UNITED
STATES
 SECURITIES AND
EXCHANGE COMMISSION
 Washington,DC20549
 ___________
 FORM
10-Q
 ___________
 
 x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the quarterly period ended
December 31, 2008.
 OR
   ̈
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the transition period
from                                                                           to
  Commission file number:
0-27544
 _______________________
 
 
 OPEN
TEXT CORPORATION
 (Exact name of registrant as
specified in its charter)
 _______________________
 
 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)
  Registrant’s telephone number,
including area code: (519) 888-7111
 (Former name former address and
former fiscal year, if changed since last report)
 _________________________
 Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.    Yes  x    No   ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
  Large
accelerated filer x    Accelerated
filer  ̈    Non-accelerated
filer   ̈
(Do not check if smaller reporting company)    Smaller
reporting company   ̈
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).    Yes   ̈    No  x
 
 At
January 26, 2009, there were 51,900,406 outstanding Common Shares of the
registrant.
  
  OPEN
TEXT CORPORATION
  TABLE OF
CONTENTS
 
 Page NoPART I Financial
      Information:Item 1.
                Financial
      StatementsCondensed
      Consolidated Balance Sheets as of December 31, 2008
      (unaudited) and June 30, 2008
                3Condensed
      Consolidated Statements of Income—Three and Six Months Ended December 31,
      2008 and 2007 (unaudited)
                4Condensed
      Consolidated Statements of Retained Earnings (Deficit)— Three and Six
      Months Ended December 31, 2008  and 2007
      (unaudited)
                5Condensed
      Consolidated Statements of Cash Flows— Six Months Ended December 31,
      2008 and 2007 (unaudited)
                6Unaudited
      Notes to Condensed Consolidated Financial Statements
                7Item 2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                28Item 3.
                Quantitative
      and Qualitative Disclosures about Market Risk
                40Item 4.
                Controls
      and Procedures
                41PART II Other
      Information:Item 1A.
                Risk
      Factors
                42Item 4.
                Submission
      of Matters to a Vote of Security Holders
                43Item 6.
                Exhibits
                44Signatures
                45
 
 
  2
  
 OPEN TEXT
CORPORATION
  CONDENSED CONSOLIDATED BALANCE
SHEETS
 (In thousands of U.S. Dollars, except
share data)
 
 December
      31,
                                                
                                                
                                                June
      30,2008
                                                
                                                
                                                2008ASSETS
                                                
                                                (unaudited)Current
      assets:Cash
      and cash equivalents
                                                
                                                $
                                                172,870
                                                
                                                
                                                $
                                                254,916Accounts
      receivable trade, net of allowance for doubtful accounts of $4,128 as
      of
                                                  December 31,
      2008 and $3,974 as of June 30, 2008 (note 9)
                                                
                                                
                                                126,757
                                                
                                                
                                                
                                                134,396Inventory
      (note 4)
                                                
                                                
                                                2,227
                                                
                                                
                                                
                                                -Income
      taxes recoverable (note 15)
                                                
                                                
                                                6,655
                                                
                                                
                                                
                                                16,763Prepaid
      expenses and other current assets
                                                
                                                
                                                12,029
                                                
                                                
                                                
                                                10,544Deferred
      tax assets (note 15)
                                                
                                                
                                                16,604
                                                
                                                
                                                
                                                13,455Total
      current assets
                                                
                                                
                                                337,142
                                                
                                                
                                                
                                                430,074Investments
      in marketable securities (note 3)
                                                
                                                
                                                2,789
                                                
                                                
                                                
                                                -Capital
      assets (note 5)
                                                
                                                
                                                40,163
                                                
                                                
                                                
                                                43,582Goodwill
      (note 6)
                                                
                                                
                                                577,244
                                                
                                                
                                                
                                                564,648Acquired
      intangible assets (note 7)
                                                
                                                
                                                383,325
                                                
                                                
                                                
                                                281,824Deferred
      tax assets (note 15)
                                                
                                                
                                                62,305
                                                
                                                
                                                
                                                59,881Other
      assets (note 8)
                                                
                                                
                                                9,656
                                                
                                                
                                                
                                                10,491Long-term
      income taxes recoverable (note 15)
                                                
                                                
                                                40,776
                                                
                                                
                                                
                                                44,176Total
      assets
                                                
                                                $
                                                1,453,400
                                                
                                                
                                                $
                                                1,434,676LIABILITIES AND SHAREHOLDERS’
      EQUITYCurrent
      liabilities:Accounts
      payable and accrued liabilities (note 10)
                                                
                                                $
                                                123,715
                                                
                                                
                                                $
                                                99,035Current
      portion of long-term debt (note 12)
                                                
                                                
                                                3,412
                                                
                                                
                                                
                                                3,486Deferred
      revenues
                                                
                                                
                                                169,858
                                                
                                                
                                                
                                                176,967Income
      taxes payable (note 15)
                                                
                                                
                                                140
                                                
                                                
                                                
                                                13,499Deferred
      tax liabilities (note 15)
                                                
                                                
                                                3,366
                                                
                                                
                                                
                                                4,876Total
      current liabilities
                                                
                                                
                                                300,491
                                                
                                                
                                                
                                                297,863Long-term
      liabilities:Accrued
      liabilities (note 10)
                                                
                                                
                                                21,718
                                                
                                                
                                                
                                                20,513Pension
      liability (note 11)
                                                
                                                
                                                16,243
                                                
                                                
                                                
                                                -Long-term
      debt (note 12)
                                                
                                                
                                                300,307
                                                
                                                
                                                
                                                304,301Deferred
      revenues
                                                
                                                
                                                6,957
                                                
                                                
                                                
                                                2,573Long-term
      income taxes payable (note 15)
                                                
                                                
                                                51,240
                                                
                                                
                                                
                                                54,681Deferred
      tax liabilities (note 15)
                                                
                                                
                                                144,701
                                                
                                                
                                                
                                                109,912Total
      long-term liabilities
                                                
                                                
                                                541,166
                                                
                                                
                                                
                                                491,980Minority
      interest (note 20)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                8,672Shareholders’
      equity:Share
      capital (note 13)51,887,209
      and 51,151,666 Common Shares issued and outstanding at December 31,
      2008 and  June 30, 2008, respectively; Authorized Common
      Shares: unlimited
                                                
                                                
                                                444,512
                                                
                                                
                                                
                                                438,471Additional
      paid-in capital
                                                
                                                
                                                48,441
                                                
                                                
                                                
                                                39,330Accumulated
      other comprehensive income
                                                
                                                
                                                55,827
                                                
                                                
                                                
                                                110,819Retained
      earnings
                                                
                                                
                                                62,963
                                                
                                                
                                                
                                                47,541Total
      shareholders’ equity
                                                
                                                
                                                611,743
                                                
                                                
                                                
                                                636,161Total liabilities and
      shareholders’ equity
                                                
                                                $
                                                1,453,400
                                                
                                                
                                                $
                                                1,434,676Commitments
      and contingencies (note 18)
 
 See
accompanying Notes to Condensed Consolidated Financial
Statements
   3
  
 OPEN TEXT
CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
 (In thousands of U.S. Dollars, except
per share data)
 (Unaudited)
  Three
      months ended
                                                                          December
      31,
                                                                        
                                                                        
                                                                        Six
      months ended
                                                                          December
      31,2008
                                                                        
                                                                        
                                                                        2007
                                                                        
                                                                        
                                                                        2008
                                                                        
                                                                        
                                                                        2007Revenues:License
                                                                        
                                                                        $
                                                                        64,852
                                                                        
                                                                        
                                                                        $
                                                                        55,158
                                                                        
                                                                        
                                                                        $
                                                                        114,926
                                                                        
                                                                        
                                                                        $
                                                                        99,418Customer
      support
                                                                        
                                                                        
                                                                        100,438
                                                                        
                                                                        
                                                                        
                                                                        90,614
                                                                        
                                                                        
                                                                        
                                                                        198,867
                                                                        
                                                                        
                                                                        
                                                                        176,918Service and
      other
                                                                        
                                                                        
                                                                        42,361
                                                                        
                                                                        
                                                                        
                                                                        36,762
                                                                        
                                                                        
                                                                        
                                                                        76,481
                                                                        
                                                                        
                                                                        
                                                                        70,165Total
      revenues
                                                                        
                                                                        
                                                                        207,651
                                                                        
                                                                        
                                                                        
                                                                        182,534
                                                                        
                                                                        
                                                                        
                                                                        390,274
                                                                        
                                                                        
                                                                        
                                                                        346,501Cost
      of revenues:License
                                                                        
                                                                        
                                                                        5,281
                                                                        
                                                                        
                                                                        
                                                                        4,649
                                                                        
                                                                        
                                                                        
                                                                        8,174
                                                                        
                                                                        
                                                                        
                                                                        8,203Customer
      support
                                                                        
                                                                        
                                                                        17,356
                                                                        
                                                                        
                                                                        
                                                                        14,191
                                                                        
                                                                        
                                                                        
                                                                        32,923
                                                                        
                                                                        
                                                                        
                                                                        26,789Service and
      other
                                                                        
                                                                        
                                                                        31,881
                                                                        
                                                                        
                                                                        
                                                                        30,192
                                                                        
                                                                        
                                                                        
                                                                        59,610
                                                                        
                                                                        
                                                                        
                                                                        57,696Amortization
      of acquired technology-based intangible assets
                                                                        
                                                                        
                                                                        11,799
                                                                        
                                                                        
                                                                        
                                                                        10,308
                                                                        
                                                                        
                                                                        
                                                                        22,546
                                                                        
                                                                        
                                                                        
                                                                        20,460Total
      cost of revenues
                                                                        
                                                                        
                                                                        66,317
                                                                        
                                                                        
                                                                        
                                                                        59,340
                                                                        
                                                                        
                                                                        
                                                                        123,253
                                                                        
                                                                        
                                                                        
                                                                        113,148Gross
      profit
                                                                        
                                                                        
                                                                        141,334
                                                                        
                                                                        
                                                                        
                                                                        123,194
                                                                        
                                                                        
                                                                        
                                                                        267,021
                                                                        
                                                                        
                                                                        
                                                                        233,353Operating
      expenses:Research
      and development
                                                                        
                                                                        
                                                                        29,948
                                                                        
                                                                        
                                                                        
                                                                        26,147
                                                                        
                                                                        
                                                                        
                                                                        58,526
                                                                        
                                                                        
                                                                        
                                                                        50,130Sales
      and marketing
                                                                        
                                                                        
                                                                        49,347
                                                                        
                                                                        
                                                                        
                                                                        42,300
                                                                        
                                                                        
                                                                        
                                                                        94,179
                                                                        
                                                                        
                                                                        
                                                                        80,159General
      and administrative
                                                                        
                                                                        
                                                                        18,280
                                                                        
                                                                        
                                                                        
                                                                        16,955
                                                                        
                                                                        
                                                                        
                                                                        36,667
                                                                        
                                                                        
                                                                        
                                                                        33,965Depreciation
                                                                        
                                                                        
                                                                        2,920
                                                                        
                                                                        
                                                                        
                                                                        3,752
                                                                        
                                                                        
                                                                        
                                                                        5,618
                                                                        
                                                                        
                                                                        
                                                                        6,736Amortization
      of acquired customer-based intangible assets
                                                                        
                                                                        
                                                                        10,138
                                                                        
                                                                        
                                                                        
                                                                        7,514
                                                                        
                                                                        
                                                                        
                                                                        18,353
                                                                        
                                                                        
                                                                        
                                                                        14,929Special
      charges (recoveries) (note 19)
                                                                        
                                                                        
                                                                        11,446
                                                                        
                                                                        
                                                                        
                                                                        (47
                                                                        )
                                                                        
                                                                        
                                                                        11,446
                                                                        
                                                                        
                                                                        
                                                                        (108
                                                                        )Total
      operating expenses
                                                                        
                                                                        
                                                                        122,079
                                                                        
                                                                        
                                                                        
                                                                        96,621
                                                                        
                                                                        
                                                                        
                                                                        224,789
                                                                        
                                                                        
                                                                        
                                                                        185,811Income
      from operations
                                                                        
                                                                        
                                                                        19,255
                                                                        
                                                                        
                                                                        
                                                                        26,573
                                                                        
                                                                        
                                                                        
                                                                        42,232
                                                                        
                                                                        
                                                                        
                                                                        47,542Other
      income (expense), net
                                                                        
                                                                        
                                                                        (12,532)
                                                                        
                                                                        
                                                                        
                                                                        (3,683
                                                                        )
                                                                        
                                                                        
                                                                        (11,803)
                                                                        
                                                                        
                                                                        
                                                                        (5,510
                                                                        )Interest
      income (expense), net
                                                                        
                                                                        
                                                                        (5,347
                                                                        )
                                                                        
                                                                        
                                                                        (7,567
                                                                        )
                                                                        
                                                                        
                                                                        (8,341
                                                                        )
                                                                        
                                                                        
                                                                        (15,439
                                                                        )Income
      before income taxes
                                                                        
                                                                        
                                                                        1,376
                                                                        
                                                                        
                                                                        
                                                                        15,323
                                                                        
                                                                        
                                                                        
                                                                        22,088
                                                                        
                                                                        
                                                                        
                                                                        26,593Provision
      for income taxes (note 15)
                                                                        
                                                                        
                                                                        683
                                                                        
                                                                        
                                                                        
                                                                        4,511
                                                                        
                                                                        
                                                                        
                                                                        6,615
                                                                        
                                                                        
                                                                        
                                                                        7,854Net
      income before minority interest
                                                                        
                                                                        
                                                                        693
                                                                        
                                                                        
                                                                        
                                                                        10,812
                                                                        
                                                                        
                                                                        
                                                                        15,473
                                                                        
                                                                        
                                                                        
                                                                        18,739Minority
      interest (note 18)
                                                                        
                                                                        
                                                                        (68)
                                                                        
                                                                        
                                                                        
                                                                        127
                                                                        
                                                                        
                                                                        
                                                                        51
                                                                        
                                                                        
                                                                        
                                                                        254Net
      income for the period
                                                                        
                                                                        $
                                                                        761
                                                                        
                                                                        
                                                                        $
                                                                        10,685
                                                                        
                                                                        
                                                                        $
                                                                        15,422
                                                                        
                                                                        
                                                                        $
                                                                        18,485Net
      income per share—basic (note 14)
                                                                        
                                                                        $
                                                                        0.01
                                                                        
                                                                        
                                                                        $
                                                                        0.21
                                                                        
                                                                        
                                                                        $
                                                                        0.30
                                                                        
                                                                        
                                                                        $
                                                                        0.37Net
      income per share—diluted (note 14)
                                                                        
                                                                        $
                                                                        0.01
                                                                        
                                                                        
                                                                        $
                                                                        0.20
                                                                        
                                                                        
                                                                        $
                                                                        0.29
                                                                        
                                                                        
                                                                        $
                                                                        0.35Weighted
      average number of Common Shares outstanding—basic
                                                                        
                                                                        
                                                                        51,873
                                                                        
                                                                        
                                                                        
                                                                        50,736
                                                                        
                                                                        
                                                                        
                                                                        51,586
                                                                        
                                                                        
                                                                        
                                                                        50,511Weighted
      average number of Common Shares outstanding—
                                                                          diluted
                                                                        
                                                                        
                                                                        53,242
                                                                        
                                                                        
                                                                        
                                                                        52,689
                                                                        
                                                                        
                                                                        
                                                                        52,955
                                                                        
                                                                        
                                                                        
                                                                        52,224
  
 See
accompanying Notes to Condensed Consolidated Financial
Statements
 
  4
  
 
 OPEN TEXT
CORPORATION
  CONDENSED CONSOLIDATED STATEMENTS OF
RETAINED EARNINGS (DEFICIT)
 (In thousands of U.S.
Dollars)
 (Unaudited)
 
 Three
      months ended
                                December
      31,
                              
                              
                              Six
      months ended
                                December
      31,2008
                              
                              
                              2007
                              
                              
                              2008
                              
                              
                              2007Retained
      earnings (deficit), beginning of period
                              
                              $
                              62,202
                              
                              
                              $
                              2,335
                              
                              
                              $
                              47,541
                              
                              
                              $
                              (5,465
                              )Net
      income
                              
                              
                              761
                              
                              
                              
                              10,685
                              
                              
                              
                              15,422
                              
                              
                              
                              18,485Retained
      earnings, end of period
                              
                              $
                              62,963
                              
                              
                              $
                              13,020
                              
                              
                              $
                              62,963
                              
                              
                              $
                              13,020
 
 
 See
accompanying Notes to Condensed Consolidated Financial
Statements
 
  5
   CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
 (In thousands of U.S.
Dollars)
 (Unaudited)
 
 Six months
      ended
                                              December
      31,2008
                                            
                                            
                                            2007Cash
      flows from operating activities:Net
      income for the period
                                            
                                            $
                                            15,422
                                            
                                            
                                            $
                                            18,485Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                                            
                                            
                                            46,517
                                            
                                            
                                            
                                            42,125In-process
      research and development
                                            
                                            
                                            121
                                            
                                            
                                            
                                            500Share-based
      compensation expense
                                            
                                            
                                            2,533
                                            
                                            
                                            
                                            1,718Employee
      long-term incentive plan
                                            
                                            
                                            2,805
                                            
                                            
                                            
                                            757Excess
      tax benefits from share-based compensation
                                            
                                            
                                            (6,653
                                            )
                                            
                                            
                                            (766
                                            )Undistributed
      earnings related to minority interest
                                            
                                            
                                            51
                                            
                                            
                                            
                                            254Pension
      expense
                                            
                                            
                                            906
                                            
                                            
                                            
                                            —Amortization
      of debt issuance costs
                                            
                                            
                                            550
                                            
                                            
                                            
                                            711Unrealized
      (gain) loss on financial instruments
                                            
                                            
                                            807
                                            
                                            
                                            
                                            2,851Loss
      on sale and write down of capital assets
                                            
                                            
                                            269
                                            
                                            
                                            
                                            —Deferred
      taxes
                                            
                                            
                                            3,915
                                            
                                            
                                            
