For more information visit our website at www.prognosis.com or email info@prognosis.com
integrated research
Integrated Research Limited > ABN 76 003 588 449
Annual Report 2006
Performance monitoring software for business-critical systems
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Contents
2006 Highlights
Letter from the Chairman
Chief Executive Officer’s Report
Review of operations and activities
Directors
Senior Management
Directors’ Report
Remuneration Report
Corporate Governance
Financial Report
Notes to the financial statements
Director’s Declaration
Independent Audit Report
Lead Auditor’s Independence Declaration
ASX additional information
Corporate Directory
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2006 Highlights
Financial summary
In millions of AUD (except earnings per share)
Year ended 30 June
2006 $m
2005 $m
% Change
Revenue from licence fees
Total revenue
Net profit after tax
Net assets
Cash at balance date
Americas revenue
Europe revenue
Asia Pacific revenue
19.0
34.5
7.0
23.3
10.7
20.1
8.4
6.1
17.8
33.1
6.2
20.0
9.7
19.1
7.0
5.5
Earnings per share (cents per share)
4.22¢
3.77¢
Global performance
> Record revenue results
> Record profitability
> 7% increase in revenue from licence fees
Revenue from licence fees
Total revenue
Net profit after tax
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> The world’s largest bank
> The world’s largest telco
> The world’s largest stock exchange
> The world’s largest ISP
> The world’s largest airline
and 35% of the Global 000 companies all trust...
PROGNOSIS
Integrated Research’s Australian-developed PROGNOSIS software
is used by many of the world’s largest enterprises to ensure the
performance and reliability of their most critical computing systems.
PROGNOSIS gives IT support staff insight into the health of these
computer systems, providing instant alerts and deep diagnostics to
quickly identify and resolve problems before they impact the business.
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Letter from the Chairman
Dear fellow shareholders,
I am pleased to report that our company has
achieved a 3% increase in profit for the twelve
months to 30 June 006 over the previous
year. This occurred despite a firming of the
Australian dollar, which had a 5% impact on our
terms of trade.
The improved profit builds upon substantial
increases experienced in 004 and 005, and
was a result of record sales of the company’s
Windows, UNIX, Linux and IP telephony (VoIP)
products, which increased by 36%.
Our core HP NonStop business remained steady,
with a maintenance renewal rate of 98%. This is
a reflection of both the value that our product
range continues to offer this market, and the
ongoing commitment of organisations to invest
in HP NonStop technology. I anticipate these
factors will underpin our continued success in
this market.
Second-half revenue and profit results were
excellent when compared with the first half.
Profit after tax in the second half increased
to $4.6 million (normalised), compared with
$.6 million in the first half. This represents
an increase of 88% and reflects the positive
impact of operational changes made by
management in the first half.
Our key to long-term success in high technology
markets is well-placed strategic investment.
Integrated Research will continue to invest
in high-growth, niche markets where we can
leverage our existing intellectual property,
and where we can successfully add value. This
strategy has been proven over time, and I expect
will continue into the future.
Integrated Research remains in a strong
financial position, with $0.7 million in cash
and no debt. I anticipate 007 will see a
continuation of the growth we have experienced
in the last few years, and I am looking forward to
working on your behalf with Keith Andrews, our
CEO, to enhance future shareholder value.
The company’s accounts have been prepared
under new financial reporting standards
(AIFRS) implemented in Australia, effective
July 005. The impact of changes required to
meet these standards is set out in note 9 to
the Financial Report.
Additionally, the Board of Directors has
implemented an annual process to review the
structure of the board, including the board’s
performance, and the performance of its sub-
committees and individual members. This will
enable the board to improve its effectiveness
and governance.
I am pleased to announce a .5 cents per share
final dividend, bringing the dividend for the
year to .5 cents, unfranked. The dividend will
be paid on 5 September 006, to shareholders
registered at the close of the market on
September 006.
Thank you for your continued support.
Steve Killelea
Chairman
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PROGNOSIS for
IP Telephony
VoIP for big business...how do you manage that?
By giving companies the specialised tools they need to monitor and measure
call quality, and to identify and resolve problems within the supporting
computer-based infrastructure, PROGNOSIS is helping big businesses
eliminate the risk of migrating to Voice over IP (VoIP).
Customers include: Abercrombie & Fitch, Accenture, Airbus, Alphawest/
Optus, ARUP, BAE Systems, BellSouth, Boeing, Brigham Young University,
British Airways, Del Monte, Deutsche Telecom, Equant, Fannie Mae, France
Telecom, General Motors, Harvard University, JPMorgan Chase, Lehman
Brothers, Mallesons Stephen Jacques, Merrill Lynch, NASDAQ, NCR,
Singapore Polytechnic, Standard Life, State of Arizona, TD Financial Corp.,
Tecnologico de Monterey, Thiess, Time Warner Cable, Verizon, Warner Pacific
“As more organisations adopt larger scale
deployments, the ability for PROGNOSIS to manage
highly distributed or very large environments will
position the company as leading vendor for a variety
of deployment sizes”
George Hamilton, Director, Yankee Group
“When cardholders present their cards for payment,
they expect them to work every time. PROGNOSIS
helps us deliver that level of performance to our
clients and their customers.”
Phillip Patrick, Director of Technical Support, TSYS
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PROGNOSIS for
ATM/POS
Why do the world’s financial institutions bank on PROGNOSIS?
From retail EFTPOS systems to automated teller machine networks,
PROGNOSIS gives IT support teams the insight they need to identify and
fix transaction problems, to uncover the details of cardholder issues in
seconds, and to better manage ATM maintenance processes.
Customers include: ANZ Bank, Arab National Bank, Bankserv South Africa,
BNI Bank Indonesia, Burgan Bank Kuwait, Citibank, Emirates Bank UAE,
Fiserv, Global Trust Bank India, HDFC Bank, ICICI Bank India, Kmart,
KNET Kuwait, Kotak Mahindra Bank, Kuwait Finance House, Link UK,
MasterCard, Oman Intl Bank, Qatar Central Bank, Royal Bank of Canada,
Standard Bank South Africa, Target, Walgreens, Washington Mutual,
Westpac Bank
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PROGNOSIS for
IT Infrastructure
Ensuring the health of critical computer systems...it’s in our DNA
When computer systems perform poorly it can either be a small
inconvenience, a matter of life and death, or financial ruin. PROGNOSIS
offers hospitals and healthcare providers, stock exchanges and insurers,
power companies and telcos the tools they need to monitor, diagnose and
troubleshoot critical computer systems that simply must keep running.
Customers include: Alstom, AstraZeneca, AT&T, British Telecom, BT
Syntegra, Charles Schwab, DTE Energy Trading, France Telecom, GE
Healthcare (IDX), Henry Ford Health Systems, Inova Health Services,
London Stock Exchange, Mayo Clinic, Mercy Health Plans, NASDAQ, New
York Stock Exchange, Optus, PeaceHealth, Sabre Systems, Singapore
Telecom, Southwestern Bell, Sprint, Sungard, Toronto Stock Exchange,
University of Virginia Health, Vancouver General, Vodacom
“The real benefit for us is the ability to deliver services
to our patients and physicians as promised... even a
short delay in returning test results to a physician or
availing prescribed medication to a patient could have
serious repercussions.”
Barbara Baldwin, CIO, University of Virginia Medical Center
“This is an innovative approach to measuring quality
of service for online customers...another fine example
of this company’s ability to leverage its expertise in
business-critical technology.”
Senator Stephen Conroy, Australian Shadow Minister for
Communications and Information Technology
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PROGNOSIS for
Web Applications
How can travel agencies know if their customers are able to book online?
While we’re all becoming more reliant on the internet for booking flights
and accommodation, for conducting internet banking, or for online
shopping, we’re quick to give up on a website that’s slow or simply doesn’t
work. By measuring the quality of user experience, PROGNOSIS offers
organisations unique insight into how well their revenue generating
web-based applications are functioning for their customers.
Customers include: Duetsche Telecom, Swiss Federal Department of
Justice and Police, GE Healthcare (IDX), Minneapolis Public Housing
Authority, Sungard Financial Services
Consensus
Software
Awards 2006
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Chief Executive Officer’s Report
Our achievements over this past financial year
were the result of two very distinct halves.
