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EX-32.2 - EXHIBIT 32.2 - OPEN TEXT CORPexhibit322q4-1710xk.htm
EX-32.1 - EXHIBIT 32.1 - OPEN TEXT CORPexhibit321q4-1710xk.htm
EX-31.2 - EXHIBIT 31.2 - OPEN TEXT CORPexhibit312q4-1710xk.htm
EX-31.1 - EXHIBIT 31.1 - OPEN TEXT CORPexhibit311q4-1710xk.htm
EX-23.1 - EXHIBIT 23.1 - OPEN TEXT CORPexhibit231consentq4-17.htm
EX-21.1 - EXHIBIT 21.1 - OPEN TEXT CORPexhibit211subsidiarylistin.htm
EX-12.1 - EXHIBIT 12.1 - OPEN TEXT CORPexhibit121earningsratioq4-.htm
EX-10.26 - EXHIBIT 10.26 - OPEN TEXT CORPexhibit1026employmentagree.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________
FORM 10-K
___________________________
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2017.
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 0-27544
______________________________________
OPEN TEXT CORPORATION
(Exact name of Registrant as specified in its charter)  
______________________________________
Canada
98-0154400
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
 
275 Frank Tompa Drive,
Waterloo, Ontario, Canada
N2L 0A1
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code: (519) 888-7111
Securities registered pursuant to Section 12(b) of the Act:  
Title of each class
 
Name of each exchange on which registered
 
Common stock without par value
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  ¨   No  ý
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulations S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  ý     Accelerated filer  ¨    Non-accelerated filer  ¨ (Do not check if smaller reporting company)            Smaller reporting company  ¨    Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ¨   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Aggregate market value of the Registrant's Common Shares held by non-affiliates, based on the closing price of the Common Shares as reported by the NASDAQ Global Select Market (“NASDAQ”) on December 31, 2016, the end of the registrant's most recently completed second fiscal quarter, was approximately $8.0 billion. The number of the Registrant's Common Shares outstanding as of July 31, 2017 was 264,240,802.
DOCUMENTS INCORPORATED BY REFERENCE
None.

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OPEN TEXT CORPORATION
TABLE OF CONTENTS
 
 
Page No
Part I
 
 
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Mine Safety Disclosures
 
 
 
Part II
 
 
Item 5
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
 
 
 
Part III
 
 
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accounting Fees and Services
 
 
 
Part IV
 
 
Item 15
Exhibits and Financial Statement Schedules
Item 16
Form 10-K Summary
Signatures
 


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PART I
Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securities Act), and is subject to the safe harbors created by those sections. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, “might”, “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements, and are based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general political, economic and market conditions, currency exchange rates, and interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify and source attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual property rights. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed herein and in the Notes to Consolidated Financial Statements for the year ended June 30, 2017, which are set forth in Part II, Item 8 of this Annual Report. The actual results that we achieve may differ materially from any forward-looking statements, which reflect management's current expectations and projections about future results only as of the date hereof. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include, but are not limited to, those set forth in Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report as well as other documents we file from time to time with the United States Securities and Exchange Commission (the SEC). Any one of these factors may cause our actual results to differ materially from recent results or from our anticipated future results. You should not rely too heavily on the forward-looking statements contained in this Annual Report on Form 10-K because these forward-looking statements are relevant only as of the date they were made.
Item 1.    Business
Open Text Corporation was incorporated on June 26, 1991. References herein to the “Company”, “OpenText”, “we” or “us” refer to Open Text Corporation and, unless context requires otherwise, its subsidiaries. Our principal office is located at 275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1, and our telephone number at that location is (519) 888-7111. Our internet address is www.opentext.com. Our website is included in this Annual Report on Form 10-K as an inactive textual reference only. Except for the documents specifically incorporated by reference into this Annual Report, information contained on our website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report. Throughout this Annual Report on Form 10-K: (i) the term "Fiscal 2018" means our fiscal year beginning on July 1, 2017 and ending June 30, 2018; (ii) the term “Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30, 2017; (iii) the term “Fiscal 2016” means our fiscal year beginning on July 1, 2015 and ended June 30, 2016; (iv) the term “Fiscal 2015” means our fiscal year beginning on July 1, 2014 and ended June 30, 2015; and (v) the term “Fiscal 2014” means our fiscal year beginning on July 1, 2013 and ended June 30, 2014. Our Consolidated Financial Statements are presented in U.S. dollars and, unless otherwise indicated, all amounts included in this Annual Report on Form 10-K are expressed in U.S. dollars.
Business Overview and Strategy
What We Do: About OpenText
We operate in the Enterprise Information Management (EIM) market. We develop enterprise software for digital transformation. OpenText’s comprehensive platform and suite of software products and services provide secure and scalable solutions for global companies. Our software assists organizations with finding, utilizing, and sharing business information from any device in ways that are intuitive, efficient and productive. We also help ensure that information remains secure and private, as demanded in today’s highly regulated climate. In addition, we provide solutions that facilitate the exchange of information and transactions between supply chain participants, such as manufacturers, retailers, distributors and financial institutions. These are central to a company’s ability to collaborate effectively with its partners. Our focus is to help customers

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automate processes. The algorithms embedded in our software aim to enable customers to unlock massive amounts of data and gain better insight into their business, which ultimately can lead to better decision making.
We offer software through traditional on-premise solutions, cloud solutions or a combination of both on-premise and cloud solutions (hybrid). We are agnostic as to which delivery method a customer prefers. We believe giving customers choice and flexibility will help us to strive to obtain long-term customer value.
What We Offer: Our Products and Services Overview
At its core, EIM is about helping organizations get the most out of information. Our EIM offerings include Content Services, Business Process Management, Customer Experience Management, Discovery, Business Network, and Analytics. Our products and services deliver the following to our customers:
(i)
Increased compliance and information governance resulting in reduced exposure to risk of regulatory sanctions related to how information is handled and protected;
(ii)
Improved operating efficiency through process digitization and automation;
(iii)
Better customer engagement through improved and integrated digital experiences and content delivery;
(iv)
Lower cost of storage and management of information through improved classification and archiving strategies;
(v)
Reduced infrastructure costs due to, among other factors, legacy decommissioning capabilities of EIM and cloud and hosted services deployment models;
(vi)
Improved innovation, productivity and time-to-market as a result of letting employees, trading partners and customers work with information and collaborate in ways which are intuitive, automated, and flexible; and
(vii)
Increased revenue streams with the enablement of easy expansion across new channels and, ultimately, new markets.

item1-business.jpg
*For illustrative purposes only
Our portfolio is comprised of capabilities in the following areas:
Content Services
We facilitate Content Services with an integrated set of technologies that manage information throughout its lifecycle and improve business productivity, all while mitigating the risk and controlling the costs of growing volumes of content. Our Content Services solutions, which are available on-premise and increasingly in the cloud, include:
Content Management provides a repository for business documents (such as those created with Microsoft Office, AutoCAD and Adobe Acrobat/PDF) and facilitates the organizing, displaying, classifying, access control, version control, event auditing, rendition, and search of documents and other content types.
Records Management enables control of the complete lifecycle of content management by assigning retention and disposition rules to control if and when content can or must be deleted or archived on storage media.
Archiving helps reduce storage expenses through optimization of storage use. It manages content storage policies according to business context, optimizes storage use, and provides high-end storage services to reduce future storage demands.

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Email Management Solutions enables customers to archive, control and monitor email, regardless of platform, reduce the size of the email database, improve email server performance, control the lifecycle of email content, and monitor email content to improve compliance.
Capture solutions help bridge the gap between structured and unstructured data by providing the ability to capture and image paper content while applying metadata and applicable policies and schedules. Transforming the information contained in these documents, helps automate or streamline business processes and govern digital content.
Core is a software as a service (SaaS)-based, multi-tenant cloud solution that provides efficient ways to share documents and collaborate for teams of any size, from small groups to large enterprises.
LEAP offers a next-generation SaaS platform for Content Services. It is comprised of a set of consumer-grade, end-user productivity applications that enable users to access, share, create and collaborate on content in entirely new ways across any device.
Business Process Management (BPM)
BPM provides the software capabilities for analyzing, automating, monitoring and optimizing structured business processes that typically fall outside the scope of existing enterprise systems. BPM solutions help empower employees, customers and partners. Our BPM solutions include:
Process Suite Platform puts the business in direct control of its processes and fosters alignment between business and Information Technology (IT), resulting in tangible benefits for both. OpenText Process Suite Platform offers one platform that can be accessed simply through a web browser and is built from the ground up to be truly multi-tenant and to support all of the deployment models required for on-premise, private or public clouds.
Capture and Recognition systems convert documents from analog sources, such as paper or facsimile (fax), to electronic documents and apply value-added functions, such as optical / intelligent character recognition (OCR/ICR) and barcode scanning, and then releases these documents into repositories where they can be stored, managed, and searched.
Process Suite Solutions are packaged applications built on the Process Suite and address specific business problems. This includes Contract Management, Cloud Brokerage Services, Digital Media Supply Chain, and Enterprise App Store, to name a few.
Customer Experience Management (CEM)
CEM generates improved time-to-market by giving customers, employees, and channel partners personalized and engaging experiences. Our CEM solutions include:
Web Content Management provides software for authoring, maintaining, and administering websites designed to offer a “visitor experience” that integrates content from internal and external sources.
Digital Asset Management provides a set of content management services for browsing, searching, viewing, assembling, and delivering rich media content such as images, audio and video.
Customer Communications Management software makes it possible for organizations to process and deliver highly personalized documents in paper or electronic format rather than a “one message fits all” approach.
Social Software helps companies “socialize” their web presence by adding blogs, wikis, ratings and reviews, and build communities for public websites and employee intranets.
Portal enables organizations to aggregate, integrate and personalize corporate information and applications and provide a central, contextualized, and personalized view of information for executives, departments, partners, and customers.
Discovery
Discovery solutions organize and visualize all relevant content and make it possible for business users to quickly locate information and make better informed decisions based on timely, contextualized information. Discovery solutions include:
Search addresses information security and productivity requirements by securely indexing all information for fast retrieval and real-time monitoring.
Semantic Navigation improves the end-user experience of websites by enabling intuitive visual exploration of site content through contextual navigation.
Auto-Classification improves the quality of information governance through intelligent metadata extraction and accurate classification of information.
InfoFusionTM makes it possible for organizations to deal with the issue of so-called “information silos” resulting from, for instance, numerous disconnected information sources across the enterprise. Using a framework of adapters, an information access platform allows organizations to consolidate, decommission, archive and migrate content from virtually any system or information repository.

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Business Network (BN)
BN is a set of offerings that facilitate efficient, secure, and compliant exchange of information inside and outside the enterprise. BN solutions include:
Business-to-Business (B2B) Integration services help optimize the reliability, reach, and cost efficiency of an enterprise's electronic supply chain while reducing costs, infrastructure and overhead.
Fax Solutions automate business fax and electronic document distribution to improve the business impact of company information, increase employee productivity and decrease paper-based operational costs.
Secure Messaging helps to share and synchronize files across an organization, across teams and with business partners, while leveraging the latest smartphones and tablets to provide information on the go without sacrificing information governance or security.
Analytics
Analytics solutions help organizations gain insight from their structured and unstructured information, make predictions, visualize and report on business processes, customer interactions and a myriad of other sources of information. This analytical data can then be used to refine business processes or content utilization, make predictions, identify trends, improve customer service or be applied in a multitude of different scenarios. OpenText Analytics solutions include:
Embedded Reporting and Visualization is used to embed reports and visualizations of data in an array of applications, including the OpenText EIM Suites and many third party data sources.
Big Data Analysis is the analysis of large sets of information from databases, files, Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) systems and a variety of other sources. Modeling and predictive algorithms may be applied to this data using OpenText solutions to extract meaningful insight or predictive models to solve customer problems or help with operational insight.
Our Strategy
Growth
We have historically grown our business and strengthened our service offerings in the EIM market through strategic acquisitions and integration, as well as organic growth. We are a value oriented and disciplined acquirer, having efficiently deployed $5.8 billion on acquisitions over the last 10 years. Mergers and acquisitions is one of our leading growth drivers and similar to high-performing conglomerates, we create value by focusing on acquiring and integrating businesses. We have developed a philosophy, which we refer to as “The OpenText Business System”, that is designed to create value by leveraging a clear set of operational mandates for integrating newly acquired companies and assets. We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our growth strategy. In Fiscal 2017, we further demonstrated the implementation of our strategy by acquiring certain assets and liabilities of the enterprise content division of EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred to as Dell-EMC (ECD Business), certain customer communication management software assets from HP Inc. (CCM Business), and Recommind Inc. (Recommind). For additional details on our acquisitions, please see "Acquisitions During the Last Five Fiscal Years", elsewhere in Item 1 of this Annual Report on Form 10-K.
While acquiring companies is one of our leading growth drivers, our growth strategy also includes organic growth through continuous innovation. We create sustained value through new innovation by expanding distribution and continually adding value to our installed base of customers. Over the last three fiscal years, we have invested a total of approximately $672.2 million in research and development (R&D) and we typically target to spend approximately 10% to 12% of revenues for R&D each fiscal year. We believe our ability to leverage our global presence is helpful to our ability to grow organically.
Products
In July 2017, we introduced our new Artificial Intelligence (AI) platform, which was showcased at our annual user conference, “Enterprise World”. We call our AI platform “OpenText Magellan” (Magellan). Our approach to AI is via an open source code and we believe in making long-term, strategic investments to developing AI. As our enterprise software has historically been focused on managing data and content archives, we believe we are well positioned to turn these archives of data into active “data lakes” and we can develop AI to transform this digital information into useful knowledge and insight for our customers.
In April 2016 we introduced "OpenText Release 16" (Release 16), which is an integrated digital information platform that manages and analyzes the entire flow of information, addressing key areas of the user experience, machine-to-machine integration, automation and other aspects of managing unstructured data in a digital first organization.

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Release 16 helps organizations with their digital transformation by digitizing information, experiences, processes and supply chains, to create a better way to work within their enterprise. Release 16 also has a major focus on analysis and reporting across all product lines and use cases. It offers customers a coordinated platform for digital transformation that is intended to yield the benefits of scale and single-vendor interaction. We have made significant investments to our cloud infrastructure over the past couple of years, and now with Release 16, virtually all of our products are available in the "OpenText Cloud".
We see an opportunity to help our customers become “digital businesses” and, with Magellan and Release 16 as well as our recent acquisitions, we believe we have a strong platform to integrate personalized analytics and insights onto our OpenText EIM suites of products, which will further our vision to enable “the digital world” and strengthen our position among leaders in EIM.

Looking Towards the Future
In Fiscal 2018 we will continue to implement strategies that are designed to:
Broaden Our Reach into EIM, B2B Integration, Analytics, Discovery, and the Cloud. As technologies and customers become more sophisticated, we intend to be a leader in expanding the definition of traditional market sectors. We have been a leader in investing in adjacent markets through acquisitions that have provided us with the technology to accelerate our time to market and increase our scale. We have also invested in technologies to address the growing influence of analytics and social, mobile, and cloud platforms on corporate information.
Deepen Customer Penetration. We believe one of our greatest opportunities is to sell newly acquired technologies to our existing customer base, and cross-sell historical OpenText products to newly acquired customers. We have significant expertise in a number of industry sectors and aim to increase our customer penetration based on our strong credentials. We are particularly focused on circumstances where the customer is looking to consolidate multiple vendors with solutions from a single source while addressing a broader spectrum of business problems or equally new or existing customers looking to take a more holistic approach to digital transformation.
Invest in Technology Leadership. We believe we are well-positioned to develop additional innovative solutions to address the evolving market. We plan to continue investing in technology “innovation” by funding internal development as well as collaborating with third-parties.
Deepen Strategic Partnerships. OpenText is committed culturally, programmatically and strategically to being a partner-embracing company. Our partnerships with companies such as SAP SE, Microsoft Corporation, Oracle Corporation, Accenture plc, Deloitte Consulting LLP and others serve as an example of how we are working together with our partners to create next-generation EIM solutions and deliver them to market. We will continue to look for ways to create more customer value from our strategic partnerships.
Broaden Global Presence. As customers become increasingly multi-national and as international markets continue to adopt EIM, we plan to further grow our brand, presence, and partner networks in these new markets. We are focused on using our direct sales for targeting existing customers and plan to address new geographies jointly with our partners.
Selectively Pursue Acquisitions. We expect to continue to pursue strategic acquisitions in the future to strengthen our service offerings in the EIM market. In light of the continually evolving marketplace in which we operate, on an ongoing basis we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions with respect to such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent a strong strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also target future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as add new solutions to our portfolio.
OpenText Revenues
Our business consists of four revenue streams: license, cloud services and subscriptions, customer support, and professional service and other. For information regarding our revenues and assets by geography for Fiscal 2017, Fiscal 2016 and Fiscal 2015, see note 19 “Segment Information” in the Notes to Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.
License
License revenues consist of fees earned from the licensing of software products to our customers. Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions. The decision by a customer to license our software products often involves a comprehensive

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implementation process across the customer’s network or networks and the licensing and implementation of our software products may entail a significant commitment of resources by prospective customers.
Cloud Services and Subscriptions
Cloud services and subscription revenues consist of (i) software as a service offerings (ii) managed service arrangements and (iii) subscription revenues relating to on premise offerings. These offerings allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure.
In addition, we offer B2B integration solutions, such as messaging services, and managed services. Messaging services allow for the automated and reliable exchange of electronic transaction information, such as purchase orders, invoices, shipment notices and other business documents, among businesses worldwide. Managed services provide an end-to-end fully outsourced B2B integration solution to our customers, including program implementation, operational management, and customer support. These services enable customers to effectively manage the flow of electronic transaction information with their trading partners and reduce the complexity of disparate standards and communication protocols.
Customer Support
The first year of our customer support offering is usually purchased by customers together with the license of our EIM software products. Customer support is typically renewed on an annual basis and historically customer support revenues have been a significant portion of our total revenue. Through our OpenText customer support programs, customers receive access to software upgrades, a knowledge base, discussions, product information, and an online mechanism to post and review “trouble tickets”. Additionally, our customer support teams handle questions on the use, configuration, and functionality of OpenText products and can help identify software issues, develop solutions, and document enhancement requests for consideration in future product releases.
Professional Service and Other
We provide consulting and learning services to customers and generally these services relate to the implementation, training and integration of our licensed product offerings into the customer's systems.
Our consulting services help customers build solutions that enable them to leverage their investments in our technology and in existing enterprise systems. The implementation of these services can range from simple modifications to meet specific departmental needs to enterprise applications that integrate with multiple existing systems.
Our learning services consultants analyze our customers' education and training needs, focusing on key learning outcomes and timelines, with a view to creating an appropriate education plan for the employees of our customers who work with our products. Education plans are designed to be flexible and can be applied to any phase of implementation: pilot, roll-out, upgrade or refresher. OpenText learning services employ a blended approach by combining mentoring, instructor-led courses, webinars, eLearning and focused workshops.
Marketing and Sales
Customers
Our customer base consists of a number of Global 10,000 organizations as well as mid-market companies and government agencies. Historically, including in Fiscal 2017, no single customer has accounted for 10% or more of our total revenues.
Global Distribution Channels
We operate on a global basis and in Fiscal 2017 we generated approximately 59% of our revenues from our “Americas” region, which consists of countries in North, Central, and South America, approximately 32% from our "EMEA" region, which primarily consists of countries in Europe, the Middle East, and Africa, and approximately 9% from our "Asia Pacific" region, which primarily consists of Japan, Australia, China, Korea, Philippines, Singapore and New Zealand. We make direct sales of products and services through our global network of subsidiaries.