                                            (4,113
                                            )Changes
      in operating assets and liabilities:Accounts
      receivable
                                            
                                            
                                            32,790
                                            
                                            
                                            
                                            7,579Inventory
                                            
                                            
                                            (609)
                                            
                                            
                                            
                                            —Prepaid
      expenses and other current assets
                                            
                                            
                                            (861
                                            )
                                            
                                            
                                            (197
                                            )Income
      taxes
                                            
                                            
                                            6,469
                                            
                                            
                                            
                                            8,554Accounts
      payable and accrued liabilities
                                            
                                            
                                            (16,097
                                            )
                                            
                                            
                                            1,472Deferred
      revenue
                                            
                                            
                                            (25,613
                                            )
                                            
                                            
                                            (8,883
                                            )Other
      assets
                                            
                                            
                                            1,334
                                            
                                            
                                            
                                            510Net
      cash provided by operating activities
                                            
                                            
                                            64,656
                                            
                                            
                                            
                                            71,557Cash
      flows from investing activities:Additions
      of capital assets - net
                                            
                                            
                                            (2,094
                                            )
                                            
                                            
                                            (3,386
                                            )Purchase
      of a division of Spicer Corporation
                                            
                                            
                                            (10,836
                                            )
                                            
                                            
                                            —Purchase
      of eMotion LLC, net of cash acquired
                                            
                                            
                                            (3,635
                                            )
                                            
                                            
                                            —Purchase
      of Captaris Inc., net of cash acquired
                                            
                                            
                                            (101,499
                                            )
                                            
                                            
                                            —Additional
      purchase consideration for prior period acquisitions
                                            
                                            
                                            (4,612
                                            )
                                            
                                            
                                            (439
                                            )Purchase
      of an asset group constituting a business
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (2,209
                                            )Investments
      in marketable securities
                                            
                                            
                                            (3,608
                                            )
                                            
                                            
                                            —Acquisition
      related costs
                                            
                                            
                                            (7,288
                                            )
                                            
                                            
                                            (11,842
                                            )Net
      cash used in investment activities
                                            
                                            
                                            (133,572
                                            )
                                            
                                            
                                            (17,876
                                            )Cash
      flows from financing activities:Excess
      tax benefits on share-based compensation expense
                                            
                                            
                                            6,653
                                            
                                            
                                            
                                            766Proceeds
      from issuance of Common Shares
                                            
                                            
                                            6,039
                                            
                                            
                                            
                                            9,217Repayment
      of long-term debt
                                            
                                            
                                            (1,721
                                            )
                                            
                                            
                                            (61,877
                                            )Debt
      issuance costs
                                            
                                            
                                            —
                                            
                                            
                                            
                                            (349
                                            )Net
      cash provided by (used in) financing activities
                                            
                                            
                                            10,971
                                            
                                            
                                            
                                            (52,243
                                            )Foreign
      exchange gain (loss) on cash held in foreign
    currencies
                                            
                                            
                                            (24,101
                                            )
                                            
                                            
                                            8,292Increase
      (decrease) in cash and cash equivalents during the
      period
                                            
                                            
                                            (82,046
                                            )
                                            
                                            
                                            9,730Cash
      and cash equivalents at beginning of the period
                                            
                                            
                                            254,916
                                            
                                            
                                            
                                            149,979Cash
      and cash equivalents at end of the period
                                            
                                            $
                                            172,870
                                            
                                            
                                            $
                                            159,709Supplementary
      cash flow disclosures (note 17)
 
  See
accompanying Notes to Condensed Consolidated Financial
Statements
 
  6
  
 OPEN TEXT
CORPORATION
  Unaudited Notes to Condensed
Consolidated Financial Statements
 For the Three and Six Months Ended
December 31, 2008
 (Tabular amounts in thousands, except
per share data)
  NOTE 1—BASIS OF
PRESENTATION
  The
accompanying unaudited condensed consolidated financial statements (consolidated
financial statements) include the accounts of Open Text Corporation and our
wholly and partially owned subsidiaries, collectively referred to as “Open Text”
or the “Company”. All inter-company balances and transactions have been
eliminated.
  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). These financial statements are based upon accounting policies and methods
of their application are consistent with those used and described in our annual
consolidated financial statements for the fiscal year ended June 30, 2008.
The consolidated financial statements do not include certain of the financial
statement disclosures included in the annual consolidated financial statements
prepared in accordance with U.S. GAAP and therefore should be read in
conjunction with the consolidated financial statements and notes included in our
Annual Report on Form 10-K for the fiscal year ended June 30,
2008.
  The
information furnished reflects all adjustments necessary for a fair presentation
of the results for the interim periods presented and includes the financial
results of Captaris Inc. (Captaris), with effect from November 1, 2008 (see Note
20). The operating results for the three and six months ended December 31, 2008
are not necessarily indicative of the results expected for any succeeding
quarter. During the quarter ended December 31, 2008 we established and adopted
certain additional critical accounting policies as a consequence of our
acquisition of Captaris (see Note 2). Other than the establishment and adoption
of these additional critical accounting policies there have been no significant
changes in our critical accounting policies from those that were disclosed in
our Annual Report on Form 10-K for the fiscal year ended June 30,
2008.
  Use of
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 from those
estimates. In particular, significant estimates, judgments and assumptions
include those related to: (i) revenue recognition including allowances for
estimated returns and right of return, (ii) allowance for doubtful
accounts, (iii) testing goodwill for impairment, (iv) the valuation of
acquired intangible assets, (v) long-lived assets, (vi) the
recognition of contingencies, (vii) facility and restructuring accruals,
(viii) acquisition accruals and pre-acquisition contingencies,
(ix) asset retirement obligations, (x) realization of investment tax
credits, (xi) the valuation of stock options granted and liabilities
related to share-based payments, including the valuation of our long-term
incentive plan, (xii) the valuation of financial instruments, (xiii) the
valuation of pension assets and obligations, (xiv) accounting for income
taxes, and (xv) valuation of inventory.
  Comprehensive income
(loss)
  Comprehensive
income (loss) is comprised of net income and other comprehensive income (loss),
including the effect of foreign currency translations resulting from the
consolidation of subsidiaries where the functional currency is a currency other
than the U.S. Dollar. Our total comprehensive income (loss) is as
follows:
 
 Three
      months ended
                    December
      31,
                  
                  
                  Six
      months ended
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Other comprehensive income (loss):Foreign
      currency translation adjustment
                  
                  $
                  (12,969)
                  
                  
                  $
                  16,825
                  
                  
                  $
                  (54,224)
                  
                  
                  $
                  37,694Unrealized
      loss on investments in marketable securities
                  
                  
                  (509)
                  
                  
                  
                  —
                  
                  
                  
                  (768)
                  
                  
                  
                  —Net
      income for the period
                  
                  
                  761
                  
                  
                  
                  10,685
                  
                  
                  
                  15,422
                  
                  
                  
                  18,485Comprehensive
      income (loss) for the period
                  
                  $
                  (12,717)
                  
                  
                  $
                  27,510
                  
                  
                  $
                  (39,570)
                  
                  
                  $
                  56,179
  
  7
  Reclassification
  Certain
prior period comparative figures have been adjusted to conform to current period
presentation including reclassifications related to a change we made in our
method of allocating operating expenses.
 
 As a
result of such reclassifications, Research and development expenses increased
with a corresponding decrease to Sales and marketing expenses by approximately
$223,000 and $474,000, respectively, for the three and six months ended December
31, 2007, from previously reported amounts.
  There was
no change to income from operations or net income (loss) per share in any of the
periods presented as a result of these reclassifications.
 
 NOTE 2—NEW ACCOUNTING PRONOUNCEMENTS
AND ACCOUNTING POLICY UPDATES
 
 In
November 2008, the Financial Accounting Standards Board (FASB) ratified Emerging
Issues Task Force (EITF) Issue No. 08-06, Equity Method Investment Accounting
Considerations(EITF 08-06). EITF
08-06 is effective for us beginning July 1, 2009, with early adoption
prohibited. We do not currently have any investments that are accounted for
under the equity method and therefore the pending adoption of EITF 08-06 is not
expected to have any impact on our consolidated financial
statements.
 
 In
November 2008, the FASB ratified EITF Issue No. 08-07, Accounting for Defensive Assets(EITF 08-07). EITF 08-07 clarifies the accounting for certain separately
identifiable intangible assets which an acquirer does not intend to actively use
but intends to hold to prevent its competitors from obtaining access to them and
requires an acquirer (in a business combination) to account for such defensive
intangible assets as a separate unit of accounting which should be amortized to
expense over the period that the asset diminishes in
value.   EITF 08-07 is effective for intangible assets acquired
by us on or after July 1, 2009, with early adoption prohibited.
 
 In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets(FSP FAS 142-3), which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and
Other Intangible Assets. FSP FAS142-3 is effective for us beginning July
1, 2009 and early adoption is prohibited. We are currently evaluating the impact
of the adoption of FSP FAS 142-3 on our consolidated financial
statements.
  In March
2008, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 161, Disclosures
about Derivative Instruments and Hedging Activities (SFAS 161), which
enhances the disclosure requirements under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities(SFAS 133). SFAS 161 requires
additional disclosures about the objectives of an entity's derivative
instruments and hedging activities, the method of accounting for such
instruments under SFAS 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on a
company’s financial position, financial performance, and cash flows. SFAS
161 is effective for us during the quarter ended March 31, 2009 and the
disclosures required by SFAS 161 will be included in our future consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51(SFAS 160),
which changes the accounting and reporting for minority interests. Minority
interest will be re-characterized as noncontrolling interests and will be
reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interest that do not result in a change in control
will be accounted for as equity transactions. In addition, net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. SFAS 160 is effective for us
beginning July 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply retrospectively. We
are currently assessing the impact that the adoption of SFAS 160 will have on
our consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations (SFAS
141R) which replaces SFAS No. 141Business Combinations(SFAS
141). The statement retains the purchase method of accounting for acquisitions,
but requires a number of changes, including changes in the way assets and
liabilities are recognized in the purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS 141R is effective for us beginning July 1, 2009 and
will apply prospectively to business combinations completed on or after that
date.
   8
  
 In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (SFAS
157), which defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157, does not require any new fair value measurements,
but provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008, the
FASB issued FASB FSP 157-2, Effective Date of FASB Statement
No. 157 (FSP FAS 157-2),which delays the effective
date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). On July 1, 2008, we adopted
SFAS 157 except for those items that have been deferred under FSP FAS 157-2 and
such adoption did not have a material impact on our consolidated financial
statements (see Note 3). We are currently assessing the potential impact that
the full adoption of SFAS 157 will have on our consolidated financial
statements.
 
 Accounting
Policy Updates
 
 As
a result of our acquisition of Captaris during the quarter ended December 31,
2008, we established and adopted accounting policies relating to the
following:
 
 Accounting
for Pensions, post-retirement
and post-employment
benefits
 
 Pension expense, based upon
management’s assumptions, consists of: actuarially computed costs of pension
benefits in respect of the current year of service, imputed returns on plan
assets (for funded plans) and imputed interest on pension obligations. The
expected costs of post retirement benefits, other than pensions, are accrued in
the financial statements based upon actuarial methods and assumptions. The
over-funded or under-funded status of defined benefit pension and other post
retirement plans are recognized as an asset or a liability, respectively, on the
balance sheet.
 
 Inventories
 
 Inventories
are valued at the lower of cost (as calculated on a first in first out basis) or
market value. In addition, full provisions are recorded for surplus inventory
deemed to be obsolete or inventory in excess of six month’s forecasted
demand.
 
 Revenue Recognition
 
 Allowance
for product returns
 
 We
provide allowances for estimated returns and return rights that exist for
certain legacy Captaris customers. In general, our customers are not granted
return rights at the time of sale. However, Captaris has historically accepted
returns and, therefore, reduced revenue recognized for estimated product
returns. For those customers to whom we do grant return rights, we reduce
revenue by an estimate of these returns. If we cannot reasonably estimate these
returns, we defer the revenue until the return rights lapse. For software sold
to resellers for which we have granted exchange rights, we defer the revenue
until the reseller sells the software through to end-users. When customer
acceptance provisions are present and we cannot reasonably estimate returns, we
recognize revenue upon the earlier of customer acceptance or expiration of the
acceptance period.
 
 NOTE 3—FAIR VALUE
MEASUREMENTS
  We
adopted SFAS 157, except for those items that have been deferred under FSP
FAS 157-2, on July 1, 2008. The adoption of SFAS 157 did not have a
material impact on our consolidated financial statements.
  SFAS 157
defines fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. SFAS 157 defines fair
value as the price that would be received upon sale of an asset or paid upon
transfer of a liability in an orderly transaction between market participants at
the measurement date and in the principal or most advantageous market for that
asset or liability. The fair value, in this context, should be calculated based
on assumptions that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition, the fair
value of liabilities should include consideration of non-performance risk
including our own credit risk.
  In
addition to defining fair value, SFAS 157 expands the disclosure
requirements around fair value and establishes a fair value hierarchy for
valuation inputs. The hierarchy prioritizes the inputs into three levels based
on the extent to which inputs used in measuring fair value are observable in the
market. Each fair value measurement is reported in one of the three levels
which are determined by the lowest level input that is significant to the fair
value measurement in its entirety. These levels are:
  9
  
 ·
              Level
      1 – inputs are based upon unadjusted quoted prices for identical
      instruments traded in active
markets.
 
 ·
              Level
      2 – inputs are based upon quoted prices for similar instruments in active
      markets, quoted prices for identical or similar instruments in markets
      that are not active, and model-based valuation techniques for which all
      significant assumptions are observable in the market or can be
      corroborated by observable market data for substantially the full term of
      the assets or liabilities.
  ·
              Level
      3 – inputs are generally unobservable and typically reflect management’s
      estimates of assumptions that market participants would use in pricing the
      asset or liability. The fair values are therefore determined using
      model-based techniques that include option pricing models, discounted cash
      flow models, and similar
techniques.
  
 Financial Assets and Liabilities
Measured at Fair Value on a Recurring Basis:
 
 Our
financial assets and liabilities measured at fair value on a recurring basis
consisted of the following types of instruments as of December 31,
2008:
  Fair
      Market Measurements using:Quoted prices in active markets
      for identical assets
                                    
                                    
                                    Significant other observable
      inputs
                                    
                                    
                                    Significant unobservable
      inputsDecember 31,
      2008
                                    
                                    
                                    (Level
      1)
                                    
                                    
                                    (Level
      2)
                                    
                                    
                                    (Level
      3)Assets:Marketable
      Securities
                                    
                                    $
                                    2,789
                                    
                                    
                                    $
                                    2,789
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    
                                    n/aTotal
      financial assets
                                    
                                    $
                                    2,789
                                    
                                    
                                    $
                                    2,789
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    
                                    n/aLiabilities:Derivative
      financial instrument
                                    
                                    $
                                    3,605
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    $
                                    3,605
                                    
                                    
                                    
                                    n/aTotal
      financial liabilities
                                    
                                    $
                                    3,605
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    $
                                    3,605
                                    
                                    
                                    
                                    n/a
 
 Our
valuation techniques used to measure the fair values of our marketable
securities were derived from quoted market prices as an active market for these
securities exist. Our valuation techniques used to measure the fair values of
the derivative instrument, the counterparty to which has high credit ratings,
were derived from the pricing models including discounted cash flow techniques,
with all significant inputs derived from or corroborated by observable market
data, as no quoted market prices exist for the derivative instrument. Our
discounted cash flow techniques use observable market inputs, such as three
month LIBOR-based yield curves, foreign currency spot and forward rates and
implied volatilities. In addition, on December 30, 2008, we entered into certain
foreign currency forward contracts the fair value of which, on December 31,
2008, using Level 2 valuation methodology, was nil.
 
 Assets and Liabilities Measured at
Fair Value on a Nonrecurring Basis
  We
measure certain assets at fair value on a nonrecurring basis. These assets are
recognized at fair value when they are deemed to be other-than-temporarily
impaired. During the three and six months ended December 31, 2008, no
indications of impairment were identified and therefore no fair value
measurements were required.
 
 NOTE 4—
INVENTORIES
 
 As of December 31,
                  2008Finished
      Goods
                
                $
                1,680Components
                
                
                547$
                2,227
  Inventories
consist primarily of fax boards that were acquired as part of our acquisition of
Captaris (see Note 20).
  10
  NOTE 5—CAPITAL
ASSETS
 
 As of December 31,
      2008Cost
                  
                  Accumulated
                    Depreciation
                  
                  NetFurniture
      and fixtures
                  
                  $
                  10,895
                  
                  
                  $
                  7,287
                  
                  
                  $
                  3,608Office
      equipment
                  
                  
                  8,978
                  
                  
                  
                  7,877
                  
                  
                  
                  1,101Computer
      hardware
                  
                  
                  71,973
                  
                  
                  
                  63,118
                  
                  
                  
                  8,855Computer
      software
                  
                  
                  23,088
                  
                  
                  
                  16,986
                  
                  
                  
                  6,102Leasehold
      improvements
                  
                  
                  17,981
                  
                  
                  
                  11,476
                  
                  
                  
                  6,505Land
      and buildings *
                  
                  
                  15,229
                  
                  
                  
                  1,237
                  
                  
                  
                  13,992$
                  148,144
                  
                  
                  $
                  107,981
                  
                  
                  $
                  40,163As of June 30,
      2008Cost
                  
                  Accumulated
                    Depreciation
                  
                  NetFurniture
      and fixtures
                  
                  $
                  10,490
                  
                  
                  $
                  8,877
                  
                  
                  $
                  1,613Office
      equipment
                  
                  
                  10,251
                  
                  
                  
                  8,948
                  
                  
                  
                  1,303Computer
      hardware
                  
                  
                  80,499
                  
                  
                  
                  72,654
                  
                  
                  
                  7,845Computer
      software
                  
                  
                  28,015
                  
                  
                  
                  21,819
                  
                  
                  
                  6,196Leasehold
      improvements
                  
                  
                  15,160
                  
                  
                  
                  11,295
                  
                  
                  
                  3,865Land
      and buildings *
                  
                  
                  24,261
                  
                  
                  
                  1,501
                  
                  
                  
                  22,760$
                  168,676
                  
                  
                  $
                  125,094
                  
                  
                  $
                  43,582
 ________________________________
 *
              A
      building that was recorded as an “asset held for sale” was sold in
      December 2008 for Canadian dollars $5.8 million. Inclusive of selling
      costs a loss of Canadian dollars $302,000 was recorded upon the
      sale.
 