Following significant organisational changes
implemented early in the year, the second
half brought record sales and profit, and was
testimony to the fact that these changes placed
the company in a strong position for success.
The changes we made in the first half of the year
included new leadership across our American
and Asia Pacific sales operations, and within our
IP telephony (VoIP) product team. As a result,
I focused a great deal of my time in the United
States, working with our field team on improving
sales execution.
Overall, 006 was a year where the company
maintained its leadership in the HP NonStop
market and established a dominant position
in the emerging, high-growth IP telephony
management sector.
In addition, we found significant new
opportunities for our Windows, UNIX and Linux
products as a result of a successful cross-selling
program into our existing customer base.
JPMorgan Chase for example, became the first
major customer to purchase products across all
of the PROGNOSIS software families. They now
use PROGNOSIS to manage their IP telephony,
HP NonStop, and generic Windows and UNIX
environments.
Unlike last year, where we secured a sizable
deal with Boeing, we were unable to uncover
a similar large enterprise VoIP opportunity.
This market is still evolving, and although the
number of new VoIP customers was pleasing,
existing customers are taking longer with their
VoIP deployments, which slowed the anticipated
rate of revenue growth.
Key achievements throughout 006 include:
> Revenue growth in all geographic regions
> 98% retention of recurring maintenance
revenue
> 55% increase in VoIP product revenues in
the second half (over the same period last
year)
> 8% (year-on-year) increase in Windows,
UNIX and Linux product sales
The company also significantly built on its
partnerships with major system integrators
and telecommunications providers – primarily
in the VoIP market. In this area we expanded
partnerships with France Telecom, Deutsche
Telecom’s T-Systems, IBM, Verizon, BellSouth
and locally with Alphawest, a wholly-owned
subsidiary of Optus. We now have more
resources dedicated to sales and business
development with large VoIP systems
integrators, managed service providers, and
carriers.
We have strengthened our relationships with
industry influencers in the VoIP management
arena, resulting in two of the industry’s key
analysts, Yankee Group and Nemertes Research,
recognising PROGNOSIS as the leading product
for monitoring large-scale Cisco IP telephony
deployments.
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Looking ahead, we will continue to develop new
products by increasing investment in R&D. Key
product developments will include support for
multiple VoIP vendor platforms, commencing
with support for Avaya technology. We will
also increase our investment in field sales
operations, aligned with anticipated market
opportunity.
The key focus for 007 includes:
> Further positioning for growth, including
continued investment in resources to build
on the momentum from 006
> Maintaining market dominance in the
traditional HP NonStop management arena
> Reinforcing our leadership position in
the VoIP and IP telephony management
market by expanding our product range,
and by further developing relationships
with industry influencers, major system
integrators and carriers
> Continuing to cross sell additional
PROGNOSIS products into our existing
client base to consolidate customer
relationships and to maximise return
Finally, I am grateful for the continued support
of the employees of Integrated Research around
the world. We are committed to delivering value
for our customers, and creating value for our
shareholders.
Keith Andrews
Chief Executive Officer
“We are committed to delivering value for our customers, and creating value
for our shareholders.”
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Review of operations and activities
The company has developed its PROGNOSIS
products around a fault-tolerant, highly-
distributed software architecture, designed to
achieve high levels of functionality, scalability
and reliability with a low total cost of ownership.
Integrated Research services customers in more
than 50 countries through direct sales offices in
the USA, UK, Germany and Australia, and via a
global, channel-driven distribution network.
The company’s customer base consists of many
of the world’s largest organisations and includes
major stock exchanges, banks, credit card
companies, telecommunications companies,
computer companies and hospitals.
The company generates most of its revenue
from upfront licence fees, recurring maintenance
and recurring licence fees.
Principal activities
The company’s principal activities during the
period were the design, development and sale
of systems and applications management
computer software for business-critical
computing and IP telephony networks. There
were no significant changes in the nature of
these activities during the year.
Group overview
Integrated Research has an eighteen-year
heritage of providing performance monitoring
and diagnostics software for business-critical
computing environments.
Since establishment in 988, the company has
provided its core PROGNOSIS products to a
variety of organisations requiring high levels of
computing performance and reliability.
The PROGNOSIS product range is an integrated
suite of monitoring and management software,
designed to give an organisation’s technical
personnel insight into the performance and
reliability of their HP NonStop, Windows, UNIX
and Linux servers, and the business applications
that run on these computers.
Typical business environments where
PROGNOSIS is used include automated teller
machine and EFTPOS transaction systems,
web applications such as online banking or
online shopping, hospital systems, emergency
services, stock trading applications and
telecommunication systems. PROGNOSIS also
offers a suite of IP telephony performance
monitoring products for enterprise Voice over
Internet Protocol (VoIP) networks.
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Review and results of operations
Revenue
The consolidated income statement shows a
net profit for the financial year ended 30 June
006 of $7.0 million, compared with $6.
million in 005. This increase (3%) is mainly
due to an increase of 7% in total new licence
fees, including an 8% growth in licence fees of
PROGNOSIS products for Windows, UNIX and
Linux.
The company’s major operational activities
in the 006 financial year have been directed
toward the further development of its sales and
marketing organisations to directly engage the
customer base and prospects in the field. This
additional investment in people began in the
second half of the prior financial year, when
the sales and marketing organisations were
strengthened at the regional and corporate
levels, with emphasis on the emerging VoIP
market. Research and development expenses
were $6.7 million, representing 9% of revenue,
up from 8% in 005.
Revenue for the period was $34.5 million, an
increase of 4% over 005. Licence fees, which
made up 55% of revenue, increased by 7%, and
maintenance fees were flat. Revenue in 006
absorbed a reduction of 5% compared to 005
due to changes in exchange rates.
Revenue improved in the major geographic
segments, with US dollar growth of 6% in
the Americas region over the prior year and
Europe growing in GB pounds by 4%. Asia
Pacific revenue increased in US dollar terms
by 8%. In Australian dollar terms, revenue for
the consolidated entity increased by 4% after
absorbing $.6 million as a result of changes
in the effective currency exchange rates after
hedging, particularly the Australia/US dollar
rate, which rose from an effective rate of $0.7
last year to $0.75 in 006.
“Revenue improved in the major geographic segments, with US dollar growth of
6% in the Americas region over the prior year and Europe growing in GB pounds
by 24%. Asia Pacific revenue increased in US dollar terms by 8%.”
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Review of operations and activities (continued)
Expenses
Total expenses for the period were $6.9 million, an increase of 7% over the prior year. Headcount
increased from 3 at 30 June 005 to 8 at 30 June 006. Most of the increased spending related
to increases in sales and marketing due to hiring of additional customer-facing staff in all regions
and corporate. Research and development expenses increased by 7%, primarily due to higher
amortisation of development costs following the release of Version 8 of the company’s PROGNOSIS
products in the fourth quarter of the 005 financial year. Research and development expenses were
$6.7 million, representing 9% of revenue, and are made up of:
In thousands of AUD
Gross research and development spending
Capitalisation of development expenses
Amortisation of capitalised expenses
Net research and development expenses
2006
7,348
-4,657
3,996
6,687
2005
7,747
-4,113
2,607
6,241
Shareholder returns
Returns to shareholders increased through the payment of dividends. Dividends for 003-006 were
unfranked, and the company expects that dividends in 007 will also be unfranked.
Net profit
Basic EPS
Dividends per share
Change in share price
Return on equity
2006
2005
2004
$7,003,000
$6,238,000
$4,455,000
4.22¢
2.5¢
-$0.05
30.1%
3.77¢
2.5¢
$0.05
31.3%
2.7¢
1.75¢
$0.23
23.9%
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Financial position
The consolidated entity continues to hold a strong financial position, with cash at 30 June 006 of
$0.7 million, compared to $9.7 million a year ago, and remains free of debt. Net cash flow provided
by operating activities was $5. million for the year ended 30 June 006.
