on Form
10-K the exhibits listed in 14(a)(3) above. Exhibits which are
incorporated by reference can be inspected and copied at the
public reference facilities maintained by the Commission at
450 Fifth Street NW, Room 1024, Washington D.C. and at the
Commission's regional offices at 219 South Dearborn Street,
Room 1204, Chicago Illinois; 76 Federal Plaza, Room 1102, New
York, New York, and 5757 Wilshire Boulevard, Suite 1710, Los
Angeles, California. Copies of such materials can also be
obtained from the Public Reference Section of the Commission,
450 Fifth Street NW, Washington, D.C. 20549 at prescribed
rates.
d) Financial Statement Schedules
The Company hereby files as part of this Annual Report on Form
10-K the consolidated financial statement schedules listed in
14(a)(2) above.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 25, 2002 OPEN TEXT CORPORATION
/s/ Alan Hoverd
---------------------------
Alan Hoverd
Chief Financial Officer
POWER OF ATTORNEY AND SIGNATURES
The undersigned officers and directors of Open Text Corporation hereby
constitute and appoint P. Thomas Jenkins and Alan Hoverd, and each of them
singly, with full power of substitution, our true and lawful attorney's-in-fact
and agents to sign for us in our names in the capacities indicated below any and
all amendments to this Annual Report on Form 10-K and to file same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/P. Thomas Jenkins Director and Chief Executive Officer
- -------------------------------------- (Principal Executive Officer) September 25, 2002
P. Thomas Jenkins
/s/Alan Hoverd Chief Financial Officer
- -------------------------------------- (Principal Financial Officer and Accounting September 25, 2002
Alan Hoverd Officer)
/s/Richard C. Black Director September 25, 2002
- --------------------------------------
Richard C. Black
/s/John Shackleton President and Director September 25, 2002
- --------------------------------------
John Shackleton
/s/Randy Fowlie Director September 25, 2002
- --------------------------------------
Randy Fowlie
/s/Ken Olisa Director September 25, 2002
- --------------------------------------
Ken Olisa
/s/Stephen J. Sadler Director September 25, 2002
- --------------------------------------
Stephen J. Sadler
/s/Michael Slaunwhite Director September 25, 2002
- --------------------------------------
Michael Slaunwhite
/s/Paul J. Stoyan Director September 25, 2002
- --------------------------------------
Paul J. Stoyan
82
I, P. Thomas Jenkins, certify that:
1. I have reviewed this Annual Report on Form 10-K (the "Report") of Open
Text Corporation (the "Company");
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Report.
/s/ P. Thomas Jenkins
---------------------------
P. Thomas Jenkins
Chief Executive Officer
Dated: September 25, 2002
83
I, Alan Hoverd, certify that:
1. I have reviewed this Annual Report on Form 10-K (the "Report") of Open
Text Corporation (the "Company");
2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this Report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the Company as of, and for, the periods presented in this Report.
/s/ Alan Hoverd
-----------------------
Alan Hoverd
Chief Financial Officer
Dated: September 25, 2002
84
[LETTERHEAD OF PricewaterhouseCoopers]
Our report on the consolidated financial statements of Open Text Corporation for
the year ended June 30, 2000 is included in Item 8 of their Form 10-K. In
connection with our audit of such financial statements, we have also audited the
related financial statement schedule II listing in Item 14(a)2 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included herein.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Ontario
August 4, 2000
S-1
[LETTERHEAD OF KPMG]
INDEPENDENT AUDITORS' REPORT
To the Shareholders of Open Text Corporation
Under date of July 29, 2002, we reported on the consolidated balance sheets of
Open Text Corporation as of June 30, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the two-year period June 30, 2002, which are included in Item 8 of their Form
10-K. In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule, Schedule II - Valuation and Qualifying Accounts, which is included in
Item 14(a)(2) of their Form 10-K. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audits. The consolidated financial statement schedule as at June 30, 2000
and for the year then ended were audited by other auditors who expressed an
opinion without reservation on that statement in their report dated August 4,
2000.
In our opinion, the consolidated financial statement schedule referred to above,
when considered in relation to the consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Chartered Accountants
Toronto, Canada
July 29, 2002
S-2
OPEN TEXT CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance of allowance for doubtful accounts as at June 30, 1999 $ 1,658
Bad debt expense for the year 7,788
Write-off/adjustments (8,413)
---------------
Balance of allowance for doubtful accounts as at June 30, 2000 1,033
Bad debt expense for the year 1,280
Write-off/adjustments (855)
---------------
Balance of allowance for doubtful accounts as at June 30, 2001 1,458
Bad debt expense for the year 1,655
Write-off/adjustments (1,655)
---------------
Balance of allowance for doubtful accounts as at June 30, 2002 $ 1,458
===============
S-3
OPEN TEXT CORPORATION
INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation of the Company. (1)
3.2 Articles of Amalgamation of the Company. (1)
3.3 Articles of Amendment of the Company. (1)
3.4 By-law No. 1 of the Company. (1)
3.5 Articles of Amendment of the Company. (1)
3.6 By-law No. 2 of the Company. (1)
3.7 By-law No. 3 of the Company. (1)
3.8 Articles of Amalgamation of the Company. (1)
3.9 Articles of Amalgamation of the Company, dated July 1,
2001. (14)
3.10 Articles of Amalgamation of the Company, dated July 1,
2002.