 NOTE
6—GOODWILL
  Goodwill
is recorded when the consideration paid for an acquisition of a business exceeds
the fair value of identifiable net tangible and intangible assets. The following
table summarizes the changes in goodwill since June 30,
2007:
 Balance,
      June 30, 2007
                      
                      $
                      528,312Purchase
      of an asset group constituting a business (note
      20)
                      
                      
                      2,199Adjustments
      relating to prior acquisitions
                      
                      
                      5,930Adjustments
      relating to the adoption of FIN 48
                      
                      
                      (6,480)Adjustments
      on account of foreign exchange
                      
                      
                      34,687Balance,
      June 30, 2008
                      
                      
                      564,648Acquisition
      of a division of Spicer Corporation (note 20)
                      
                      
                      4,815Acquisition
      of Captaris Inc.(note 20)
                      
                      
                      44,692Amount
      allocated to intangible assets
                      
                      
                      (2,081
                      )Adjustments
      relating to prior acquisitions
                      
                      
                      (3,846
                      )Adjustments
      on account of foreign exchange
                      
                      
                      (30,984
                      )Balance,
      December 31, 2008
                      
                      $
                      577,244
  Adjustments
relating to prior acquisitions relate primarily to: (i) adjustments to plans
formulated in accordance with the FASB’s Emerging Issues Task Force Issue No.
95-3, “Recognition of Liabilities in Connection with a Purchase Business
Combination” (EITF 95-3) relating to employee termination and abandonment
of excess facilities and (ii) the evaluation of the tax attributes of
acquisition-related operating loss carry forwards and deductions, including
reductions in previously recognized valuation allowances, originally assessed at
the various dates of acquisition.
  11
  
 NOTE 7—ACQUIRED INTANGIBLE
ASSETS
 
 Technology
                          Assets
                        
                        
                        Customer
                          Assets
                        
                        
                        TotalNet
      book value, June 30, 2007
                        
                        $
                        179,216
                        
                        
                        $
                        164,108
                        
                        
                        $
                        343,324Acquisition
      of Momentum
                        
                        
                        —
                        
                        
                        
                        1,900
                        
                        
                        
                        1,900Amortization
      expense
                        
                        
                        (41,515)
                        
                        
                        
                        (30,759)
                        
                        
                        
                        (72,274
                        )Foreign
      exchange and other impacts
                        
                        
                        4,002
                        
                        
                        
                        4,872
                        
                        
                        
                        8,874Net
      book value, June 30, 2008
                        
                        
                        141,703
                        
                        
                        
                        140,121
                        
                        
                        
                        281,824Acquisition
      of Captaris Inc. (note 20)
                        
                        
                        60,000
                        
                        
                        
                        72,000
                        
                        
                        
                        132,000Acquisition
      of eMotion LLC (note 20)
                        
                        
                        1,450
                        
                        
                        
                        2,357
                        
                        
                        
                        3,807Acquisition
      of a division of Spicer Corporation (note 20)
                        
                        
                        5,529
                        
                        
                        
                        1,777
                        
                        
                        
                        7,306Purchase
      of an asset group constituting a business (note
      20)
                        
                        
                        —
                        
                        
                        
                        2,081
                        
                        
                        
                        2,081Amortization
      expense
                        
                        
                        (22,546)
                        
                        
                        
                        (18,353)
                        
                        
                        
                        (40,899
                        )Foreign
      exchange and other impacts
                        
                        
                        (379)
                        
                        
                        
                        (2,415)
                        
                        
                        
                        (2,794
                        )Net
      book value, December 31, 2008
                        
                        $
                        185,757
                        
                        
                        $
                        197,568
                        
                        
                        $
                        383,325
 
 The range
of amortization periods for intangible assets is from 3-10
years.
  The
following table shows the estimated future amortization expense for the fiscal
periods indicated below. This calculation assumes no future adjustments to
acquired intangible assets:
 sFiscal years ending
                  June 30,2009
      (six months ended June 30)
                
                
                $
                46,3232010
                
                
                
                80,9672011
                
                
                
                78,1512012
                
                
                
                74,3482013
                
                
                
                72,239Total
                
                
                $
                352,028
 
  NOTE 8—OTHER
ASSETS
 
 As of December 31,
                  2008
                
                
                As of June 30,
                  2008Debt
      issuance costs
                
                $
                5,276
                
                
                $
                5,834Deposits
                
                
                1,992
                
                
                
                1,848Long-term
      prepaid expenses
                
                
                1,761
                
                
                
                2,116Pension
      assets
                
                
                553
                
                
                
                598Miscellaneous
      other amounts
                
                
                74
                
                
                
                95$
                9,656
                
                
                $
                10,491
  Debt
issuance costs relate primarily to costs incurred for the purpose of obtaining
long-term debt used to partially finance the Hummingbird acquisition and are
being amortized over the life of our long-term debt.  Deposits relate to
security deposits provided to landlords in accordance with facility lease
agreements.  Long-tem prepaid expenses relate to certain advance payments
on long-term patent licenses that are being amortized over a period of seven
years. Pension assets relate to a pension asset recognized under SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans – an Amendment of FASB Statements 87, 88, 106 and 132(R)” (SFAS 158)
relating to a pension plan for legacy IXOS employees (see Note
11).
  12
  NOTE 9—ALLOWANCE FOR DOUBTFUL
ACCOUNTS
 
 Balance
      of allowance for doubtful accounts (AfDA) as of June 30,
      2007
                
                $
                2,089Bad
      debt expense for the year
                
                
                2,855Write-off
      /adjustments
                
                
                (970
                )Balance
      of allowance for doubtful accounts as of June 30,
      2008
                
                
                3,974Bad
      debt expense for the period
                
                
                2,651Write-off
      /adjustments
                
                
                (2,497
                )Balance
      of allowance for doubtful accounts as of December 31,
      2008
                
                $
                4,128
 Included in
accounts receivable are unbilled receivables in the amount of $4.7 million and
$4.2 million as of December 31, 2008 and June 30, 2008,
respectively.
 
  NOTE 10—ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
  Current
liabilities
  Accounts
payable and accrued liabilities are comprised of the
following:
 As of December 31,
                    2008
                  
                  
                  As of June 30,
                    2008Accounts
      payable—trade
                  
                  $
                  6,653
                  
                  
                  $
                  3,728Accrued
      salaries and commissions
                  
                  
                  27,893
                  
                  
                  
                  34,292Accrued
      liabilities
                  
                  
                  62,676
                  
                  
                  
                  49,014Amounts
      payable in respect of restructuring (note 19)
                  
                  
                  9,735
                  
                  
                  
                  1,150Amounts
      payable in respect of acquisitions and acquisition related
      accruals
                  
                  
                  16,758
                  
                  
                  
                  10,851$
                  123,715
                  
                  
                  $
                  99,035
 
 Long-term accrued
      liabilitiesAs of December 31,
                  2008
                
                
                As of June 30,
                  2008Amounts
      payable in respect of restructuring (note 19)
                
                
                714
                
                
                
                299Amounts
      payable in respect of acquisitions and acquisition related
      accruals
                
                
                7,382
                
                
                
                10,256Other
      accrued liabilities
                
                
                6,734
                
                
                
                2,851Asset
      retirement obligations
                
                
                6,888
                
                
                
                7,107$
                21,718
                
                
                $
                20,513
 
 Asset retirement
obligations
  We are
required to return certain of our leased facilities to their original state at
the conclusion of our lease. We have accounted for such obligations in
accordance with FASB SFAS No.143, “Accounting for Asset Retirement Obligations”
(SFAS 143). As of December 31, 2008 the present value of this obligation was
$6.9 million, (June 30, 2008—$7.1 million), with an undiscounted value of
$8.9 million, (June 30, 2008—$7.8 million).
  Accruals relating to acquisitions
  In
accordance with EITF 95-3, and in relation to our acquisitions, we have accrued
for costs relating to legacy workforce reductions and abandonment of excess
legacy facilities. Such accruals are capitalized as part of the cost of the
subject acquisition and in the case of abandoned facilities, have been recorded
at present value less our best estimate for future sub-lease income and costs
incurred to achieve sub-tenancy. The accrual for workforce reductions is
extinguished against the payments made to the employees and in the case of
excess facilities, will be discharged over the term of the respective leases.
Any excess of the difference between the present value and actual cash paid for
the excess facility will be charged to income and any deficits will be reversed
to goodwill. The provisions for abandoned facilities are expected to be paid by
February 2015.
  13
  
 The
following table summarizes the activity with respect to our acquisition accruals
during the six months ended December 31, 2008.
 Balance
                                June 30,
                                2008
                              
                              
                              Initial
                                Accruals
                              
                              
                              Usage/
                                Foreign
                                Exchange/
                                Other
                                Adjustments
                              
                              
                              Subsequent
                                Adjustments
                                to
    Goodwill
                              
                              
                              Balance
                                December
      31,
                                2008Captaris (See note
      20)Employee
      termination costs
                              
                              $
                              —
                              
                              
                              $
                              9,276
                              
                              
                              $
                              (1,649
                              )
                              
                              $
                              —
                              
                              
                              $
                              7,627Excess
      facilities
                              
                              
                              —
                              
                              
                              
                              3,347
                              
                              
                              
                              (149
                              )
                              
                              
                              —
                              
                              
                              
                              3,198Transaction-related
      costs
                              
                              
                              —
                              
                              
                              
                              797
                              
                              
                              
                              (466
                              )
                              
                              
                              —
                              
                              
                              
                              331—
                              
                              
                              
                              13,420
                              
                              
                              
                              (2,264
                              )
                              
                              
                              —
                              
                              
                              
                              11,156Division
      of Spicer CorporationEmployee
      termination costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Excess
      facilities
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Transaction-related
      costs
                              
                              
                              —
                              
                              
                              
                              262
                              
                              
                              
                              (240
                              )
                              
                              
                              (22
                              )
                              
                              
                              ——
                              
                              
                              
                              262
                              
                              
                              
                              (240
                              )
                              
                              
                              (22
                              )
                              
                              
                              —HummingbirdEmployee
      termination costs
                              
                              
                              310
                              
                              
                              
                              —
                              
                              
                              
                              (41
                              )
                              
                              
                              (13
                              )
                              
                              
                              256Excess
      facilities
                              
                              
                              4,249
                              
                              
                              
                              —
                              
                              
                              
                              (1,475
                              )
                              
                              
                              (795
                              )
                              
                              
                              1,979Transaction-related
      costs
                              
                              
                              815
                              
                              
                              
                              —
                              
                              
                              
                              (120
                              )
                              
                              
                              (695
                              )
                              
                              
                              —5,374
                              
                              
                              
                              —
                              
                              
                              
                              (1,636
                              )
                              
                              
                              (1,503
                              )
                              
                              
                              2,235IXOSEmployee
      termination costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Excess
      facilities
                              
                              
                              15,255
                              
                              
                              
                              —
                              
                              
                              
                              (4,901
                              )
                              
                              
                              —
                              
                              
                              
                              10,354Transaction-related
      costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              (45
                              )
                              
                              
                              45
                              
                              
                              
                              —15,255
                              
                              
                              
                              —
                              
                              
                              
                              (4,946
                              )
                              
                              
                              45
                              
                              
                              
                              10,354EloquentEmployee
      termination costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Excess
      facilities
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Transaction-related
      costs
                              
                              
                              243
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              243243
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              243CentrinityEmployee
      termination costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Excess
      facilities
                              
                              
                              211
                              
                              
                              
                              —
                              
                              
                              
                              (77
                              )
                              
                              
                              —
                              
                              
                              
                              134Transaction-related
      costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —211
                              
                              
                              
                              —
                              
                              
                              
                              (77
                              )
                              
                              
                              —
                              
                              
                              
                              134ArtesiaEmployee
      termination costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Excess
      facilities
                              
                              
                              24
                              
                              
                              
                              —
                              
                              
                              
                              (6
                              )
                              
                              
                              —
                              
                              
                              
                              18Transaction-related
      costs
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —24
                              
                              
                              
                              —
                              
                              
                              
                              (6
                              )
                              
                              
                              —
                              
                              
                              
                              18TotalsEmployee
      termination costs
                              
                              
                              310
                              
                              
                              
                              9,276
                              
                              
                              
                              (1,690
                              )
                              
                              
                              (13
                              )
                              
                              
                              7,883Excess
      facilities
                              
                              
                              19,739
                              
                              
                              
                              3,347
                              
                              
                              
                              (6,608
                              )
                              
                              
                              (795
                              )
                              
                              
                              15,683Transaction-related
      costs
                              
                              
                              1,058
                              
                              
                              
                              1,059
                              
                              
                              
                              (871
                              )
                              
                              
                              (672
                              )
                              
                              
                              574$
                              21,107
                              
                              
                              $
                              13,682
                              
                              
                              $
                              (9,169
                              )
                              
                              $
                              (1,480
                              )
                              
                              $
                              24,140
 
 The
adjustments to goodwill primarily relate to employee termination costs and
excess facilities accounted for in accordance with EITF 95-3.  The
adjustments to goodwill relating to transaction costs are accounted for in
accordance with SFAS 141.
 
  14
  NOTE 11— PENSION PLANS AND OTHER POST
RETIREMENT BENEFITS
 
 CDT
Defined Benefit Plan andCDTLong-term
Employee Benefit Obligations:
 
 As part
of our acquisition of Captaris we acquired the following unfunded defined
benefit pension plan and certain long-term employee benefit obligations in
relation to Captaris Document Technologies GmbH (CDT), a wholly owned subsidiary
of Captaris.  As of December 31, 2008 the balances relating to these
obligations were as follows:
 
 
 Total
      benefit obligation
                                                          
                                                          
                                                          Current
      portion of benefit obligation*
                                                          
                                                          
                                                          Non
      current portion of benefit obligationCDT
      defined benefit plan
                                                          
                                                          $
                                                          14,990
                                                          
                                                          
                                                          $
                                                          290
                                                          
                                                          
                                                          $
                                                          14,700CDT
      Anniversary plan
                                                          
                                                          
                                                          1,097
                                                          
                                                          
                                                          
                                                          204
                                                          
                                                          
                                                          
                                                          893CDT
      early retirement plan
                                                          
                                                          
                                                          650
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          650Total
                                                          
                                                          $
                                                          16,737
                                                          
                                                          
                                                          $
                                                          494
                                                          
                                                          
                                                          $
                                                          16,243
 * The
current portion of the benefit obligation has been included within Accounts
payable and accrued liabilities within the Condensed Consolidated Balance
Sheets.
 
 CDT
Defined Benefit Plan
 
 CDT
sponsors an unfunded defined benefit pension plan covering substantially all CDT
employees (CDT pension plan) which provides for old age, disability and
survivors ́ benefits. Benefits under the CDT pension plan are generally based on
age at retirement, years of service and the employee’s annual earnings. The net
periodic cost of this pension plan is determined using the projected unit credit
method and several actuarial assumptions, the most significant of which are the
discount rate and estimated service costs.
 
 The
following are the components of net periodic benefit costs for the CDT pension
plan and the details of the change in the benefit obligation from November 1,
2008 (the date from which the results of operations of Captaris have been
consolidated with Open Text) to December 31, 2008:
 
 Benefit
      obligation as of  November 1, 2008
                
                $
                14,782Service
      cost
                
                
                99Interest
      cost
                
                
                142Benefits
      paid
                
                
                (33
                )Benefit
      obligation as of  December 31, 2008
                
                
                14,990Less:
      current portion
                
                
                (290
                )Non
      current portion of benefit obligation as of December 31,
      2008
                
                $
                14,700
 In determining the fair value of the CDT pension plan as of December 31, 2008,
we used the following weighted average key assumptions:
   Assumptions:Salary
      increases
                  
                  
                  2.25
                  %Pension
      increases
                  
                  
                  1.50
                  %Discount
      rate
                  
                  
                  6.00
                  %Employee
      fluctuation rate:to
      age 30
                  
                  
                  3.00
                  %to
      age 35
                  
                  
                  2.00
                  %to
      age 40
                  
                  
                  2.00
                  %to
      age 45
                  
                  
                  1.50
                  %to
      age 50
                  
                  
                  0.50
                  %from
      age 51
                  
                  
                  0.00
                  %
 
 15
  
 Anticipated
pension payments under the CDT pension plan, for the calendar years indicated
below are as follows:
 
 2009
                
                $
                2752010
                
                
                3722011
                
                
                3972012
                
                
                4342013
                
                
                5462014
      to 2018
                
                
                4,064Total
                
                $
                6,088
 
 CDT
Long-term employee benefit obligation.
 
 CDT’s
long-term employee benefit obligation relates to obligations to CDT
employees in relation to CDT’s “Anniversary plan” and an early retirement plan.
The obligation is unfunded and carried at a fair value of $1.1 million for the
long-term employee benefit obligation and $650,000 for the early retirement
plan, as of December 31, 2008.
  The Anniversary plan is a defined benefit plan for long-tenured CDT employees.
The plan provides for a lump-sum payment to employees of two months of salary
upon reaching the anniversary of twenty five years of service and three months
of salary upon reaching the anniversary of forty years of
service. The early
retirement plan is designed to create an incentive for employees, within a
certain age group, to transition from (full or part-time) employment into
retirement before their legal retirement age. This plan allows employees, upon
reaching a certain age, to elect to work full-time for a period of time and be
paid 50% of their full time salary. After working within this arrangement for a
designated period of time, the employee is eligible to take early retirement and
receive payments from the earned but unpaid salaries until they are eligible to
receive payments under the postretirement benefit plan discussed above. Benefits
under the early retirement plan are generally based on the employees’
compensation and the number of years of service.
  IXOS AG Defined Benefit
Plans
 
 Included
within “Other Assets” are net pension assets of $553,000 (June 30,
2008—$598,000) relating to two IXOS defined benefit pensions plans (IXOS pension
plans) relating to certain former members of the IXOS board of directors and
certain IXOS employees, respectively (See Note 8). The net periodic pension
cost, with respect to the IXOS pension plans, is determined using the projected
unit credit method and several actuarial assumptions, the most significant of
which are the discount rate and the expected return on plan
assets.  The fair value of our total plan assets under the IXOS
pension plans, as of December 31, 2008, is $3.3 million (June 30, 2008—$3.7
million). The fair value of our total pension obligation under the IXOS pension
plans, as of December 31, 2008 is $2.8 million, (June 30, 2008—$3.1
million).
 