Net cash flow provided by operating activities
$5,085,000
$5,439,000
$3,918,000
Current ratio (current assets to current liabilities)
Net tangible asset backing per ordinary share
2.05
8.27¢
1.95
6.69¢
1.79
6.26¢
2006
2005
2004
Likely developments
The consolidated entity will continue to aggressively pursue expected opportunities from the
emerging, high-growth VoIP market, while maintaining its leadership position in the management of
NonStop platforms, and seeking new opportunities in the management of Windows, UNIX and Linux
systems and applications.
The company will continue product developments within the PROGNOSIS architecture, and
development of it’s well established direct and partner channels. Further information about likely
developments in the operations of the consolidated entity and the expected results of those
operations in future financial years has not been included in this report because disclosure of the
information would be likely to result in unreasonable prejudice to the consolidated entity.
“The company will continue product developments within the PROGNOSIS
architecture, and development of it’s well established direct and partner channels.”
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Directors
The directors of the company at any time during or since the end of the financial year are listed below:
Steve Killelea, MAICD - Non-Executive Director and Chairman
Steve founded Integrated Research in August 988 and held the position of Managing Director and Chief Executive
Officer until retiring from his executive position in November 004. He was appointed as a Non-Executive Director
in December 004 and elected Chairman in July 005. Steve is a member of the Nomination and Remuneration
Committee and Chairman of the Strategy Committee. His current term will expire no later than the close of the 007
Annual General Meeting. Former listed company directorships held in the past three years: None. Age 56 years.
Keith Andrews, BBM, FAICD - Managing Director and Chief Executive Officer
Keith was appointed as Managing Director and Chief Executive Officer in November 004 and is a member of the
Strategy Committee. He has over twenty years experience at senior levels in the IT industry in Australia and overseas,
having previously held senior corporate positions in Asia and the US. As Managing Director, Keith is not required to
seek re-election to the board. Former listed company directorships held in the past three years: None. Age 46 years.
David Boyles, BA, MA, MBA, MAICD - Independent Non-Executive Director and Deputy Chairman
David has been a Director since July 003 and was appointed Deputy Chairman in September 005. He is Chairman of
the Nomination and Remuneration Committee and a member of the Strategy Committee, and has over twenty years
senior management experience with US and Australian multinational companies. David is seeking re-election at the
006 Annual General Meeting. Former listed company directorships held in the past three years: director of ERG Group
from December 003 to June 005, and was appointed a director of Infosys Technologies in July 005. Age 57 years
Kate Costello, Llb, FAICD - Independent Non-Executive Director
Kate was appointed as a director on August 005. She has over twenty years experience in corporate governance and
strategy development, and is a member of the Audit Committee and of the Strategy Committee. She is also a director
of Governance Matters Pty Ltd and a number of other private companies. Kate’s current term will expire no later than
the close of the 008 Annual General Meeting. Former listed company directorships held in the past three years:
Director Labtech Systems Limited. Age 53 years.
Alex Kennedy, M.Mgt, Dip CM, FAICD, ACIS - Independent Non-Executive Director
Alex has been a director since May 003 and is a member of the Nomination and Remuneration Committee and of the
Audit Committee. He has nearly 35 years of specialist and executive management experience across a broad range of
industries. Alex is seeking re-election at the 006 Annual General Meeting. Former listed company directorships held
in the past three years: None. Age 58 years.
Ian Winlaw, M.Com, FCA, FAICD - Independent Non-Executive Director
Ian has been a director since August 000 and is Chairman of the Audit Committee. He has extensive financial and
accounting experience and is a partner in Ian Winlaw & Co. He is Secretary of Colloidal Dynamics Pty Ltd. Ian’s current
term will expire no later than the close of the 008 Annual General Meeting. Former listed company directorships held
in the past three years: None. Age 67 years.
David Leighton (not shown) retired from his position as Chief Financial Officer and resigned from the Board on 3
March 006. David continues in the role of Company Secretary. He held no directorships of other listed companies in
the past three years. Age 63 years.
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Senior Management
From left to right:
Nathan Brumby - General Manager IP Telephony Business
Nathan Brumby joined the company in October 005 and is responsible for leading and managing the company’s global
Voice over IP business. Brumby draws on considerable software and international business experience from previous
positions including Chief Process Officer for Object Consulting, Chief Executive Officer of Software Engineering Australia,
and Chief Executive Officer of NRG Innovations in Canada.
Kurt Roscow, BA, MBA - President Americas
Based in the company’s American headquarters in Denver, Colorado, Kurt Roscow joined the company in October 003.
Roscow is responsible for leading and developing the business operations in the Americas and is President of Integrated
Research, Inc. Prior to joining Integrated Research his roles included senior sales and channel management positions
with IBM, Oracle, and JD Edwards.
Belinda York - Vice President Marketing
Belinda York joined Integrated Research in October 00 and is responsible for managing the company’s global
marketing strategy. York draws on more than twenty years in the IT industry, including positions as Australian Managing
Director for Borland International, Avid Technology, Onyx Software and FairMarket. She was responsible for launching
and managing these subsidiary businesses and building their position and opportunity in fast-growing markets.
Keith Andrews, BBM, FAICD - Chief Executive Officer
Keith Andrews joined Integrated Research in November 004 and is responsible for managing all aspects of the
company, including developing the business plan, and providing the leadership to deliver the business goals. Andrews
has more than twenty years experience in the IT industry in Australia and overseas. He has held senior management
positions with Stratus Technologies and has significant international experience in the HP NonStop market, focused
specifically on ATM/EFTPOS solutions and telecommunications (VoIP) segments.
Steve Douglas - Vice President Europe
Based in the company’s European headquarters in London, England, Steve Douglas joined the company’s UK subsidiary
in October 00. He is responsible for leading the business operations across Europe and the UK, and is a Director
of Integrated Research UK Limited. Douglas has more than twenty-five years technical and sales experience in the
European IT industry. In addition to his senior sales positions with Informix, Oracle, and Software AG, Douglas brings
expertise from technical roles with British Aerospace and Texas Instruments.
Stephen Sarjeant, BSc - Regional Manager, Asia Pacific, Africa, Middle East
Based in North Sydney, Australia, Stephen Sarjeant joined the company in October 005 and heads up Integrated
Research’s Australasian sales team, which has reach into Asia Pacific, Africa and the Middle East. Sarjeant has held
a number of international sales and general management positions with both Cisco Systems and ICL (now part of the
Fujitsu Group) across Central Europe, the Middle East and Africa as well as Australia.
David Purdue, BEc, MBA, Grad Dip CSP, FCA, FCIS, GAICD - Acting Chief Financial Officer
David Purdue was appointed to the position of acting Chief Financial Officer on the retirement of David Leighton in
March 006 and is responsible for the company’s global finance, treasury, tax and controllership activities. Purdue
joined Integrated Research in 003 and until April 005 was controller for the Americas region. Since returning to
Australia, he has been commercial manager, with responsibility for global business operations.
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Integrated Research
Proud developers of PROGNOSIS performance monitoring
software for business-critical computer systems
> Founded in 988
> Customers in 50+ countries
> Clients include 35% of Global 000 companies
> Dominant share of HP NonStop performance monitoring
market
> Emerging as dominant performance monitoring solution
for large-scale VoIP deployments
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Financials
> Directors’ Report
> Remuneration Report
> Corporate Goverance Statement
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Directors’ Report
Heading (continued)
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Heading (continued)
The directors present their report together with the Financial Report of Integrated Research Limited (“the company”) and of the
consolidated entity, being the company and its controlled entities, for the year ended 30 June 2006 and the Auditor’s Report
thereon.
Results
The net profit of the consolidated entity for the 12 months ended 30 June 2006 after income tax expense was $7.0 million.
Dividends
Dividends paid or declared by the company since the end of the previous financial year were:
Final 2005 – Ordinary shares
Interim 2006 – Ordinary shares
Final 2006 – Ordinary shares
Unfranked
Unfranked
Unfranked
1.5
1.0
1.5
2,487
1,659
2,489
16 Sep 2005
10 Mar 2006
15 Sep 2006
Cents per share
Total amount $’000
Date of payment
Events subsequent to reporting date
For dividends declared after 30 June 2006 see Note 21 in the financial statements. The financial effect of dividends declared and
paid after 30 June 2006 has not been brought to account in the financial statements for the year ended 30 June 2006 and will be
recognised in subsequent financial reports.