4.1 Form of Common Share Certificate. (1)
10.1 Restated 1995 Flexible Stock Incentive Plan. (3)
10.2 1995 Replacement Stock Option Plan. (1)
10.3 1995 Supplementary Stock Option Plan. (1)
10.4 1995 Directors Stock Option Plan. (1)
10.5 Amendment to Research Funding Agreement, dated October
31, 1995, between the University of Waterloo and the
Company, and Research Funding Agreement, dated July 1,
1991, between the University of Waterloo and the
Company. (1)
10.6 Technology Licensing Agreement, dated July 1, 1991,
between Dr. Frank Tompa and the Company. (1)
10.7 Assignment Agreement, dated August 25, 1995, between
Dr. Frank Tompa and 1136390 Ontario, Inc. (1)
10.8 License Agreement, dated August 25, 1995, between the
University of Waterloo and the Company. (1)
10.9 Technology Development Agreement, dated August 25,
1995, between the University of Waterloo and the
Company, and Amendment No. 1 thereto. (1)
10.10 Letter of offer, dated January 19, 1994, between the
Canadian Strategic Software Consortium and the Minister
of Industry, Science and Technology, Canada. (1)
10.11 Representation Letter, dated November 30, 1993, to
Helix Investments (Canada) Inc. from the Company. (1)
10.12 License Agreement, dated August 1, 1995, between
Mortice Kern Systems Inc. and 1136299 Ontario Limited.
(1)
10.13 Amended and Restated Agreement and Plan of Merger,
dated October 10, 1995, between Open Text Acquisition
Corporation, Odesta Systems Corporation, Daniel
Cheifetz, and the Company. (1)
10.14 Purchase Agreement, dated October 12, 1995, between
Intunix AG and the Company. (1)
i
10.15 Security Agreement, dated May 29, 1992, between Royal
Bank of Canada and the Company. (1)
10.16 Lease, dated March 3, 1994, between Wiebe Property
Corporation Ltd. and the Company. (1)
10.17 Lease, dated October 6, 1994, between REGUS/Washington
Tysons, Inc. and the Company. (1)
10.18 Agreement, dated January 1, 1995, between P Thomas
Jenkins and the Company. (1)
10.19 Employment Agreement, dated October 13, 1995, between
Marco Palatini and the Company. (1)
10.20 Employment Agreement, dated October 19, 1995, between
Daniel Cheifetz and the Company. (1)
10.21 Form of Registration Rights Agreement, between
Technology Crossover Ventures, L.P., Technology
Crossover Ventures, C.V. and the Company. (1)
10.22 Confirmation letter, dated November 1, 1995, between
Netscape Communications Corporation and the Company.
(1)
+10.23 OEM License Agreement, dated November 10, 1995, between
Netscape Communications Corporation and the Company.
(1)
10.24 Amending Agreement, dated October 6, 1995, between
Helix (PEI) and the Company. (1)
10.25 Shareholders' Agreement, dated June 30, 1992, with
certain amendments. (1)
10.26 Forms of Compensation Option Agreement, dated July 19,
1995 between Yorkton Securities Inc., Midland Walwyn
Capital Inc., Griffiths McBurney & Partners Inc. and
the Company. (1)
10.27 Share Purchase Agreement dated June 28, 1996 between
Open Text Corporation and the shareholders of
InfoDesign Corporation. (2)
10.28 Documentation relating to stock option grants and
subsequent option exercises for P Thomas Jenkins. (3)
10.29 Letter Agreement, dated October 10, 1996 between the
Company and Marco Palatini. (4)
10.30 Letter Agreement, dated October 10, 1996 between the
Company and Daniel Cheifetz. (4)
10.31 Letter Agreement, dated May 27, 1997 between the
Company and Brett Newbold. (5)
10.32 Letter Agreement, dated November 14, 1996 between the
Company and Abraham Kleinfeld. (5)
10.33 Letter Agreement, dated April 25, 1997 between the
Company and Anthony Heywood. (5)
10.34 Letter Agreement, dated July 10, 1997 between the
Company and Kirk Roberts. (5)
10.35 Amendment to Agreement, dated January 22, 1997, between
the Company and P Thomas Jenkins. (5)
10.36 Separation Agreement, dated August 14, 1997 between the
Company and Keith Soley. (5)
10.37 Lease, dated December 18, 1996 between Unipark III Inc.
and the Company. (5)
10.38 Indemnity agreement dated December 18, 1996 between the
Cora Group Inc. and the Company. (5)
ii
10.39 Lease, dated August 26, 1997, between CarrAmerica
Realty Corporation and the Company. (5)
10.40 Amendment to Agreement, dated June 27, 1997 between
INSO Corporation and the Company. (5)
10.41 Amendment to Agreement, dated June 10, 1997, between
Netscape Communications Corporation and the Company.