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Partners and Alliances
We also market our products and services worldwide through indirect channels. We partner with prominent organizations in the enterprise software and hardware industries in an effort to enhance the value of our solutions and the investments our customers have made in their existing systems. We strive to create mutually beneficial relationships with global systems integrators, consultants, and software and hardware developers that augment and extend our products and services. Through these relationships, we and our partners are better able to fulfill key market objectives, drive new business, establish a competitive advantage, and create demonstrable business value.
Our strategic partners are:
SAP SE (SAP)
OpenText and SAP have shared many years of partnership and close collaboration. Our solutions help customers improve the way they manage content from SAP systems in order to assist them to improve efficiency in key processes, manage compliance and reduce costs. Our targeted solutions let customers create, access, manage and securely archive content for SAP systems, including data, multimedia content, and documents. In addition, our solutions for SAP allow customers to address stringent requirements for risk reduction, operational efficiency and information technology consolidation. OpenText products are typically used by SAP customers as part of their key business processes. We are also a strategic SAP partner in the SAP cloud. In Fiscal 2017, we signed an overarching cloud reseller agreement with SAP, extending our relationship many years into the future.
Microsoft Corporation (Microsoft)
Our strategic alliance with Microsoft offers integration between our EIM solutions and Microsoft's desktop, cloud and server products, such as Microsoft SharePoint and Exchange, as well as Office 365 and SharePoint online. Microsoft and OpenText have partnered to drive the creation of comprehensive business and industry-specific EIM solutions leveraging customers' significant investments in the Microsoft platform and productivity applications. We provide support for Microsoft platforms such as Windows and SQL Server and integration with many Microsoft products such as Exchange, Rights Management and Windows Azure. The integration of our solutions with Microsoft Office and SharePoint allows an OpenText customer to work with information from ERP, CRM, EIM and other enterprise applications from within the Microsoft SharePoint or Microsoft Office interface.
Oracle Corporation (Oracle)
For more than ten years, OpenText has developed innovative solutions for Oracle applications that enhance the experience and productivity of users working with these tools. OpenText is committed to continued development that extends and enhances the Oracle application and technology portfolio. Our partnership extends our enterprise solutions framework with integration between OpenText and Oracle eBusiness Suite, analogous to our integration with SAP.
Our global systems integrators are:
Accenture plc (Accenture)
Accenture, a global management consulting, technology services and outsourcing company, is one of our systems integrator partners. Together we provide strategic EIM solutions. Accenture's extensive experience with enterprise-rollout planning and design, combined with our EIM technology, provides solutions designed to address an organization's EIM requirements.
Deloitte Consulting LLP (Deloitte)
Deloitte is also one of our systems integrator partners. Together, we help organizations build value through improved Enterprise Content Management (ECM) performance. Deloitte's services provide value across human capital, strategy and operations, and technology within multiple industries.
Other System Integrators
Other OpenText systems integrator partners include Cap Gemini Inc., CGI Group Inc. (through its acquisition of Logica plc), ATOS SE, Ernst & Young LLP and others.
International Markets
We provide our product offerings worldwide. Our geographic coverage allows us to draw on business and technical expertise from a geographically diverse workforce, providing greater stability to our operations and revenue streams by diversifying our portfolio to better mitigate against the risks of a single geographically focused business.

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There are inherent risks to conducting operations internationally. For more information about these risks, see “Risk Factors” included in Item 1A of this Annual Report on Form 10-K.
Competition
The market for our products and services is highly competitive, subject to rapid technological change and shifting customer needs and economic pressures. We compete with multiple companies, some that have single or narrow solutions and some that have a range of information management solutions, like ourselves. Our primary competitor is International Business Machines Corporation (IBM), with numerous other software vendors with niche offerings competing with us in the EIM sector, such as Veeva Systems Inc., j2 Global Inc., Pegasystems Inc., Hyland Software Inc., and Adobe Systems Inc. In certain markets, OpenText competes with Oracle and Microsoft, who are also our partners. In addition, we also face competition from systems integrators that configure hardware and software into customized systems. Additionally, new competitors or alliances among existing competitors may emerge and could rapidly acquire additional market share. We also expect that competition will increase as a result of ongoing software industry consolidation.
We believe that certain competitive factors affect the market for our software products and services, which may include: (i) vendor and product reputation; (ii) product quality, performance and price; (iii) the availability of software products on multiple platforms; (iv) product scalability; (v) product integration with other enterprise applications; (vi) software functionality and features; (vii) software ease of use; (viii) the quality of professional services, customer support services and training; and (ix) the ability to address specific customer business problems. We believe the relative importance of each of these factors depends upon the concerns and needs of each specific customer.
Research and Development
The industry in which we compete is subject to rapid technological developments, evolving industry standards, changes in customer requirements and competitive new products and features. As a result, our success, in part, depends on our ability to continue to enhance our existing products in a timely and efficient manner and to develop and introduce new products that meet customer needs while reducing total cost of ownership. To achieve these objectives, we have made and expect to continue to make investments in research and development, through internal and third-party development activities, third-party licensing agreements and potentially through technology acquisitions. Our R&D expenses were $281.7 million for Fiscal 2017, $194.1 million for Fiscal 2016, and $196.5 million for Fiscal 2015. We believe our spending on research and development is an appropriate balance between managing our organic growth and results of operation. We expect to continue to invest in R&D to maintain and improve our products and services offerings.
Acquisitions During the Last Five Fiscal Years
Our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies, products, services and capabilities. In light of the continually evolving marketplace in which we operate, we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions with respect to such opportunities.
Pursuing strategic acquisitions is an important aspect to our current and future growth strategy, which we expect to continue, in order to strengthen our service offerings in the EIM market. In Fiscal 2017 we acquired ECD Business, CCM Business, and Recommind. ECD Business brings a suite of leading ECM solutions with deep industry focus, including the DocumentumTM, InfoArchiveTM, and LEAPTM product families. CCM Business brings a wider set of Customer Communications Management (CCM) capabilities allowing us to better serve our customers. Recommind was a leading provider of eDiscovery and information analytics, and provides increased visibility into structured and unstructured data.
On July 26, 2017, we announced that we completed our previously announced acquisition of Covisint Corporation (Covisint), a leading cloud platform for building Identity, Automotive, and Internet of Things (IoT) applications, for approximately $103.0 million. On the same day, we announced that we entered into a definitive agreement to acquire Guidance Software Inc. (Guidance), a leading provider of forensic security solutions, for approximately $240.0 million. For more information, please see note 23 "Subsequent Events" in the Notes to Consolidated Financial Statements included in Item 8 to this Annual Report on Form 10-K.
Below is a summary of the more material acquisitions we have made over the last five fiscal years.
In Fiscal 2017, we completed the following acquisitions:
On January 23, 2017, we acquired ECD Business for approximately $1.62 billion.
On July 31, 2016, we acquired CCM Business for approximately $315.0 million.
On July 20, 2016, we acquired Recommind, a leading provider of eDiscovery and information analytics, based in San Francisco, California, United States, for approximately $170.1 million.


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Prior to Fiscal 2017, we completed the following acquisitions:
On May 1, 2016, we acquired ANXe Business Corporation (ANX), a leading provider of cloud-based information exchange services to the automotive and healthcare industries, based in Michigan, United States. Total consideration for ANX was approximately $104.6 million.
On April 30, 2016, we acquired certain customer experience software and services assets and liabilities from HP Inc. (CEM Business) for approximately $160.0 million.
On November 23, 2015, we acquired Daegis Inc. (Daegis), a global information governance, data migration solutions and development company, based in Texas, United States. Total consideration for Daegis was approximately $23.3 million.
On January 16, 2015, we acquired Actuate Corporation (Actuate), based in San Francisco, California, United States, for $332.0 million, comprised of approximately $322.4 million in cash and shares we purchased of Actuate in the open market with a fair value of approximately $9.5 million as of the date of acquisition. Actuate was a leader in personalized analytics and insights.
On January 2, 2015, we acquired Informative Graphics Corporation (IGC), based in Scottsdale, Arizona, United States, for approximately $40.0 million. IGC was a leading developer of viewing, annotation, redaction and publishing commercial software.
On January 16, 2014, we acquired GXS Group Inc. (GXS), a Delaware corporation based in Gaithersburg, Maryland, United States, and leader in cloud-based B2B integration services for $1.2 billion, inclusive of the issuance of 5,190,084 OpenText Common Shares.
On August 15, 2013, we acquired Cordys Holding B.V. (Cordys), a leading provider of BPM and case management solutions, offered on one platform with cloud, mobile, and social capabilities, based in Putten, the Netherlands for $33.2 million.
On May 23, 2013, we acquired ICCM Professional Services Limited (ICCM), based in Malmesbury, United Kingdom, for $18.9 million. ICCM is a provider of IT service management software solutions.
On March 5, 2013, we acquired Resonate KT Limited (RKT), based in Cardiff, United Kingdom, for $20.0 million. RKT was a leading provider of software that enables organizations to visualize unstructured data, create new user experiences for ECM and Extended ECM (xECM) for SAP, as well as build industry-based applications that maximize unstructured data residing within Content Server, a key component of the OpenText ECM suite.
On July 2, 2012, we acquired EasyLink Services International Corporation (EasyLink), based in Georgia, United States and a global provider of cloud-based electronic messaging and business integration services for $342.3 million.
We believe our acquisitions support our long-term strategy for growth, strengthen our competitive position, expand our customer base and provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business.
Intellectual Property Rights
Our success and ability to compete depends on our ability to develop and maintain our intellectual property and proprietary technology and to operate without infringing on the proprietary rights of others. Our software products are generally licensed to our customers on a non-exclusive basis for internal use in a customer's organization. We also grant rights in our intellectual property to third parties that allow them to market certain of our products on a non-exclusive or limited-scope exclusive basis for a particular application of the product(s) or to a particular geographic area.
We rely on a combination of copyright, patent, trademark and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. We have obtained or applied for trademark registration for most strategic product names in most major markets. We have a number of U.S. and foreign patents and pending applications, including patents and rights to patent applications acquired through strategic transactions, which relate to various aspects of our products and technology. The duration of our patents is determined by the laws of the country of issuance and for the U.S. is typically 17 years from the date of issuance of the patent or 20 years from the date of filing of the patent application resulting in the patent. While we believe our intellectual property is valuable and our ability to maintain and protect our intellectual property rights is important to our success, we also believe that our business as a whole is not materially dependent on any particular patent, trademark, license, or other intellectual property right.
For more information on the risks related to our intellectual property rights, see "Risk Factors" included in Item 1A of this Annual Report on Form 10-K.
Employees
As of June 30, 2017, we employed a total of approximately 10,900 individuals. The approximate composition of our employee base is as follows: (i) 1,800 employees in sales and marketing, (ii) 2,700 employees in product development, (iii)

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2,500 employees in cloud services, (iv) 1,400 employees in professional services, (v) 1,100 employees in customer support, and (vi) 1,400 employees in general and administrative roles. We believe that relations with our employees are strong. None of our employees are represented by a labour union, nor do we have collective bargaining arrangements with any of our employees. However, in certain international jurisdictions in which we operate, a “Workers' Council” represents our employees.
Available Information
Access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed with or furnished to the SEC may be obtained free of charge through the Investors section of our website at investors.opentext.com as soon as is reasonably practical after we electronically file or furnish these reports. Our website is included in this Annual Report on Form 10-K as an inactive textual reference only. Except for the documents specifically incorporated by reference into this Annual Report, information contained on our website is not incorporated by reference in this Annual Report and should not be considered to be a part of this Annual Report. In addition, our filings with the SEC may be accessed through the SEC's website at www.sec.gov and our filings with the Canadian Securities Administrators (CSA) may be accessed through the CSA's System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by applicable law.

Item 1A. Risk Factors
The following important factors could cause our actual business and financial results to differ materially from our current expectations, estimates, forecasts and projections. These forward-looking statements contained in this Annual Report on Form 10-K or made elsewhere by management from time to time are subject to important risks, uncertainties and assumptions which are difficult to predict. The risks and uncertainties described below are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies. The risks discussed below are not necessarily presented in order of importance or probability of occurrence.
The length of our sales cycle can fluctuate significantly which could result in significant fluctuations in revenues being recognized from quarter to quarter
The decision by a customer to license our software products or purchase our services often involves a comprehensive implementation process across the customer's network or networks. As a result, the licensing and implementation of our software products and any related services may entail a significant commitment of resources by prospective customers, accompanied by the attendant risks and delays frequently associated with significant technology implementation projects. Given the significant investment and commitment of resources required by an organization to implement our software products, our sales cycle may be longer compared to other companies within our own industry, as well as companies in other industries. Also because of changes in customer spending habits, it may be difficult for us to budget, forecast and allocate our resources properly. In weak economic environments, it is not uncommon to see reduced information technology spending. It may take several months, or even several quarters, for marketing opportunities to materialize. If a customer's decision to license our software or purchase our services is delayed or if the implementation of these software products takes longer than originally anticipated, the date on which we may recognize revenues from these licenses or sales would be delayed. Such delays and fluctuations could cause our revenues to be lower than expected in a particular period and we may not be able to adjust our costs quickly enough to offset such lower revenues, potentially negatively impacting our business, operating results and financial condition.
Our success depends on our relationships with strategic partners, distributors and third party service providers and any reduction in the sales efforts by distributors, cooperative efforts from our partners or service from third party providers could materially impact our revenues
We rely on close cooperation with strategic partners for sales and software product development as well as for the optimization of opportunities that arise in our competitive environment. A portion of our license revenues is derived from the licensing of our software products through third parties. Also, a portion of our service revenues may be impacted by the level of service provided by third party service providers relating to Internet, telecommunications and power services. Our success will depend, in part, upon our ability to maintain access to existing channels of distribution and to gain access to new channels if and when they develop. We may not be able to retain a sufficient number of our existing distributors or develop a sufficient number of future distributors. Distributors may also give higher priority to the licensing or sale of software products and services other than ours (which could include competitors' products and services) or may not devote sufficient resources to

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marketing our software products and services. The performance of third party distributors and third party service providers is largely outside of our control, and we are unable to predict the extent to which these distributors and service providers will be successful in either marketing and licensing or selling our software products and services or providing adequate Internet, telecommunication and power services so that disruptions and outages are not experienced by our customers. A reduction in strategic partner cooperation or sales efforts, a decline in the number of distributors, a decision by our distributors to discontinue the licensing of our software products or a decline or disruption in third party services could cause users and the general public to perceive our software products and services as inferior and could materially reduce revenues.
If we do not continue to develop technologically advanced products that successfully integrate with the software products and enhancements used by our customers, future revenues and our operating results may be negatively affected
Our success depends upon our ability to design, develop, test, market, license, sell and support new software products and services and enhancements of current products and services on a timely basis in response to both competitive threats and marketplace demands. The software industry is increasingly focused on cloud computing, mobility, social media and software as a service (SaaS) among other continually evolving shifts. In addition, our software products, services, and enhancements must remain compatible with standard platforms and file formats. Often, we must integrate software licensed or acquired from third parties with our proprietary software to create or improve our products. If we are unable to achieve a successful integration with third party software, we may not be successful in developing and marketing our new software products, services, and enhancements. If we are unable to successfully integrate third party software to develop new software products, services, and enhancements to existing software products and services, or to complete the development of new software products and services which we license or acquire from third parties, our operating results will materially suffer. In addition, if the integrated or new products or enhancements do not achieve acceptance by the marketplace, our operating results will materially suffer. Moreover, if new industry standards emerge that we do not anticipate or adapt to, or with rapid technological change occurring, if alternatives to our services and solutions are developed by our competitors, our software products and services could be rendered less competitive or obsolete, causing us to lose market share and, as a result, harm our business and operating results, and our ability to compete in the marketplace.
If our software products and services do not gain market acceptance, our operating results may be negatively affected
We intend to pursue our strategy of being a market leading consolidator for cloud-based EIM solutions, and growing the capabilities of our EIM software offerings through our proprietary research and the development of new software product and service offerings, as well as through acquisitions. In response to customer demand, it is important to our success that we continue to enhance our software products and services and to seek to set the standard for EIM capabilities. The primary market for our software products and services is rapidly evolving which means that the level of acceptance of products and services that have been released recently, including Release 16 and Magellan, or that are planned for future release to the marketplace is not certain. If the markets for our software products and services fail to develop, develop more slowly than expected or become subject to increased competition, our business may suffer. As a result, we may be unable to: (i) successfully market our current products and services, (ii) develop new software products and services and enhancements to current software products and services, (iii) complete customer implementations on a timely basis, or (iv) complete software products and services currently under development. In addition, increased competition could put significant pricing pressures on our products which could negatively impact our margins and profitability. If our software products and services are not accepted by our customers or by other businesses in the marketplace, our business, operating results and financial condition will be materially adversely affected.
Our existing customers might cancel contracts with us, fail to renew contracts on their renewal dates, and/or fail to purchase additional services and products, and we may be unable to attract new customers
We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring services revenues to us. In addition, our installed customer base has historically generated additional new license and services revenues for us. Service contracts are generally renewable at a customer’s option and/or subject to cancellation rights, and there are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional services.
If our customers fail to renew or cancel their service contracts or fail to purchase additional services or products, then our revenues could decrease and our operating results could be materially adversely affected. Factors influencing such contract terminations and failure to purchase additional services or products could include changes in the financial circumstances of our customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services, our customers selecting or building alternate technologies to replace us, the cost of our products and services as compared to the cost of products and services offered by our competitors, our ability to attract, hire and maintain qualified personnel to meet