In July 2006, the company received a letter from solicitors representing a distributor of the company’s products, located in Germany,
claiming commission on sales made in Germany. The company is seeking advice from its solicitors on this matter, but does not
expect the outcome to be material. No further disclosure is provided as to do so may seriously prejudice the position of the
consolidated entity.
No other transaction or event of a material or unusual nature has arisen in the interval between the end of the financial year and
the date of this report any item, likely, in the opinion of the directors of the company, to affect significantly the operations of the
consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years.
Future developments
Likely developments in the operations of the consolidated entity in future financial years and the expected results of those
operations are referred to generally in the Chief Executive Officer’s Report.
Further information on likely developments including expected results would in the Directors’ opinion, result in unreasonable
prejudice to the company and has therefore not been included in this Report.
Directors and Company Secretary
Details of current directors’ qualifications, experience, age and special responsibilities are set out on page 14. Details of the
Company Secretary and his qualifications are set out on page 14.
18
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Directors’ Report (continued)
Heading (continued)
Officers who were previously partners of the audit firm
No officers of the company during the financial year were previously partners of the current audit firm, KPMG, at a time when KPMG
undertook an audit of the company.
Directors’ meetings
The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June
2006, and the numbers of meetings attended by each director were:
Board
Meetings
Audit Committee
Meetings
Remuneration Committee
Meetings
Nomination and
Strategy
Committee
Meetings
A
12
12
11
11
12
9
12
B
12
12
11
12
12
9
12
A
-
-
3
3
-
-
3
B
-
-
3
3
-
-
3
A
-
3
-
3
3
-
-
B
-
3
-
3
3
-
-
A
3
3
3
-
3
-
-
B
3
3
3
-
3
-
-
Keith Andrews
David Boyles
Kate Costello
Alex Kennedy
Steve Killelea
David Leighton
Ian Winlaw
A: Number of meetings attended.
B: Number of meetings held during the time the directors held office or was a member of the committee during the year.
State of affairs
In the opinion of the directors there were no significant changes in the state of affairs of the consolidated entity that occurred
during the financial year under review.
Environmental regulation
The consolidated entity’s operations are not subject to significant environmental regulations under either Commonwealth or State
legislation.
19
Integrated Research and its controlled entities > Annual Report 2006
>
Directors’ Report (continued)
Heading (continued)
>
Heading (continued)
Directors’ interests
The relevant interest of each director in the shares or options over such shares issued by the companies in the consolidated entity
and other relevant bodies corporate, as notified by the directors to the Australian Stock exchange in accordance with S205G(1) of
the Corporations Act 2001, at the date of this report is as follows:
Ordinary shares
Directly held
Beneficially held
-
1,600,000
-
-
94,497,339
150,000
145,000
-
200,000
350,000
337,612
-
Total
145,000
1,600,000
200,000
350,000
94,834,951
150,000
Options
Number of
Options
1,000,000
-
-
-
-
-
Keith Andrews
David Boyles
Kate Costello
Alex Kennedy
Steve Killelea
Ian Winlaw
Share options
Options granted to directors and senior executives
During or since the end of the financial year, the company granted options for no consideration over unissued ordinary shares in
Integrated Research Limited to the following of the five most highly remunerated officers of the consolidated entity as part of their
remuneration:
Officers:
Nathan Brumby
Number of options granted
Exercise price
Expiry date
200,000
$0.48
9-Jan-2011
No options were granted to any directors of the consolidated entity during or since the end of the financial year.
The options were granted under the Integrated Research Limited Employee Share Option Plan. 25% of options vest and may
be exercised from each of the first to fourth anniversaries of the issue date. In addition, the ability to exercise some options is
conditional on the consolidated entity achieving certain performance hurdles. Unexercised options expire five years after the issue
date or on termination of the employee’s employment.
20
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Directors’ Report (continued)
Heading (continued)
Unissued shares under option
Unissued ordinary shares of Integrated Research Limited under option at the date of this report are as follows:
Expiry date
Exercise price
Number of shares
Expiry date
Exercise price
Number of shares
Aug 2006
Dec 2006
Feb 2007
May 2007
July 2007
Feb 2008
Jun 2008
Aug 2008
Sep 2008
Feb 2009
$0.54
$0.51
$0.62
$0.63
$0.57
$0.24
$0.12
$0.22
$0.22
$0.26
268,000
120,400
268,500
165,500
281,000
260,750
189,750
305,250
10,000
350,000
Apr 2009
May 2009
July 2009
Nov 2009
Nov 2009
Feb 2010
Apr 2010
Sep 2010
Jan 2011
May 2011
Total unissued ordinary shares of Integrated Research Limited under option
$0.46
$0.33
$0.40
$0.47
$0.57
$0.52
$0.46
$0.54
$0.48
$0.41
585,000
317,500
372,750
1,200,000
400,000
404,000
516,500
740,000
200,000
869,000
7,823,900
Options do not entitle the holder to participate in any share issue of the company or any other body corporate.
Shares issued on the exercise of options
During or since the end of the financial year, the company issued ordinary shares as a result of the exercise of options as follows
(there were no amounts unpaid on the shares issued):
Number of shares
Amount paid on each share
15,358
50,000
56,500
42,125
52,250
37,000
21,875
23,000
$0.10
$0.25
$0.24
$0.12
$0.22
$0.26
$0.33
$0.40
Indemnification and insurance of directors and officers
Indemnification
The company has agreed to indemnify the directors of the company on a full indemnity basis to the full extent permitted by law, for
all losses or liabilities incurred by the director as an officer of the company including, but not limited to, liability for negligence or
for reasonable costs and expenses incurred, except where the liability arises out of conduct involving a lack of good faith.
21
Integrated Research and its controlled entities > Annual Report 2006
>
Directors’ Report (continued)
Heading (continued)
>
Heading (continued)
Insurance
During the financial year Integrated Research Limited paid a premium of $26,000 to insure the directors and officers of the
consolidated entity and related bodies corporate.
The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be
brought against officers in their capacity as officers of the consolidated entity.
Remuneration report
The company’s Remuneration Report, which forms part of this Directors’ Report, is on pages 24 to 32.
Corporate governance
A statement describing the company’s main corporate governance practices in place throughout the financial year is on pages 33 to
40 of this Annual Report.
Non-audit services
During the year KPMG, the company’s auditor, has performed certain other services in addition to their statutory duties.
The board has considered the non-audit services provided during the year by the auditor and in accordance with written advice
provided by resolution of the audit committee, is satisfied that the provision of those non-audit services during the year by the
auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the
following reasons:
>
All non-audit services were subject to the corporate governance procedures adopted by the company and have been
reviewed by the audit committee to ensure they do not impact the integrity and objectivity of the auditor, and
> The non-audit services provided do not undermine the general principles relating to auditor independence as set out in
Professional Statement F1 Professional independence, as they did not involve reviewing or auditing the auditor’s own
work, acting in management or decision making capacity for the company, acting as an advocate for the company or
jointly sharing risks and rewards.
A copy of the auditors’ independence declaration as required under Section 307C of the Corporations Act is set out on page 85 and
forms part of the Directors’ Report.
22
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Directors’ Report (continued)
Heading (continued)
Rounding of amounts to nearest thousand dollars
The company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class order, amounts
in the Financial Report and the Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated.
This report is made in accordance with a resolution of the directors.
Steve Killelea
Chairman
Keith Andrews
Managing Director and CEO
Dated at North Sydney this 20th day of September 2006.
23
Integrated Research and its controlled entities > Annual Report 2006
>
Remuneration Report
Heading (continued)
>
Heading (continued)
Remuneration policies - audited
Remuneration levels for key management personnel and secretaries of the company, and relevant key management personnel of
the consolidated entity are competitively set to attract and retain appropriately qualified and experienced directors and senior
executives. The remuneration committee obtains independent advice on the appropriateness of remuneration packages given
trends in comparative companies both locally and internationally and the objectives of the company’s remuneration strategy.