 In
determining the fair value of the IXOS pension plans as of December 31, 2008, we
used the following weighted average key assumptions:
 
 Assumptions
      : Former IXOS directors’ defined benefit  pension
      planSalary
      increases
                  
                  
                  0.00
                  %Pension
      increases
                  
                  
                  1.50%-
      3.00
                  %Discount
      rate
                  
                  
                  6.00
                  %Rate
      of expected return on plan assets
                  
                  
                  4.50
                  %
  Assumptions
      : Former IXOS employees’ defined benefit  pension
      planSalary
      increases
                  
                  
                  0.00
                  %Pension
      increases
                  
                  
                  0.00
                  %Discount
      rate
                  
                  
                  6.00
                  %Rate
      of expected return on plan assets
                  
                  
                  4.60
                  %
 
 Anticipated
pension payments under the IXOS pension plans, for the calendar years indicated
below are as follows:
  Anticipated
      Pension
                    Payments2009
                  
                  $
                  1112010
                  
                  
                  152011
                  
                  
                  -2012
                  
                  
                  862013
                  
                  
                  642014
      to 2018
                  
                  
                  549Total
                  
                  $
                  825
 
  16
  NOTE 12—LONG-TERM DEBT AND FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES
  Long-term
debt
  Long-term
debt is comprised of the following:
 As of December 31,
                    2008
                  
                  
                  As of June 30,
                    2008Long-term
      debtTerm
      loan
                  
                  $
                  292,509
                  
                  
                  $
                  294,006Mortgage
                  
                  
                  11,210
                  
                  
                  
                  13,781303,719
                  
                  
                  
                  307,787Less:Current portion of long-term
      debtTerm
      loan
                  
                  
                  2,993
                  
                  
                  
                  2,993Mortgage
                  
                  
                  419
                  
                  
                  
                  4933,412
                  
                  
                  
                  3,486Long-term portion of long-term
      debt
                  
                  $
                  300,307
                  
                  
                  $
                  304,301
  Term loan and
Revolver
  On
October 2, 2006, we entered into a $465.0 million credit agreement (the
credit agreement) with a Canadian chartered bank (the bank) consisting of a
$390.0 million term loan facility (the term loan) and a $75.0 million committed
revolving long-term credit facility (the revolver). The term loan was used to
finance a portion of our Hummingbird acquisition and the revolver will be used
for general business purposes.
  Term
loan
  The term
loan has a seven year term and expires on October 2, 2013 and bears
interest at a floating rate of LIBOR plus 2.25%. The quarterly scheduled term
loan principal repayments are equal to 0.25% of the original principal amount,
due each quarter with the remainder due at the end of the term, less ratable
reductions for any non-scheduled prepayments made. From October 2, 2006 to
December 31, 2008 we have made total non-scheduled prepayments of $90.0 million
towards the principal on the term loan. These non-scheduled prepayments have
reduced our total outstanding term loan to $292.5 million and our quarterly
scheduled principal payment to approximately $748,000.
  For the
three and six months ended December 31, 2008, we recorded interest expense of
$3.7 million and $7.2 million, respectively, (three and six months ended
December 31, 2007-$6.1 million and $13.2 million, respectively), relating to the
term loan.
  Revolver
  The
revolver has a five year term and expires on October 2, 2011. Borrowings
under this facility bear interest at rates specified in the credit agreement.
The revolver is subject to a “stand-by” fee ranging between 0.30% and
0.50% per annum depending on our consolidated leverage ratio. There were no
borrowings outstanding under the revolver as of December 31, 2008. During Fiscal
2008, we obtained a demand guarantee, under the revolver, in the amount of
Euro 11.1 million which was cancelled on December 22, 2008 (See Note
18).
 
 For the
three and six months ended December 31, 2008, we recorded interest expense of
$55,000 and $112,000 respectively, (three and six months ended December 31,
2007—$73,000 and $145,000, respectively), on account of stand-by fees relating
to the revolver.
 
 Mortgage
  The
mortgage consists of a five year mortgage agreement entered into during December
2005 with the bank. The original principal amount of the mortgage was Canadian
$15.0 million. The mortgage: (i) has a fixed term of five years,
(ii) matures on January 1, 2011, and (iii) is secured by a lien
on our headquarters in Waterloo, Ontario. Interest accrues monthly at a fixed
rate of 5.25% per annum. Principal and interest are payable in monthly
installments of Canadian $101,000 with a final lump sum principal payment of
Canadian $12.6 million due on maturity.
  As of
December 31, 2008, the carrying value of the building was $14.0 million. (June
30, 2008—$17.1 million).
  17
   For the
three and six months ended December 31, 2008, we recorded interest expense of
$144,000 and $320,000 (three and six months ended December 31, 2007—$188,000 and
$365,000, respectively), relating to the mortgage.
  Financial Instruments and Hedging
Activities
  Interest-rate
collar
 
 In
October 2006, we entered into a three year interest-rate collar that had the
economic effect of circumscribing the floating portion of the interest rate
obligations associated with $195.0 million of the term loan within an upper
limit of 5.34% and a lower limit of 4.79%. This was pursuant to a requirement in
the credit agreement that required us to maintain, from thirty days following
the date on which the term loan was entered into through the third anniversary
or such earlier date on which the term loan is paid, interest rate hedging
arrangements with counterparties in respect of a portion of the term
loan.  As of December 31, 2008, in accordance with the contractual
terms and conditions of the term loan agreement, the hedged portion of the loan
was $100.0 million (June 30, 2008— $150.0 million).
  SFAS 133
requires that changes in a derivative instrument’s fair value be recognized in
current earnings unless specific hedge accounting criteria are met and that an
entity must formally document, designate and assess the effectiveness of
transactions that qualify for hedge accounting.
  SFAS 133
requires that written options must meet certain criteria in order for hedge
accounting to apply. We determined that these criteria were not met and hedge
accounting could not be applied to this instrument. The fair market value of the
collar was approximately $3.6 million as of December 31, 2008 (June 30,
2008—$2.8 million), and has been included within “Accounts payable and accrued
liabilities”. The collar has a remaining term to maturity of 1.0 year from
December 31, 2008.
  For the
three and six months ended December 31, 2008, we recorded net interest expense
of $1.5 million and $807,000 respectively, (for the three and six months ended
December 31, 2007-an increase to interest expense of $1.4 million and $2.8
million, respectively), representing the change in the fair value of the collar
during the quarter ended December 31, 2008. Additionally, we record payments or
receipts on the collar as adjustments to interest expense. We recorded interest
expense in the amount of $394,000 and $1.2 million, respectively, on account of
monies payable under the collar for the three and six months ended December 31,
2008 (three and six months ended December 31, 2007- a reduction to interest
expense of nil and $10,000, respectively).
  Foreign
currency forward contracts
 
 On
December 30, 2008 we entered into forward contracts to limit the exchange
fluctuations on certain intercompany revenue streams that are expected to occur,
on a monthly basis, over the next twelve months, in the amounts of $5.5 million
per month, for a total amount of $66.0 million. These contracts have been
designated as, and will be accounted for as, cash flow hedges of forecasted
transactions. We do not use forward contracts for trading purposes. As of
December 31, 2008 the fair value of these forward contracts individually and in
the aggregate was nil.
 
 NOTE
13—SHARE CAPITAL, OPTION PLANS AND SHARE BASED PAYMENTS
  Share
Capital
  Our
authorized share capital includes an unlimited number of Common Shares and an
unlimited number of first preference shares. No preference shares have been
issued.
  We did
not repurchase any Common Shares during the three and six months ended December
31, 2008 and 2007.
 
 Share-Based
Payments
  Summary of Outstanding Stock
Options
  As of
December 31, 2008, options to purchase an aggregate of 3,743,948 Common Shares
are outstanding and 1,364,525 Common Shares are available for issuance under
our stock option plans. Our stock options generally vest over four years
and expire between seven and ten years from the date of the grant. The exercise
price of the options we grant is set at an amount that is not less than the
closing price of our Common Shares on the trading day for the NASDAQ immediately
preceding the applicable grant date.
  18
   A summary
of option activity under our stock option plans for the six months December 31,
2008 is as follows:
 Options
                        
                        
                        Weighted-
                          Average Exercise
                          Price
                        
                        
                        Weighted-
                          Average
                          Remaining
                          Contractual Term
                          (years)
                        
                        
                        Aggregate Intrinsic Value
                          ($’000s)Outstanding
      at June 30, 2008
                        
                        
                        3,763,665
                        
                        
                        $
                        15.22Granted
                        
                        
                        706,100
                        
                        
                        
                        32.63Exercised
                        
                        
                        (722,227
                        )
                        
                        
                        7.80Forfeited
      or expired
                        
                        
                        (3,590
                        )
                        
                        
                        17.52Outstanding
      at December 31, 2008
                        
                        
                        3,743,948
                        
                        
                        $
                        19.93
                        
                        
                        
                        4.46
                        
                        
                        $
                        40,649Exercisable
      at December 31, 2008
                        
                        
                        2,317,786
                        
                        
                        $
                        16.26
                        
                        
                        
                        3.67
                        
                        
                        $
                        32,245
  We
estimate the fair value of stock options using the Black-Scholes option pricing
model, consistent with the provisions of SFAS 123 (Revised 2004), “Share-Based
Payment” (SFAS 123R) and SEC Staff Accounting Bulletin No. 107. The
Black-Scholes option-pricing model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable, while the options issued by us are subject to both vesting and
restrictions on transfer. In addition, option-pricing models require input of
subjective assumptions including the estimated life of the option and the
expected volatility of the underlying stock over the estimated life of the
option. We use historical volatility as a basis for projecting the expected
volatility of the underlying stock and estimate the expected life of our stock
options based upon historical data.
 
 We
believe that the valuation technique and the approach utilized to develop the
underlying assumptions are appropriate in calculating the fair value of our
stock option grants. Estimates of fair value are not intended, however, to
predict actual future events or the value ultimately realized by employees who
receive equity awards.
  For the
three months ended December 31, 2008, the weighted-average fair value of options
granted, as of the grant date, was $10.13, using the following weighted average
assumptions: expected volatility of 41%; risk-free interest rate of 1.28%;
expected dividend yield of 0%; and expected life of 4.4 years. A forfeiture rate
of 5%, based on historical rates, was used to determine the net amount of
compensation expense recognized.
 
 For the
six months ended December 31, 2008, the weighted-average fair value of options
granted, as of the grant date, was $12.47, using the following weighted average
assumptions: expected volatility of 42%; risk-free interest rate of 2.9%;
expected dividend yield of 0%; and expected life of 4.4 years. A forfeiture rate
of 5%, based on historical rates, was used to determine the net amount of
compensation expense recognized.
  For the
three months ended December 31, 2007, there were no options granted by us.
A forfeiture rate of 5%, based on historical rates, was used to determine the
net amount of compensation expense recognized during this
period.
  For the
six months ended December 31, 2007, the weighted-average fair value of
options granted, as of the grant date, was $11.12, using the following weighted
average assumptions: expected volatility of 43%; risk-free interest rate of
5.0%; expected dividend yield of 0%; and expected life of 5.0 years. A
forfeiture rate of 5%, based on historical rates, was used to determine the net
amount of compensation expense recognized.
  As of
December 31, 2008, the total compensation cost related to the unvested stock
awards not yet recognized was $12.5 million, which will be recognized over a
weighted average period of approximately 3 years.
  As of
December 31, 2007, the total compensation cost related to the unvested stock
awards not yet recognized was $9.0 million, which will be recognized over a
weighted average period of approximately 2 years.
  In each
of the above periods, no cash was used by us to settle equity instruments
granted under share-based compensation arrangements.
  Share-based
compensation cost included in the Condensed Consolidated Statements of Income
for the three and six months ended December 31, 2008 was approximately $1.1
million and $2.5 million, respectively.
  Share-based
compensation cost included in the Condensed Consolidated Statements of Income
for the three and six months ended December 31, 2007 was approximately
$655,000 and $1.7 million, respectively.
  We have
not capitalized any share-based compensation costs as part of the cost of an
asset.
   19
  
 For the
three and six months ended December 31, 2008, cash in the amount of $382,000 and
$5.6 million, respectively, was received as the result of the exercise of
options granted under share-based payment arrangements. The tax benefit realized
by us during the three and six months ended December 31, 2008 from the exercise
of options eligible for a tax deduction was $24,000 and $6.6 million,
respectively, which was recorded as additional paid-in capital.
 
 For the
three and six months ended December 31, 2007, cash in the amount of $3.4
million and $8.9 million, respectively, was received as the result of the
exercise of options granted under share-based payment arrangements. The tax
benefit realized by the Company, during the three and six months ended
December 31, 2007 from the exercise of options eligible for a tax deduction
was $369,000 and $766,000, respectively, which was recorded as additional
paid-in capital.
  Long Term Incentive
Plan
  On
September 10, 2007 our Board of Directors approved the implementation of a
Long-Term Incentive Plan called the “Open Text Corporation Long-Term Incentive
Plan” (LTIP). The LTIP took effect in Fiscal 2008, starting on July 1,
2007. The LTIP is a rolling three year program whereby we will make a series of
annual grants, each of which covers a three year performance period, to certain
of our employees, upon the employee meeting pre-determined performance targets.
Awards may be equal to either 100% or 150% of target, for each criterion
independently, based on the employee’s accomplishments over the three year
period. The maximum amount that an employee may receive with regard to any
single performance criterion is 1.5 times the target award for that criterion.
We expect to settle the LTIP awards in cash.
  Three
performance criteria will be used to measure performance over the relevant three
year period:
 
 ·
              Absolute share price –if our Common Shares appreciate to a predetermined price per share
      and that price is maintained for a minimum of 22 consecutive NASDAQ
      trading days, the absolute share price target will have been
      achieved;
 
 ·
              Relative total shareholder
      return – if, over a three year period, our Common Shares appreciate
      at a rate which exceeds the rate of appreciation disclosed by the Standard
      & Poor’s Mid Cap 400 Software and Service Index by a prearranged
      percentage, the relative total shareholder return target will have been
      achieved; and
 
 ·
              Average adjusted earnings per
      share – if the average of our adjusted earnings per share over the
      latter two years of a three year period reaches a preset amount, the
      average adjusted earnings per share target will have been met (adjusted
      earnings per share means adjusted net income divided by our total number
      of Common Shares outstanding on a diluted
  basis).
 
 The three
performance criteria carry the following weightings:
 
 ·
              Absolute
      share price = 37.5%;
 
 ·
              Relative
      total shareholder return = 37.5%;
and
 
 ·
              Average
      adjusted earnings per share = 25%.
  Consistent
with the provisions of SFAS 123R, we have measured the fair value of the
liability under the LTIP as of December 31, 2008 and charged the expense
relating to such liability to compensation cost in the amount of $1.7million for
the three months ended December 31, 2008 (three months ended December 31,
2007—$572,000) and $2.8 million for the six months ended December 31, 2008 (six
months ended December 31, 2007—$757,000). The
outstanding liability under the LTIP is re-measured based
upon the change in the fair value of the liability. As of the end of
every reporting period, a cumulative adjustment to compensation cost
for the change in fair value is recognized. The cumulative compensation expense
recognized upon completion of the LTIP will be equal to the payouts
made.
  Employee Share Purchase Plan
(ESPP)
  During
the three months ended December 31, 2008, no Common Shares were issued under the
ESPP.  During the six months ended December 31, 2008, 13,316 Common
Shares were issued under the ESPP for cash collected from employees totaling
$404,000. In addition, cash in the amount of $115,000 and $402,000,
respectively, was received from employees for the three and six months ended
December 31, 2008 that will be used to purchase Common Shares in future
periods.
  During the three months ended
December 31, 2007, no Common Shares were issued under the ESPP. During the
six months ended December 31, 2007, 16,894 Common Shares were issued under
the ESPP for cash collected from employees, totaling $350,000. In addition, cash
in the amount of approximately $151,000 and $332,000, respectively, was received
from employees for the three and six months ended December 31, 2007 that
will be used to purchase Common Shares in future periods.
  20
  NOTE 14—NET INCOME PER
SHARE
  Basic
earnings per share are computed by dividing net income by the weighted average
number of Common Shares outstanding during the period. Diluted earnings per
share are computed by dividing net income by the shares used in the calculation
of basic net income per share plus the dilutive effect of common share
equivalents, such as stock options, using the treasury stock method. Common
share equivalents are excluded from the computation of diluted net income per
share if their effect is anti-dilutive.
 Three months ended
                    December
    31,
                  
                  
                  Six months
      ended
                    December
    31Basic earnings per
      share
                  
                  
                  2008
                  
                  
                  
                  2007
                  
                  
                  
                  2008
                  
                  
                  
                  2007Net
      income
                  
                  $
                  761
                  
                  
                  $
                  10,685
                  
                  
                  $
                  15,422
                  
                  
                  $
                  18,485Basic
      earnings per share
                  
                  $
                  0.01
                  
                  
                  $
                  0.21
                  
                  
                  $
                  0.30
                  
                  
                  $
                  0.37Diluted earnings per
      shareNet
      income
                  
                  $
                  761
                  
                  
                  $
                  10,685
                  
                  
                  $
                  15,422
                  
                  
                  $
                  18,485Diluted
      earnings per share
                  
                  $
                  0.01
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.29
                  
                  
                  $
                  0.35Weighted average number of
      shares outstandingBasic
                  
                  
                  51,873
                  
                  
                  
                  50,736
                  
                  
                  
                  51,586
                  
                  
                  
                  50,511Effect
      of dilutive securities
                  
                  
                  1,369
                  
                  
                  
                  1,953
                  
                  
                  
                  1,369
                  
                  
                  
                  1,713Diluted
                  
                  
                  53,242
                  
                  
                  
                  52,689
                  
                  
                  
                  52,955
                  
                  
                  
                  52,224Excluded
      as anti-dilutive *
                  
                  
                  1,037
                  
                  
                  
                  56
                  
                  
                  
                  628
                  
                  
                  
                  60
 ______________________
 *
Represents options to purchase Common Shares excluded from the calculation of
diluted net income per share because the exercise price of the stock options was
greater than or equal to the average price of the Common Shares during the
period.
 