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customer needs, consolidating activities in the market, changes in our customers’ business or in regulation impacting our customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions, or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be reluctant to migrate to new products. Such customers will not generate the revenues we may have anticipated within the timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may not be able to adjust our expense levels quickly enough to account for any such revenue losses.
Our investment in our current research and development efforts may not provide a sufficient, timely return
The development of EIM software products is a costly, complex and time-consuming process, and the investment in EIM software product development often involves a long wait until a return is achieved on such an investment. We are making, and will continue to make, significant investments in software research and development and related product and service opportunities. Investments in new technology and processes are inherently speculative. Commercial success depends on many factors, including the degree of innovation of the software products and services developed through our research and development efforts, sufficient support from our strategic partners, and effective distribution and marketing. Accelerated software product introductions and short product life cycles require high levels of expenditures for research and development. These expenditures may adversely affect our operating results if they are not offset by revenue increases. We believe that we must continue to dedicate a significant amount of resources to our research and development efforts in order to maintain our competitive position. However, significant revenues from new software product and service investments may not be achieved for a number of years, if at all. Moreover, new software products and services may not be profitable, and even if they are profitable, operating margins for new software products and services may not be as high as the margins we have experienced for our current or historical software products and services.
Product development is a long, expensive and uncertain process, and we may terminate one or more of our development programs
We may determine that certain software product candidates or programs do not have sufficient potential to warrant the continued allocation of resources. Accordingly, we may elect to terminate one or more of our programs for such product candidates. If we terminate a software product in development in which we have invested significant resources, our prospects may suffer, as we will have expended resources on a project that does not provide a return on our investment and we may have missed the opportunity to have allocated those resources to potentially more productive uses and this may negatively impact our business, operating results and financial condition.
Failure to protect our intellectual property could harm our ability to compete effectively
We are highly dependent on our ability to protect our proprietary technology. We rely on a combination of copyright, patent, trademark and trade secret laws, as well as non-disclosure agreements and other contractual provisions to establish and maintain our proprietary rights. We intend to protect our intellectual property rights vigorously; however, there can be no assurance that these measures will, in all cases, be successful. Enforcement of our intellectual property rights may be difficult, particularly in some countries outside of North America in which we seek to market our software products and services. While U.S. 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. The absence of internationally harmonized intellectual property laws makes it more difficult to ensure consistent protection of our proprietary rights. Software piracy has been, and is expected to be, a persistent problem for the software industry, and piracy of our software products represents a loss of revenue to us. Where applicable, certain of our license arrangements have required us to make a limited confidential disclosure of portions of the source code for our software products, or to place such source code into escrow for the protection of another party. Despite the precautions we have taken, unauthorized third parties, including our competitors, may be able to copy certain portions of our software products or reverse engineer or obtain and use information that we regard as proprietary. Our competitive position may be adversely affected by our possible inability to effectively protect our intellectual property. In addition, certain of our products contain open source software. Licensees of open source software may be required to make public certain source code, to license proprietary software for free or to make certain derivative works available to others. While we monitor and control the use of open source software in our products and in any third party software that is incorporated into our products, and we try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related product or service, there can be no guarantee that such use could not inadvertently occur. If this happened it could harm our intellectual property position and have a material adverse effect on our business, results of operations and financial condition.

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Other companies may claim that we infringe their intellectual property, which could materially increase costs and materially harm our ability to generate future revenues and profits
Claims of infringement are common in the software industry and increasing as related legal protections, including copyrights and patents, are applied to software products. Although most of our technology is proprietary in nature, we do include certain third party and open source software in our software products. In the case of third party software, we believe this software is licensed from the entity holding the intellectual property rights. While we believe that we have secured proper licenses for all third-party intellectual property that is integrated into our products, third parties have and may continue to assert infringement claims against us in the future, including the sometimes aggressive and opportunistic actions of non-practicing entities whose business model is to obtain patent-licensing revenues from operating companies such as us. Any such assertion, regardless of merit, may result in litigation or may require us to obtain a license for the intellectual property rights of third parties. Such licenses may not be available or they may not be available on commercially reasonable terms. In addition, as we continue to develop software products and expand our portfolio using new technology and innovation, our exposure to threats of infringement may increase. Any infringement claims and related litigation could be time-consuming, disruptive to our ability to generate revenues or enter into new market opportunities and may result in significantly increased costs as a result of our defense against those claims or our attempt to license the intellectual property rights or rework our products to avoid infringement of third party rights. Typically our agreements with our partners and customers contain provisions which require us to indemnify them for damages sustained by them as a result of any infringement claims involving our products. Any of the foregoing infringement claims and related litigation could have a significant adverse impact on our business and operating results as well as our ability to generate future revenues and profits.
The loss of licenses to use third-party software or the lack of support or enhancement of such software could adversely affect our business
We currently depend upon a limited number of third-party software products. If such software products were not available, we might experience delays or increased costs in the development of our own software products. For a limited number of our product modules, we rely on software products that we license from third parties, including software that is integrated with internally developed software and which is used in our 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 by us of the license to use, or the inability by licensors to support, maintain, or enhance any of such software, could result in increased costs, lost revenues or delays until equivalent software is internally developed or licensed from another third party and integrated with our software. Such increased costs, lost revenues or delays could adversely affect our business.
Current and future competitors could have a significant impact on our ability to generate future revenues and profits
The markets for our software products and services are intensely competitive and are subject to rapid technological change and other pressures created by changes in our industry. The convergence of many technologies has resulted in unforeseen competitors arising from companies that were traditionally not viewed as threats to our marketplace. We expect competition to increase and intensify in the future as the pace of technological change and adaptation quickens and as additional companies enter our markets, including those competitors who offer solutions similar to ours, but offer it through a different form of delivery. Numerous releases of competitive products have occurred in recent history and are expected to continue in the future. We may not be able to compete effectively with current competitors and potential entrants into our marketplace. We could lose market share if our current or prospective competitors: (i) develop technologies that are perceived to be substantially equivalent or superior to our technologies, (ii) introduce new competitive products or services, (iii) add new functionality to existing products and services, (iv) acquire competitive products and services, (v) reduce prices, or (vi) form strategic alliances or cooperative relationships with other companies. If other businesses were to engage in aggressive pricing policies with respect to competing products, or if the dynamics in our marketplace resulted in increasing bargaining power by the consumers of our software products and services, we would need to lower the prices we charge for the products and services we offer. This could result in lower revenues or reduced margins, either of which may materially adversely affect our business and operating results. Additionally, if prospective consumers choose other methods of EIM delivery different from that which we offer, our business and operating results could also be materially adversely affected.
Acquisitions, investments, joint ventures and other business initiatives may negatively affect our operating results
The growth of our Company through the successful acquisition and integration of complementary businesses is a critical component of our corporate strategy. In light of the continually evolving marketplace in which we operate, we regularly evaluate acquisition opportunities on an ongoing basis and at any time may be in various stages of discussions with respect to such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent a strong strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also target

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future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as add new solutions to our portfolio. We may also consider, 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: (i) the need to integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our resources, systems, procedures and controls; (iii) disruption of our ongoing business; and (iv) diversion of management's attention from other business concerns. Moreover, these transactions could involve: (i) substantial investment of funds or financings by issuance of debt or equity or equity-related securities; (ii) substantial investment with respect to technology transfers and operational integration; and (iii) the acquisition or disposition of product lines or businesses. Also, such activities could result in charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the issuance or assumption of debt, which could have a negative impact on the credit ratings of our outstanding debt securities. Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of financial and other resources of our Company. Any such activity may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes. In addition, while we conduct due diligence prior to consummating an acquisition, joint venture or business collaboration, such diligence may not identify all material issues associated with such activities. We may also experience unanticipated challenges or difficulties identifying suitable new acquisition candidates that are available for purchase at reasonable prices. Even if we are able to identify such candidates, we may be unable to consummate an acquisition on suitable terms. Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on the basis of a less than optimal capital structure. Our inability (i) to take advantage of growth opportunities for our business or for our products and services, or (ii) to address risks associated with acquisitions or investments in businesses, may negatively affect our operating results and financial condition. Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges associated with any acquisition or investment activity, may materially impact our results of operations and financial condition which, in turn, may have a material adverse effect on the market price of our Common Shares or credit ratings of our outstanding debt securities.
Businesses we acquire may have disclosure controls and procedures and internal controls over financial reporting that are weaker than or otherwise not in conformity with ours
We have a history of acquiring complementary businesses of varying size and organizational complexity. Upon consummating an acquisition, we seek to implement our disclosure controls and procedures as well as our internal controls over financial reporting at the acquired company as promptly as possible. Depending upon the nature and scale of the business acquired, the implementation of our disclosure controls and procedures as well as the implementation of our internal controls over financial reporting at an acquired company may be a lengthy process and may divert our attention from other business operations. Our integration efforts may periodically expose deficiencies in the disclosure controls and procedures as well as in internal controls over financial reporting of an acquired company that were not identified in our due diligence undertaken prior to consummating the acquisition. If such deficiencies exist, we may not be in a position to comply with our periodic reporting requirements and, as a result, our business and financial condition may be materially harmed.
We may be unable to successfully integrate acquired businesses or do so within the intended timeframes, which could have an adverse effect on our financial condition, results of operations and business prospects
Our ability to realize the anticipated benefits of acquired businesses will depend, in part, on our ability to successfully and efficiently integrate acquired businesses and operations with our own. The integration of acquired operations with our existing business will be complex, costly and time-consuming, and may result in additional demands on our resources, systems, procedures and controls, disruption of our ongoing business, and diversion of management’s attention from other business concerns. Although we cannot be certain of the degree and scope of operational and integration problems that may arise, the difficulties and risks associated with the integration of acquired businesses may include, among others:  
the increased scope and complexity of our operations;
coordinating geographically separate organizations, operations, relationships and facilities;
integrating (i) personnel with diverse business backgrounds, corporate cultures and management philosophies, and (ii) the standards, policies and compensation structures, as well as the complex systems, technology, networks and other assets, of the businesses;
preserving important strategic and customer relationships;
retention of key employees;
the possibility that we may have failed to discover obligations of acquired businesses or risks associated with those businesses during our due diligence investigations as part of the acquisition for which we, as a successor owner, may be responsible or subject to; and

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provisions in contracts with third parties that may limit flexibility to take certain actions.
As a result of these difficulties and risks, we may not accomplish the integration of acquired businesses smoothly, successfully or within our budgetary expectations and anticipated timetables, which may result in a failure to realize some or all of the anticipated benefits of our acquisitions.
We may not generate sufficient cash flow to satisfy our unfunded pension obligations
Through our acquisitions, we have assumed certain unfunded pension plan liabilities. We will be required to use the operating cash flow that we generate in the future to meet these obligations. As a result, our future net pension liability and cost may be materially affected by the discount rate used to measure these pension obligations and by the longevity and actuarial profile of the relevant workforce. A change in the discount rate may result in a significant increase or decrease in the valuation of these pension obligations, and these changes may affect the net periodic pension cost in the year the change is made and in subsequent years. We cannot assure that we will generate sufficient cash flow to satisfy these obligations. Any inability to satisfy these pension obligations may have a material adverse effect on the operational and financial health of our business.
For more details see note 11 "Pension Plans and Other Post Retirement Benefits" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
Consolidation in the industry, particularly by large, well-capitalized companies, could place pressure on our operating margins which could, in turn, have a material adverse effect on our business
Acquisitions by large, well-capitalized technology companies have changed the marketplace for our software products and services by replacing competitors which are comparable in size to our Company with companies that have more resources at their disposal to compete with us in the marketplace. In addition, other large corporations with considerable financial resources either have products and/or services that compete with our software products and services or have the ability to encroach on our competitive position within our marketplace. These companies have considerable financial resources, channel influence, and broad geographic reach; thus, they can engage in competition with our software products and services on the basis of price, marketing, services or support. They also have the ability to introduce items that compete with our maturing software products and services. The threat posed by larger competitors and their ability to use their better economies of scale to sell competing products and services at a lower cost may materially reduce the profit margins we earn on the software products and services we provide to the marketplace. Any material reduction in our profit margin may have a material adverse effect on the operations or finances of our business, which could hinder our ability to raise capital in the public markets at opportune times for strategic acquisitions or general operational purposes, which may then prevent effective strategic growth, improved economies of scale or put us at a disadvantage to our better capitalized competitors.
We must continue to manage our internal resources during periods of company growth or our operating results could be adversely affected
The EIM market in which we compete continues to evolve at a rapid pace. Moreover, we have grown significantly through acquisitions in the past and expect to continue to review acquisition opportunities as a means of increasing the size and scope of our business. Our growth, coupled with the rapid evolution of our markets, has placed, and will continue to place, significant strains on our administrative and operational resources and increased demands on our internal systems, procedures and controls. Our administrative infrastructure, systems, procedures and controls may not adequately support our operations. In addition, our management may not be able to achieve the rapid, effective execution of the product and business initiatives necessary to successfully implement our operational and competitive strategy. If we are unable to manage growth effectively, our operating results will likely suffer which may, in turn, adversely affect our business.
If we lose the services of our executive officers or other key employees or if we are not able to attract or retain top employees, our business could be significantly harmed
Our performance is substantially dependent on the performance of our executive officers and key employees. We do not maintain “key person” life insurance policies on any of our employees. Our success is also highly dependent on our continuing ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel. In particular, the recruitment and retention of top research developers and experienced salespeople, particularly those with specialized knowledge, remains critical to our success, including providing consistent and uninterrupted service to our customers. Competition for such people is intense, substantial and continuous, and we may not be able to attract, integrate or retain highly qualified technical, sales or managerial personnel in the future. In our effort to attract and retain critical personnel, we may experience increased compensation costs that are not offset by either improved productivity or higher prices for our software products or services.

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In addition, the loss of the services of any of our executive officers or other key employees could significantly harm our business, operating results and financial condition.
Loss of key personnel could impair the integration of acquired businesses, lead to loss of customers and a decline in revenues, or otherwise could have an adverse effect on our operations
Our success as a combined business with any prior or future acquired businesses will depend, in part, upon our ability to retain key employees, especially during the integration phase of the businesses. It is possible that the integration process could result in current and prospective employees of ours and the acquired business to experience uncertainty about their future roles with us, which could have an adverse effect on our ability to retain or recruit key managers and other employees. If, despite our retention and recruiting efforts, key employees depart or fail to continue employment with us, the loss of their services and their experience and knowledge regarding our business or an acquired business could have an adverse effect on our future operating results and the successful ongoing operation of our businesses.
Our compensation structure may hinder our efforts to attract and retain vital employees
A portion of our total compensation program for our executive officers and key personnel includes the award of options to buy our Common Shares. If the market price of our Common Shares performs poorly, such performance may adversely affect our ability to retain or attract critical personnel. In addition, any changes made to our stock option policies, or to any other of our compensation practices, which are made necessary by governmental regulations or competitive pressures could adversely affect our ability to retain and motivate existing personnel and recruit new personnel. For example, any limit to total compensation which may be prescribed by the government or applicable regulatory authorities or any significant increases in personal income tax levels levied in countries where we have a significant operational presence may hurt our ability to attract or retain our executive officers or other employees whose efforts are vital to our success. Additionally, payments under our long-term incentive plan (the details of which are described in Item 11 of this Annual Report on Form 10-K) are dependent to a significant extent upon the future performance of our Company both in absolute terms and in comparison to similarly situated companies. Any failure to achieve the targets set under our long-term incentive plan could significantly reduce or eliminate payments made under this plan, which may, in turn, materially and adversely affect our ability to retain the key personnel who are subject to this plan.
Unexpected events may materially harm our ability to align when we incur expenses with when we recognize revenues
We incur operating expenses based upon anticipated revenue trends. Since a high percentage of these expenses are relatively fixed, a delay in recognizing revenues from transactions related to these expenses (such a delay may be due to the factors described elsewhere in this risk factor section or it may be due to other factors) could cause significant variations in operating results from quarter to quarter and could materially reduce operating income. If these expenses are not subsequently matched by revenues, our business, financial condition, or results of operations could be materially and adversely affected.
We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors
Our revenues and particularly our new software license revenues are difficult to forecast, and, as a result, our quarterly operating results can fluctuate substantially. We use a “pipeline” system, a common industry practice, to forecast sales and trends in our business. By reviewing the status of outstanding sales proposals to our customers and potential customers, we make an estimate as to when a customer will make a purchasing decision involving our software products. These estimates are aggregated periodically to make an estimate of our sales pipeline, which we use as a guide to plan our activities and make internal financial forecasts. Our sales pipeline is only an estimate and may be an unreliable predictor of actual sales activity, both in a particular quarter and over a longer period of time. Many factors may affect actual sales activity, such as weakened economic conditions, which may cause our customers and potential customers to delay, reduce or cancel IT related purchasing decisions and the tendency of some of our customers to wait until the end of a fiscal period in the hope of obtaining more favorable terms from us. If actual sales activity differs from our pipeline estimate, then we may have planned our activities and budgeted incorrectly and this may adversely affect our business, operating results and financial condition. In addition, for newly acquired companies, we have limited ability to immediately predict how their pipelines will convert into sales or revenues following the acquisition and their conversion rate post-acquisition may be quite different from their historical conversion rate.

Our revenue and operating cash flows could be adversely affected in the short term as we continue to see more customers transition to our cloud offerings

Should we continue to see more of our customers selecting our subscription pricing and managed service offerings, with payments made over time rather than a perpetual license with upfront fees, this could, in some cases, result in instances where

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reported revenue and cash flow could be lower in the short term when compared to our historical perpetual license model, as well as varying between periods depending on our customers' preference to license our products or subscribe to our subscription-based or managed service offerings. While we expect that, over time, the transition to a cloud and subscription model will help our business to generate revenue growth by attracting new users and keeping our user base current as subscriptions allow users to receive the latest product updates and thereby increase recurring revenue per user, there is no guarantee that our short term revenue and operating cash will not be adversely affected during any ongoing transition period.
The restructuring of our operations may adversely affect our business or our finances and we may incur restructuring charges in connection with such actions
We often undertake initiatives to restructure or streamline our operations, particularly during the period post acquisition. We may incur costs associated with implementing a restructuring initiative beyond the amount contemplated when we first developed the initiative and these increased costs may be substantial. Additionally, such costs would adversely impact our results of operations for the periods in which those adjustments are made. We will continue to evaluate our operations, and may propose future restructuring actions as a result of changes in the marketplace, including the exit from less profitable operations or the decision to terminate products or services which are not valued by our customers. Any failure to successfully execute these initiatives on a timely basis may have a material adverse effect on our business, operating results and financial condition.
Fluctuations in foreign currency exchange rates could materially affect our financial results
Our Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the month of the transaction. Therefore, increases or decreases in the value of the U.S. dollar against other major currencies affect our net operating revenues, operating income and the value of balance sheet items denominated in foreign currencies. In addition, unexpected and dramatic devaluations of currencies in developing, as well as developed, markets could negatively affect our revenues from, and the value of the assets located in, those markets.  Transactional foreign currency gains (losses) included in the Consolidated Statements of Income under the line item “Other income (expense) net” for Fiscal 2017, Fiscal 2016 and Fiscal 2015 were $3.1 million, $(1.9) million, and $(31.0) million, respectively. While we use derivative financial instruments to attempt to reduce our net exposure to currency exchange rate fluctuations, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies or the currencies of large developing countries, could continue to materially affect our financial results. These risks and their potential impacts may be exacerbated by Brexit and any policy changes resulting from the new U.S. administration. See “-The vote by the United Kingdom to leave the European Union (EU) could adversely affect us.”
Our international operations expose us to business risks that could cause our operating results to suffer
We intend to continue to make efforts to increase our international operations and anticipate that international sales will continue to account for a significant portion of our revenues. These international operations are subject to certain risks and costs, including the difficulty and expense of administering business and compliance abroad, differences in business practices, compliance with domestic and foreign laws (including without limitation domestic and international import and export laws and regulations), costs related to localizing products for foreign markets, costs related to translating and distributing software products in a timely manner, and economic or political instability and uncertainties. International operations also tend to be subject to a longer sales and collection cycle. In addition, regulatory limitations regarding the repatriation of earnings may adversely affect the transfer of cash earned from foreign operations. Significant international sales may also expose us to greater risk from political and economic instability, unexpected changes in Canadian, United States or other governmental policies concerning import and export of goods and technology, regulatory requirements, tariffs and other trade barriers. Additionally, international earnings may be subject to taxation by more than one jurisdiction, which may materially adversely affect our effective tax rate. Also, international expansion may be difficult, time consuming, and costly. These risks and their potential impacts may be exacerbated by Brexit and any policy changes resulting from the new U.S. administration. See “-The vote by the United Kingdom to leave the EU could adversely affect us.” As a result, if revenues from international operations do not offset the expenses of establishing and maintaining foreign operations, our business, operating results and financial condition will suffer.