Key management personnel have authority and responsibility for planning, directing and controlling the activities of the company
and the consolidated entity, including directors of the company and other executives. Key management personnel includes the five
most highly remunerated S300A directors and executives for the company and the consolidated entity.
The remuneration structures explained below are designed to attract suitably qualified candidates, reward the achievement of
strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structure takes into
account:
> The capability and experience of the directors and senior executives
> The directors and senior executives ability to control the relevant segment’s performance
> The consolidated entity’s performance including:
>
>
The consolidated entity’s earnings
The growth in share price and returns on shareholder wealth
Remuneration packages include a mix of fixed and variable remuneration and short- and long-term performance-based incentives.
Fixed remuneration - audited
Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to
employee benefits including motor vehicles), as well as employer contributions to superannuation funds.
Remuneration levels are reviewed annually through a process that considers individual, segment and overall performance of the
consolidated entity. In addition, external consultants provide analysis and advice to ensure the directors’ and senior executives’
remuneration is competitive in the market place. A senior executives remuneration is also reviewed on promotion.
Performance-linked remuneration - audited
Performance linked remuneration includes both short-term and long-term incentives and is designed to reward executive directors
and senior executives for exceeding their financial and personal objectives. The short-term incentive (STI) is an “at risk” bonus
provided in the form of cash, while the long-term incentive (LTI) is provided as options over ordinary shares of Integrated Research
Limited under the rules of the Employee Share Option Plan (ESOP).
Short-term incentive bonus
The nomination and remuneration committee is responsible for setting the key performance indicators (KPI’s) for the Chief
Executive Officer, and for approving the KPI’s for the senior executives who report to him. The KPI’s generally include measures
relating to the consolidated entity, the relevant segment, and the individual, and include financial, people, customer, strategy and
risk measures. The measures are chosen as they directly align the individual’s reward to the KPI’s of the consolidated entity and to
its strategy and performance.
24
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Remuneration Report (continued)
Heading (continued)
The financial performance objectives are “new sales”, “profit after tax” and “segment margins” compared to budget amounts. The
non-financial objectives vary with position and responsibility and include measures such as achieving strategic outcomes and staff
development.
At the end of the financial year the nomination and remuneration committee assess the actual performance of the CEO against
the KPI’s set at the beginning of the financial year. A percentage of the predetermined maximum amounts for each KPI is awarded
depending on results. The committee recommends the cash incentive to be paid to CEO for approval by the board.
Long-term incentive
Options are issued to executive directors and other senior executives under the Employee Share Option Plan. The ability of
executive directors and other senior executives to exercise options is conditional on the consolidated entity achieving certain profit
after tax (PAT) performance hurdles over the vesting period.
The Chief Executive Officer is eligible, subject to shareholder approval, to be issued performance shares to vest over a period of
four consecutive years following an independent verification of attaining growth in total shareholder return (TSR) (defined as share
price growth and dividends paid) at or above the median of the comparator group that comprise the ASX Small Ordinaries Index.
Consequences of performance on shareholder wealth - unaudited
In considering the consolidated entity’s performance and benefits for shareholder wealth, the nomination and remuneration
committee has regard to the following indices in respect of the current financial year and the previous four financial years:
Licence revenue
Net profit
Dividends paid
2006
$19,040,000
$7,003,000
$4,146,000
Change in share price
-$0.005
2005
$17,790,000
$6,238,000
$3,310,000
$0.05
2004
$15,842,000
$4,455,000
$1,239,000
$0.23
2003
$12,396,000
$1,072,000
$2,892,000
-$0.43
2002
$18,776,000
$6,523,000
$2,477,000
-$0.02
Net profit and licence revenue are considered in setting the STI, as two of the financial performance targets are “profit after tax”
and “new sales”. Dividends and changes in share price are included in the TSR calculation for the LTI.
The nomination and remuneration committee considers that the above performance-linked structure is generating the desired
outcome. The evidence of this is firstly, the very strong growth in profits in recent years, and secondly, the performance-linked
element of the structure appears to be appropriate because not all of the senior executives achieve a level of performance, which
qualifies them for the maximum bonus.
25
Integrated Research and its controlled entities > Annual Report 2006
>
Remuneration Report (continued)
Heading (continued)
>
Heading (continued)
Service agreements - audited
It is the consolidated entity’s policy that service contracts for executive directors and senior executives be unlimited in term but
capable of termination by either party on one months notice and that the consolidated entity retains the right to terminate the
contract immediately by payment in lieu of notice or a severance payment equal to three months remuneration or up to an amount
for redundancy equal to the scale of payments prescribed in the NSW Employment Protection Act.
Mr Keith Andrews, Chief Executive Officer, has a contract of employment with Integrated Research Limited dated 5 October 2004,
which provides for specific notice and severance understandings of up to two years compensation depending on the particular
circumstances. Mr Andrews can terminate his employment by giving three months prior notice in writing.
Following the retirement of Mr David Leighton on 31 March 2006 from his position as Chief Financial Officer and Executive Director,
the company entered into an agreement with Mr Leighton for assistance with the transition to a new CFO for twelve months after
31 March 2006 on a part-time basis for compensation of $80,000. He will receive $45,000 per annum compensation to perform his
duties as company secretary.
Non-executive directors - audited
Total remuneration for all non-executive directors last voted upon at a special meeting of shareholders in October 2000 is not to
exceed $500,000 per annum. Director’s base fees are presently $45,000 per annum plus compulsory superannuation. The Chairman
receives the base fee by a multiple of two and the deputy chairman receives the base fee by a multiple of 1.5. Director’s fees cover
all main board activities and committee membership.
Non-executive directors do not receive performance related compensation or retirement benefits.
Directors’ and executive officers’ remuneration - audited
Details of the nature and amount of each major element of the remuneration of each director of the company and each of the five
named company executives and relevant group executives receiving the highest remuneration are reported below.
The estimated value of options disclosed is calculated at the date of grant using the Binomial option pricing model, adjusted to
take into account the inability to exercise options during the vesting period. Further details of options granted during the year are
set out above under “Share options”.
“Executive officers” are officers who are involved in, or who take part in, the management of the affairs of Integrated Research
Limited and/or related bodies corporate. Remuneration for overseas-based employees has been translated to Australian dollars at
the average exchange rates for the year.
