Basis of Presentation

12 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

The accompanying Consolidated Financial Statements include the accounts of Open Text Corporation and our subsidiaries, collectively referred to as "OpenText" or the "Company". We wholly own all of our subsidiaries with the exception of Open Text South Africa Proprietary Ltd. (OT South Africa) and EC1 Pte. Ltd. (GXS Singapore), which as of June 30, 2019, were 70% and 81% owned, respectively, by OpenText. All inter-company balances and transactions have been eliminated.

Previously, our ownership in GXS Inc. (GXS Korea) was 85%. During the first quarter of Fiscal 2019, we acquired all of the outstanding non-controlling interests in GXS Korea for $0.6 million in cash.

These Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair presentation of the results for the periods presented and includes the financial results of Liaison Technologies, Inc. (Liaison), with effect from December 17, 2018, and Catalyst Repository Systems Inc. (Catalyst), with effect from January 31, 2019 (see note 18 "Acquisitions").

Use of estimates

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

Impact of Recently Adopted Accounting Pronouncements

Revenue Recognition

Effective July 1, 2018, we adopted Accounting Standards Codification (ASC) Topic 606 "Revenue from Contracts with Customers" (Topic 606) using the cumulative effect approach. We applied the accounting standard to contracts that were not completed as of the date of the initial adoption. Results for reporting periods commencing on July 1, 2018 are presented under the new revenue standard, while prior period results continue to be reported under the previous revenue standard. As a result of this adoption, we recorded a net increase of approximately $30 million to retained earnings as of July 1, 2018 on the Consolidated Balance Sheets, with the following corresponding impacts:


•	A decrease to deferred revenues of approximately $31 million;


•	A decrease to other assets of approximately $22 million in connection with deferred implementation costs;


•	An increase to other assets of approximately $14 million in connection with the capitalization of sales commission costs;


•	An increase in contract assets of approximately $18 million representing future billings in excess of revenues; and


•	An increase in net deferred tax liabilities of approximately $11 million.

Please refer to Note 3 "Revenues" for additional information relating to Topic 606, including our updated revenue recognition policies.

Additionally, certain prior period balances have been reclassified within other assets on the Consolidated Balance Sheets, to conform to the current period presentation as a result of this adoption. Please refer to Note 8 "Other Assets" for details.

Income Taxes

Effective July 1, 2018, we adopted Accounting Standards Update (ASU) No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory" (ASU 2016-16) which requires entities to recognize the income tax consequence of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. We adopted ASU 2016-16 on a modified retrospective basis through a cumulative-effect adjustment to opening retained earnings. Results for reporting periods effective as of July 1, 2018 are presented under the new standard, while prior period results continue to be reported under the previous standard. As a result of this adoption, we recorded a net decrease of approximately $27 million to retained earnings as of July 1, 2018 on the Consolidated Balance Sheets, with the following corresponding impacts:


•	A decrease to deferred charges of approximately $38 million;


•	An increase to deferred tax assets of approximately $8 million; and


•	A decrease to deferred credits of approximately $3 million.

There was no impact to the Consolidated Statements of Income, Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows as a result of this adoption.

Restricted Cash

Effective July 1, 2018, we adopted ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (ASU 2016-18), which requires amounts described as restricted cash and cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts in the statement of cash flows. We adopted ASU 2016-18 using the retrospective method. As a result, certain prior period comparative figures in the Consolidated Statements of Cash Flows have been adjusted to conform to current period presentation as follows:



	Year Ended June 30, 2018							Year Ended June 30, 2017
	As Previously Reported		Adjustments			As Adjusted		As Previously Reported			Adjustments		As Adjusted

Net cash provided by operating activities	$	709,885	$	(1,804	)	$	708,081	$	439,253		$	1,100	$	440,353

Cash, cash equivalents and restricted cash at beginning of period	443,357		2,853			446,210		1,283,757			1,753		1,285,510
Increase (decrease) in cash, cash equivalents and restricted cash during the period	239,585		(1,804		)	237,781		(840,400		)	1,100		(839,300		)
Cash, cash equivalents and restricted cash at end of period	$	682,942	$	1,049		$	683,991	$	443,357		$	2,853	$	446,210

There was no impact to the Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity or Consolidated Statements of Comprehensive Income as a result of this adoption.

Pension Expense

Effective July 1, 2018, we adopted ASU No. 2017-07, “Retirement Benefits - Presentation of Net Period Pension Costs (Topic 715)” (ASU 2017-07), which provides guidance on the capitalization, presentation and disclosure of net benefit costs related to postretirement benefit plans. Upon adoption, only service-related net periodic pension costs will be recorded within operating expense. All other non-service related net periodic pension costs will be classified under "Interest and other related expense" on our Condensed Consolidated Statements of Income. We adopted ASU 2017-07 on a retrospective basis. As a result, certain prior period comparative figures in the Consolidated Statements of Income have been adjusted to conform to current period presentation as follows:



	Year Ended June 30, 2018									Year Ended June 30, 2017
	As Previously Reported			Adjustments			As Adjusted			As Previously Reported			Adjustments			As Adjusted
Cost of revenues - Cloud services	$	364,091		$	69		$	364,160		$	300,255		$	(405	)	$	299,850
Cost of revenues - Customer Support	$	134,089		$	(200	)	$	133,889		$	122,753		$	(188	)	$	122,565
Cost of revenues - Professional service and other	$	253,670		$	(281	)	$	253,389		$	195,195		$	(241	)	$	194,954
Total cost of revenues	$	951,411		$	(412	)	$	950,999		$	762,391		$	(834	)	$	761,557
Gross profit	$	1,863,830		$	412		$	1,864,242		$	1,528,666		$	834		$	1,529,500
Research and Development	$	323,461		$	(552	)	$	322,909		$	281,680		$	(465	)	$	281,215
Sales and Marketing	$	529,381		$	(240	)	$	529,141		$	444,838		$	(384	)	$	444,454
General and administrative	$	205,313		$	(86	)	$	205,227		$	170,438		$	(85	)	$	170,353
Total operating expense	$	1,358,427		$	(878	)	$	1,357,549		$	1,175,734		$	(934	)	$	1,174,800
Income from operations	$	505,403		$	1,290		$	506,693		$	352,932		$	1,768		$	354,700
Interest and other related expense, net	$	(137,250	)	$	(1,290	)	$	(138,540	)	$	(119,124	)	$	(1,768	)	$	(120,892	)

There was no change to net income or net earnings per share in any of the periods presented as a result of this adoption. Additionally, there was no impact to the Consolidated Balance Sheets, Consolidated Statements of Comprehensive Income, Consolidated Statements of Shareholders' Equity or Consolidated Statements of Cash Flows as a result of this adoption.