 NOTE 15—INCOME
TAXES
 
 Our
effective tax rate represents the net effect of the mix of income earned in
various tax jurisdictions that are subject to a wide range of income tax
rates.
 
 The total
amount of unrecognized tax benefits as of  December 31, 2008 was $45.8
million of which $12.9 million of unrecognized tax benefits would affect our
effective tax rate, if realized, and the remaining $32.9 million would reduce
goodwill recognized in connection with the Hummingbird acquisition. In addition,
consistent with the provisions of FIN 48, certain reclassifications were made to
the balance sheet upon adoption of FIN 48 at July 1, 2007, including an increase
of $1.8 million to long-term deferred tax assets, an increase of $26.5 million
to long-term current income tax recoverable, a decrease of $18.1 million to
current income tax payable, an increase of $39.9 million to long-term income tax
payable and a decrease of $6.5 million to goodwill.  These
unrecognized tax benefits relate primarily to the deductibility of intercompany
charges as they relate to transfer pricing.
 
 Upon
adoption of FIN 48 we have elected to follow an accounting policy to classify
interest related to income tax-related receivables/payables under “Interest
income (expense), net” and penalties related to liabilities for income tax
expense under “Other income (expense)”, on our consolidated financial
statements. The gross amount of tax –related interest and penalties accrued as
of December 31, 2008 was approximately $300,000 and nil,
respectively.
 
 We
believe it is reasonably possible that the gross unrecognized tax benefits, as
of December 31, 2008 could increase in the next 12 months by $1.9 million,
relating primarily to tax years becoming statute barred for purposes of future
tax examinations by local taxing jurisdictions.
 
 Our three
most significant tax jurisdictions are Canada, the United States and Germany.
Our tax filings remain subject to examination by applicable tax authorities for
a certain length of time following the tax year to which those filings
relate.  Tax years that remain open to examinations by local taxing
authorities vary by jurisdiction up to ten years.
 
 We are
subject to tax examinations in all major taxing jurisdictions in which we
operate and currently have examinations open in Canada, the United States,
Germany, and France.  We regularly assess the status of these
examinations and the potential for adverse outcomes to determine the adequacy of
the provision for income and other taxes.
  21
  
 Although
we believe that we have adequately provided for any reasonably foreseeable
outcomes related to our tax examinations and that any settlement will not have a
material adverse effect on our consolidated financial position or results of
operations, we cannot predict with any level of certainty the exact nature of
the possible future outcomes or settlements.
  NOTE 16—SEGMENT
INFORMATION
  SFAS
No.131, “Disclosures about Segments of an Enterprise and Related Information”
(SFAS 131) establishes standards for reporting, by public business enterprises,
information about operating segments, products and services, geographic areas,
and major customers. The method of determining what information, under SFAS 131,
to report is based on the way that we organize our operating segments for making
operational decisions and how our management and chief operating decision maker
(CODM) assess our financial performance. Our operations are analyzed as
being part of a single industry segment: the design, development, marketing and
sales of enterprise content management software and solutions.
  The
following table sets forth the distribution of revenues, determined by location
of customer, by significant geographic area, for the periods
indicated:
  Three months
      ended
                    December
      31
                  
                  
                  Six months
      ended
                    December
    31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:Canada
                  
                  $
                  13,366
                  
                  
                  $
                  14,643
                  
                  
                  $
                  27,481
                  
                  
                  $
                  25,730United
      States
                  
                  
                  91,579
                  
                  
                  
                  69,867
                  
                  
                  
                  161,756
                  
                  
                  
                  137,930United
      Kingdom
                  
                  
                  18,418
                  
                  
                  
                  22,515
                  
                  
                  
                  38,055
                  
                  
                  
                  43,511Germany
                  
                  
                  39,139
                  
                  
                  
                  27,430
                  
                  
                  
                  70,162
                  
                  
                  
                  49,759Rest
      of Europe
                  
                  
                  34,826
                  
                  
                  
                  37,777
                  
                  
                  
                  73,588
                  
                  
                  
                  71,207All
      other countries
                  
                  
                  10,323
                  
                  
                  
                  10,302
                  
                  
                  
                  19,232
                  
                  
                  
                  18,364Total
      revenues
                  
                  $
                  207,651
                  
                  
                  $
                  182,534
                  
                  
                  $
                  390,274
                  
                  
                  $
                  346,501
 
 
 The
following table sets forth the distribution of long-lived assets, representing
capital assets and intangible assets- net, by significant geographic area, as of
the periods indicated below.
 As of December
      31,
                    2008
                  
                  
                  As of June 30,
                    2008Long-lived
      assets:Canada
                  
                  $
                  49,046
                  
                  
                  $
                  53,970United
      States
                  
                  
                  242,028
                  
                  
                  
                  140,525United
      Kingdom
                  
                  
                  29,510
                  
                  
                  
                  33,080Germany
                  
                  
                  51,493
                  
                  
                  
                  41,143Rest
      of Europe
                  
                  
                  46,320
                  
                  
                  
                  50,823All
      other countries
                  
                  
                  5,091
                  
                  
                  
                  5,865Total
                  
                  $
                  423,488
                  
                  
                  $
                  325,406
  It may be
noted that our management and the CODM do not review the asset information
hereinabove presented in order to assess performance and allocate
resources.
  NOTE 17—SUPPLEMENTAL CASH FLOW
DISCLOSURES
 
 Three months
      ended  December
      31,
                    
                    
                    Six months
      ended  December
      31,2008
                    
                    
                    
                    2007
                    
                    
                    
                    2008
                    
                    
                    
                    2007Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
                    
                    $
                    4,536
                    
                    
                    $
                    6,359
                    
                    
                    $
                    9,040
                    
                    
                    $
                    13,686Cash
      received during the period for interest
                    
                    $
                    1,432
                    
                    
                    $
                    1,296
                    
                    
                    $
                    3,199
                    
                    
                    $
                    2,467Cash
      paid during the year for income taxes
                    
                    $
                    1,571
                    
                    
                    $
                    1,430
                    
                    
                    $
                    5,023
                    
                    
                    $
                    1,929
    22
  NOTE 18—COMMITMENTS AND CONTINGENCIES
  We have
entered into the following contractual obligations with minimum annual payments
for the indicated fiscal periods as follows:
 
 Payments due by period ending
      June 30,Total
                    
                    
                    2009
                    
                    
                    2010 to 2011
                    
                    
                    2012 to 2013
                    
                    
                    2014 and beyondLong-term
      debt obligations
                    
                    $
                    401,049
                    
                    
                    $
                    12,275
                    
                    
                    $
                    58,774
                    
                    
                    $
                    46,049
                    
                    
                    $
                    283,951Operating
      lease obligations *
                    
                    
                    90,816
                    
                    
                    
                    13,996
                    
                    
                    
                    44,623
                    
                    
                    
                    15,469
                    
                    
                    
                    16,728Purchase
      obligations
                    
                    
                    4,884
                    
                    
                    
                    1,525
                    
                    
                    
                    2,766
                    
                    
                    
                    593
                    
                    
                    
                    —$
                    496,749
                    
                    
                    $
                    27,796
                    
                    
                    $
                    106,163
                    
                    
                    $
                    62,111
                    
                    
                    $
                    300,679
 ________________________________
 *
              Net
      of $4.7 million of non-cancelable sublease income to be received from
      properties which we have subleased to other
  parties.
 
 Rental
expense of $4.4 million and $8.6 million was recorded during the three and six
months ended December 31, 2008, respectively (three and six months ended
December 31, 2007- $4.2 million and $8.2 million,
respectively).
  The
long-term debt obligations are comprised of interest and principal payments on
our term loan agreement and a five year mortgage on our headquarters in
Waterloo, Ontario. For details relating to the term loan and the mortgage, see
Note 12.
  We do not
enter into off-balance sheet financing arrangements as a matter of practice
except for the use of operating leases for office space, computer equipment and
vehicles. In accordance with U.S. GAAP, neither the lease liability nor the
underlying asset is carried on the balance sheet, as the terms of the leases do
not meet the criteria for capitalization.
  IXOS Squeeze out
and Annual Compensation.
  In
December 2008, we acquired the remaining minority interest in IXOS for
approximately $12.4 million and successfully concluded the “Squeeze Out” (SO)
process.  As a result, a guaranteed payment to the minority
shareholders of IXOS of an annual compensation of Euro 0.42 per share
(“Annual Compensation”) is not payable for Fiscal 2009.  Annual
Compensation in the amount of Euro 335,000 relating to Fiscal 2008 has been
accrued for and is expected to be paid during the quarter ending March 31,
2009.
 
 In
connection with the SO we had obtained in December 2007, a demand guarantee from
a Canadian chartered bank in the amount of Euro 11.1 million for the
purpose of guaranteeing the payment of the remaining IXOS purchase
consideration. As we now own 100% of IXOS, this guarantee was cancelled in
December 2008.
 
 Guarantees and
indemnifications
  We have
entered into license agreements with customers that include limited intellectual
property indemnification clauses. Generally, we agree to indemnify our customers
against legal claims that our software products infringe certain third party
intellectual property rights. In the event of such a claim, we are generally
obligated to defend our customers against the claim and either settle the claim
at our expense or pay damages that our customers are legally required to pay to
the third-party claimant. These intellectual property infringement
indemnification clauses generally are subject to limits based upon the amount of
the license sale. We have not made any indemnification payments in relation to
these indemnification clauses.
 
 In
connection with certain facility leases, we have guaranteed payments on behalf
of our subsidiaries either by providing a security deposit with the landlord or
through unsecured bank guarantees obtained from local banks.
  We have
not disclosed a liability for guarantees, indemnities or warranties described
above in the accompanying Condensed Consolidated Balance Sheets since the
maximum amount of potential future payments under such guarantees, indemnities
and warranties is not determinable.
  Litigation
  We are
subject from time to time to legal proceedings and claims, either asserted or
unasserted, that arise in the ordinary course of business, and accrue for these
items where appropriate. While the outcome of these proceedings and claims
cannot be predicted with certainty, our management does not believe that the
outcome of any of these legal matters will have a material adverse effect on our
consolidated financial position, results of operations and cash flows.
Currently, we are not involved in any litigation that we reasonably believe
could materially impact our financial position or results of operations and cash
flows.
  23
  NOTE 19—SPECIAL CHARGES
(RECOVERIES)
  Fiscal 2009
Restructuring Plan
  In the
second quarter of Fiscal 2009, our Board approved, and we began to implement,
restructuring activities to streamline our operations and consolidate our excess
facilities (Fiscal 2009 restructuring plan). These charges related to work force
reductions, abandonment of excess facilities and other miscellaneous direct
costs, and do not include costs accrued for under EITF 95-3 in relation to our
acquisition of Captaris (see Note 10). The total costs to be incurred in
conjunction with the Fiscal 2009 restructuring plan are expected to be
approximately $20 million, of which $11.3 million has been recorded within
Special charges during the three months ended December 31, 2008.  The
$11.3 million charge consisted primarily of costs associated with workforce
reduction in the amount of $10.0 million and abandonment of excess facilities in
the amount of $1.3 million.  The provision related to workforce
reduction is expected to be paid by December 2009 and the provisions relating to
contract settlements and lease costs are expected to be paid by December
2010.  The remaining charge of approximately $9.0 million is expected
to relate mainly to excess facilities. However, on a quarterly basis, we will
conduct an evaluation of the balances relating to workforce reduction and excess
facilities and revise our assumptions and estimates as
appropriate.
 
 A
reconciliation of the beginning and ending liability for the six months ended
December 31, 2008 is shown below.
 
 Fiscal 2009 Restructuring
    Plan
                                
                                Workforce
      reduction
                                
                                
                                Facility
      costs
                                
                                
                                TotalBalance
      as of June 30, 2008
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                -Accruals
                                
                                
                                9,973
                                
                                
                                
                                1,334
                                
                                
                                
                                11,307Cash
      payments
                                
                                
                                (1,544
                                )
                                
                                
                                (3)
                                
                                
                                
                                (1,547
                                )Foreign
      exchange and other adjustments
                                
                                
                                266
                                
                                
                                
                                (8)
                                
                                
                                
                                258Balance
      as of December 31, 2008
                                
                                $
                                8,695
                                
                                
                                $
                                1,323
                                
                                
                                $
                                10,018
 
 
 Fiscal 2006
Restructuring Plan
  In the
first quarter of Fiscal 2006, our Board approved, and we began to implement
restructuring activities to streamline our operations and consolidate our excess
facilities (Fiscal 2006 restructuring plan). These charges related to work force
reductions, abandonment of excess facilities and other miscellaneous direct
costs. The total cost incurred in conjunction with the Fiscal 2006 restructuring
plan was $20.9 million which has been recorded within Special charges to date.
The provision related to workforce reduction was completed as of
September 30, 2007.  On a quarterly basis, we conduct an
evaluation of the balances relating to excess facilities and revise our
assumptions and estimates, as appropriate.  The provisions relating to
the abandonment of excess facilities, such as contract settlements and lease
costs, are expected to be paid by January 2014.
  A
reconciliation of the beginning and ending liability for the six months ended
December 31, 2008 is shown below.
 Facility
                      costsFiscal
      2006 Restructuring PlanBalance
      as of June 30, 2008
                    
                    $
                    906Accruals
      (recoveries)
                    
                    
                    —Cash
      payments
                    
                    
                    (366)Foreign
      exchange and other adjustments
                    
                    
                    (109
                    )Balance
      as of December 31, 2008
                    
                    $
                    431
  Impairment
Charges
 
 Special
charges also includes an impairment charge of $139,000 against certain capital
assets that were written down in connection with various leasehold improvements
and redundant office equipment at abandoned facilities.
  NOTE
20—ACQUISITIONS
  Fiscal 2009
  Captaris
Inc.
 
 On
October 31, 2008, we acquired all of the issued and outstanding shares of
Captaris, a provider of software products that automate “document-centric”
processes.  The acquisition of Captaris is expected to strengthen our
ability to offer an expanded portfolio of solutions that integrate with SAP,
Microsoft and Oracle solutions.  In accordance with SFAS 141, this
acquisition is accounted for as a business combination.
  24
   The
results of operations of Captaris have been consolidated with those of Open Text
beginning November 1, 2008.
  Total
consideration for this acquisition was $101.5 million, which consisted of $101.0
million in cash, net of cash acquired, and approximately $467,000 of direct
acquisition related costs.
  Purchase Price
Allocation
  Under
business combination accounting, the total purchase price was allocated to
Captaris’ net assets, based on their estimated fair values as of October 31,
2008, as set forth below. The excess of the purchase price over the net assets
was recorded as goodwill. The allocation of the purchase price was based on a
preliminary valuation conducted by management, and its estimates and assumptions
are subject to change upon finalization, which is expected to occur on or before
the one-year anniversary of the closing date of this
acquisition.
 Current
      assets (net of cash acquired of $30,043)
                
                $
                28,664Long-term
      assets
                
                
                27,423Customer
      assets
                
                
                72,000Technology
      assets
                
                
                60,000In-process
      research and development *
                
                
                121Goodwill
                
                
                44,692Total
      assets acquired
                
                
                232,900Total
      liabilities assumed and acquisition related accruals
                
                
                (131,401)Net
      assets acquired
                
                $
                101,499
 * Included as
part of research and development expense in the quarter ended December 31,
2008.
 
 The
useful lives of customer assets have been estimated to be between three and five
years.  The useful lives of technology assets have been estimated to
be between five and six years.
  No amount
of the goodwill is expected to be deductible for tax
purposes.
  As part
of the purchase price allocation, we recognized liabilities in connection with
this acquisition of approximately $13.4 million relating to employee termination
charges, costs relating to abandonment of excess Captaris facilities and
accruals for unpaid direct acquisition related costs. This was the result of our
management approved and initiated plans to restructure the operations of
Captaris by way of workforce reduction and abandonment of excess legacy
facilities. The liability relating to abandonment of excess facilities is
expected to be paid over the terms of the various leases, the last of which
expires in February 2015. The liabilities related to employee termination costs
are expected to be paid on or before the one-year anniversary of the closing
date of this acquisition. (See Note 10).
 
 A
director of the Company earned approximately $270,000 in consulting fees for
assistance with the acquisition of Captaris.  These fees are included
in the purchase price allocation.  The director abstained from voting
on the transaction.
 
 Proforma
financial information (unaudited)
 
 The unaudited proforma financial
information in the table below summarizes the combined result of Open Text and
Captaris, on a proforma basis, as though the companies had been combined as of
July 1, 2007.  This information is presented for informational
purposes only and is not indicative of the results of operations that would have
been achieved if the acquisition had taken place at the beginning of each period
presented.
 
 
 25
 
 
 The proforma information included
hereunder does not include the financial impacts of the restructuring
initiatives undertaken by Open Text in connection with the Captaris acquisition,
as these have been capitalized as part of the preliminary purchase allocation,
but does include the estimated amortization charges relating to the
allocation of values to acquired intangible assets (see Note 7).
 