26
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Remuneration Report (continued)
Heading (continued)
Short-term
Salary
& fees
$
Bonus
$
Post-
employ-
ment
Share-
based
payments
Other
compensa-
tion
Proportion of remu-
neration (not audited)
Non-
cash
benefits
$
Super-
annuation
contribu-
tion
Value of
options
(A)
$
$
Termi-
nation
benefit
$
Total
$
Perfor-
mance
related
Value of
Options
In AUD
Directors
Non-executive
David Boyles
2006
64,687
2005
45,000
2006
-
Kate Costello
(appointed 1
August 2005)
Brian Gatfield 2005
(resigned
1 July 2005)
90,000
Alex Kennedy 2006
22,500
2005
45,000
Steve Killelea 2006
(appointed
1 December
2004)
2005
90,000
26,250
Ian Winlaw
2006
45,000
2005
45,000
Executive
-
-
-
-
-
-
-
-
Keith Andrews 2006 355,009 130,000
(appointed
1 November
2004)
2005 228,414
75,000
2005 275,956
Steve Killelea
(retired 30
November
2004)
David Leighton 2006 176,082
(retired 31
March 2006)
185,961
2005
-
-
-
>
5,822
4,050
44,962
8,100
26,550
4,050
8,100
2,278
4,050
4,050
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
33,511
34,721
40,560
38,702
62,998
26,900
4,531
38,129
-
-
-
-
-
-
-
-
-
-
-
-
-
70,509
49,050
44,962
98,100
49,050
49,050
98,100
28,528
49,050
49,050
-
-
-
-
-
-
-
-
-
-
622,078
403,737
21%
19%
318,616
-
-
-
-
-
-
-
-
-
-
-
-
-
10%
7%
-
8%
10%
30,219
20,400
38,422
24,588
30,300
26,813
117,766
392,789
-
257,762
27
Integrated Research and its controlled entities > Annual Report 2006
Remuneration Report (continued)
Heading (continued)
>
Heading (continued)
Post-
employ-
ment
Share-
based
payments
Other
compensa-
tion
Proportion of remu-
neration (not audited)
Short-term
Salary
& fees
$
Bonus
$
In AUD
Executive Officers (excluding directors)
Non-
cash
benefits
$
Super-
annuation
contribu-
tion
$
2005
121,640
47,179
3,488
42,000
Value of
options
$
-
Termi-
nation
benefit
$
Total
$
Perfor-
mance
related
Value of
Options
112,500
326,807
14%
-
The Company
Ross Ballard
(resigned
7 January
2005)
Nathan
Brumby
(appointed
10 October
2005)
Ben Garton
(appointed
16 August
2004)
Stephen
Sarjeant
(appointed
22 September
2005)
David
Priestley
(resigned
26 August
2005)
2006 152,882
26,000
2006
194,619
2005 165,709
-
-
-
-
-
9,104
2,237
11,908
10,620
12,051
11,717
2006 122,352
61,916
1,463
14,353
2006
33,762
-
2,194
1,913
-
-
2005
148,139
75,564
4,531
11,588
14,877
13,814
6,726
15,225
3,579
7,795
14,933
David Purdue 2006 157,447
2005 169,209
-
-
Belinda York
2006 196,496
15,603
2005
212,219
22,988
3,561
-
4,338
4,531
24,078
24,000
18,241
21,169
Consolidated
Steve Douglas 2006 206,192
189,751
2005
184,714
259,126
2006
-
-
2005 255,085 104,494
Casey Ives
(resigned 31
July 2005)
Kurt Roscow 2006 195,980 253,625
2005
164,152
127,093
-
-
-
-
-
-
-
-
-
-
-
-
28
Integrated Research and its controlled entities > Annual Report 2006
190,223
14%
1%
-
-
-
-
-
-
-
-
-
-
-
218,578
188,046
-
-
200,084
31%
198,900
199,935
249,903
264,486
403,738
458,773
-
-
6%
9%
47%
56%
-
41,133
79,002
-
254,699
30%
6%
6%
6%
-
-
7%
3%
6%
1%
2%
3%
-
5%
2%
5%
-
125,204
125,204
17,146
7,710
14,765
-
-
-
376,725
28%
457,315
306,010
56%
42%
Heading (continued)
Remuneration Report (continued)
Heading (continued)
Short-term
Salary &
fees
$
Bonus
$
Post-
employ-
ment
Share-
based
payments
Other
compen-
sation
Proportion of
remuneration (not
audited)
Non-
cash
benefits
Super-
annuation
contribu-
tion
Value of
options
$
$
$
Termi-
nation
benefit
$
Total
$
Perfor-
mance
related
Value of
Options
2006 2,013,008
676,895
75,286
248,063
152,130
284,103
3,449,485
2005 2,362,448 711,444
72,202
233,324
137,456
112,500
3,629,374
2006
1,610,836
233,519
75,286
248,063
136,625
158,899
2,463,228
2005 1,758,497
220,731
72,202
233,324
90,612
112,500
2,487,866
In AUD
Total com-
pensation:
Key manage-
ment (con-
solidated)
Total com-
pensation:
Key man-
agement
(company)
Analysis of bonuses included in remuneration - unaudited
Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each director of the company
and each of the named company executives and relevant group executives are detailed below:
Directors
Keith Andrews
Executives
Nathan Brumby
Stephen Sarjeant
Belinda York
Steve Douglas
Kurt Roscow
Short-term incentive bonuses
Included in remuneration
$ (A)
% vested in year
% forfeited in year (B)
130,000
26,000
61,916
15,603
189,751
253,625
87%
87%
72%
62%
84%
99%
13%
13%
28%
38%
16%
1%
(A)
Amounts included in remuneration for the financial year represents the amount that vested in the financial year based on
achievement of personal goals and satisfaction of specified performance criteria. No amounts vest in future financial years in
respect of the short term incentive bonus scheme for the 2006 financial year.
(B)
The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year.
29
Integrated Research and its controlled entities > Annual Report 2006
>
Remuneration Report (continued)
Heading (continued)
>
Heading (continued)
Equity instruments – audited
All options refer to options over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis
under the Employee Share Option Plan (ESOP).
Options and rights over equity instruments granted as compensation
Details on options over ordinary shares in the company that were granted as compensation to each key management person
during the reporting period and details on options that were vested during the reporting period are as follows:
Number of
options granted
in 2006
Grant date
Number of
options vested
during 2006
Fair value of
option at grant
date
Exercise price
per option
Expiry date
Executives:
Nathan Brumby
200,000
Feb 2006
Steve Douglas
Ben Garton
David Leighton
David Purdue
Kurt Roscow
Belinda York
-
-
-
-
-
-
-
-
-
-
-
-
-
3,750
71,250
50,000
100,000
3,750
3,125
5,000
38,125
75,000
50,000
$0.21
$0.14
$0.14
$0.23
$0.28
$0.14
$0.15
$0.22
$0.22
$0.14
$0.22
$0.48
$0.26
$0.46
$0.47
$0.57
$0.26
$0.33
$0.40
$0.46
$0.46
$0.46
Feb 2011
Feb 2009
Apr 2009
Nov 2009
Nov 2009
Feb 2009
Jun 2009
Jul 2009
Apr 2010
Apr 2009
Apr 2010
No options have been granted to named executives since the end of the financial year. The above options were provided at no cost
to the recipients.
All options expire on the earlier of their expiry date or termination of the individual’s employment, except for termination due to
retirement. The options are exercisable on an annual basis on the first to fourth anniversaries of the grant date. In addition to a
continuing employment service condition, the ability of executives to exercise options is conditional on the consolidated entity
achieving certain performance hurdles.
Further details, including grant dates and exercise dates regarding options granted to executives under the ESOP are in note 18 to
the financial statements.
Modification of terms of equity-settled share-based payment transactions
At the company’s AGM held on 15 November 2005, shareholders approved a resolution allowing conditions of option grants to key
management personnel be amended to allow vesting based on attainment of either annual or cumulative performance hurdles,
at the discretion of the Board. The market value of the company’s ordinary shares on 15 November 2005 was $0.51. There was no
difference in the fair value of options held by key management personnel as a result of the above change.
30
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Remuneration Report (continued)
Heading (continued)
The options held by key management personnel that were affected by the change were:
Number of Options
Expiry date
Exercise price per option
Directors
Keith Andrews
David Leighton
Executives
Steve Douglas
Ben Garton
David Purdue
Kurt Roscow
Belinda York
1,000,000
273,500
285,000
200,000
152,500
300,000
200,000
Nov 2009
Nov 2009
Apr 2009
Nov 2009
Apr 2010
Apr 2009
Apr 2010
$0.47
$0.57
$0.46
$0.47
$0.46
$0.46
$0.46
Exercise of options granted as compensation
During the reporting year the following shares were issued on the exercise of options previously granted as compensation:
Executives:
Casey Ives
David Priestley
Number of shares
Amount paid per share
52,500
2,500
$0.25
$0.26
There were no amounts unpaid on the shares issued as a result of the exercise of the options.
Analysis of movement in options – unaudited
The movement during the reporting period, by value, of options over ordinary shares in the company held by each company director
and each of the named company executives and relevant group executives is detailed below:
Granted in year (A)
Exercised in year (B)
Forfeited in year (C)
Total options value in year
Value of options
In AUD
Nathan Brumby
Casey Ives
David Priestley
$
42,956
-
-
42,956
$
-
13,125
600
13,725
$
-
-
-
-
$
42,956
13,125
600
56,681
(A)
The value of options granted in the year is the fair value of the options calculated at the grant date using a binominal option-
pricing model. The total value of the options granted is included in the table above. This amount is allocated to remuneration
over the vesting period.
(B)
The value of options exercised during the year is calculated as the market price of shares of the company on the Australian
Stock Exchange as at the close of trading on the date the options were exercised after deducting the price paid to exercise
the option.