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The vote by the United Kingdom to leave the EU could adversely affect us
The June 2016 United Kingdom referendum on its membership in the EU resulted in a majority of United Kingdom voters voting to exit the EU (Brexit). We have operations in the United Kingdom and the EU, and as a result, we face risks associated with the potential uncertainty and disruptions that may follow Brexit, including with respect to volatility in exchange rates and interest rates and potential material changes to the regulatory regime applicable to our operations in the United Kingdom. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets. For example, depending on the terms of Brexit, the United Kingdom could also lose access to the single EU market and to the global trade deals negotiated by the EU on behalf of its members. Disruptions and uncertainty caused by Brexit may also cause our customers to closely monitor their costs and reduce their spending budget on our products and services. Any of these effects of Brexit, and others we cannot anticipate or that may evolve over time, could adversely affect our business, operating results and financial condition.
Our software products and services may contain defects that could harm our reputation, be costly to correct, delay revenues, and expose us to litigation
Our software products and services are highly complex and sophisticated and, from time to time, may contain design defects, software errors, hardware failures or other computer system failures that are difficult to detect and correct. Errors may be found in new software products or services or improvements to existing products or services after delivery to our customers. If these defects are discovered, we may not be able to successfully correct such errors in a timely manner. In addition, despite the extensive tests we conduct on all our software products or services, we may not be able to fully simulate the environment in which our products or services will operate and, as a result, we may be unable to adequately detect the design defects or software or hardware errors which may become apparent only after the products are installed in an end-user's network, and after users have transitioned to our services. The occurrence of errors and failures in our software products or services could result in the delay or the denial of market acceptance of our products and alleviating such errors and failures may require us to make significant expenditure of our resources. Customers often use our services and solutions for critical business processes and as a result, any defect or disruption in our solutions, any data breaches or misappropriation of proprietary information, or any error in execution, including human error or intentional third-party activity such as denial of service attacks or hacking, may cause customers to reconsider renewing their contract with us. The errors in or failure of our software products and services could also result in us losing customer transaction documents and other customer files, causing significant customer dissatisfaction and possibly giving rise to claims for monetary damages. The harm to our reputation resulting from product and service errors and failures may be material. Since we regularly provide a warranty with our software products, the financial impact of fulfilling warranty obligations may be significant in the future. Our agreements with our strategic partners and end-users typically contain provisions designed to limit our exposure to claims. These agreements regularly contain terms such as the exclusion of all implied warranties and the limitation of the availability of consequential or incidental damages. However, such provisions may not effectively protect us against claims and the attendant liabilities and costs associated with such claims. Any claims for actual or alleged losses to our customers’ businesses may require us to spend significant time and money in litigation or arbitration or to pay significant settlements or damages. Defending a lawsuit, regardless of merit, can be costly and would divert management’s attention and resources. Although we maintain errors and omissions insurance coverage and comprehensive liability insurance coverage, such coverage may not be adequate to cover all such claims. Accordingly, any such claim could negatively affect our business, operating results or financial condition.
Our software products rely on the stability of infrastructure software that, if not stable, could negatively impact the effectiveness of our products, resulting in harm to our reputation and business
Our development of Internet and intranet applications depends on the stability, functionality and scalability of the infrastructure software of the underlying intranet, such as the infrastructure software produced by Hewlett-Packard, Oracle, Microsoft and others. If weaknesses in such infrastructure software exist, we may not be able to correct or compensate for such weaknesses. If we are unable to address weaknesses resulting from problems in the infrastructure software such that our software products do not meet customer needs or expectations, our reputation, and consequently, our business may be significantly harmed.
Risks associated with the evolving use of the Internet, including changing standards, competition, and regulation and associated compliance efforts, may adversely impact our business
The use of the Internet as a vehicle for electronic data interchange (EDI), and related services currently raises numerous issues, including reliability, data security, data integrity and rapidly evolving standards. New competitors, which may include media, software vendors and telecommunications companies, offer products and services that utilize the Internet in competition with our products and services and may be less expensive or process transactions and data faster and more efficiently. Internet-based commerce is subject to increasing regulation by Canadian, U.S. federal and state and foreign governments, including in

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the areas of data privacy and breaches, and taxation. Laws and regulations relating to the solicitation, collection, processing or use of personal or consumer information could affect our customers’ ability to use and share data, potentially reducing demand for Internet-based solutions and restricting our ability to store, process, analyze and share data through the Internet. Although we believe that the Internet will continue to provide opportunities to expand the use of our products and services, we cannot ensure that our efforts to exploit these opportunities will be successful or that increased usage of the Internet for business integration products and services or increased competition, and regulation will not adversely affect our business, results of operations and financial condition.
Business disruptions, including those related to data security breaches, may adversely affect our operations
Our business and operations are highly automated and a disruption or failure of our systems may delay our ability to complete sales and to provide services. Business disruptions can be caused by several factors, including natural disasters, terrorist attacks, power loss, telecommunication and system failures, computer viruses, physical attacks and cyber-attacks. A major disaster or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems, including our cloud services, could severely affect our ability to conduct normal business operations. We operate data centers in various locations around the world and although we have redundancy capability built into our disaster recovery plan, we cannot ensure that our systems and data centers will remain fully operational during and immediately after a disaster or disruption. We also rely on third parties that provide critical services in our operations and despite our diligence around their disaster recovery processes, we cannot provide assurances as to whether these third party service providers can maintain operations during a disaster or disruption. Any business disruption could negatively affect our business, operating results or financial condition.
In addition, if data security is compromised, this could materially and adversely affect our operating results given that we have customers that use our systems to store and exchange large volumes of proprietary and confidential information and the security and reliability of our services are significant to these customers. We have experienced attempts by third parties to identify and exploit product and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized access to our or our customers' or service providers' cloud offerings and other products and systems. If our products or systems, or the products or systems of third-party service providers on whom we rely, are attacked or accessed by unauthorized parties, it could lead to major disruption or denial of service and access to or loss, modification or theft of our and our customers' data which may involve us having to spend material resources on correcting the breach and indemnifying the relevant parties which could have adverse effects on our reputation, business, operating results and financial condition.
Unauthorized disclosures and breaches of security data may adversely affect our operations
Most of the jurisdictions in which we operate have laws and regulations relating to data privacy, security and protection of information. We have certain measures to protect our information systems against unauthorized access and disclosure of personal information and of our confidential information and confidential information belonging to our customers. We have policies and procedures in place dealing with data security and records retention. However, there is no assurance that the security measures we have put in place will be effective in every case. Breaches in security could result in a negative impact for us and for our customers, adversely affecting our and our customers' businesses, assets, revenues, brands and reputations and resulting in penalties, fines, litigation, regulatory proceedings and other potential liabilities, in each case depending on the nature of the information disclosed. Security breaches could also affect our relations with our customers, injure our reputation and harm our ability to keep existing customers and to attract new customers. Some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data, and in some cases our agreements with certain customers require us to notify them in the event of a data security incident. Such mandatory disclosures could lead to negative publicity and may cause our current and prospective customers to lose confidence in the effectiveness of our data security measures. These risks to our business may increase as we expand the number of web-based and cloud-based products and services we offer and as we increase the number of countries in which we operate.
Our revenues and operating results are likely to fluctuate, which could materially impact the market price of our Common Shares
We experience significant fluctuations in revenues and operating results caused by many factors, including:
Changes in the demand for our software products and services and for the products and services of our competitors;
The introduction or enhancement of software products and services by us and by our competitors;
Market acceptance of our software products, enhancements and/or services;
Delays in the introduction of software products, enhancements and/or services by us or by our competitors;
Customer order deferrals in anticipation of upgrades and new software products;
Changes in the lengths of sales cycles;
Changes in our pricing policies or those of our competitors;

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Delays in software product implementation with customers;
Change in the mix of distribution channels through which our software products are licensed;
Change in the mix of software products and services sold;
Change in the mix of international and North American revenues;
Changes in foreign currency exchange rates, LIBOR and other applicable interest rates;
Acquisitions and the integration of acquired businesses;
Restructuring charges taken in connection with any completed acquisition or otherwise;
Outcome and impact of tax audits and other contingencies;
Investor perception of our Company;
Changes in earnings estimates by securities analysts and our ability to meet those estimates;
Changes in laws and regulations affecting our business;
Changes in general economic and business conditions; and
Changes in general political developments, such as the impact of Brexit, any policy changes resulting from the new U.S. administration, international trade policies and policies taken to stimulate or to preserve national economies.
A general weakening of the global economy or a continued weakening of the economy in a particular region or economic or business uncertainty could result in the cancellation of or delay in customer purchases. A cancellation or deferral of even a small number of license sales or services or delays in the implementation of our software products could have a material adverse effect on our business, operating results and financial condition. As a result of the timing of software product and service introductions and the rapid evolution of our business as well as of the markets we serve, we cannot predict whether patterns or trends experienced in the past will continue. For these reasons, you should not rely upon period-to-period comparisons of our financial results to forecast future performance. Our revenues and operating results may vary significantly and this possible variance could materially reduce the market price of our Common Shares.
Our sales to government clients expose us to business volatility and risks, including government budgeting cycles and appropriations, early termination, audits, investigations, sanctions and penalties
We derive revenues from contracts with U.S. and Canadian federal, state, provincial and local governments, and other foreign governments and their respective agencies, which may terminate most of these contracts at any time, without cause. There is increased pressure on governments and their agencies, both domestically and internationally, to reduce spending. Further, our U.S. federal government contracts are subject to the approval of appropriations made by the U.S. Congress to fund the expenditures under these contracts. Similarly, our contracts with U.S. state and local governments, Canadian federal, provincial and local governments and other foreign governments and their agencies are generally subject to government funding authorizations. Additionally, government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government business.
Changes in the market price of our Common Shares and credit ratings of our outstanding debt securities could lead to losses for shareholders and debt holders
The market price of our Common Shares and credit ratings of our outstanding debt securities are subject to fluctuations. Such fluctuations in market price or credit ratings may continue in response to: (i) quarterly and annual variations in operating results; (ii) announcements of technological innovations or new products or services that are relevant to our industry; (iii) changes in financial estimates by securities analysts; (iv) changes to the ratings or outlook of our outstanding debt securities by rating agencies or (v) other events or factors. In addition, financial markets experience significant price and volume fluctuations that particularly affect the market prices of equity securities of many technology companies. These fluctuations have often resulted from the failure of such companies to meet market expectations in a particular quarter, and thus such fluctuations may or may not be related to the underlying operating performance of such companies. Broad market fluctuations or any failure of our operating results in a particular quarter to meet market expectations may adversely affect the market price of our Common Shares or the credit ratings of our outstanding debt securities. Occasionally, periods of volatility in the market price of a company's securities may lead to the institution of securities class action litigation against a company. If we are subject to such volatility in our stock price, we may be the target of such securities litigation in the future. Such legal action could result in substantial costs to defend our interests and a diversion of management's attention and resources, each of which would have a material adverse effect on our business and operating results.
We may become involved in litigation that may materially adversely affect us
From time to time in the ordinary course of our business, we may become involved in various legal proceedings, including commercial, product liability, employment, class action and other litigation and claims, as well as governmental and

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other regulatory investigations and proceedings. Such matters can be time-consuming, divert management's attention and resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of any such actions may have a material adverse effect on our business, operating results or financial condition.
Our provision for income taxes and effective income tax rate may vary significantly and may adversely affect our results of operations and cash resources
Significant judgment is required in determining our provision for income taxes. Various internal and external factors may have favorable or unfavorable effects on our future provision for income taxes, income taxes receivable, and our effective income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, results of audits by tax authorities, changing interpretations of existing tax laws or regulations, changes in estimates of prior years' items, the impact of transactions we complete, future levels of research and development spending, changes in the valuation of our deferred tax assets and liabilities, transfer pricing adjustments, changes in the overall mix of income among the different jurisdictions in which we operate, and changes in overall levels of income before taxes. Changes in the tax laws of various jurisdictions in which we do business could result from the base erosion and profit shifting (BEPS) project being undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, a coalition of member countries, has been developing recommendations for international tax rules to address different types of BEPS, including situations in which profits are shifted (or payments are made) from higher tax jurisdictions to lower tax jurisdictions. Adoption of these recommendations (or other changes in law or policy) by the countries in which we do business could adversely affect our provision for income taxes and our effective tax rate. Furthermore, new accounting pronouncements or new interpretations of existing accounting pronouncements (such as those that may be described in note 2 “Accounting Policies and Recent Accounting Pronouncements” in our notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K), and/or any internal restructuring initiatives we may implement from time to time to streamline our operations, can have a material impact on our effective income tax rate. In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operational legal entity in each jurisdiction.
Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and our
transfer pricing methodology based upon our limited risk distributor model, the result of which could have a material adverse effect on our financial condition and results of operations. Although we believe our estimates are reasonable, the ultimate outcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements, and this difference may materially affect our financial position and financial results in the period or periods for which such determination is made.
For more details of tax audits to which we are subject, see notes 13 "Guarantees and Contingencies" and 14 "Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K and the immediately following risk factor in this section.
As part of a tax examination by the United States Internal Revenue Service (IRS), we have received a Notice of Proposed Adjustment (NOPA) in draft form proposing a material increase to our taxes arising from the reorganization in Fiscal 2010. Based on discussions with the IRS, we expect to receive an additional NOPA that will propose a material increase to our taxes arising in connection with our integration of Global 360 into the structure that resulted from our reorganization. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.
As we have previously disclosed, the IRS is examining certain of our tax returns for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Consolidated Financial Statements.
As part of these examinations, which are ongoing, on July 17, 2015 we received from the IRS a NOPA in draft form proposing a one-time approximately $280 million increase to our U.S. federal taxes arising from the reorganization in Fiscal 2010 and proposing penalties equal to 20% of the additional taxes, plus interest at the applicable statutory rate (which will continue to accrue until the matter is resolved and may be substantial). A NOPA is an IRS position and does not impose an obligation to pay tax. The draft NOPA may be changed before the final NOPA is issued, including because the IRS reserved the right in the draft NOPA to increase the adjustment. Based on discussions with the IRS, we expect we will receive an additional NOPA proposing an approximately $80 million increase to our U.S. federal taxes for Fiscal 2012 arising from the integration of Global 360 Holding Corp. into the structure that resulted from the reorganization, accompanied by proposed penalties and interest (although there can be no assurance that this will be the amount reflected in the NOPA when received, including

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because the IRS may assign a higher value to our intellectual property). Depending upon the outcome of these matters, additional state income taxes plus penalties and interest may be due. We currently estimate that, as of June 30, 2017, adjustments under the draft NOPA in its present form and the anticipated additional NOPA could result in an aggregate liability of approximately $585 million, inclusive of U.S. federal and state taxes, penalties and interest. The increase from the previously disclosed estimated aggregate liability is solely due to an estimate of interest that has accrued.
We strongly disagree with the IRS’ position and intend to vigorously contest the proposed adjustments to our taxable income. We are examining various alternatives available to taxpayers to contest the proposed adjustments. Any such alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this Annual Report on Form 10-K, we have not recorded any material accruals in respect of these examinations in our Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material adverse effect on our financial position and results of operations.
For details of this and other tax audits to which we are subject, see notes 13 "Guarantees and Contingencies" and 14 "Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
The declaration, payment and amount of dividends will be made at the discretion of our Board of Directors and will depend on a number of factors
We have adopted a policy to declare non-cumulative quarterly dividends on our Common Shares. The declaration, payment and amount of any dividends will be made pursuant to our dividend policy and is subject to final determination each quarter by our Board of Directors in its discretion based on a number of factors that it deems relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses of cash that our Board of Directors may conclude would be in the best interest of our shareholders. Our dividend payments are subject to relevant contractual limitations, including those in our existing credit agreements and to solvency conditions established by the Canada Business Corporations Act (CBCA), the statute under which we are incorporated. Accordingly, there can be no assurance that any future dividends will be equal or similar in amount to any dividends previously paid or that our Board of Directors will not decide to reduce, suspend or discontinue the payment of dividends at any time in the future.
Our operating results could be adversely affected by any weakening of economic conditions
Our overall performance depends in part on worldwide economic conditions. Certain economies have experienced periods of downturn as a result of a multitude of factors, including, but not limited to, turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions, declines in gross domestic product, increases in unemployment and volatility in commodity prices and worldwide stock markets, and excessive government debt. Recently, Brexit and its impact on the United Kingdom and the EU, as well as any policy changes resulting from the new U.S. administration, have raised additional concerns regarding economic uncertainties. The severity and length of time that a downturn in economic and financial market conditions may persist, as well as the timing, strength and sustainability of any recovery, are unknown and are beyond our control. Moreover, any instability in the global economy affects countries in different ways, at different times and with varying severity, which makes the impact to our business complex and unpredictable. During such downturns, many customers may delay or reduce technology purchases. Contract negotiations may become more protracted or conditions could result in reductions in the licensing of our software products and the sale of cloud and other services, longer sales cycles, pressure on our margins, difficulties in collection of accounts receivable or delayed payments, increased default risks associated with our accounts receivables, slower adoption of new technologies and increased price competition. In addition, deterioration of the global credit markets could adversely impact our ability to complete licensing transactions and services transactions, including maintenance and support renewals. Any of these events, as well as a general weakening of, or declining corporate confidence in, the global economy, or a curtailment in government or corporate spending could delay or decrease our revenues and therefore have a material adverse effect on our business, operating results and financial condition.
Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or to defend against
Financial developments seemingly unrelated to us or to our industry may adversely affect us over the course of time. For example, material increases in LIBOR or other applicable interest rate benchmarks may increase the debt payment costs for our credit facilities. Credit contraction in financial markets may hurt our ability to access credit in the event that we identify an acquisition opportunity or require significant access to credit for other reasons. Similarly, volatility in the market price of our Common Shares due to seemingly unrelated financial developments could hurt our ability to raise capital for the financing of acquisitions or other reasons. Potential price inflation caused by an excess of liquidity in countries where we conduct business may increase the cost we incur to provide our solutions and may reduce profit margins on agreements that govern the licensing of our software products and/or the sale of our services to customers over a multi-year period. A reduction in credit, combined