 Three months
      ended  December
      31,
                        
                        
                        Six months
      ended  December
      31,2008
                        
                        
                        
                        2007
                        
                        
                        
                        2008
                        
                        
                        
                        2007Total
      revenues
                        
                        $
                        219,283
                        
                        
                        $
                        210,619
                        
                        
                        $
                        436,402
                        
                        
                        $
                        397,851Net
      income (loss)
                        
                        $
                        *(11,603
                        )
                        
                        $
                        6,945
                        
                        
                        $
                        *(1,161)
                        
                        
                        $
                        11,354Basic
      net income (loss) per share
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.14
                        
                        
                        $
                        (0.02)
                        
                        
                        $
                        0.22Diluted
      net income (loss) per share
                        
                        $
                        (0.22
                        )
                        
                        $
                        0.13
                        
                        
                        $
                        (0.02)
                        
                        
                        $
                        0.22
  * Included herein are
non-recurring charges in the amount of $9.3 million, recorded by
Captaris in relation to business combination costs incurred by Captaris and the
acceleration of the vesting of (Captaris) employee stock options.
  eMotion
LLC
  In July
2008, we acquired eMotion LLC (eMotion), a division of Corbis
Corporation.  eMotion specializes in managing and distributing digital
media assets and marketing content.  The acquisition of eMotion will
enhance our capabilities in the “digital asset management” market, giving us a
broader portfolio of offerings for marketing and advertising agencies, adding
capabilities that complement our existing enterprise asset-management
solutions.  eMotion is based in Seattle, Washington. In accordance with
SFAS 141, this acquisition is accounted for as a business
combination.
  The
results of operations of eMotion have been consolidated with those of Open Text
beginning July 3, 2008.
  Total
consideration for this acquisition was $3.8 million which consisted of
$3.6 million in cash, net of cash acquired, and approximately $198,000 in
costs directly related to this acquisition.  An amount of $500,000 has
been held back, as provided for in the purchase agreement, to provide for any
adjustments to the purchase price in the one year period following the closing
date of the acquisition. This additional amount, if payable, shall be paid
subject to any adjustments, on July 3, 2009 and will increase the cost of the
acquisition.
 
 Purchase Price
Allocation
  Under
business combination accounting the total purchase price, excluding the amount
of $500,000 which has been held back, was allocated to eMotion’s net assets,
based on their estimated fair values as of July 3, 2008, as set forth below. The
excess of the purchase price over the net assets was recorded as
goodwill.  The allocation of the purchase price was based on a
preliminary valuation conducted by management, and its estimates and assumptions
are subject to change upon finalization, which is expected to occur on or before
the one-year anniversary of the closing date of this acquisition.
  The
preliminary purchase price allocation set forth below represents our best
estimate of the allocation of the purchase price and the fair value of net
assets acquired.
 Current
      assets (net of cash acquired of $608)
                
                $
                648Long-term
      assets
                
                
                238Customer
      assets
                
                
                2,357Technology
      assets
                
                
                1,450Goodwill
                
                
                -Total
      assets acquired
                
                
                4,693Liabilities
      assumed
                
                
                (868
                )Net
      assets acquired
                
                $
                3,825
  The
useful lives of customer and technology assets have been estimated to be five
and seven years, respectively.
 
 A director of the Company earned
approximately $35,000 in consulting fees for assistance with the acquisition of
eMotion.  These fees are included in the purchase price
allocation.  The director abstained from voting on the
transaction.
 
 Division of
Spicer Corporation
  In July
2008, we announced the acquisition of a division of Spicer Corporation (Spicer),
a privately-held company based in Kitchener, Ontario, Canada. Spicer specializes
in “file format” viewer solutions for desktop applications, integrated business
process management systems and reprographics.  The acquisition will
complement and extend our existing enterprise content management suite,
providing flexible document viewing options and enhanced document security
functionality.  In accordance with SFAS 141, this acquisition is
accounted for as a business combination.
 26
   The
results of operations of Spicer have been consolidated with those of Open Text
beginning July 1, 2008.
  Total
consideration for this acquisition was $11.7 million which consisted of
$10.8 million in cash, approximately $239,000 in costs directly related to
this acquisition and approximately $594,000 related to amounts held back under
the purchase agreement, which have been paid in January 2009.  In addition,
a further amount of $224,000 has been held back from the purchase price and will
be recorded as part of the purchase only upon the resolution of certain
contingencies.
  Purchase Price
Allocation
  Under
business combination accounting the total purchase price, excluding the amount
of $224,000 which has been held back, was allocated to Spicer’s net assets,
based on their estimated fair values as of July 1, 2008, as set forth below. The
excess of the purchase price over the net assets was recorded as goodwill. The
allocation of the purchase price was based on a preliminary valuation conducted
by management, and its estimates and assumptions are subject to change upon
finalization, which is expected to occur on or before the one-year anniversary
of the closing date of this acquisition.
  The
preliminary purchase price allocation set forth below represents our best
estimate of the allocation of the purchase price and the fair value of net
assets acquired.
 
 Current
      assets
                  
                  $
                  932Long-term
      assets
                  
                  
                  23Customer
      assets
                  
                  
                  1,777Technology
      assets
                  
                  
                  5,529Goodwill
                  
                  
                  4,815Total
      assets acquired
                  
                  
                  13,076Liabilities
      assumed
                  
                  
                  (1,323
                  )Net
      assets acquired
                  
                  $
                  11,753
  The
useful life of the customer and technology assets has been estimated to be five
and seven years, respectively.
 
 The
portion of the purchase price allocated to goodwill has been assigned to our
North America reporting unit and 75% of it is deductible for tax
purposes.
 
 A
director of the Company earned approximately $54,000 in consulting fees for
assistance with the acquisition of Spicer.  These fees are included in
the purchase price allocation.  The director abstained from voting on
the transaction.
 
 Fiscal 2008
  Purchase of an
Asset Group Constituting a Business
  On
September 14, 2007 we acquired certain miscellaneous assets from a Canadian
company in the amount of $2.2 million. Of the total purchase price of $2.2
million, approximately $9,000 has been allocated to the fair value of certain
computer hardware and $2.1 million has been allocated to customer
assets.
  The
useful life of customer assets has been estimated to be five
years.
  
 
 
  
  
 
  27
  
 Item
      2.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
      Operation
   In
addition to historical information, this Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act
of 1934, as amended, and Section 27A of the Securities Act of 1933, as
amended, 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. These forward-looking statements involve known and
unknown risks as well as uncertainties, including those discussed herein and in
the notes to our condensed consolidated financial statements for the three and
six months ended December 31, 2008, certain sections of which are
incorporated herein by reference. The actual results that we achieve may differ
materially from any forward-looking statements, which reflect management’s
opinions 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. You should carefully review Part II Item 1A “Risk Factors” and
other documents we file from time to time with the Securities and Exchange
Commission. 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 II Item 1A “Risk Factors” and elsewhere
in this report. 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
Quarterly Report on Form 10-Q, because these forward-looking statements are
relevant only as of the date they were made.
  The following MD&A is intended
to help readers understand the results of our operation and financial condition,
and is provided as a supplement to, and should be read in conjunction with, our
consolidated financial statements and our accompanying Notes under Part I, Item
I of this Form 10-Q.
  All
growth and percentage comparisons made herein refer to the three and six months
ended December 31, 2008 compared with the three and six months ended December
31, 2007, unless otherwise noted.  All references to “Notes” made
herein are references to the Notes to our consolidated financial
statements.
  BUSINESS
OVERVIEW
  Open Text
  We are an
independent company providing Enterprise Content management (ECM) software
solutions. ECM is the set of technologies used to capture, manage, store,
preserve, find and retrieve “word” based content.  We focus solely on
ECM software solutions with a view to being recognized as “The Content Experts”
in the software industry.
  Our
initial public offering was on the NASDAQ in 1996 and subsequently on the
Toronto Stock Exchange in 1998. We are a multinational company and currently
employ approximately 3,400 people worldwide.
 
 Quarterly
Highlights:
 
 The second quarter of Fiscal 2009 was
overall a successful quarter for us.  We generated $64.9 million in
license revenue, equivalent to a 17.6% increase over the second quarter of
Fiscal 2008, and total revenue increased by $25.1 million, to $207.7
million, equivalent to a 13.8% increase.  Of the total license revenue
generated, approximately 25% came from new customers and 75% came from our
existing customer base.
 
 Additionally, we successfully completed
the acquisition of Captaris Inc. (Captaris) which we acquired for $101.5 million
(net of cash acquired); also we acquired the residual minority shareholdings in
IXOS Software AG (IXOS), one of our significant German subsidiaries, for
approximately $12.4 million.
 
 In the second quarter of Fiscal 2009,
we also commenced the implementation of a significant restructuring initiative,
which we had previously announced in the first quarter of Fiscal 2009, to reduce
our worldwide workforce and rationalize and consolidate our
facilities.  As a result we took a charge to our earnings of $11.4
million primarily in connection with this restructuring
initiative.   We expect to record a further charge of
approximately $9.0 million before the end of our Fiscal 2009 year.
  Other
significant highlights for the quarter ended December 31, 2008 (and up to the
date of the filing of this report) were as follows:
  28
   ·
              In
      December 2008, we introduced a new release of “Open Text Fax Server” for
      Microsoft Office SharePoint, which is the latest version of our electronic
      fax and document delivery software, with new features designed to help
      customers to lower installation and ongoing maintenance
      costs.  This product was previously marketed by Captaris under
      the “RightFax” name.
 
 ·
              In
      December 2008, we announced a major expansion to our “eDiscovery”
      capabilities, with an early case assessment solution designed to assist
      organizations in reducing the costs associated with eDiscovery
      activities.  This solution allows organizations to assess the
      legal merits of a case and manage legal holds and collection for
      discovery, regulatory and compliance
requests.
 
 ·
              In
      November 2008, we hosted our annual global conference event “Open Text
      Content World” in Orlando, Florida. The event featured “content experts”
      from across the industry, and was our largest conference ever, with over
      1,600 attendees.
 
 ·
              In
      October 2008, we unveiled a new release of our “Web Solutions”, aimed at
      delivering a complete set of “Web 2.0” tools to help meet the demands of
      new digital strategies.  We believe our new tools will give
      customers greater security and control over social media than what was
      previously offered.
 
 ·
              In
      October 2008, we announced the release of our version 2.0 “Open Text
      Employee Information Management solution” (EIM).  The new
      version includes improved user navigation, closer integration with SAP ERP
      Human Capital management solution, as well as a new feature that allows
      guest users to temporarily access content in personnel folders, subject to
      security policies.
 
 ·
              In
      October 2008, we introduced an expansion of our “Content Lifecycle
      Management” services for Microsoft Office SharePoint 2007, extending the
      solution to our eDOCS customers.  This solution is intended to
      provide eDOCS customers with integrated records management and archiving
      capabilities to improve compliance initiatives to meet regulatory demands
      and risk management concerns.
 
 Significant customer purchases during
the quarter include:
 ·
              SBB
      AG, a Swiss travel and transport company, who purchased our Lifecycle
      Management solution;
 ·
              The
      City of London Corporation, who purchased a comprehensive corporate
      records management and archiving solution;
and
 ·
              Getty
      Images, a creator and distributor of digital content, who purchased our
      Digital Media solutions.
   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, we regularly evaluate
various acquisition opportunities within the ECM marketplace and elsewhere in
the high technology industry. We seek acquisitions that support our long-term
strategic direction, strengthen our competitive position, expand our customer
base and provide greater scale to accelerate innovation, grow our earnings and
increase shareholder value. We expect to continue to strategically acquire
companies, products, services and technologies to augment our existing
business.
  During
Fiscal 2009, we have, to date, made the following
acquisitions:
  Captaris
  On
October 31, 2008 we acquired all the issued and outstanding shares of Captaris,
a provider of software products that automates “document-centric”
processes.  Captaris is based in Bellevue, Washington. We believe that
this acquisition will be meaningfully accretive to Open Text and will strengthen
our position as the ECM market’s independent leader and broaden the suite of
solutions we offer that integrate with SAP, Microsoft and Oracle
solutions.
 
 Total
consideration for this acquisition was $101.5 million, net of cash
acquired.
 
   29
  eMotion
LLC
  In July
2008, we acquired eMotion LLC (eMotion), a division of Corbis Corporation, based
in Seattle, Washington.  eMotion specializes in managing and
distributing digital media assets and marketing content.  We believe
the acquisition of eMotion will enhance our capabilities in the “digital asset
management” market, giving us a broader portfolio of offerings for marketing and
advertising agencies, adding capabilities that complement our existing
enterprise asset-management solutions.   Total consideration for
this acquisition was $3.6 million, net of cash acquired.
 
 Division of Spicer
Corporation
  In July
2008, we announced the acquisition of a division of Spicer Corporation (Spicer),
a privately-held company based in Kitchener, Ontario, Canada. Spicer specializes
in “file format” viewer solutions for desktop applications, integrated business
process management systems and reprographics.  We believe this
acquisition will complement and extend our existing enterprise content
management suite, providing flexible document viewing options and enhanced
document security functionality.  Total consideration for this
acquisition was $10.8 million.
 
  Partnerships
  We have
developed strong and mutually beneficial relationships with key technology
partners, including major software vendors, systems integrators, and storage
vendors, to deliver customer-focused solutions. Key partnership alliances of
Open Text include Oracle©,
Microsoft©,
SAP©,
Deloitte©,
Accenture© and
Hitachi©. We rely
on close cooperation with partners for sales and product development, as well as
for the optimization of opportunities which arise in our competitive
environment. We continue to make significant progress with our global partner
program, with emphasis on developing strategic relations and achieving close
integration with partners. Business generated through areas like archiving,
records management and compliance continue to be driven through our
partners.
 
 During
the second quarter of Fiscal 2009, we announced that SAP will resell our “Vendor
Invoice Management” (VIM) products and our “Document Capture” solution, which
was recently acquired as part of the acquisition of Captaris. The VIM product
reduces the manual effort associated with data entry, helping customers keep
costs low.
 
 In
addition, we announced a strategic partnership with Deloitte
Canada.  Under this partnership, Deloitte Canada will provide Open
Text EIM solutions including “ECM for SAP”, “e-Discovery”, and “Records
Management”.
 
 Finally,
we also announced that our “eDOCS” product line would leverage new integrations
with the Microsoft platform.  These enhancements will include support
for new Microsoft platform products such as “Microsoft SQL Server 2008” and
“Windows Server 2008”.
  Our
revenue from partners contributed approximately 38% of our license revenues in
the three months ended December 31, 2008 compared to approximately 34% during
the three months ended December 31, 2007.
  Outlook for Fiscal
2009
  We
believe that we have a strong position in the ECM market despite the current
general economic “slow-down”. We have a diversified “footprint”, in that
approximately 50% of our revenues are from outside of North America, which helps
to insulate us from the slowdown currently being experienced in the U.S.
economy.  Also, approximately 50% of our revenues are from maintenance
revenues, which are a recurring source of income and as such, we expect
this trend to continue, as historically our renewal rate for maintenance
services is in excess of 90%. Additionally, we believe our focus on
compliance-based products, (with approximately 70% of our license revenue
emanating from compliance-based products), along with our strong partnerships,
will help insulate us from “downturns” being experienced in the current
macro-economic environment.
  We expect
our revenue “mix” for Fiscal 2009 to be in the following
ranges:
 (% of total
      revenue)License
                      30% to 35%Customer
      support
                      45% to 50%Services
                      20% to 25
      %
  
 Our focus
for Fiscal 2009 will be to:
 ·
              continue
      to grow license revenue;
 ·
              continue
      to focus on partner-influenced sales;
and
 ·
              continue
      to manage our costs effectively and reduce costs as
      appropriate.
  30
  Results of
Operations
  Overview
  Absent the
impact of special charges, our income from operations went up by $4.2 million
and $6.2 million during the three and six months ended December 31, 2008
compared to the same periods in the prior fiscal year.  All growth and
percentage comparisons refer to the three and six months ended December 31,
2008, as compared with the three and six months ended December 31, 2007,
unless otherwise noted. An analysis of our operational results (including
the impacts of Special charges) follows:
  Revenues
  Revenue by Product Type and
Geography:
  The
following tables set forth our revenues by product, revenue as a percentage of
the related product revenue and revenue by major geography for each of the
periods indicated:
  Revenue by product
type
 
 Three
      months ended
                    December
      31,
                  
                  
                  
                  
                  
                  Six
      months ended
                    December
      31,(in
      thousands)
                  
                  2008
                  
                  
                  2007
                  
                  
                  Change - Increase
      (decrease)
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  Change - Increase
      (decrease)License
                  
                  $
                  64,852
                  
                  
                  $
                  55,158
                  
                  
                  
                  9,694
                  
                  
                  $
                  114,926
                  
                  
                  $
                  99,418
                  
                  
                  
                  15,508Customer
      support
                  
                  
                  100,438
                  
                  
                  
                  90,614
                  
                  
                  
                  9,824
                  
                  
                  
                  198,867
                  
                  
                  
                  176,918
                  
                  
                  
                  21,949Service and
      other
                  
                  
                  42,361
                  
                  
                  
                  36,762
                  
                  
                  
                  5,599
                  
                  
                  
                  76,481
                  
                  
                  
                  70,165
                  
                  
                  
                  6,316Total
                  
                  $
                  207,651
                  
                  
                  $
                  182,534
                  
                  
                  
                  25,117
                  
                  
                  $
                  390,274
                  
                  
                  $
                  346,501
                  
                  
                  
                  43,773
 
 
 31
 Three months ended
                    December
    31,
                  
                  
                  Six months ended
                    December
    31,(% of total
      revenue)
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007License
                  
                  
                  31.2
                  %
                  
                  
                  30.2
                  %
                  
                  
                  29.4
                  %
                  
                  
                  28.7
                  %Customer
      support
                  
                  
                  48.4
                  %
                  
                  
                  49.7
                  %
                  
                  
                  51.0
                  %
                  
                  
                  51.1
                  %Service and
      other
                  
                  
                  20.4
                  %
                  
                  
                  20.1
                  %
                  
                  
                  19.6
                  %
                  
                  
                  20.2
                  %Total
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
                  
                  
                  100.0
                  %
  
 Revenue by
Geography
 
 Three months ended
                    December
    31,
                  
                  
                  
                  
                  
                  Six months ended
                    December
    31,2008
                  
                  
                  2007
                  
                  
                  Change
      - Increase/ (decrease)
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  Change
      - Increase/ (decrease)(in
      thousands)North
      America
                  
                  $
                  104,945
                  
                  
                  $
                  84,510
                  
                  
                  
                  20,435
                  
                  
                  $
                  189,237
                  
                  
                  $
                  163,660
                  
                  
                  
                  25,577Europe
                  
                  
                  92,383
                  
                  
                  
                  87,722
                  
                  
                  
                  4,661
                  
                  
                  
                  181,805
                  
                  
                  
                  164,477
                  
                  
                  
                  17,328Other
                  
                  
                  10,323
                  
                  
                  
                  10,302
                  
                  
                  
                  21
                  
                  
                  
                  19,232
                  
                  
                  
                  18,364
                  
                  
                  
                  868Total
                  
                  $
                  207,651
                  
                  
                  $
                  182,534
                  
                  
                  
                  25,117
                  
                  
                  $
                  390,274
                  
                  
                  $
                  346,501
                  
                  
                  
                  43,773
 
 Three months ended
                                              December
    31,
                                            
                                            
                                            Six months ended
                                              December
    31,(%
      of total revenue)
                                            
                                            2008
                                            
                                            
                                            2007
                                            
                                            
                                            2008
                                            
                                            
                                            2007North
      America
                                            
                                            
                                            50.5
                                            %
                                            
                                            
                                            46.3
                                            %
                                            
                                            
                                            48.5
                                            %
                                            
                                            
                                            47.2
                                            %Europe
                                            
                                            
                                            44.5
                                            %
                                            
                                            
                                            48.1
                                            %
                                            
                                            
                                            46.6
                                            %
                                            
                                            
                                            47.5
                                            %Other
                                            
                                            
                                            5.0
                                            %
                                            
                                            
                                            5.6
                                            %
                                            
                                            
                                            4.9
                                            %
                                            
                                            
                                            5.3
                                            %Total
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
 
 License
Revenue consists of fees earned from the licensing of software products
to customers.
  License
revenue increased by approximately $9.7 million in the three months ended
December 31, 2008, primarily as the result of increased revenues from our North
America operations and the impact of increased partner influenced
sales.  Of the total growth achieved, North America accounted for 68%
of the increase, while Europe contributed to the rest. The “Other” geographic
area remained relatively flat. Partner influenced sales comprised of 38% of our
license revenues in the second quarter of Fiscal 2009 compared to 34% in the
second quarter of Fiscal 2008.
 