31
Integrated Research and its controlled entities > Annual Report 2006
>
Remuneration Report (continued)
Heading (continued)
>
Heading (continued)
(C)
There were no options forfeited during the year, except for those held by executives whose employment was terminated
during the year. No value has been assigned to those options as either the exercise price exceeded the market price of the
company’s shares, or had not vested.
Analysis of options and rights over equity instruments granted as compensation - unaudited
Details of vesting profile of the options granted to each director of the company and each of the named executives are detailed
below:
Options granted
Value yet to vest ($)
Number
Date
% vested in
year
Forfeited in
year (A)
Financial
year in which
grant vests
Min
(B)
Directors
Keith Andrews
1,000,000
Nov 2004
David Leighton
400,000
Nov 2004
Executives
Nathan Brumby
Steve Douglas
Ben Garton
Casey Ives
David Priestley
David Purdue
Kurt Roscow
Belinda York
200,000
15,000
285,000
200,000
100,000
10,000
290,000
10,000
290,000
15,000
12,500
20,000
152,500
300,000
200,000
Feb 2006
Feb 2004
Apr 2004
Nov 2004
Nov 2002
Feb 2004
Apr 2004
Feb 2004
Apr 2004
Feb 2004
Jun 2004
Jul 2004
Apr 2005
Apr 2004
Apr 2005
-%
25%
-%
25%
25%
25%
-%
-%
-%
-%
-%
25%
25%
25%
25%
25%
25%
25%
-%
-%
-%
-%
-%
50%
75%
100%
75%
100%
-%
-%
-%
-%
-%
-%
2010
2010
2011
2009
2009
2010
n/a
n/a
n/a
n/a
n/a
2009
2009
2009
2010
2009
2010
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
Max
(C)
115,000
84,000
42,000
1,050
29,925
34,500
n/a
n/a
n/a
n/a
n/a
1,050
938
3,300
25,163
31,500
33,000
(A)
The % forfeited in the year represents the reduction from the maximum number of options available to vest due to the
highest level of performance not being achieved.
(B)
The minimum value of options yet to vest is $nil as the market price of the shares of the company on the Australian Stock
exchange at the time may not exceed the option price.
(C)
The maximum value of options yet to vest is not determinable as it depends on the market price of shares of the company
on the Australian Stock Exchange at the date the option is exercised. The maximum values presented above are based on
the values calculated using the Binomial option pricing model as applied in estimating the value of options for employee
benefit expense purposes.
32
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Corporate Governance Statement
Heading (continued)
This statement outlines the main corporate governance practices that were in place throughout the financial year, which comply
with the ASX Corporate Governance Council recommendations, unless otherwise stated.
Board of directors and its committees
Role of the board
The board’s primary role is the protection and enhancement of long-term shareholder value.
To fulfil this role, the board is responsible for the overall corporate governance of the consolidated entity including formulating
its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating
succession policies for directors and senior executives, establishing and monitoring the achievement of management goals and
ensuring the integrity of internal control and management information systems. It is also responsible for approving and monitoring
financial and other reporting. Details of the board’s charter is located on the company’s website (www.prognosis.com).
Board process
To assist in the execution of its responsibilities, the Board has established a number of board committees including a Nomination
and Remuneration Committee, an Audit Committee and a Strategy Committee. These committees have written mandates and
operating procedures, which are reviewed on a regular basis. The board has also established a framework for the management
of the consolidated entity including a system of internal control, a business risk management process and the establishment of
appropriate ethical standards.
The full board currently holds twelve scheduled meetings each year, plus strategy and any extraordinary meetings at such other
times as may be necessary to address any specific matters that may arise.
The agenda for its meetings is prepared in conjunction with the Chairman, Chief Executive Officer and Company Secretary. Standing
items include the CEO’s report, financial reports, strategic matters, governance and compliance. Submissions are circulated
in advance. Executives are regularly involved in board discussions and directors have other opportunities, including visits to
operations, for contact with a wider group of employees.
Director education
The consolidated entity follows an induction process to educate new directors about the nature of the business, current issues,
the corporate strategy and expectations of the consolidated entity concerning performance of directors. Directors also have the
opportunity to visit consolidated entity facilities and meet with management to gain a better understanding of business operations.
In addition Executives make regular presentations to the board to ensure its familiarity of operational matters. Directors are
expected to access external continuing education opportunities to update and enhance their skills and knowledge.
Independent advice and access to company information
Each director has the right of access to all relevant company information and to the company’s executives and, subject to prior
consultation with the chairman, may seek independent professional advice from a suitably qualified adviser at the consolidated
entity’s expense. A copy of the advice received by the director is made available to all other members of the board.
Composition of the board
The names of the directors of the company in office at the date of this report are set out in the Directors’ report on page 14 of this
report.
33
Integrated Research and its controlled entities > Annual Report 2006
>
Corporate Governance Statement (continued)
Heading (continued)
>
Heading (continued)
The company’s constitution provides for the board to consist of between three and twelve members. At 30 June 2006 there were
four independent non-executive directors, one of whom was deputy chairman, one non-executive director, and one executive
director. Mr Steve Killelea, the Non-Executive Director, was elected as Non-Executive Chairman with effect from 1 July 2005. Ms Kate
Costello was appointed an independent Non-Executive Director with effect from 1 August 2005. Mr David Leighton retired from his
position as Chief Financial Officer and resigned as an Executive Director on 31 March 2006.
The election of Mr Killelea, who holds a majority of the company’s issued shares, as Non-Executive Chairman does not comply
with the ASX Corporate Governance Council recommendation that the Chairman be an independent Director. However, the board
considers the appointment of Mr Killelea to be beneficial to the company and will enable it to continue to build on the experience
and knowledge gained through his long involvement with Integrated Research and his associations throughout the information
industry. Mr Killelea founded Integrated Research in 1988 and was the CEO and Managing Director of the company until his
retirement in November 2004. The board recognises the need for directors to exercise unfettered and independent judgement and
in September 2005 appointed Mr David Boyles as Deputy Chairman. In this role Mr Boyles will act as lead Independent Director.
At each Annual General Meeting one-third of directors, any director who has held office for three years and any director appointed
by directors in the preceding year must retire, then being eligible for re-election. The Chief Executive Officer is not required to retire
by rotation.
The composition of the board is reviewed on a regular basis to ensure that the board has the appropriate mix of expertise and
experience. When a vacancy exists, through whatever cause, or where it is considered that the board would benefit from the
services of a new director with particular skills, the Nomination and Remuneration Committee will, in conjunction with the
board, determine the selection criteria for the position based on the skills deemed necessary for the board to best carry out its
responsibilities. The committee would then select a panel of candidates and the board would then appoint the most suitable
candidate who must stand for election at the next general meeting of shareholders.
Nomination and Remuneration Committee
The company has merged membership of the Nomination Committee and the Remuneration Committee, which now operates under
the committee charter described below.
The Remuneration and Nomination Committee is a committee of the board of directors and is empowered by the board to assist it in
fulfilling its duties to shareholders and other stakeholders. In general, the committee has responsibility to: 1) ensure the company
has appropriate remuneration policies designed to meet the needs of the company and to enhance corporate and individual
performance and 2) review board performance, select and recommend new directors to the board and implement actions for the
retirement and re-election of directors.
Responsibilities Regarding Remuneration
The Committee will review and make recommendation to the board on:
> The appointment, remuneration, performance objectives and evaluation of the chief executive officer.
> The remuneration packages for senior executives.
> The company’s recruitment, retention and termination policies and procedures for senior executives.
> Executive remuneration and incentive policies.
> Policies on employee incentive plans, including equity incentive plans.
> Superannuation arrangements.
34
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Corporate Governance Statement (continued)
Heading (continued)
> The remuneration framework and policy for non-executive directors.
> Remuneration levels are competitively set to attract and retain the most qualified and experienced directors and
senior executives. The Remuneration Committee obtains independent advice on the appropriateness of remuneration
packages, given trends in comparative companies and industry surveys. Remuneration packages include a mix of
fixed remuneration, performance-based remuneration and equity-based remuneration.
Responsibilities Regarding Nomination
The Committee will develop and make recommendation to the board on:
> The CEO and senior executive succession planning.