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with reduced economic activity, may adversely affect businesses and industries that collectively constitute a significant portion of our customer base such as the public sector. As a result, these customers may need to reduce their licensing of our software products or their purchases of our services, or we may experience greater difficulty in receiving payment for the licenses and services that these customers purchase from us. Any of these events, or any other events caused by turmoil in world financial markets, may have a material adverse effect on our business, operating results, and financial condition.
Our indebtedness could limit our operations and opportunities.
Our debt service obligations could have an adverse effect on our earnings and cash flows for as long as the indebtedness is outstanding, which could reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes.
As of June 30, 2017, our credit facilities consisted of a $800 million term loan facility (Term Loan B) and a $450 million committed revolving credit facility (the Revolver). Borrowings under Term Loan B and the Revolver, if any, are or will be secured by a first charge over substantially all of our assets.
Repayments made under Term Loan B are equal to 0.25% of the original principal amount in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. The terms of Term Loan B and the Revolver include customary restrictive covenants that impose operating and financial restrictions on us, including restrictions on our ability to take actions that could be in our best interests. These restrictive covenants include certain limitations on our ability to make investments, loans and acquisitions, incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other person, dispose of assets, make certain restricted payments, including a limit on dividends on equity securities or payments to redeem, repurchase or retire equity securities or other indebtedness, engage in transactions with affiliates, materially alter the business we conduct, and enter into certain restrictive agreements. Term Loan B and the Revolver includes a financial covenant relating to a maximum consolidated net leverage ratio, which could restrict our operations, particularly our ability to respond to changes in our business or to take specified actions. Our failure to comply with any of the covenants that are included in Term Loan B and the Revolver could result in a default under the terms thereof, which could permit the lenders thereunder to declare all or part of any outstanding borrowings to be immediately due and payable.
As of June 30, 2017, we also have $800 million in aggregate principal amount of our 5.625% senior unsecured notes due 2023 (Senior Notes 2023) and $850 million in aggregate principal amount of our 5.875% senior unsecured notes due 2026 (Senior Notes 2026, and with the Senior Notes 2023, the Senior Notes) outstanding, both respectively issued in private placements to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Our failure to comply with any of the covenants that are included in the indentures governing the Senior Notes could result in a default under the terms thereof, which could result in all or a portion of the Senior Notes to be immediately due and payable.
The risks discussed above would be increased to the extent that we engage in acquisitions that involve the incurrence of material additional debt, or the acquisition of businesses with material debt, and such incurrences or acquisitions could potentially negatively impact the ratings or outlook of the rating agencies on our outstanding debt securities.
For more details see note 10 "Long-Term Debt" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
We may fail to realize all of the anticipated benefits of the acquisition of ECD Business or those benefits may take longer to realize than expected. We may also encounter significant difficulties in integrating ECD Business.
Our integration of ECD Business is a complex, costly and time-consuming process. The nature of a carve-out acquisition makes it inherently more difficult to assume operations upon closing and to integrate activities. As a result, we are required to devote significant management attention and resources to integrating the business practices and operations of OpenText and ECD Business. As we continue to integrate, we may experience disruptions to our business and, if implemented ineffectively, we could restrict the realization of the full expected benefits. The failure to meet the challenges involved in the integration process and to realize the anticipated benefits of the acquisition of ECD Business could cause an interruption of, or a loss of momentum in, our operations and could adversely affect our business, financial condition and results of operations.
In addition, as we continue the integration of ECD Business, it may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of customers and other business relationships, and diversion of management’s attention. Additional integration challenges include:
difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from the acquisition;
difficulties in the integration of operations and systems;

    25


conforming standards, controls, procedures and accounting and other policies, business cultures and compensation structures;
difficulties in the assimilation and retention of employees; and
coordinating a geographically dispersed organization.
Many of these factors will be outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could adversely affect our business, financial condition and results of operations. In addition, even if ECD Business is integrated successfully, the full benefits of the acquisition of ECD Business may not be realized, including the synergies, cost savings or sales or growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame, or at all. Further, additional unanticipated costs may be incurred in the integration process. All of these factors could cause dilution to our earnings per share, decrease or delay the expected accretive effect of the acquisition of ECD Business and negatively impact the price of our Common Shares.
Our effective tax rate for the year ended June 30, 2017 was positively impacted by a non-recurring income tax benefit.
Our effective tax rate for the year ended June 30, 2017 was a recovery of 311.1%, compared to a provision of 2.2% for the same period in the prior fiscal year. The decrease in tax rate was primarily due to a significant tax benefit of $876.1 million associated with the recognition of a net deferred tax asset resulting from the implementation of a reorganization of our subsidiaries worldwide, as discussed in note 14 “Income Taxes” to our Consolidated Financial Statements included in this Annual Report on Form 10-K. This tax benefit is specifically tied to the reorganization and applied to the first quarter of Fiscal 2017 only, and as a result, has not and will not continue in future periods.

    26


Item 1B.    Unresolved Staff Comments
None.
Item 2.    Properties
Our properties consist of owned and leased office facilities for sales, support, research and development, consulting and administrative personnel, totaling approximately 336,000 square feet of owned facilities and approximately 2,219,000 square feet of leased facilities.
Owned Facilities
Waterloo, Ontario, Canada
Our headquarters is located in Waterloo, Ontario, Canada, and it consists of approximately 232,000 square feet. The land upon which the buildings stand is leased from the University of Waterloo for a period of 49 years beginning in December 2005, with an option to renew for an additional term of 49 years. The option to renew is exercisable by us upon providing written notice to the University of Waterloo not earlier than the 40th anniversary and not later than the 45th anniversary of the lease commencement date.
Brook Park, Ohio, United States
We also own a building, along with its land, located in Brook Park, Ohio, that consists of approximately 104,000 square feet. This building is used primarily as a data center.
Leased Facilities
We lease approximately 2,219,000 square feet both domestically and internationally. Our significant leased facilities include the following facilities:
Hyderabad facility, located in India, totaling approximately 184,000 square feet;
Makati City facility, located in Manila, Philippines, totaling approximately 135,000 square feet;
Bangalore facility, located in India, totaling approximately 133,000 square feet;
Grasbrunn facility, located in Germany, totaling approximately 123,000 square feet of office and storage;
San Mateo facility, located in California, United States, totaling approximately 108,000 square feet;
Richmond Hill facility, located in Ontario, Canada, totaling approximately 101,000 square feet;
Pleasanton facility, located in California, United States, totaling approximately 92,000 square feet;
Gaithersburg facility, located in Maryland, United States, totaling approximately 84,000 square feet;
Alpharetta facility, located in Georgia, United States, totaling approximately 54,000 square feet;
Reading facility, located in Reading, UK, totaling approximately 53,000 square feet; and
Tinton Falls facility, located in New Jersey, United States, totaling approximately 45,000 square feet;
Due to restructuring and merger integration initiatives, we have vacated approximately 190,000 square feet of our leased properties. The vacated space has either been sublet or is being actively marketed for sublease or disposition.
In addition, we also maintain a customer briefing centre and management office in Toronto, Ontario, Canada.
Item 3.    Legal Proceedings
In the normal course of business, we are subject to various legal claims, as well as potential legal claims. While the results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of these matters will not have a materially adverse effect on our consolidated results of operations or financial conditions.
For more information regarding litigation and the status of certain regulatory and tax proceedings, please refer to Part I, Item 1A "Risk Factors" and to note 13 “Guarantees and Contingencies” to our Consolidated Financial Statements, which are set forth in Part II, under Item 8 of this Annual Report on Form 10-K.
Item 4.    Mine Safety Disclosures
Not applicable.

    27


PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Shares have traded on the NASDAQ stock market since 1996 under the symbol “OTEX” and our Common Shares have traded on the Toronto Stock Exchange (TSX) since 1998, first under the symbol "OTC", and since 2017, trades under the symbol “OTEX”.
On December 21, 2016, we announced that our Board of Directors approved a two-for-one share-split of our outstanding Common Shares. The two-for-one share-split, which became effective on January 24, 2017, was implemented by way of a share sub-division whereby shareholders of record on the record date received one additional Common Share for each Common Share held. As a result of the two-for-one share split, all current and historical period per share data, number of Common Shares outstanding and share-based compensation awards are presented on a post share split basis.
The following table sets forth the high and low sales prices for our Common Shares, as reported by the TSX and NASDAQ, respectively, for the periods indicated below.
 
NASDAQ
(in USD)
TSX
(in CAD)
 
High
Low
High
Low
Fiscal Year Ending June 30, 2017:
 
 
 
 
Fourth Quarter
$35.21
$30.88
$48.28
$40.19
Third Quarter
$35.07
$30.58
$46.45
$41.05
Second Quarter
$32.79
$29.30
$43.56
$38.92
First Quarter
$33.42
$28.85
$43.75
$37.55
 
 
 
 
 
Fiscal Year Ending June 30, 2016:
 
 
 
 
Fourth Quarter
$30.99
$25.48
$39.58
$32.70
Third Quarter
$26.29
$20.97
$34.85
$28.97
Second Quarter
$24.83
$21.50
$34.54
$28.22
First Quarter
$23.58
$18.33
$31.10
$23.84
On June 30, 2017, the closing price of our Common Shares on the NASDAQ was $31.54 per share, and on the TSX was Canadian $40.93 per share.
As at June 30, 2017, we had 348 shareholders of record holding our Common Shares of which 299 were U.S. shareholders.
Unregistered Sales of Equity Securities
None.
Dividend Policy
We currently expect to continue paying cash dividends on a quarterly basis. However, future declarations of dividends are subject to the final determination of our Board of Directors, in its discretion, based on a number of factors that it deems relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses of cash that our Board of Directors may conclude would be in the best interest of our shareholders. Our dividend payments are subject to relevant contractual limitations, including those in our existing credit agreements and to solvency conditions established under the CBCA, the statute under which we are incorporated. We have historically declared dividends in U.S. dollars, but registered shareholders can elect to receive dividends in U.S. dollars or Canadian dollars by contacting the Company's transfer agent.

    28


In Fiscal 2017, our Board of Directors declared the following dividends:
Declaration Date
 
Dividend per Share
 
Record Date
 
Total amount (in thousands of U.S. dollars)
 
Payment Date
5/5/2017
 
$
0.1320

 
5/26/2017
 
$
34,628

 
6/17/2017
2/1/2017
 
$
0.1150

 
3/3/2017
 
$
30,303

 
3/27/2017
11/3/2016
 
$
0.1150

 
12/2/2016
 
$
27,859

 
12/22/2016
7/26/2016
 
$
0.1150

 
8/26/2016
 
$
27,791

 
9/16/2016
In Fiscal 2016, our Board of Directors declared the following dividends:
Declaration Date
 
Dividend per Share
 
Record Date
 
Total amount (in thousands of U.S. dollars)
 
Payment Date
4/26/2016
 
$
0.1150

 
5/27/2016
 
$
27,635

 
6/17/2016
2/8/2016
 
$
0.1000

 
3/10/2016
 
$
24,099

 
3/31/2016
10/28/2015
 
$
0.1000

 
11/27/2015
 
$
24,216

 
12/18/2015
7/28/2015
 
$
0.1000

 
8/28/2015
 
$
23,312

 
9/18/2015
Stock Purchases
The following table provides details of Common Shares purchased by the Company during the three months ended June 30, 2017:
ISSUER PURCHASE OF EQUITY SECURITIES OF THE COMPANY
FOR THE THREE MONTHS ENDED JUNE 30, 2017
Period
 
(a) Total
Number of
Shares
(or Units)
Purchased 
 
(b)
Average
Price Paid
per Share
(or Unit) 
 
(c) Total
Number of Shares
(or Units) Purchased
as Part of
Publicly
Announced Plans or
Programs 
 
(d) Maximum
Number of Shares
(or Units) that May
Yet Be Purchased
Under the Plans or
Programs 
04/01/17 to 04/30/17
 

 
$

 

 

05/01/17 to 05/31/17
 

 
$

 

 

06/01/17 to 06/30/17
 
120,455

 
$
32.81

 

 
332,349

Total
 
120,455

 
$
32.81

 

 
332,349

The above represents Common Shares issuable, in the future, in connection with equity awards granted under our long-term incentive plan. For more details, please see “Treasury Stock” under note 12 “Share Capital, Option Plans and Share-based Payments” under Item 8 of this Annual Report on Form 10-K. The price paid for the Common Shares was at the prevailing market price at the time of repurchase.
Normal Course Issuer Bid
On July 26, 2016, our board of directors authorized the repurchase of up to $200 million of our Common Shares, pursuant to a normal course issuer bid (Share Repurchase Plan). Common Shares may be repurchased from time to time in the open market, private purchases through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. Certain of our share repurchases may from time to time be effected through repurchase plans. The timing of any repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other factors. During Fiscal 2017 we did not repurchase any of our Common Shares under the Share Repurchase Plan. During Fiscal 2016 we repurchased and cancelled 2,952,496 Common Shares for approximately $65.5 million under our previous share repurchase plan.

    29


Stock Performance Graph and Cumulative Total Return
The following graph compares for each of the five fiscal years ended June 30, 2017, the yearly percentage change in the cumulative total shareholder return on our Common Shares with the cumulative total return on:
an index of companies in the software application industry (S&P North American Technology-Software Index);
the NASDAQ Composite Index; and
the S&P/TSX Composite Index.
The graph illustrates the cumulative return on a $100 investment in our Common Shares made on June 30, 2012, as compared with the cumulative return on a $100 investment in the S&P North American Technology-Software Index, the NASDAQ Composite Index and the S&P/TSX Composite Index (the Indices) made on the same day. Dividends declared on securities comprising the respective Indices and declared on our Common Shares are assumed to be reinvested. The performance of our Common Shares as set out in the graph is based upon historical data and is not indicative of, nor intended to forecast, future performance of our Common Shares. The graph lines merely connect measurement dates and do not reflect fluctuations between those dates.
item5grapha04.jpg
The chart below provides information with respect to the value of $100 invested on June 30, 2012 in our Common Shares as well as in the other Indices, assuming dividend reinvestment when applicable:
 
June 30,
2012
June 30,
2013
June 30,
2014
June 30,
2015
June 30,
2016
June 30,
2017
Open Text Corporation
$100.00
$137.82
$195.79
$167.80
$249.06
$269.53
S&P North American Technology-Software Index
$100.00
$110.12
$140.42
$163.34
$175.37
$229.27
NASDAQ Composite
$100.00
$117.60
$154.26
$176.53
$173.56
$222.67
S&P/TSX Composite
$100.00
$104.39
$132.55
$111.94
$107.44
$119.19
 
To the extent that this Annual Report on Form 10-K has been or will be specifically incorporated by reference into any filing by us under the Securities Act or the Exchange Act, the foregoing “Stock Performance Graph and Cumulative Total Return” shall not be deemed to be “soliciting materials” or to be so incorporated, unless specifically otherwise provided in any such filing.
For information relating to our various stock compensation plans, see Item 12 of this Annual Report on Form 10-K.

    30


Canadian Tax Matters
Dividends
Since June 21, 2013 and unless stated otherwise, dividends paid by the Company to Canadian residents are eligible dividends as per the Income Tax Act (Canada).
Non-residents of Canada
Dividends paid or credited to non-residents of Canada are subject to a 25% withholding tax unless reduced by treaty. Under the Canada-United States Tax Convention (1980) (the Treaty), U.S. residents who are entitled to all of the benefits of the Treaty are generally subject to a 15% withholding tax.
Beginning in calendar year 2012, the Canada Revenue Agency has introduced new rules requiring residents of any country with which Canada has a tax treaty to certify that they reside in that country and are eligible to have Canadian non-resident tax withheld on the payment of dividends at the tax treaty rate. Registered shareholders should have completed the Declaration of Eligibility for Benefits (Reduced Tax) under a Tax Treaty for a Non-Resident Person and returned it to our transfer agent, ComputerShare Investor Services Inc.
United States Tax Matters
U.S. residents
The following discussion summarizes certain U.S. federal income tax considerations relevant to an investment in the Common Shares by a U.S. holder. For purposes of this summary, a “U.S. holder” is a beneficial owner of Common Shares that holds such shares as capital assets under the U.S. Internal Revenue Code of 1986, as amended (the Code) and is a citizen or resident of the United States and not of Canada, a corporation organized under the laws of the United States or any political subdivision thereof, or a person that is otherwise subject to U.S. federal income tax on a net income basis in respect of Common Shares. It does not address any aspect of U.S. federal gift or estate tax, or of state, local or non-U.S. tax laws and does not address aspects of U.S. federal income taxation applicable to U.S. holders holding options, warrants or other rights to acquire Common Shares. Further, this discussion does not address the U.S. federal income tax consequences to U.S. holders that are subject to special treatment under U.S. federal income tax laws, including, but not limited to U.S. holders owning directly, indirectly or by attribution 10% or more of the Company’s voting power; broker-dealers; banks or insurance companies; financial institutions; regulated investment companies; taxpayers who have elected mark-to-market accounting; tax-exempt organizations; taxpayers who hold Common Shares as part of a “straddle,” “hedge,” or “conversion transaction” with other investments; individual retirement or other tax-deferred accounts; taxpayers whose functional currency is not the U.S. dollar; partnerships or the partners therein; S corporations; or U.S. expatriates.
The discussion is based upon the provisions of the Code, the Treasury regulations promulgated thereunder, the Convention Between the United States and Canada with Respect to Taxes on Income and Capital, together with related Protocols and Competent Authority Agreements (the Convention), the administrative practices published by the U.S. Internal Revenue Service (the IRS) and U.S. 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.
Distributions on the Common Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” U.S. holders generally will treat the gross amount of distributions paid by the Company equal to the U.S. 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 Canadian withholding tax (see “Canadian Tax Matters - Dividends - Non-residents of Canada”), as dividend income for U.S. federal income tax purposes to the extent of the Company’s current and accumulated earnings and profits. Because the Company does not expect to maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that distributions paid to U.S. holders generally will be reported as dividends.
Individual U.S. holders will generally be eligible to treat dividends as “qualified dividend income” taxable at preferential rates with certain exceptions for short-term and hedged positions, and provided that the Company is not during the taxable year in which the dividends are paid (and was not in the preceding taxable year) classified as a “passive foreign investment company” (PFIC) as described below under “Passive Foreign Investment Company Rules.” Dividends paid on the Common Shares generally will not be eligible for the “dividends received” deduction allowed to corporate U.S. holders in respect of dividends from U.S. corporations.