 Overall,
our average license transaction size (for license transactions in excess of
$75,000) was $240,000 in the second quarter of Fiscal 2009, which is slightly
higher when compared to the second quarter of Fiscal 2008, in
which the average license transaction size was $225,000.
 
 In
addition, we had four individual license transactions of $1.0 million or
greater in the second quarter of Fiscal 2009, compared to five such
transactions in the second quarter of Fiscal 2008.
 
 License
revenue increased by approximately $15.5 million in the six months ended
December 31, 2008, primarily as the result of increased revenues from our
European operations and the impact of increased partner influenced
sales.  Of the total growth achieved, Europe accounted for 66% of the
increase, while North America accounted for the remainder of the
increase.
  
  32
  
 Customer Support
Revenue consists of revenue 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 revenue is generated from such support and
maintenance agreements relating to current year sales of software products and
from the renewal of existing maintenance agreements for software licenses sold
in prior periods. As our installed base grows, the renewal rate has a larger
influence on customer support revenue than the current software revenue growth.
Therefore changes in customer support revenue do not necessarily correlate
directly to the changes in license revenue in a given period. Typically the term
of these support and maintenance agreements is twelve months, with customer
renewal options. We have historically experienced a renewal rate over 90% but it
is not atypical to encounter pricing pressure from our customers during contract
negotiation and renewal. New license sales create additional customer support
agreements which contribute substantially to the increase in our customer
support revenue.
  Customer
support revenues increased by approximately $9.8 million in the three months
ended December 31, 2008, primarily as the result of growth from our operations
in North America. Of the total growth achieved, North America accounted for over
90% of the increase, while Europe and the Other geographic area remained
relatively flat on a quarter over quarter basis.
  Customer
support revenues increased by approximately $21.9 million in the six months
ended December 31, 2008, primarily as the result of growth from our operations
in North America and Europe.  Of the total growth achieved, North
America accounted for 70% of the increase, while Europe contributed 25% of the
increase and the Other geographic area contributed to the
remainder.
 
 
 Service and Other
Revenue Service revenue consists of revenues from consulting contracts,
contracts to provide training and integration services.  “Other”
revenue consists of hardware sales.  It may be noted that 
“Other” revenue is a new revenue stream, and starting in the second quarter of
Fiscal 2009, these revenues are being “grouped” (on account of their relative
immateriality), within this category.
  Service
and other revenues increased by approximately $5.6 million in the three months
ended December 31, 2008, of which $3.7 million related to sale of
hardware.  Of the total growth North America contributed 79%, while
the Other geographic area contributed 18%, and Europe contributed to the
remainder of the growth.
 
 Service
and other revenues increased by approximately $6.3 million in the six months
ended December 31, 2008, of which $3.7 million related to the sale of
hardware.  Of the total growth North America contributed 56%, while
the Europe contributed 27%, and the Other geographic area contributed to the
remainder of the growth.
  
 Cost of Revenue and Gross Margin by
Product Type
  The
following tables set forth the changes in cost of revenues and gross margin by
product type for the periods indicated:
 Three months ended
                    December
      31,
                  
                  
                  
                  
                  
                  Six months ended
                    December
      31,2008
                  
                  
                  2007
                  
                  
                  Change-
      Increase/ (decrease)
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  Change-
      Increase/ (decrease)(In thousands)License
                  
                  $
                  5,281
                  
                  
                  $
                  4,649
                  
                  
                  
                  632
                  
                  
                  $
                  8,174
                  
                  
                  $
                  8,203
                  
                  
                  
                  (29)Customer
      Support
                  
                  
                  17,356
                  
                  
                  
                  14,191
                  
                  
                  
                  3,165
                  
                  
                  
                  32,923
                  
                  
                  
                  26,789
                  
                  
                  
                  6,134Service
      and other
                  
                  
                  31,881
                  
                  
                  
                  30,192
                  
                  
                  
                  1,689
                  
                  
                  
                  59,610
                  
                  
                  
                  57,696
                  
                  
                  
                  1,914Amortization
      of acquired technology intangible assets
                  
                  
                  11,799
                  
                  
                  
                  10,308
                  
                  
                  
                  1,491
                  
                  
                  
                  22,546
                  
                  
                  
                  20,460
                  
                  
                  
                  2,086Total
                  
                  $
                  66,317
                  
                  
                  $
                  59,340
                  
                  
                  
                  6,977
                  
                  
                  $
                  123,253
                  
                  
                  $
                  113,148
                  
                  
                  
                  10,105
 
 Three months ended
                    December
    31,
                  
                  
                  Six months ended
                    December
    31,Gross
      Margin
                  
                  2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007License
                  
                  
                  91.9
                  %
                  
                  
                  91.6
                  %
                  
                  
                  92.9
                  %
                  
                  
                  91.7
                  %Customer
      Support
                  
                  
                  82.7
                  %
                  
                  
                  84.3
                  %
                  
                  
                  83.4
                  %
                  
                  
                  84.9
                  %Service and
      other
                  
                  
                  24.7
                  %
                  
                  
                  17.9
                  %
                  
                  
                  22.1
                  %
                  
                  
                  17.8
                  %
 
  33
   Cost of license
revenue consists primarily of royalties payable to third parties and
product media duplication, instruction manuals and packaging
expenses.
  Cost of
license revenue as a percentage of license revenue (and gross margin) remained
stable during the three and six months ended December 31, 2008.
 
  Cost of customer
support revenues is comprised primarily of technical support personnel
and related costs.
  Cost of
customer support revenues increased by $3.2 million in the three months ended
December 31, 2008, and $6.1 million in the six months ended December 31, 2008,
primarily due to increased revenue.   Overall gross margin on customer
support revenue has remained relatively stable within a range of 83% to
85%.
 
 As
compared to the corresponding periods in Fiscal 2008, overall headcount related
to customer support activities has increased in Fiscal 2009 by 136
employees.
 
  Cost of service
and other revenuesconsists primarily of the costs of providing
integration, customization 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.  Also, starting
in the second quarter of Fiscal 2009, the costs of selling hardware has been
grouped within this category.  As noted earlier, this is a new revenue
stream and these are the direct costs of sale related to the sale of
hardware.
  Cost of
service and other revenues increased by $1.7 million in the three months ended
December 31, 2008, primarily due to an increase in costs associated with the
sale of hardware of $1.9 million, offset by a reduction in cost of services of
$200,000.  Overall gross margin on service and other revenues have
improved as a result of improved execution of billable utilization and the
higher margins related to hardware sales.
 
 Cost of
service and other revenues increased by $1.9 million in the six months ended
December 31, 2008, primarily due to an increase in costs associated with the
sale of hardware. Overall gross margin on service and other revenues have
improved as a result of improved execution of billable utilization and the
grouping of higher margin hardware revenue within this
category.
 
  Amortization of
acquired technology intangible assets increased by $1.5 million in the
three months ended December 31, 2008 and $2.1 million in the six months ended
December 31, 2008, primarily due to the overall impact of increased levels of
intangible assets relating to our Fiscal 2009 acquisitions.
 
 
 Operating
Expenses
  The
following tables set forth total operating expenses by function and as a
percentage of total revenue for the periods indicated:
 Three
      months ended
                        December
    31,
                      
                      
                      
                      
                      
                      Six
      months ended
                        December
    31,(in
      thousands)
                      
                      2008
                      
                      
                      2007
                      
                      
                      Change - Increase
      (decrease)
                      
                      
                      2008
                      
                      
                      2007
                      
                      
                      Change - Increase
      (decrease)Research
      and development
                      
                      $
                      29,948
                      
                      
                      $
                      26,147
                      
                      
                      
                      3,801
                      
                      
                      $
                      58,526
                      
                      
                      $
                      50,130
                      
                      
                      
                      8,396Sales
      and marketing
                      
                      
                      49,347
                      
                      
                      
                      42,300
                      
                      
                      
                      7,047
                      
                      
                      
                      94,179
                      
                      
                      
                      80,159
                      
                      
                      
                      14,020General
      and administrative
                      
                      
                      18,280
                      
                      
                      
                      16,955
                      
                      
                      
                      1,325
                      
                      
                      
                      36,667
                      
                      
                      
                      33,965
                      
                      
                      
                      2,702Depreciation
                      
                      
                      2,920
                      
                      
                      
                      3,752
                      
                      
                      
                      (832
                      )
                      
                      
                      5,618
                      
                      
                      
                      6,736
                      
                      
                      
                      (1,118)Amortization
      of acquired customer-based intangible assets
                      
                      
                      10,138
                      
                      
                      
                      7,514
                      
                      
                      
                      2,624
                      
                      
                      
                      18,353
                      
                      
                      
                      14,929
                      
                      
                      
                      3,424Special
      charges (recoveries)
                      
                      
                      11,446
                      
                      
                      
                      (47
                      )
                      
                      
                      11,493
                      
                      
                      
                      11,446
                      
                      
                      
                      (108
                      )
                      
                      
                      11,554Total
                      
                      $
                      122,079
                      
                      
                      $
                      96,621
                      
                      
                      
                      25,458
                      
                      
                      $
                      224,789
                      
                      
                      $
                      185,811
                      
                      
                      
                      38,978
 
  34
  
 Three months ended
                      December
    31,
                    
                    
                    Six months ended
                      December
    31,(in % of total
      revenue)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007Research
      and development
                    
                    
                    14.4
                    %
                    
                    
                    14.3
                    %
                    
                    
                    15.0
                    %
                    
                    
                    14.5
                    %Sales
      and marketing
                    
                    
                    23.8
                    %
                    
                    
                    23.2
                    %
                    
                    
                    24.1
                    %
                    
                    
                    23.1
                    %General
      and administrative
                    
                    
                    8.8
                    %
                    
                    
                    9.3
                    %
                    
                    
                    9.4
                    %
                    
                    
                    9.8
                    %Depreciation
                    
                    
                    1.4
                    %
                    
                    
                    2.1
                    %
                    
                    
                    1.4
                    %
                    
                    
                    1.9
                    %Amortization
      of acquired customer intangible assets
                    
                    
                    4.9
                    %
                    
                    
                    4.1
                    %
                    
                    
                    4.7
                    %
                    
                    
                    4.3
                    %Special
      charges (recoveries)
                    
                    
                    5.5
                    %
                    
                    
                    0.0
                    %
                    
                    
                    2.9
                    %
                    
                    
                    0.0
                    %
  Research and
development expenses consist primarily of personnel expenses, contracted
research and development expenses, and facility costs.
  Research
and development expenses increased by $3.8 million in the three months ended
December 31, 2008, primarily due to an increase in direct labour and
labour-related benefits and expenses of $1.8 million.  The remaining
increase in expenses is the result of miscellaneous other
expenses.
 
 Research
and development expenses increased by $8.4 million in the six months ended
December 31, 2008, primarily due to an increase in direct labour and
labour-related benefits and expenses of $5.7 million.  The remaining
increase in expenses is the result of miscellaneous other
expenses.
 
 As
compared to the corresponding periods in Fiscal 2008, overall headcount related
to research and development activities has increased in Fiscal 2009 by 178
employees.
 
 In
Fiscal 2009, we expect research and development expenses to be in the range of
14% to 16% of total revenue.
  Sales and
marketing expenses consist primarily of personnel expenses and costs
associated with advertising and trade shows.
  Sales and
marketing expenses increased by $7.0 million in the three months ended December
31, 2008, primarily due to an increase in direct labour and labour-related
benefits and expenses of $4.5 million. The remaining increase is the result of
an increase in miscellaneous expenses of approximately $1.4 million and a net
increase in travel, office and overhead expenses of approximately $1.1
million.
 
 Sales and
marketing expenses increased by $14.0 million in the six months ended December
31, 2008, primarily due to an increase in direct labour and labour-related
benefits and expenses of $8.7 million. The remaining increase is the result of
an increase in miscellaneous expenses of $3.6 million, and a net increase of
approximately $1.7 million in travel, office and overhead expenses.
 
 As
compared to the corresponding periods in Fiscal 2008, overall headcount related
to sales and marketing activities has increased in Fiscal 2009 by 191
employees.
  In Fiscal
2009, we expect sales and marketing costs to be in the range of 24% to 26% of
total revenue.
 
 General and
administrative expenses consist primarily of salaries of administrative
personnel, related overhead, facility expenses, audit fees, consulting expenses
and costs relating to our public company obligations.
  General
and administrative expenses increased slightly by $1.3 million in the three
months ended December 31, 2008 and $2.7 million in the six months ended December
31, 2008, primarily due to an increase in direct labour and labour-related
benefits and expenses.
  As
compared to the corresponding periods in Fiscal 2008, overall head count related
to general and administrative activities has increased in Fiscal 2009 by 95
employees.
 
 In Fiscal
2009, we expect general and administrative expenses to be in the range of 9% to
10% of total revenue.
  Amortization of
acquired customer-based intangible assets increased by $2.6 million in
the three months ended December 31, 2008, and $3.4 million in the six months
ended December 31, 2008, primarily due to the overall impact of increased levels
of intangible assets relating to our Fiscal 2009
acquisitions.
 
 
  35
  Special
charges As indicated earlier, we communicated the
implementation of a restructuring initiative in the second quarter of Fiscal
2009 to restructure our workforce and to rationalize and consolidate our
facilities (the Fiscal 2009 Restructuring Plan).  The charge to
earnings in the second quarter of Fiscal 2009 was $11.4 million consisting
primarily of $10.0 million relating to workforce reduction and $1.3 million
relating to abandonment of excess facilities.  We expect that the
Fiscal 2009 Restructuring Plan will result in future cost savings and
operational efficiencies of approximately $40.0 million.
 
 In addition to the charge booked in the
current quarter, we expect to book an additional charge relating to the Fiscal
2009 Restructuring Plan, of approximately $9.0 million before the end of our
Fiscal 2009 year.
 
 Net interest
expense is primarily made up of cash interest paid on our debt facilities
and payments/receipts on the interest rate collar, as well as the unrealized
gain (loss) on our interest rate collar, offset by interest income earned on our
cash and cash equivalents.  Net interest expense decreased by $2.2
million in the three months ended December 31, 2008, of which $2.1 million was
the result of lower interest expenses and $100,000, the result of lower interest
income earned.  This decrease in interest expense is primarily due to
a decrease of $2.4 million in the interest paid on the term loan, offset by an
increase in the amount paid on the collar of $400,000. The remainder of the
change in interest expense is due to miscellaneous items.
 
 Net
interest expense decreased by $7.1 million in the six months ended December 31,
2008, of which $6.4 million was the result of lower interest expenses and
approximately $700,000, the result of lower interest income
earned.  This decrease in interest expense is primarily due to a
decrease of $5.9 million in the interest paid on the term loan and a decrease in
the unrealized loss on the fair value of the collar of $2.0
million.  The decreases were offset by an increase in the amount paid
on the collar of $1.2 million, and an increase in tax-related interest expense
of $500,000. The remainder of the change in interest expense is due to
miscellaneous items.
 
 For the
three and six months ended December 31, 2008, the decrease in the interest paid
on our term loan is due to declining interest rates and the decrease in interest
income is due to a lower pool of investible cash and declining interest
rates.
  For more
details on interest expenses see Note 12 and also the discussion under
“Long-term Debt and Credit Facilities” under the “Liquidity and Capital
Resources” section of this MD&A.
 
 Other income
(expense)relates to certain non-operational charges relating primarily
to foreign exchange gains/ losses, tax-related penalties, and gains/losses on
disposals of assets.
 