(5)
10.42 Letter Agreement, dated October 1, 1997 between the
Company and Thomas J Hearne (5)
10.43 Commitment letter from Royal Bank of Canada dated July
20, 1998. (5)
10.44 Asset Purchase Agreement among Campbell Services, Inc.
as Seller, and FTP Software, Inc. and Open Text Inc. as
Buyer, and Open Text Corporation dated as of December
3, 1997. (6)
10.45 Agreement of Purchase and Sale of Assets by and among
Open Text Inc., Open Text Corporation, Information
Dimensions, Inc., the Stockholders of Information
Dimensions International Corp. and Gores Technology
Group dated May 31, 1998. (7)
10.46 Employee Stock Purchase Plan. (7)
10.47 1998 Stock Option Plan. (7)
10.48 Lease effective February 3rd, 1998 between Bybatch
Enterprises Limited and Open Text UK Limited and Open
Text Corporation. (8)
10.49 Sublease Agreement dated November 10/th/, 1997 between
Compuserve Incorporated and Information Dimensions,
Inc. (8)
10.50 Lease Agreement dated March 6/th/, 1998 between Open
Text Inc. and The Blain Group. (8)
10.51 Employment Agreement, dated October 12, 1998, between
John Shackleton and the Company. (10)
10.52 Employment Agreement, dated May 31, 1999, between Les
McNeil and the Company. (10)
10.53 Employment Agreement, dated January 19, 1999 between
David Lewis and the Company. (10)
10.54 Sublease, dated March 25, 1999, between Livingston
Group Inc. and the Company. (10)
10.55 Agreement of Purchase and Sale of Assets by and among
Open Text Corporation, as Buyer, and Richter & Partners
Inc., the receiver of Lava Systems Inc., as Seller. (9)
10.56 Agreement relating to the sale of the business and the
assets of Lava Systems (Europe) Limited and SCS
Consulting Ltd. between the Open Text UK Limited and
Open Text Corporation, as buyers and the receivers
(Tracey Elizabeth Callaghan and Peter John Robertson
Souster), as sellers. (9)
10.57 Notice of agreement by Open Text Corporation to acquire
all of the outstanding shares of Microstar Software
Ltd. (11)
10.58 Agreement of Share Purchase by Open Text Corporation,
as Purchaser, and David Gibbard, Brian MacLeod, The
Brian MacLeod Family Trust, The David Gibbard Family
Trust, 1202605 Ontario Limited and 1202606 Ontario
Limited, as Vendors. (13)
10.59 Offer to Purchase by 3557855 Canada Inc., a wholly
owned subsidiary of Open Text Corporation, as Offeror,
and Microstar Software Ltd. (13)
10.60 Compromise Agreement, dated February 2, 2000 between
the Open Text UK Limited and Anthony Heywood. (13)
iii
16.1 Letter re: Change in Certifying Accountant. (12)
21.1 List of the Company's Subsidiaries.
23.1 Consent of PricewaterhouseCoopers.
23.2 Consent of KPMG.
24.1 Power of Attorney (see page 82)
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002 of Chief Executive Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002 of Chief Financial Officer.
_______________
+ Portions of these exhibits, which are incorporated by reference to
Registration No. 33-98858, have been omitted pursuant to an Application for
Confidential Treatment filed by the Company with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as
amended.
(1) Filed as an Exhibit to the Company's Registration Statement on Form F-1
(Registration Number 33-98858) as filed with the Securities and Exchange
Commission (the "SEC") on November 1, 1995 or Amendments 1, 2 or 3 thereto
(filed on December 28, 1995, January 22, 1996 and January 23, 1996
respectively), and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on July 15, 1996 and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Registration Statement on Form S-8
(Registration Number 333-5474) as filed with the SEC on August 23, 1996 and
incorporated herein by reference.
(4) Filed as an Exhibit to amendment (1) to the Company's Annual Report on form
10-K as filed with the SEC on October 28, 1996 and incorporated herein by
reference.
(5) Filed as an Exhibit to the Company's Annual Report on Form 10K as filed
with the SEC on September 29, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on December 17, 1997 and incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on June 16, 1998 and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 28, 1998 and incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on January 12, 1999 and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on August 20, 1999 and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on July 26, 1999 and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Report on Form 8-K, as filed with the
SEC on April 5, 2001 and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 30, 2000 and incorporated herein by reference.
(14) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed
with the SEC on September 28, 2001 and incorporated herein by reference.
iv