    31


If a U.S. holder receives foreign currency on a distribution that is not converted into U.S. dollars on the date of receipt, the U.S. holder will have a tax basis in the foreign currency equal to its U.S. 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 U.S. dollars, will be U.S. source ordinary income or loss.
The amount of Canadian tax withheld generally will give rise to a foreign tax credit or deduction for U.S. federal income tax purposes (see “Canadian Tax Matters - Dividends - Non-residents of Canada”). Dividends paid by the Company generally will constitute “passive category income” for purposes of the foreign tax credit (or in the case of certain U.S. holders, “general category income”). The Code, as modified by the Convention, applies various limitations on the amount of foreign tax credit that may be available to a U.S. taxpayer. The Common Shares are currently traded on both the NASDAQ and TSX. Dividends paid by a foreign corporation that is at least 50% owned by U.S. persons may be treated as U.S. source income (rather than foreign source income) for foreign tax credit purposes to the extent they are attributable to earnings and profits of the foreign corporation from sources within the United States, if the foreign corporation has more than an insignificant amount of U.S. source earnings and profits. Although this rule does not appear to be intended to apply in the context of a public company such as the Company, we are not aware of any authority that would render it inapplicable. In part because the Company does not expect to calculate its earnings and profits for U.S. federal income tax purposes, the effect of this rule may be to treat all or a portion of any dividends paid by the Company as U.S. source income, which in turn may limit a U.S. holder’s ability to claim a foreign tax credit for the Canadian withholding taxes payable in respect of the dividends. Subject to limitations, the Code permits a U.S. holder entitled to benefits under the Convention to elect to treat any dividends paid by the Company as foreign-source income for foreign tax credit purposes. The foreign tax credit rules are complex. U.S. holders should consult their own tax advisors with respect to the implications of those rules for their investments in the Common Shares.
Sale, Exchange, Redemption or Other Disposition of Common Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” the sale of Common Shares generally will result in the recognition of gain or loss to a U.S. holder in an amount equal to the difference between the amount realized and the U.S. holder’s adjusted basis in the Common Shares. A U.S. holder’s tax basis in a Common Share will generally equal the price it paid for the Common Share. Any capital gain or loss will be long-term if the Common Shares have been held for more than one year. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
Special U.S. federal income tax rules apply to U.S. persons owning shares of a PFIC. The Company will be classified as a PFIC in a particular taxable year if either: (i) 75 percent or more of the Company’s gross income for the taxable year is passive income, or (ii) the average percentage of the value of the Company’s assets that produce or are held for the production of passive income is at least 50 percent. If the Company is treated as a PFIC for any year, U.S. holders may be subject to adverse tax consequences upon a sale, exchange, or other disposition of the Common Shares, or upon the receipt of certain “excess distributions” in respect of the Common Shares. Dividends paid by a PFIC are not qualified dividends eligible for taxation at preferential rates. Based on audited consolidated financial statements, we believe that the Company was not treated as a PFIC for U.S. federal income tax purposes with respect to its 2016 or 2017 taxable years. In addition, based on a review of the Company’s audited consolidated financial statements and its current expectations regarding the value and nature of its assets and the sources and nature of its income, the Company does not anticipate becoming a PFIC for the 2018 taxable year.
Information Reporting and Backup Withholding
Except in the case of corporations or other exempt holders, dividends paid to a U.S. holder may be subject to U.S. information reporting requirements and may be subject to backup withholding unless the U.S. holder provides an accurate taxpayer identification number on a properly completed IRS 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 the U.S. holder’s U.S. federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is timely furnished to the IRS.


    32


Item 6.
Selected Financial Data
The following table summarizes our selected consolidated financial data for the periods indicated. The selected consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related notes and “Management's Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of income and balance sheet data for each of the five fiscal years indicated below has been derived from our audited Consolidated Financial Statements. Over the last five fiscal years we have acquired a number of companies including, but not limited to ECD Business, CCM Business, Recommind, ANX, CEM Business, Daegis, Actuate, GXS, and EasyLink. The results of these companies and all of our previously acquired companies have been included herein and have contributed to the growth in our revenues, net income and net income per share and such acquisitions affect period-to-period comparability.
 
Fiscal Year Ended June 30,  
 
2017
2016
2015
2014
2013
(In thousands, except per share data)
Statement of Income Data:
 
 
 
 
 
Revenues
$
2,291,057

$
1,824,228

$
1,851,917

$
1,624,699

$
1,363,336

Net income, attributable to OpenText
$
1,025,659

$
284,477

$
234,327

$
218,125

$
148,520

Net income per share, basic, attributable to OpenText
$
4.04

$
1.17

$
0.96

$
0.91

$
0.63

Net income per share, diluted, attributable to OpenText
$
4.01

$
1.17

$
0.95

$
0.90

$
0.63

Weighted average number of Common Shares outstanding, basic
253,879

242,926

244,184

239,348

234,416

Weighted average number of Common Shares outstanding, diluted
255,805

244,076

245,914

241,152

236,248

 
 
As of June 30,  
 
2017
2016
2015
2014
2013
Balance Sheet Data:
 
 
 
 
 
Total assets
$
7,480,562

$
5,154,144

$
4,353,330

$
3,847,205

$
2,615,385

Total Long-term liabilities
$
2,820,200

$
2,503,918

$
1,899,086

$
1,564,890

$
751,421

Cash dividends per Common Share
$
0.4770

$
0.4150

$
0.3588

$
0.3113

$
0.0750



    33


Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K, including this Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securities Act), and is subject to the safe harbors created by those sections. All statements other than statements of historical facts are statements that could be deemed forward-looking statements.
When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”, “could”, “would”, "might", "will" and other similar language, as they relate to Open Text Corporation (“OpenText” or the “Company”), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking statements in this report include, but are not limited to: (i) statements about our focus in the fiscal year beginning July 1, 2017 and ending June 30, 2018 (Fiscal 2018) on growth in earnings and cash flows; (ii) creating value through investments in broader Enterprise Information Management (EIM) capabilities; (iii) our future business plans and business planning process; (iv) statements relating to business trends; (v) statements relating to distribution; (vi) the Company’s presence in the cloud and in growth markets; (vii) product and solution developments, enhancements and releases and the timing thereof; (viii) the Company’s financial conditions, results of operations and earnings; (ix) the basis for any future growth and for our financial performance; (x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory environment and its impact on our business; (xiii) annual recurring revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of intellectual property and other proprietary rights; (xviii) foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; and (xxii) statements about the impact of OpenText Magellan and OpenText Release 16 and (xxiii) other matters.
In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify and source attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and assumptions will prove to be correct.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact on the ratings or outlooks of rating agencies on our outstanding debt securities; (iii) the possibility that the Company may be unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from the new U.S. administration); (vi) delays in the purchasing decisions of the Company’s customers; (vii) the competition the Company faces in its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United States, Canada or elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (x) the possibility of technical, logistical or planning issues in connection with the deployment of the Company’s products or services; (xi) the continuous commitment of the Company’s customers; (xii) demand for the Company’s products and services; (xiii) increase in exposure to international business risks (including as a result of the impact of Brexit and any policy changes resulting from the new U.S. administration) as we continue to increase our international operations; (xiv) inability to raise capital at all or on not unfavorable terms in the future; and (xv) downward pressure on our share price and dilutive effect of future sales or issuances of equity securities (including in connection with future acquisitions); and (xvi) potential changes in ratings or outlooks of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new products and services to market and to increase sales; (iii) the strength of the Company’s product development pipeline; (iv) failure to secure and protect patents,

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trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services; (vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement; (vii) the Company’s growth and profitability prospects; (viii) the estimated size and growth prospects of the EIM market; (ix) the Company’s competitive position in the EIM market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products and services to be realized by customers; (xi) the demand for the Company’s products and services and the extent of deployment of the Company’s products and services in the EIM marketplace; (xii) the Company’s financial condition and capital requirements; (xiii) system or network failures or information security breaches in connection with the Company's offerings; and (xiv) failure to attract and retain key personnel to develop and effectively manage the Company's business.
Readers should carefully review Part I, Item 1A "Risk Factors" and other documents we file from time to time with the Securities and Exchange Commission (SEC) and other securities regulators. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or from our anticipated future results.
The following MD&A is intended to help readers understand our results of operations and financial condition, and is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K.
All dollar and percentage comparisons made herein under the sections titled "Fiscal 2017 compared to Fiscal 2016" refer to the twelve months ended June 30, 2017 (Fiscal 2017) compared with the twelve months ended June 30, 2016 (Fiscal 2016). All dollar and percentage comparisons made herein under the sections titled "Fiscal 2016 compared to Fiscal 2015" refer to Fiscal 2016 compared with the twelve months ended June 30, 2015 (Fiscal 2015).
Where we say “we”, “us”, “our”, “OpenText” or “the Company”, we mean Open Text Corporation or Open Text Corporation and its subsidiaries, as applicable.
EXECUTIVE OVERVIEW
We operate in the Enterprise Information Management (EIM) market. We develop enterprise software for digital transformation. OpenText’s comprehensive platform and suite of software products and services provide secure and scalable solutions for global companies. Our software assists organizations with finding, utilizing, and sharing business information from any device in ways that are intuitive, efficient and productive. We also help ensure that information remains secure and private, as demanded in today’s highly regulated climate. In addition, we provide solutions that facilitate the exchange of information and transactions between supply chain participants, such as manufacturers, retailers, distributors and financial institutions. These are central to a company’s ability to collaborate effectively with its partners. Our focus is to help customers automate processes. The algorithms embedded in our software aim to enable customers to unlock massive amounts of data and gain better insight into their business, which ultimately can lead to better decision making.
We offer software through traditional on-premise solutions, cloud solutions or a combination of both on-premise and cloud solutions (hybrid). We are agnostic as to which delivery method a customer prefers. We believe giving customers choice and flexibility will help us to strive to obtain long-term customer value.
Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange (TSX) in 1998. We are a multinational company and as of June 30, 2017, employed approximately 10,900 people worldwide.
Our ticker symbol on both the NASDAQ and the TSX is "OTEX".
IP Reorganization
In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and administrative efficiencies through further consolidated ownership, management, and development of our intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single operating legal entity in each jurisdiction. We believe our reorganization also reduces our exposure to global political and tax uncertainties, particularly in Europe. We believe that further consolidating our IP in Canada will continue to ensure appropriate legal protections for our consolidated IP, simplify legal, accounting and tax compliance, and improve our global cash management. A significant tax benefit of $876.1 million associated with the recognition of a net deferred tax asset ensuing from the reorganization was recognized in the first quarter of Fiscal 2017. This had a significant impact on our GAAP-based net income and earnings per share, as illustrated in our fiscal year end results presented below.

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Share Split
On December 21, 2016, we announced that our board of directors (the Board) approved a two-for-one share split of our outstanding Common Shares. The two-for-one share split, which became effective on January 24, 2017, was implemented by way of a share sub-division whereby shareholders of record on the record date received one additional Common Share for each Common Share held.
As a result of the two-for-one share split, all current and historical period per share data, number of Common Shares outstanding and share-based compensation awards are presented on a post share split basis.
Fiscal 2017 Summary:
During Fiscal 2017 we saw the following activity:
Total revenue was $2,291.1 million, up 25.6% compared to the prior fiscal year; up 27.0% after factoring the impact of $26.4 million of foreign exchange rate changes.
Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and customer support revenue, was $1,686.6 million, up 25.2% compared to the prior fiscal year; up 26.6% after factoring the impact of $18.7 million of foreign exchange rate changes.
Cloud services and subscriptions revenue was $705.5 million, up 17.4% compared to the prior fiscal year; up 18.4% after factoring the impact of $6.3 million of foreign exchange rate changes.
License revenue was $369.1 million, up 30.1% compared to the prior fiscal year; up 31.4% after factoring the impact of $3.6 million of foreign exchange rate changes.
GAAP-based EPS, diluted, was $4.01 compared to $1.17 in the prior fiscal year.
Non-GAAP-based EPS, diluted, was $2.02 compared to $1.77 in the prior fiscal year.
GAAP-based gross margin was 66.7% compared to 68.5% in the prior fiscal year.
GAAP-based operating margin was 15.4% compared to 20.2% in the prior fiscal year.
Non-GAAP-based operating margin was 31.8% compared to 33.8% in the prior fiscal year.
Adjusted EBITDA was $792.5 million compared to $671.7 million in the prior fiscal year.
Operating cash flow was $439.3 million down 16.4% from the prior fiscal year.
Cash and cash equivalents was $443.4 million as of June 30, 2017, compared to $1,283.8 million as of June 30, 2016.
See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.
See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.
Acquisitions
Our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies, products, services and capabilities. In light of the continually evolving marketplace in which we operate, on an ongoing basis we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions with respect to such opportunities.
Acquisition of the Enterprise Content Division of Dell-EMC
On January 23, 2017, we completed our previously announced acquisition of certain assets and liabilities of the enterprise content division of EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred to as Dell-EMC (ECD Business) for approximately $1.62 billion. ECD Business offers OpenText a suite of leading Enterprise Content Management solutions with deep industry focus, including the DocumentumTM, InfoArchiveTM, and LEAPTM product families. We believe this acquisition complements and extends our EIM portfolio. The results of operations of ECD Business have been consolidated with those of OpenText beginning January 23, 2017.
Acquisition of Certain Customer Communication Management Software Assets from HP Inc.
On July 31, 2016, we acquired certain customer communication management software and services assets and liabilities from HP Inc. (CCM Business) for approximately $315.0 million. We believe this acquisition complements our current software portfolio, and allows us to better serve our customers by offering a wider set of Customer Communications Management capabilities. The results of operations of this acquisition have been consolidated with those of OpenText beginning July 31, 2016.

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Acquisition of Recommind, Inc.
On July 20, 2016, we acquired Recommind, Inc. (Recommind), a leading provider of eDiscovery and information analytics, for approximately $170.1 million. We believe this acquisition complements our EIM solutions, and through eDiscovery and analytics, provides increased visibility into structured and unstructured data. The results of operations of Recommind have been consolidated with those of OpenText beginning July 20, 2016.
We believe our acquisitions support our long-term strategic direction, strengthen our competitive position, expand our customer base, provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We expect to continue to strategically acquire companies, products, services and technologies to augment our existing business. Our acquisitions, particularly significant ones, can affect the period-to-period comparability of our results. See note 18 "Acquisitions" to our Consolidated Financial Statements for more details.
Outlook for Fiscal 2018
We expect to continue to pursue strategic acquisitions in the future to strengthen our service offerings in the EIM market, and at any time may be in various stages of discussions with respect to such opportunities. We believe we are a value oriented and disciplined acquirer, having efficiently deployed approximately $5.8 billion on acquisitions over the last 10 years. We see our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our growth strategy. During Fiscal 2017, we further demonstrated the implementation of this strategy by acquiring Recommind, CCM Business, and ECD Business. For additional details, please refer to note 18 "Acquisitions" to our Consolidated Financial Statements. On July 26, 2017, we completed our previously announced acquisition of Covisint Corporation, a leading cloud platform for building Identity, Automotive, and Internet of Things (IoT) applications, for approximately $103 million. On the same day, we announced that we entered into a definitive agreement to acquire Guidance Software Inc. (Guidance), a leading provider of forensic security solutions, for approximately $240.0 million. For more information, please see note 23 "Subsequent Events" to our Consolidated Financial Statements.
While continuing to acquire companies is our leading growth driver, our growth strategy also includes organic growth through internal innovation. This year we invested approximately $282 million in research and development (R&D) and we target to spend approximately 11% to 13% of revenues for R&D next fiscal year. We believe our ability to leverage our global presence is helpful to our organic growth initiatives.
We recently showcased our new Artificial Intelligence (AI) platform in July 2017 at our annual user conference, “Enterprise World”. We call our AI platform “OpenText Magellan” (Magellan) and it is scheduled to be available for release in Fiscal 2018. Our approach to AI is via an open source code and we believe in making long-term, strategic investments to developing AI. As our enterprise software has historically been focused on managing data and content archives, we believe we are well positioned to turn these archives of data into active “data lakes” and we can develop AI to transform this digital information into useful knowledge and insight for our customers.
In April 2016 we introduced "OpenText Release 16" (Release 16), which is an integrated digital information platform that manages and analyzes the entire flow of information, addressing key areas of the user experience, machine-to-machine integration, automation and other aspects of managing unstructured data in a digital first organization.
Release 16 helps organizations with their digital transformation by digitizing information, experiences, processes and supply chains, to create a better way to work within their enterprise. Release 16 also has a major focus on analysis and reporting across all product lines and use cases. It offers customers a coordinated platform for digital transformation that is intended to yield the benefits of scale and single-vendor interaction. We have made significant investments to our cloud infrastructure over the past couple of years, and now with Release 16 virtually all of our products are available in the "OpenText Cloud".
We see an opportunity to help our customers become “digital businesses” and, with Magellan and Release 16 as well as our recent acquisitions, we believe we have a strong platform to integrate personalized analytics and insights onto our OpenText EIM suites of products, which will further our vision to enable “the digital world” and strengthen our position among leaders in EIM.


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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
(i)
Revenue recognition,
(ii)
Capitalized software,
(iii)
Business combinations,
(iv)
Goodwill,
(v)
Acquired intangibles,
(vi)
Restructuring charges,
(vii)
Foreign currency, and
(viii)
Income taxes.     