 For the three months ended December 31,
2008, net other expenses increased by $8.8 million and by $6.3 million for
the six months ended December 31, 2008, primarily due to the impact of foreign
currency charges.
  Liquidity and Capital
Resources
 
 As of
December 31, 2008, our cash and cash equivalents was made up of cash and
bank-issued term deposits with maturities of 30 days or less.  We are
able to access our cash easily, for regular operational use, and we have no
exposure to illiquid investments or distressed securities.
 
 Cash flows
provided by operating activities
  Cash
flows from operating activities decreased by $6.9 million in the six months
ended December 31, 2008, due to a decrease in operating assets and liabilities
of $11.6 million and a decrease in net income of $3.1 million, both offset by an
increase in non-cash adjustments of $7.8 million.
 
 The
decrease in operating assets and liabilities of $11.6 million for the six months
ended December 31, 2008, is primarily due to decreases in (i) taxes payable
$2.1 million, (ii) accounts payable and accrued liabilities of $17.6
million, and (iii) deferred revenue balances in the amount of $16.7
million.  These decreases were offset by an increase in accounts
receivable of $25.2 million. The remainder of the change
relates to miscellaneous items.
 
 The
increase in non-cash adjustments of $7.8 million for the six months ended
December 31, 2008, was primarily due to increases in (i) deferred taxes of $8.0
million, (ii) depreciation and amortization of $4.4 million, (iii) the
valuation of our employee long term incentive plan of $2.0 million, and (iv)
pension accruals in the amount of $900,000.  These increases were
offset by a decrease on our excess tax benefit on share based compensation
expenses of $5.9 million, and an unrealized loss on the fair value of our collar
by $2.0 million. The remainder of the change relates to miscellaneous
items.
  The
overall decrease in working capital during the six months ended December 31,
2008, was due to overall cash collections being offset by payments of higher
levels of accrued liabilities and deferred revenue relating to Fiscal 2008 year
end accruals.
  36
   Cash flows used
in investing activities
  Our cash
flows used in investing activities are primarily on account of business
acquisitions. In the aftermath of our more significant acquisitions, such as
IXOS, Hummingbird and Captaris, we typically implement exit plans for reduction
of legacy workforces and legacy real estate facilities of the acquired
companies. These plans are recognized in accordance with the accounting rules
governing acquisition-related accruals. Payments against these accruals are
recorded as a use of cash in investing activities.  In addition we
also spend recurring amounts on purchases of miscellaneous capital
assets.
  In the
six months ended December 31, 2008, cash flows used in investing activities were
higher by $115.7 million.  This increase was due to (i) an increase of
$118.0 million relating to acquisitions, (inclusive of $101.5 million for
Captaris), and (ii) an increase in investments of $3.6 million.  These
increases were offset by (i) a reduction of payments related to acquisition
accruals of $4.6 million and (ii) a reduction of spending on capital assets of
$1.3 million due to the impact of the sale of a building held as an asset held
for sale, for $4.5 million.
  Cash flows from
financing activities
  Our cash
flows from financing activities consist of long-term debt financing, monies
received from the issuance of shares exercised by our employees and excess tax
benefits on the exercise of stock options by our US employees. These inflows are
typically offset by scheduled and non-scheduled repayments of our long-term debt
financing and, when applicable, the repurchases of our shares.
  During
the six months ended December 31, 2008, cash flow from financing activities
increased by $63.2 million compared to the same period in the prior fiscal
year, primarily due to the fact that we did not make any non-scheduled
prepayments on our long-term debt financing, whereas during the six months ended
December 31, 2007, we made total non-scheduled prepayments of $60.0
million. In addition there was an increase in cash flow from the excess tax
benefits on share-based compensation of $5.9 million. These increases were
offset by a reduction in the proceeds from the issuance of Common Shares in the
amount of $3.2 million, with the remaining change in cash flows due to
miscellaneous items.  We did not enter in enter into any new or
additional long-term debt arrangements in the first or second quarter of Fiscal
2009.
 
  Long-term Debt
and Credit Facilities
  On
October 2, 2006, we entered into a $465.0 million credit agreement (credit
agreement) with a Canadian chartered bank consisting of a term loan facility in
the amount of $390.0 million and a $75.0 million committed revolving long-term
credit facility (revolver). The term loan was used to partially finance the
Hummingbird acquisition and the revolver will be used for general business
purposes, if necessary.
  Term loan
  The term
loan has a seven-year term and expires on October 2, 2013 and bears
interest at a floating rate of LIBOR plus 2.25%. The term loan principal
repayments are equal to 0.25% of the original principal amount, due each quarter
with the remainder due at the end of the term, less ratable reductions for any
prepayments made. To date (i.e. from the inception of the term loan in October,
2006, to December 31, 2008) we have made total prepayments of $90.0 million of
the principal on the term loan. These payments have reduced the current
quarterly principal payment to approximately $748,000.  There were no
prepayments made during the six months ended, December 31, 2008.
  As of
December 31, 2008, the carrying value of the term loan was $292.5 million and we
are in compliance with all loan covenants relating to this
facility.
  We have
entered into a three-year interest-rate collar that has the economic effect of
circumscribing the floating portion of our interest rate obligations associated
with $195.0 million of the term loan within an upper limit of 5.34% and a lower
limit of 4.79%.  As of December 31, 2008, the hedged portion of the
loan is $100.0 million (June 30, 2008 - $150.0 million).  The collar
expires on December 31, 2009.
  Revolver
  The
revolver has a five-year term and expires on October 2, 2011. Borrowings
under this revolver facility bear interest at rates specified in the credit
agreement. The revolver is subject to a “stand-by” fee ranging between 0.30% and
0.50% per annum. During Fiscal 2008, we obtained a demand guarantee, under
the revolver, in the amount of Euro 11.1 million which was cancelled in
December, 2008.
  There
were no borrowings outstanding under the revolver as of December 31, 2008, and
through to the date hereof, we have not borrowed any amounts under the
revolver.
  37
  
 Pensions
 
 As part of the acquisition of Captaris,
we acquired an unfunded pension plan and certain long-term employee benefit
plans.  As of December 31, 2008, our total unfunded pension plan
obligation was $15.0 million and the total unfunded long-term employee benefit
obligation was $1.7 million.  We expect to be able to make the
payments related to these obligations, in the normal course.  For a
detailed discussion see Note 11.
 
 Commitments and Contractual
Obligations
 
 We have
entered into the following contractual obligations with minimum annual payments
for the indicated Fiscal periods as follows:
 Payments due by period ending
      June 30,Total
                  
                  
                  2009
                  
                  
                  2010 to 2011
                  
                  
                  2012 to 2013
                  
                  
                  2014 and beyondLong-term
      debt obligations
                  
                  $
                  401,049
                  
                  
                  $
                  12,275
                  
                  
                  $
                  58,774
                  
                  
                  $
                  46,049
                  
                  
                  $
                  283,951Operating
      lease obligations *
                  
                  
                  90,816
                  
                  
                  
                  13,996
                  
                  
                  
                  44,623
                  
                  
                  
                  15,469
                  
                  
                  
                  16,728Purchase
      obligations
                  
                  
                  4,884
                  
                  
                  
                  1,525
                  
                  
                  
                  2,766
                  
                  
                  
                  593
                  
                  
                  
                  —$
                  496,749
                  
                  
                  $
                  27,796
                  
                  
                  $
                  106,163
                  
                  
                  $
                  62,111
                  
                  
                  $
                  300,679
 ________________________________
 *
              Net
      of $4.7 million of non-cancelable sublease income to be received from
      properties which we have subleased to other
  parties.
 
 Rental
expense of $4.4 million and $8.6 million was recorded during the three and six
months ended December 31, 2008, respectively (three and six months ended
December 31, 2007- $4.2 million and $8.2 million,
respectively).
  The
long-term debt obligations are comprised of interest and principal payments on
our term loan agreement and a five year mortgage on our headquarters in
Waterloo, Ontario. For details relating to the term loan and the mortgage, see
Note 12.
   Litigation
  We are
subject from time to time to legal proceedings and claims, either asserted or
unasserted, that arise in the ordinary course of business. While the outcome of
these proceedings and claims cannot be predicted with certainty, our management
does not believe that the outcome of any of these legal matters will have a
material adverse effect on our consolidated financial position, results of
operations and cash flows.
  Off-Balance Sheet
Arrangements
  We do not
enter into off-balance sheet financing as a matter of practice except for the
use of operating leases for office space, computer equipment, and vehicles. None
of the operating leases described in the previous sentence has, or potentially
may have, a material current or future effect on our financial condition
(including any possible changes in our financial condition), revenue, expenses,
and results of operations, liquidity, capital expenditures or capital resources.
In accordance with United States generally accepted accounting principles (U.S.
GAAP), neither the lease liability nor the underlying asset is carried on the
balance sheet, as the terms of the leases do not meet the criteria for
capitalization.
 
 Critical Accounting Policies and
Estimates
  Our
consolidated financial statements are prepared in accordance with U.S.GAAP.
These accounting principles require us to make certain estimates, judgments and
assumptions. We believe that the estimates, judgments and assumptions upon which
we rely are reasonable based upon information available to us at the time that
these estimates, judgments and assumptions are made. These estimates, judgments
and assumptions can affect the reported amount of assets and liabilities as of
the date of the financial statements as well as the reported amounts of revenues
and expenses during the periods presented. To the extent that there are material
differences between these estimates, judgments and assumptions and actual
results, our financial statements will be affected. 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:
  38
  
 ·
              Revenue
      recognition
 ·
              Business
      combinations
 ·
              Goodwill
      and intangible assets – Impairment
Assessments
 ·
              Accounting
      for income taxes
 ·
              Legal
      and other contingencies
 ·
              The
      valuation of stock options granted and liabilities related to share-based
      payments, including the long-term incentive
plan
 ·
              Allowance
      for doubtful accounts
 ·
              Facility
      and restructuring accruals
 ·
              Financial
      instruments
 ·
              The
      valuation of pension assets and
obligations
 
 Please
refer to our MD&A contained in Part II, Item 7 of our Annual Report on
Form 10-K for our fiscal year ended June 30, 2008 and Note 2 to Part I of
this Form 10-Q for a more complete discussion of our critical accounting
policies and estimates.
  New Accounting
Standards
  For
information relating to new accounting pronouncements and the impact of these
pronouncements on our consolidated financial statements, see Note
2.
 
 
 
 
 
 
   39
  Item 3.
              Quantitative and Qualitative
      Disclosures about Market
Risk
 
 We are
primarily exposed to market risks associated with fluctuations in interest rates
on our term loan and foreign currency exchange rates.
  Interest rate
risk
  Our
exposure to interest rate fluctuations relate primarily to our term loan, as we
had no borrowings outstanding under our line of credit as of December 31, 2008.
As of December 31, 2008, we had an outstanding balance of $292.5 million on this
loan. The term loan bears a floating interest rate of LIBOR plus a fixed rate of
2.25%. As of December 31, 2008, an adverse change in LIBOR of 300 basis points
(3.0%) would have the effect of increasing our annual interest payment on
the term loan by approximately $8.8 million, absent the impact of our interest
rate collar referred to below and assuming that the loan balance as of December
31, 2008 is outstanding for the entire period.
  We manage
our interest rate exposure, relating to $100.0 million of the above mentioned
term loan, with an interest rate collar that partially hedges the fluctuation in
LIBOR. The collar has a notional value of $100.0 million, a cap rate of
5.34% and a floor rate of 4.79%. This has the effect of circumscribing our
maximum floating interest rate risk within the range of 5.34% to 4.79%. The
collar expires in December 2009.  As of December 31, 2008, the fair
value of the collar was a payable in the amount of
$3.6 million.
  Foreign currency
risk
  Our
reporting currency is the U.S dollar. On account of our international
operations, a substantial portion of our cash and cash equivalents is held in
currencies other than the U.S. dollar. As of December 31, 2008, this balance
represented approximately 62% of our total cash and cash equivalents. A 10%
adverse change in foreign exchange rates versus the U.S. dollar would have
decreased our reported cash and cash equivalents by approximately
6%.
  Our
international operations expose us to foreign currency fluctuations. Revenues
and related expenses generated from subsidiaries, other than those located in
the U.S, are generally denominated in the functional currencies of the local
countries. These functional currencies include Euros, Canadian Dollars, Swiss
Francs and British Pounds. The income statements of our international operations
are translated into U.S. dollars at the average exchange rates in each
applicable period. To the extent the U.S. dollar strengthens against foreign
currencies, the foreign currency conversion of these foreign currency
denominated transactions into U.S. dollars results in reduced revenues,
operating expenses and net income (loss) for our international operations.
Similarly, our revenues, operating expenses and net income (loss) will increase
for our international operations, if the U.S. dollar weakens against foreign
currencies. We cannot predict the effect foreign exchange fluctuations will have
on our results going forward. However, if there is a change in foreign exchange
rates versus the U.S. dollar, it could have a material effect on our results of
operations.
    40
  Item
4.                 Controls
and Procedures
  Evaluation of Disclosure Controls
and Procedures
  As of the
end of the period covered by this Quarterly Report on Form 10-Q, our management,
with the participation of the Chief Executive Officer and Chief Financial
Officer, performed an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(the Exchange Act). Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that as of December 31, 2008, our disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that material information is accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosure.
  Changes in Internal Controls over
Financial Reporting
  Based on
the evaluation completed by our management, in which our Chief Executive Officer
and Chief Financial Officer participated, our management has concluded that
there were no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter
ended December 31, 2008 that have materially affected, or are reasonably likely
to materially affect, our internal controls over financial
reporting.
 
  41
  
  PART II OTHER
INFORMATION
   Item 1A.
              Risk
    Factors
  Risk
Factors
  In
addition to the information set forth below, you should carefully consider the
factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on
Form 10-K for our fiscal year ended June 30, 2008. These are not the only risks
and uncertainties facing us. Our business is also subject to general risks and
uncertainties that affect many other companies.
  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
  Recent
events have demonstrated that businesses and industries throughout the world are
very tightly connected to each other.  Thus, events seemingly
unrelated to us or to our industry may adversely affect us over the course of
time.  For example, rapid changes to the foreign currency exchange
regime may adversely affect our financial results.  Material increases
in LIBOR may increase the debt payment costs for the portion of our credit
facilities that we have not hedged.  Credit contraction in financial
markets may hurt our ability to access credit in the event that we identify an
acquisition opportunity or some other opportunity that would require a
significant investment in resources.  Finally, a reduction in credit,
combined with reduced economic activity, may adversely affect businesses and
industries that collectively constitute a significant portion of our customer
base.  As a result, these customers may need to reduce their purchases
of our products or services, or we may experience greater difficulty in
receiving payment for the products or 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.
 
 
 In
connection with our acquisition of Captaris Inc., we assumed certain unfunded
pension liabilities. We have no assurance that we will generate sufficient cash
flow to satisfy these obligations
  In
October 2008, we acquired Captaris Inc. and, as a part of the transaction,
assumed its unfunded pension plan liabilities. We will be required to fund these
obligations through current and future cash flows. Going forward, our net
pension liability and cost may be materially affected by the discount rate used
to measure these pension obligations and the longevity and actuarial profile of
the relevant workforce. A change in the discount rate would result in a
significant increase or decrease in the valuation of these pension obligations,
affecting the net periodic pension cost in the year the change is made and
following years. We have no assurance that we will generate cash flow sufficient
to satisfy these obligations. This could have a material adverse effect on our
business and results of operations.
 
 Our
acquisition of Captaris may adversely affect our operations in the short
term
  On
October 31, 2008 we acquired all of the issued and outstanding common
shares of Captaris. The Captaris acquisition represents a
significant opportunity for our business. However, certain inevitable
integration challenges may result from the acquisition and may divert
management’s attention from the normal daily operations of our existing
businesses, products and services. We cannot ensure that we will be successful
in retaining key Captaris employees. In addition, our operations may be
disrupted if we fail to adequately retain and motivate all of the employees of
the newly merged entity.
 
  42
   Item 4.
Submission of Matters to a Vote of Security Holders
  We held
our annual meeting of shareholders on December 9, 2008. The following
actions were voted upon at the meeting:
  1. The
following individuals were elected to our Board of Directors, to hold office
until the next annual meeting of shareholders, or until their successors are
elected or appointed. The outcome of the vote was carried by a show of
hands.
  NamesP.
      Thomas JenkinsJohn
      ShackletonRandy
      FowlieBrian
      J. JackmanStephen
      J. SadlerMichael
      SlaunwhiteGail
      HamiltonH.
      Garfield Emerson Q.C.Katherine
      B. Stevenson
  2. The
shareholders approved the re-appointment of KPMG LLP as our independent auditors
until the next annual meeting of shareholders and approved the authorization of
our Board of Directors to fix the auditors’ remuneration. The outcome of the
vote was carried by a show of hands.
  3. The
shareholders approved a resolution to amend the Company’s 2004 Stock Option Plan
to (a) further restrict the grant of options that may be made under the 2004
Stock Option Plan and to other share compensation arrangements of the Company
that may be entered into with non-executive directors of the Company; (b)
reserve for issuance an additional 1,000,000 Common Shares under the 2004 Stock
Option Plan; and (c) specify that amendments to the provisions governing
amendment of the 2004 Stock Option Plan must be approved by the holders of
Common shares.  There were 27,856,056 Common Shares voted in favour of
the motion and there were 11,567,403 voted against the motion.
 
 
 
 
 
  43
  
 Item
6.                 Exhibits
  The
following exhibits are filed with this report:
 Exhibit
                  Number
                Description of
      Exhibit31.1
                Certification
      of the Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange
      Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
                Certification
      of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange
      Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
                Certification
      of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                Certification
      of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.
 
 
 
  44
  
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
 OPEN TEXT
      CORPORATIONDate:
      February 4, 2009
              By:
              /s/                       JOHN
      SHACKLETONJohn
      Shackleton
                President and Chief Executive
      Officer/s/                             PAUL
      MCFEETERSPaul
      McFeeters
                Chief
      Financial Officer
  
 45