Revenue recognition
We recognize revenues in accordance with Accounting Standard Codification (ASC) Topic 985-605, “Software Revenue Recognition” (Topic 985-605).
We record product revenues 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 by the customer, the fees are fixed and determinable, and collection is considered probable. We use the residual method to recognize revenues on delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the fair value of all undelivered elements exists. If an undelivered element for the arrangement exists under the license arrangement, revenues related to the undelivered element is deferred based on vendor-specific objective evidence (VSOE) of the fair value of the undelivered element.
Our multiple-element sales arrangements include arrangements where software licenses and the associated post contract customer support (PCS) are sold together. We have 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 our significant PCS renewal experience, from our existing worldwide base. Our multiple element sales arrangements generally include irrevocable rights for the customer to renew PCS after the bundled term ends. 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 our 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 exercised renewal PCS price is consistent with the renewal price in the original multiple element sales arrangement, although an adjustment to reflect consumer price changes is common.
If VSOE of fair value does not exist for all undelivered elements, all revenues are deferred until sufficient evidence exists or revenue is recognized over the term of the last undelivered element.
Cloud services and subscription revenues consist of (i) software as a service offerings (ii) managed service arrangements and (iii) subscription revenues relating to on premise offerings.  The customer contracts for each of these three offerings are long term contracts (greater than twelve months) and are based on the customer’s usage over the contract period. The revenue associated with such contracts is recognized once usage has been measured, the fee is fixed and determinable and collection is probable.
In certain managed services arrangements, we sell transaction processing along with implementation and start-up services. Start-up services performed as part of the core implementation may include: infrastructure assessment and capacity planning, provisioning of infrastructure, customer connectivity and other initial setup activities. These sets of services do not have stand-alone value and, therefore, they do not qualify as separate units of accounting and are not separated. We believe these services do not have stand-alone value as the customer only receives value from these services in conjunction with the use of the related transaction processing service, we do not sell such services separately, and the output of such services cannot be re-sold by the customer. Revenues related to start-up services are recognized over the longer of the contract term or the estimated customer life. In some arrangements, we also sell distinct implementation and professional services that do have stand-alone value and can be separated from other elements in the arrangement. To the extent that they can be separately identified, the revenue related to these services is recognized as the service is performed, otherwise they are recognized in the same pattern as discussed above. In some arrangements, we also sell professional services as a separate single element arrangement. The

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revenue related to these services is recognized as the service is performed. We defer all direct and relevant start-up costs associated with non-distinct start-up and core implementation activities of long-term customer contracts to the extent such costs can be recovered through guaranteed contract revenues. All other costs related to distinct implementation and professional services arrangements are recognized as the services is performed and expensed as incurred.
Service revenues consist of revenues from consulting, implementation, training and integration services. These services are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary as a result of the inclusion or exclusion of these services. For those contracts where the services are not essential to the functionality of any other element of the transaction, we determine VSOE of fair value for these services based upon normal pricing and discounting practices for these services when sold separately. These consulting and implementation services contracts are primarily time and materials based contracts that are, on average, less than six months in length. Revenues from these services are recognized at the time such services are performed.
Revenues for contracts that are primarily fixed fee arrangements, wherein the services are not essential to the functionality of a software element, are recognized using the proportional performance method.
Revenues from training and integration services are recognized in the period in which these services are performed.
Customer support revenues consist of revenues derived from contracts to provide PCS to license holders. These revenues are recognized ratably over the term of the contract. Advance billings of PCS are not recorded to the extent that the term of the PCS has not commenced and payment has not been received.
Deferred revenues primarily relate to cloud and customer support agreements which have been paid for by customers prior to the performance of those services. Generally, the services related to customer support agreements will be provided in the twelve months after the signing of the agreement. For cloud-related service agreements, deferred revenues are primarily recognized ratably over the performance or service period, which can vary from contract to contract. Deferred implementation revenue, specifically, is recognized over the longer of the estimated customer life or initial contract term.
We may enter into certain long-term sales contracts involving the sale of integrated solutions that include the modification and customization of software and the provision of services that are essential to the functionality of the other elements in this arrangement. As prescribed by ASC Topic 985-605, we recognize revenues from such arrangements in accordance with the contract accounting guidelines in ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (Topic 605-35), after evaluating for separation of any non-Topic 605-35 elements in accordance with the provisions of ASC Topic 605-25, “Multiple-Element Arrangements” (Topic 605-25).
When circumstances exist that allow us to make reasonably dependable estimates of contract revenues, contract costs and the progress of the contract to completion, we account for sales under such long-term contracts using the percentage-of-completion (POC) method of accounting. Under the POC method, progress towards completion of the contract is measured based upon either input measures or output measures. We measure progress towards completion based upon an input measure and calculate this as the proportion of the actual hours incurred compared to the total estimated hours. For training and integration services rendered under such contracts, revenues are recognized as the services are rendered. We will review, on a quarterly basis, the total estimated remaining costs to completion for each of these contracts and apply the impact of any changes on the POC prospectively. If at any time we anticipate that the estimated remaining costs to completion will exceed the value of the contract, the resulting loss will be recognized immediately.
When circumstances exist that prevent us from making reasonably dependable estimates of contract revenues, we account for sales under such long-term contracts using the completed contract method.
We execute certain sales contracts through resellers and distributors (collectively, resellers) and also large, well-capitalized partners such as SAP SE and Accenture plc. (collectively, channel partners).
Revenues relating to sales through resellers and channel partners are recognized when all the recognition criteria have been met, in other words, persuasive evidence of an arrangement exists, delivery has occurred in the reporting period, the fee is fixed and determinable, and collectability is probable. In addition we assess the creditworthiness of each reseller and if the reseller is newly formed, undercapitalized or in financial difficulty any revenues expected to emanate from such resellers are deferred and recognized only when cash is received and all other revenue recognition criteria are met.

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Capitalized software
We capitalize software development costs in accordance with ASC Topic 350-40 "Accounting for the Costs of Computer Software Developed or Obtained for Internal-Use". We capitalize costs for software to be used internally when we enter the application development stage. This occurs when we complete the preliminary project stage, management authorizes and commits to funding the project, and it is feasible that the project will be completed and the software will perform the intended function. We cease to capitalize costs related to a software project when it enters the post implementation and operation stage. If different determinations are made with respect to the state of development of a software project, then the amount capitalized and the amount charged to expense for that project could differ materially.
Costs capitalized during the application development stage consist of payroll and related costs for employees who are directly associated with, and who devote time directly to, a project to develop software for internal use. We also capitalize the direct costs of materials and services, which generally includes outside contractors, and interest. We do not capitalize any general and administrative or overhead costs or costs incurred during the application development stage related to training or data conversion costs. Costs related to upgrades and enhancements to internal-use software, if those upgrades and enhancements result in additional functionality, are capitalized. If upgrades and enhancements do not result in additional functionality, those costs are expensed as incurred. If different determinations are made with respect to whether upgrades or enhancements to software projects would result in additional functionality, then the amount capitalized and the amount charged to expense for that project could differ materially.
We amortize capitalized costs with respect to development projects for internal-use software when the software is ready for use. The capitalized software development costs are generally amortized using the straight-line method over a 5 to 7 year period. In determining and reassessing the estimated useful life over which the cost incurred for the software should be amortized, we consider the effects of obsolescence, technology, competition and other economic factors. If different determinations are made with respect to the estimated useful life of the software, the amount of amortization charged in a particular period could differ materially.
Business combinations
We apply the provisions of ASC Topic 805, “Business Combinations” (Topic 805), in the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities, including contingent consideration where applicable, assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are based in part on historical experience and information obtained from the management of the acquired companies. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill in the period identified. Furthermore, when valuing certain intangible assets that we have acquired, critical estimates may be made relating to, but not limited to: (i) future expected cash flows from software license sales, cloud SaaS, DaaS and PaaS contracts, support agreements, consulting agreements and other customer contracts (ii) the acquired company's technology and competitive position, as well as assumptions about the period of time that the acquired technology will continue to be used in the combined company's product portfolio, and (iii) discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to our Consolidated Statements of Income.
Costs to exit or restructure certain activities of an acquired company or our internal operations are accounted for as one-time termination and exit costs pursuant to ASC Topic 420 "Exit or Disposal Cost Obligations" (Topic 420) and accounted for separately from the business combination.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether we include these contingencies as a part of the purchase price allocation and, if so, to determine the estimated amounts.
If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the acquisition date, we record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We often continue to gather information and evaluate our pre-acquisition contingencies throughout the measurement period and if we make changes to the amounts recorded or if we identify additional pre-acquisition contingencies during the measurement period, such amounts will be included in the purchase price allocation during the measurement period and, subsequently, in our results of operations.

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Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We review these items during the measurement period as we continue to actively seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and circumstances that did not exist at the acquisition date, are recorded in the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.
Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single industry segment: the design, development, marketing and sales of Enterprise Information Management software and solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit.
We perform a qualitative assessment to test our reporting unit's goodwill for impairment. Based on our qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the second step of the impairment test is performed. In the second step of the impairment test, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.
Acquired intangibles
Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions.
Acquired technology is initially recorded at fair value based on the present value of the estimated net future income-producing capabilities of software products acquired on acquisitions. We amortize acquired technology over its estimated useful life on a straight-line basis.
Customer relationships represent relationships that we have with customers of the acquired companies and are either based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows. We amortize customer relationships on a straight-line basis over their estimated useful lives.
We continually evaluate the remaining estimated useful life of our intangible assets being amortized to determine whether events and circumstances warrant a revision to the remaining period of amortization.
Restructuring charges
We record restructuring charges relating to contractual lease obligations and other exit costs in accordance with Topic 420, which requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred. In order to incur a liability pursuant to Topic 420, our management must have established and approved a plan of restructuring in sufficient detail. A liability for a cost associated with involuntary termination benefits is recorded when benefits have been communicated and a liability for a cost to terminate an operating lease or other contract is incurred, when the contract has been terminated in accordance with the contract terms or we have ceased using the right conveyed by the contract, such as vacating a leased facility.
The recognition of restructuring charges requires us to make certain judgments regarding the nature, timing and amount associated with the planned restructuring activities, including estimating sub-lease income and the net recoverable amount of equipment to be disposed of. At the end of each reporting period, we evaluate the appropriateness of the remaining accrued balances.
Foreign currency
Our Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average exchange rates prevailing during the previous month of the transaction. The effect of foreign currency translation adjustments

    41


not affecting net income are included in Shareholders' equity under the “Cumulative translation adjustment” account as a component of “Accumulated other comprehensive income”. Transactional foreign currency gains (losses) included in the Consolidated Statements of Income under the line item “Other income (expense), net” for Fiscal 2017, Fiscal 2016 and Fiscal 2015 were $3.1 million, $(1.9) million and $(31.0) million, respectively.
Income taxes
We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (Topic 740). Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we consider factors such as the reversal of deferred income tax liabilities, projected taxable income, and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.
We account for our uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit. On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company's best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income.
See Note 2 "Accounting Policies and Recent Accounting Pronouncements" to our Consolidated Financial Statements included in this Annual Report on Form 10-K for more details.
RESULTS OF OPERATIONS
The following tables provide a detailed analysis of our results of operations and financial condition. For each of the periods indicated below, we present our revenues by product, revenues by major geography, cost of revenues by product, total gross margin, total operating margin, gross margin by product, and their corresponding percentage of total revenue. In addition, we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we believe will be useful as this presentation is in line with how our management assesses our Company's performance. See "Use of Non-GAAP Financial Measures" below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.

    42


Summary of Results of Operations
 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Total Revenues by Product Type:
 
 
 
 
 
 
 
 
 
 
License
 
$
369,144

 
$
85,434

 
$
283,710

 
$
(10,556
)
 
$
294,266

Cloud services and subscriptions
 
705,495

 
104,477

 
601,018

 
(4,291
)
 
605,309

Customer support
 
981,102

 
234,693

 
746,409

 
14,612

 
731,797

Professional service and other
 
235,316

 
42,225

 
193,091

 
(27,454
)
 
220,545

Total revenues
 
2,291,057

 
466,829

 
1,824,228

 
(27,689
)
 
1,851,917

Total Cost of Revenues
 
762,391

 
188,391

 
574,000

 
(24,409
)
 
598,409

Total GAAP-based Gross Profit
 
1,528,666

 
278,438

 
1,250,228

 
(3,280
)
 
1,253,508

Total GAAP-based Gross Margin %
 
66.7
%
 
 
 
68.5
%
 
 
 
67.7
%
Total GAAP-based Operating Expenses
 
1,175,734

 
294,069

 
881,665

 
(23,132
)
 
904,797

Total GAAP-based Income from Operations
 
$
352,932

 
$
(15,631
)
 
$
368,563

 
$
19,852

 
$
348,711

 
 
 
 
 
 
 
 
 
 
 
% Revenues by Product Type:
 
 
 
 
 
 
 
 
 
 
License
 
16.1
%
 
 
 
15.6
%
 
 
 
15.9
%
Cloud services and subscriptions
 
30.8
%
 
 
 
32.9
%
 
 
 
32.7
%
Customer support
 
42.8
%
 
 
 
40.9
%
 
 
 
39.5
%
Professional service and other
 
10.3
%
 
 
 
10.6
%
 
 
 
11.9
%
 
 
 
 
 
 
 
 
 
 
 
Total Cost of Revenues by Product Type:
 
 
 
 
 
 
 
 
 
 
License
 
$
13,632

 
$
3,336

 
$
10,296

 
$
(2,603
)
 
$
12,899

Cloud services and subscriptions
 
300,255

 
56,234

 
244,021

 
6,711

 
237,310

Customer support
 
122,753

 
32,892

 
89,861

 
(4,595
)
 
94,456

Professional service and other
 
195,195

 
39,611

 
155,584

 
(17,158
)
 
172,742

Amortization of acquired technology-based intangible assets
 
130,556

 
56,318

 
74,238

 
(6,764
)
 
81,002

Total cost of revenues
 
$
762,391

 
$
188,391

 
$
574,000

 
$
(24,409
)
 
$
598,409

 
 
 
 
 
 
 
 
 
 
 
% GAAP-based Gross Margin by Product Type:
 
 
 
 
 
 
 
 
 
 
License
 
96.3
%
 
 
 
96.4
%
 
 
 
95.6
%
Cloud services and subscriptions
 
57.4
%
 
 
 
59.4
%
 
 
 
60.8
%
Customer support
 
87.5
%
 
 
 
88.0
%
 
 
 
87.1
%
Professional service and other
 
17.0
%
 
 
 
19.4
%
 
 
 
21.7
%
 
 
 
 
 
 
 
 
 
 
 
Total Revenues by Geography:
 
 
 
 
 
 
 
 
 
 
Americas (1)
 
$
1,357,419

 
$
308,320

 
$
1,049,099

 
$
13,794

 
$
1,035,305

EMEA (2)
 
720,560

 
109,613

 
610,947

 
(27,351
)
 
638,298

Asia Pacific (3)
 
213,078

 
48,896

 
164,182

 
(14,132
)
 
178,314

Total revenues
 
$
2,291,057

 
$
466,829

 
$
1,824,228

 
$
(27,689
)
 
$
1,851,917

 
 
 
 
 
 
 
 
 
 
 
% Revenues by Geography:
 
 
 
 
 
 
 
 
 
 
Americas (1)
 
59.2
%
 
 
 
57.5
%
 
 
 
55.9
%
EMEA (2)
 
31.5
%
 
 
 
33.5
%
 
 
 
34.5
%
Asia Pacific (3)
 
9.3
%
 
 
 
9.0
%
 
 
 
9.6
%



    43


 
 
Year Ended June 30,
 
 
2017
 
 
 
2016
 
 
 
2015
GAAP-based gross margin
 
66.7
%
 
 
 
68.5
%
 
 
 
67.7
%
GAAP-based operating margin
 
15.4
%
 
 
 
20.2
%
 
 
 
18.8
%
GAAP-based EPS, diluted
 
$
4.01

 
 
 
$
1.17

 
 
 
$
0.95

Net income, attributable to OpenText
 
$
1,025,659

 
 
 
$
284,477

 
 
 
$
234,327

Non-GAAP-based gross margin (4)
 
72.6
%
 
 
 
72.8
%
 
 
 
72.2
%
Non-GAAP-based operating margin (4)
 
31.8
%
 
 
 
33.8
%
 
 
 
30.9
%
Non-GAAP-based EPS, diluted (4)
 
$
2.02

 
 
 
$
1.77

 
 
 
$
1.73

Adjusted EBITDA (4)
 
$
792,517

 
 
 
$
671,737

 
 
 
$
623,649

(1)
Americas consists of countries in North, Central and South America.
(2)
EMEA primarily consists of countries in Europe, the Middle East and Africa.
(3)
Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.
(4)
See "Use of Non-GAAP Financial Measures" (discussed later in the MD&A) for definitions and reconciliations of GAAP-based measures to Non-GAAP-based measures.
Revenues, Cost of Revenues and Gross Margin by Product Type
1)    License:
License revenues consist of fees earned from the licensing of software products to customers. Our license revenues are impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and our acquisitions. Cost of license revenues consists primarily of royalties payable to third parties.
 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
License Revenues:
 
 
 
 
 
 
 
 
 
 
Americas
 
$
178,398

 
$
46,760

 
$
131,638

 
$
(3,624
)
 
$
135,262

EMEA
 
146,843

 
20,919

 
125,924

 
(726
)
 
126,650

Asia Pacific
 
43,903

 
17,755

 
26,148

 
(6,206
)
 
32,354

Total License Revenues
 
369,144

 
85,434

 
283,710

 
(10,556
)
 
294,266

Cost of License Revenues
 
13,632

 
3,336

 
10,296

 
(2,603
)
 
12,899

GAAP-based License Gross Profit
 
$
355,512

 
$
82,098

 
$
273,414

 
$
(7,953
)
 
$
281,367

GAAP-based License Gross Margin %
 
96.3
%
 
 
 
96.4
%
 
 
 
95.6
%
 
 
 
 
 
 
 
 
 
 
 
% License Revenues by Geography: 
 
 
 
 
 
 
 
 
 
 
Americas
 
48.3
%
 
 
 
46.4
%
 
 
 
46.0
%
EMEA
 
39.8
%
 
 
 
44.4
%
 
 
 
43.0
%
Asia Pacific
 
11.9
%
 
 
 
9.2
%
 
 
 
11.0
%
Fiscal 2017 Compared to Fiscal 2016
License revenues increased by $85.4 million during Fiscal 2017 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $3.6 million. Geographically, the overall increase was attributable to an increase in Americas of $46.8 million, an increase in EMEA of $20.9 million and an increase in Asia Pacific of $17.8 million. The number of license deals greater than $0.5 million that closed during Fiscal 2017 was 125 deals, of which 50 deals were greater than $1.0 million, compared to 78 deals in Fiscal 2016, of which 34 deals were greater than $1.0 million. License revenue, as a proportion of our total revenues, remained stable at approximately 16%.
Cost of license revenues increased by $3.3 million during Fiscal 2017 as compared to the prior fiscal year as a result of an increase in third party technology costs relating to a broad range of products that we have inherited from our recent acquisitions. Overall, the gross margin percentage on license revenues remained relatively stable.

    44


Fiscal 2016 Compared to Fiscal 2015
License revenues decreased by $10.6 million during Fiscal 2016 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $15.1 million. Geographically, the overall decrease was attributable to a decrease in Asia Pacific of $6.2 million, a decrease in Americas of $3.6 million, and a decrease in EMEA of $0.7 million. The number of license deals greater than $0.5 million that closed during Fiscal 2016 was 78 deals, of which 34 deals were greater than $1.0 million and is inclusive of a patent infringement settlement, compared to 78 deals in Fiscal 2015, of which 30 deals were greater than $1.0 million. License revenue, as a proportion of our total revenues, remained stable at approximately 16%.
Cost of license revenues decreased by $2.6 million Fiscal 2016 as compared to the prior fiscal year, primarily as a result of lower third party technology costs. Overall, the gross margin percentage on license revenues remained stable at approximately 96%.
2)    Cloud Services and Subscriptions:
Cloud services and subscription revenues consist of (i) software as a service offerings (ii) managed service arrangements and  (iii) subscription revenues relating to on premise offerings. These offerings allow our customers to make use of OpenText software, services and content over Internet enabled networks supported by OpenText data centers. These web applications allow customers to transmit a variety of content between various mediums and to securely manage enterprise information without the commitment of investing in related hardware infrastructure. Revenues are generated on several transactional usage-based models, are typically billed monthly in arrears, and can therefore fluctuate from period to period. Certain service fees are occasionally charged to customize hosted software for some customers and are either amortized over the estimated customer life, in the case of setup fees, or recognized in the period they are provided.
In addition, we offer business-to-business (B2B) integration solutions, such as messaging services, and managed services. Messaging services allow for the automated and reliable exchange of electronic transaction information, such as purchase orders, invoices, shipment notices and other business documents, among businesses worldwide. Managed services provide an end-to-end fully outsourced B2B integration solution to our customers, including program implementation, operational management, and customer support. These services enable customers to effectively manage the flow of electronic transaction information with their trading partners and reduce the complexity of disparate standards and communication protocols. Revenues are primarily generated through transaction processing. Transaction processing fees are recurring in nature and are recognized on a per transaction basis in the period in which the related transactions are processed. Revenues from contracts with monthly, quarterly or annual minimum transaction levels are recognized based on the greater of the actual transactions or the specified contract minimum amounts during the relevant period. Customers who are not committed to multi-year contracts generally are under contracts for transaction processing solutions that automatically renew every month or year, depending on the terms of the specific contracts.
Cost of Cloud services and subscriptions revenues is comprised primarily of third party network usage fees, maintenance of in-house data hardware centers, technical support personnel-related costs, amortization of customer set up and implementation costs, and some third party royalty costs.

    45


 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Cloud Services and Subscriptions:
 
 
 
 
 
 
 
 
 
 
Americas
 
$
485,007

 
$
86,294

 
$
398,713

 
$
4,242

 
$
394,471

EMEA
 
150,847

 
13,059

 
137,788

 
(3,685
)
 
141,473

Asia Pacific
 
69,641

 
5,124

 
64,517

 
(4,848
)
 
69,365

Total Cloud Services and Subscriptions Revenues
 
705,495

 
104,477

 
601,018

 
(4,291
)
 
605,309

Cost of Cloud Services and Subscriptions Revenues
 
300,255

 
56,234

 
244,021

 
6,711

 
237,310

GAAP-based Cloud Services and Subscriptions Gross Profit
 
$
405,240

 
$
48,243

 
$
356,997

 
$
(11,002
)
 
$
367,999

GAAP-based Cloud Services and Subscriptions Gross Margin %
 
57.4
%
 
 
 
59.4
%
 
 
 
60.8
%
 
 
 
 
 
 
 
 
 
 
 
% Cloud Services and Subscriptions Revenues by Geography:
 
 
 
 
 
 
 
 
 
 
Americas
 
68.7
%
 
 
 
66.3
%
 
 
 
65.2
%
EMEA
 
21.4
%
 
 
 
22.9
%
 
 
 
23.4
%
Asia Pacific
 
9.9
%
 
 
 
10.8
%
 
 
 
11.4
%
Fiscal 2017 Compared to Fiscal 2016
Cloud services and subscriptions revenues increased by $104.5 million during Fiscal 2017 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $6.3 million. Geographically, the overall change was attributable to an increase in Americas of $86.3 million, an increase in EMEA of $13.1 million and an increase in Asia Pacific of $5.1 million. The number of Cloud services deals greater than $1.0 million that closed during Fiscal 2017 was 51 deals, compared to 31 deals in Fiscal 2016.
Cost of Cloud services and subscriptions revenues increased by $56.2 million during Fiscal 2017 as compared to the prior fiscal year, primarily due to an increase in labour-related costs of approximately $40.0 million resulting from increased headcount, predominantly on account of recent acquisitions, and an increase in third party network usage fees of approximately $16.7 million related to an expanded portfolio of cloud-based offerings. These increases were partially offset by a reduction in other miscellaneous costs of $0.5 million. Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased to approximately 57% from approximately 59%.
Fiscal 2016 Compared to Fiscal 2015
Cloud services and subscriptions revenues decreased by $4.3 million during Fiscal 2016 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $19.4 million. Geographically, the overall change was attributable to a decrease in Asia Pacific of $4.8 million and a decrease in EMEA of $3.7 million, partially offset by an increase in Americas of $4.2 million. There were 31 Cloud services deals greater than $1.0 million that closed during Fiscal 2016 and Fiscal 2015, respectively.
Cost of Cloud services and subscriptions revenues increased by $6.7 million during Fiscal 2016 as compared to the prior fiscal year, due to an increase in labour-related costs of approximately $12.5 million, and an increase in sales tax liabilities of approximately $0.7 million resulting from the impact of certain adjustments that occurred primarily in Fiscal 2015. These increases were partially offset by a reduction in third party network usage fees of approximately $6.5 million. Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased slightly to approximately 59% from approximately 61%.
3)    Customer Support:
Customer support revenues consist of revenues from our customer support and maintenance agreements. These agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software products when and if available. Customer support revenues are generated from support and maintenance relating to current year sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods. Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from period to period. The terms of support and maintenance agreements are typically twelve months, with customer renewal

    46


options. Our management reviews our Customer support renewal rates on a quarterly basis and we use these rates as a method of monitoring our customer service performance. For the quarter ended June 30, 2017, our Customer support renewal rate was approximately 90%, consistent with the Customer support renewal rate during the quarter ended June 30, 2016.
Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as third party royalty costs.
 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Customer Support Revenues:
 
 
 
 
 
 
 
 
 
 
Americas
 
$
582,415

 
$
153,508

 
$
428,907

 
$
25,718

 
$
403,189

EMEA
 
320,628

 
60,502

 
260,126

 
(10,696
)
 
270,822

Asia Pacific
 
78,059

 
20,683

 
57,376

 
(410
)
 
57,786

Total Customer Support Revenues
 
981,102

 
234,693

 
746,409

 
14,612

 
731,797

Cost of Customer Support Revenues
 
122,753

 
32,892

 
89,861

 
(4,595
)
 
94,456

GAAP-based Customer Support Gross Profit
 
$
858,349

 
$
201,801

 
$
656,548

 
$
19,207

 
$
637,341

GAAP-based Customer Support Gross Margin %
 
87.5
%
 
 
 
88.0
%
 
 
 
87.1
%
 
 
 
 
 
 
 
 
 
 
 
% Customer Support Revenues by Geography:
 
 
 
 
 
 
 
 
 
 
Americas
 
59.4
%
 
 
 
57.5
%
 
 
 
55.1
%
EMEA
 
32.7
%
 
 
 
34.9
%
 
 
 
37.0
%
Asia Pacific
 
7.9
%
 
 
 
7.6
%
 
 
 
7.9
%
Fiscal 2017 Compared to Fiscal 2016
Customer support revenues increased by $234.7 million during Fiscal 2017 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $12.4 million. Geographically, the overall increase was attributable to an increase in Americas of $153.5 million, an increase in EMEA of $60.5 million and an increase in Asia Pacific of $20.7 million.
Cost of Customer support revenues increased by $32.9 million during Fiscal 2017 as compared to the prior fiscal year, due to (i) an increase in labour-related costs of approximately $27.1 million, which was predominantly due to recent acquisitions, (ii) an increase in the installed base of third party products of approximately $5.7 million, and (iii) an increase in other miscellaneous costs of $0.1 million. The increase in the installed base of third party products was primarily the result of products we have inherited from our recent acquisitions. Overall, the gross margin percentage on Customer support revenues remained stable at approximately 88%.
Fiscal 2016 Compared to Fiscal 2015
Customer support revenues increased by $14.6 million Fiscal 2016 as compared to the prior fiscal year, which is inclusive of the negative impact of foreign exchange of approximately $32.7 million. Geographically, the overall increase was attributable to an increase in Americas of $25.7 million, partially offset by a decrease in EMEA of $10.7 million and a decrease in Asia Pacific of $0.4 million.
Cost of Customer support revenues decreased by $4.6 million Fiscal 2016 as compared to the prior fiscal year, primarily due to a reduction in labour-related costs of approximately $3.5 million and a reduction in the installed base of third party products of approximately $1.2 million. As a result, the gross margin percentage on Customer support revenues increased slightly to approximately 88% from approximately 87%.
4)    Professional Service and Other:
Professional service and other revenues consist of revenues from consulting contracts and contracts to provide implementation, training and integration services (professional services). Other revenues consist of hardware revenues. These revenues are grouped within the “Professional service and other” category because they are relatively immaterial to our service revenues. Professional services are typically performed after the purchase of new software licenses. Cost of professional service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to our various software products. The most significant components of these costs are personnel-related expenses, travel costs and third party subcontracting.

    47


 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Professional Service and Other Revenues:
 
 
 
 
 
 
 
 
 
 
Americas
 
$
111,599

 
$
21,758

 
$
89,841

 
$
(12,543
)
 
$
102,384

EMEA
 
102,242

 
15,133

 
87,109

 
(12,244
)
 
99,353

Asia Pacific
 
21,475

 
5,334

 
16,141

 
(2,667
)
 
18,808

Total Professional Service and Other Revenues
 
235,316

 
42,225

 
193,091

 
(27,454
)
 
220,545

Cost of Professional Service and Other Revenues
 
195,195

 
39,611

 
155,584

 
(17,158
)
 
172,742

GAAP-based Professional Service and Other Gross Profit
 
$
40,121

 
$
2,614

 
$
37,507

 
$
(10,296
)
 
$
47,803

GAAP-based Professional Service and Other Gross Margin %
 
17.0
%
 
 
 
19.4
%
 
 
 
21.7
%
 
 
 
 
 
 
 
 
 
 
 
% Professional Service and Other Revenues by Geography:
 
 
 
 
 
 
 
 
 
 
Americas
 
47.4
%
 
 
 
46.5
%
 
 
 
46.4
%
EMEA
 
43.4
%
 
 
 
45.1
%
 
 
 
45.0
%
Asia Pacific
 
9.2
%
 
 
 
8.4
%
 
 
 
8.6
%
Fiscal 2017 Compared to Fiscal 2016
Professional service and other revenues increased by $42.2 million during Fiscal 2017 as compared to the prior fiscal year, inclusive of the negative impact of foreign exchange of approximately $4.1 million. Geographically, the overall increase was attributable to an increase in Americas of $21.8 million, an increase in EMEA of $15.1 million and an increase in Asia Pacific of $5.3 million.
Cost of Professional service and other revenues increased by $39.6 million during Fiscal 2017 as compared to the prior fiscal year, primarily as a result of an increase in labour-related costs of approximately $40.8 million, which was predominantly due to recent acquisitions. Approximately $1.1 million of the increase in labour-related costs was associated with one-time charges incurred earlier this fiscal year from reorganizing our professional services organization. These increases were partially offset by a reduction in other miscellaneous costs of $1.2 million. Overall, the gross margin percentage on Professional service and other revenues decreased to approximately 17% from approximately 19%.
Fiscal 2016 Compared to Fiscal 2015
Professional service and other revenues decreased by $27.5 million Fiscal 2016 as compared to the prior fiscal year, of which approximately $12.5 million was due to the negative impact of foreign exchange. Geographically, the overall decrease was attributable to a decrease in Americas of $12.5 million, a decrease in EMEA of $12.2 million and a decrease in Asia Pacific of $2.7 million.
Cost of Professional service and other revenues decreased by $17.2 million Fiscal 2016 as compared to the prior fiscal year, primarily as a result of a reduction in labour-related costs of approximately $16.2 million and lower revenue attainment. Overall, the gross margin percentage on Professional service and other revenues decreased to approximately 19% from approximately 22%.
Amortization of Acquired Technology-based Intangible Assets
 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Amortization of acquired technology-based intangible assets
 
$
130,556

 
$
56,318

 
$
74,238

 
$
(6,764
)
 
$
81,002

Fiscal 2017 Compared to Fiscal 2016
Amortization of acquired technology-based intangible assets increased during the year ended June 30, 2017 by $56.3 million as compared to the prior fiscal year. This was due to an increase in amortization of $66.8 million relating to newly acquired technology-based intangible assets from our acquisitions of ECD Business, CCM Business, Recommind, certain customer experience software and services assets and liabilities from HP Inc. (CEM Business), ANXe Business Corporation

    48


(ANX) and Daegis Inc. (Daegis). The increase in amortization was partially offset by a reduction of $10.5 million relating to certain intangible assets pertaining to previous acquisitions becoming fully amortized.
Fiscal 2016 Compared to Fiscal 2015
Amortization of acquired technology-based intangible assets decreased by $6.8 million. This was due to a reduction in amortization of $20.0 million relating to the technology-based intangible assets pertaining to certain previous acquisitions becoming fully amortized. This was partially offset by an increase in amortization of $13.2 million relating to newly acquired technology-based intangible assets from our acquisitions of CEM Business, ANX, Daegis, Actuate Corporation (Actuate) and Informative Graphics Corporation (IGC).
Operating Expenses
 
 
Year Ended June 30,
(In thousands)
 
2017
 
Change increase (decrease)
 
2016
 
Change increase (decrease)
 
2015
Research and development
 
$
281,680

 
$
87,623

 
$
194,057

 
$
(2,434
)
 
$
196,491

Sales and marketing
 
444,838

 
100,603

 
344,235

 
(29,375
)
 
373,610

General and administrative
 
170,438

 
30,041

 
140,397

 
(22,331
)
 
162,728

Depreciation
 
64,318

 
9,389

 
54,929

 
4,023

 
50,906

Amortization of acquired customer-based intangible assets
 
150,842

 
37,641

 
113,201

 
4,962

 
108,239

Special charges
 
63,618

 
28,772

 
34,846

 
22,023

 
12,823

Total operating expenses
 
$
1,175,734

 
$
294,069

 
$
881,665

 
$
(23,132
)
 
$
904,797

 
 
 
 
 
 
 
 
 
 
 
% of Total Revenues:
 
 
 
 
 
 
 
 
 
 
Research and development
 
12.3
%
 
 
 
10.6
%
 
 
 
10.6
%
Sales and marketing
 
19.4
%
 
 
 
18.9
%
 
 
 
20.2
%
General and administrative
 
7.4
%
 
 
 
7.7
%
 
 
 
8.8
%
Depreciation
 
2.8
%
 
 
 
3.0
%
 
 
 
2.7
%
Amortization of acquired customer-based intangible assets
 
6.6
%
 
 
 
6.2
%
 
 
 
5.8
%
Special charges
 
2.8
%
 
 
 
1.9
%
 
 
 
0.7
%
Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted research and development expenses, and facility costs. Research and development assists with organic growth and improves product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings. The primary driver is typically budgeted software upgrades and software development.
 
 
Change between Fiscal
 (In thousands)
 
2017 and 2016
 
2016 and 2015
Payroll and payroll-related benefits
 
$
58,437

 
$
(696
)
Contract labour and consulting
 
9,535

 
(1,721
)
Share-based compensation
 
4,333

 
260

Travel and communication
 
549

 
(266
)
Facilities
 
12,203

 
151

Other miscellaneous
 
2,566

 
(162
)
Total year-over-year change in research and development expenses
 
$
87,623

 
$
(2,434
)
Fiscal 2017 Compared to Fiscal 2016
Research and development expenses increased by $87.6 million during Fiscal 2017 as compared to the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $58.4 million and an increase in the use of facility and related resources of $12.2 million, which were predominantly the result of recent acquisitions. Additionally, contract labour and consulting increased by $9.5 million, and share-based compensation increased by $4.3 million. Overall, our

    49


research and development expenses, as a percentage of total revenues, increased to approximately 12% from approximately 11%.
Our research and development labour resources increased by 536 employees, from 2,168 employees at June 30, 2016 to 2,704 employees at June 30, 2017, primarily as a result of our recent acquisitions.
Fiscal 2016 Compared to Fiscal 2015
Research and development expenses decreased by $2.4 million during Fiscal 2016 as compared to the prior fiscal year, primarily due to a decrease in contract labour and consulting expenses of $1.7 million resulting from continued efforts to reduce the usage of external services. Additionally, payroll and payroll-related benefits decreased by $0.7 million and travel and communication expense decreased by $0.3 million. These were partially offset by a $0.2 million increase in the use of facility and related resources. Overall, our research and development expenses, as a percentage of total revenues, have remained stable at approximately 11%.
Our research and development labour resources increased by 93 employees, from 2,075 employees at June 30, 2015 to 2,168 employees at June 30, 2016. Included in this increase are 86 employees from acquisitions that occurred in the fourth quarter of Fiscal 2016, which did not have a material impact on our research and development expenses in Fiscal 2016.
Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing and trade shows.
 
 
Change between Fiscal
(In thousands)
 
2017 and 2016
 
2016 and 2015
Payroll and payroll-related benefits
 
$
63,973

 
$
(15,657
)
Commissions
 
22,762

 
(6,635
)
Contract labour and consulting
 
1,623

 
(303
)
Share-based compensation
 
(2,273
)
 
2,072

Travel and communication
 
4,628

 
(4,964
)
Marketing expenses
 
4,717

 
(3,307
)
Facilities
 
5,988

 
(786
)
Other miscellaneous
 
(815
)
 
205

Total year-over-year change in sales and marketing expenses
 
$
100,603

 
$
(29,375
)
Fiscal 2017 Compared to Fiscal 2016
Sales and marketing expenses increased by $100.6 million during Fiscal 2017 as compared to the prior fiscal year. This was primarily due to an increase in payroll and payroll-related benefits of $64.0 million and an increase in facility and related resources of $6.0 million, both of which were predominantly the result of recent acquisitions. Additionally, commissions expense increased by $22.8 million in conjunction with higher revenues. The remainder of the change was primarily attributable to normal growth in our business operations. Overall, our sales and marketing expenses, as a percentage of total revenues, remained stable at approximately 19%.
Our sales and marketing