> The range of skills, experience and expertise needed on the board and the identification of the particular skills,
experience and expertise that will best complement board effectiveness.
> A plan for identifying, reviewing, assessing and enhancing director competencies.
> Board succession plans to maintain a balance of skills, experience and expertise on the board.
> Evaluation of the board’s performance.
> Appointment and removal of directors.
> Appropriate composition of committees.
> The terms and conditions of the appointment of non-executive directors are set out in a letter of appointment,
including expectations for attendance and preparation for all board meetings, expected time commitments,
procedures when dealing with conflicts of interest, and the availability of independent professional advice.
The members of the Nomination and Remuneration Committee during the year were:
David Boyles (Chairman) – Independent Non-Executive
Alex Kennedy – Independent Non-Executive
Steve Killelea – Non-Executive
The Nomination and Remuneration Committee meets at least twice a year and as required. The Committee met three times during
the year under review.
Audit Committee
The Audit Committee has a documented charter, approved by the board. All members must be non-executive directors with a
majority being independent. The Chairman may not be the Chairman of the board. The committee advises on the establishment and
maintenance of a framework of internal control and appropriate ethical standards for the management of the consolidated entity.
The members of the Audit Committee during the year were:
Ian Winlaw (Chairman) – Independent Non-Executive
Kate Costello – Independent Non-Executive
Alex Kennedy – Independent Non-Executive
35
Integrated Research and its controlled entities > Annual Report 2006
>
Corporate Governance Statement (continued)
Heading (continued)
>
Heading (continued)
Ms Kate Costello, an independent non-executive director, was elected to the committee with effect from 1 August 2005.
The external auditor, Chief Executive Officer and Chief Financial Officer are invited to Audit Committee meetings at the discretion of
the committee. The committee met three times during the year and committee members’ attendance record is disclosed in the table
of directors’ meetings on page 19.
The external auditor met with the audit committee/board three times during the year, two of which included time without the
presence of executive management. The Chief Executive Officer and the Chief Financial Officer declared in writing to the board that
the company’s financial reports for the year ended 30 June 2006 comply with accounting standards and present a true and fair view,
in all material respects, of the company’s financial condition and operational results. This statement is required annually.
The Audit Committee’s charter is available on the company’s website and includes information on procedures for selection and
appointment of the external auditor, and for rotation of external audit engagement partners.
The main responsibilities of the Audit Committee include:
> Reviewing the annual and half-year financial reports and other financial information distributed externally, including
new accounting policies to ensure compliance with Australian Accounting Standards and generally accepted
accounting principles.
> Assisting the board in monitoring corporate risk assessment processes. The board has not delegated risk
management to the Audit Committee, which is retained as part of the full board charter.
> Reviewing the company’s policies and procedures for convergence with International Financial Reporting Standards for
the reporting period beginning on 1 July 2005.
> Assessing whether non-audit services provided by the external auditor are consistent with maintaining the external
auditor’s independence. Each reporting period the external auditor provides a declaration of independence.
> Providing advice to the board in respect of whether provision of the non-audit services by the external auditor is
compatible with the general standards of independence of auditors imposed by the Corporations Act 2001.
> Reviewing the nomination and performance of the external auditor. The external auditors were appointed at the
annual general meeting held on 8 November 2001.
> Monitoring the establishment of an appropriate internal control framework, and appropriate ethical standards.
> Monitoring the procedures to ensure compliance with the Corporations Act 2001 and ASX Listing Rules and all other
regulatory requirements.
> Addressing any matters outstanding with auditors, Australian Tax Office, overseas tax authorities, Australian Securities
and Investments Commission and financial institutions.
The full board has retained responsibility for monitoring the corporate risk assessment processes and fraud control.
The Audit Committee reviews the performance of the external auditors on an annual basis and normally meets with them during the
year as follows:
> To discuss the external audit plans, identifying any significant changes in structure, operations, internal controls or
accounting policies likely to impact the financial statements and to review the fees proposed for the audit work to be
performed.
36
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Corporate Governance Statement (continued)
Heading (continued)
> Prior to announcement of results:
> To review the half-year and preliminary final report prior to lodgement with the ASX, and any significant
adjustments required as a result of the auditor’s findings.
> To recommend the Board approval of these documents.
> To finalise half-year and annual reporting:
> Review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor
the implementation of any recommendations made.
> Review the draft financial report and recommend board approval of the financial report.
> As required, to organise, review and report on any special reviews or investigations deemed necessary by the board.
Strategy Committee
The Strategy Committee has a documented charter, approved by the board and is responsible for reviewing strategy and
recommending strategies to the board to enhance the company’s long-term performance. The committee shall be comprised of at
least three members, including the Chairman of the board and the Chief Executive Officer. The board will appoint a member of the
committee to be Chairman.
The committee held its first meeting in December 2005 and met three times during the year.
The members of the Strategy Committee during the year were:
Steve Killelea (Chairman) – Non-Executive
Keith Andrews – Executive
David Boyles – Independent Non-Executive
Kate Costello – Independent Non-Executive
The Strategy Committee is responsible for:
> Working with management on the articulation of any strategic plan for recommendation to the board.
> Assisting in identifying and assessing strategic opportunities including:
> Mergers and acquisitions proposals
>
Intellectual property developments or acquisitions
> Changes in business models
> Partnering arrangements
> Entry into new markets
> Staying close to business challenges and risks.
> Recommending specific (eg product) strategies, including business cases and mechanisms to measure progress
results, to the board.
37
Integrated Research and its controlled entities > Annual Report 2006
>
Corporate Governance Statement (continued)
Heading (continued)
>
Heading (continued)
Risk management
The board reviews the status of business risks to the consolidated entity through integrated risk management programs ensuring
risks are identified, assessed and appropriately managed. Major business risks arise from such matters as actions by competitors,
government policy changes and the impact of exchange rate movements.
Comprehensive policies and procedures are established such that:
> Capital expenditure above a certain size requires Board approval.
> Financial exposures are controlled, including the use of forward exchange contracts.
> Risks are identified and managed, including internal audit, privacy, insurances, business continuity and compliance.
> Business transactions are properly authorised and executed.
The Chief Executive Officer and the Chief Financial Officer have declared, in writing to the board that the company’s financial reports
are founded on a sound system of risk management and internal compliance and control which implements the policies adopted by
the board.
Internal control framework
The board is responsible for the overall internal control framework, but recognises that no cost effective internal control system will
preclude all errors and irregularities. The board has instigated the following internal control framework:
> Financial reporting – Monthly actual results are reported against budgets approved by the directors and revised
forecasts for the year are prepared monthly.
> Continuous disclosure – Identify matters that may have a material effect on the price of the Company’s securities,
notify them to the ASX and post them to the Company’s website.
> Quality and integrity of personnel – Formal appraisals are conducted at least annually for all employees.
> Operating unit controls – Operating units are required to confirm compliance with financial controls and procedures
including information systems controls detailed in procedures manuals.
> Investment appraisals – Guidelines for capital expenditure include annual budgets, detailed appraisal and review
procedures and levels of authority.
Internal Audit
The company does not have an internal audit function but utilises its financial resources as needed to assist the board in ensuring
compliance with internal controls.
38
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Corporate Governance Statement (continued)
Heading (continued)
Ethical standards
All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance
the reputation and performance of the consolidated entity. Every employee has a nominated supervisor to whom they may refer any
issues arising from their employment.
Conflict of interest
Directors must keep the board advised, on an ongoing basis, of any interest that could potentially conflict with those of the
company. Where the board considers that a significant conflict exists the director concerned does not receive the relevant board
papers and is not present at the meeting whilst the item is considered. The board has developed procedures to assist directors to
disclose potential conflicts of interest. Details of any director related entity transactions with the company and consolidated entity
are set out in Note 27.
Code of conduct
The consolidated entity has advised each director, manager and employee that they must comply with the code of conduct.
The code aligns behaviour of the board and management with the code of conduct by maintaining appropriate core values and
objectives. It may be reviewed on the company’s website and includes:
> Responsibility to the community and fellow employees to act with honesty and integrity, and without prejudice.
> Compliance with laws and regulations in all areas where the company operates, including employment opportunity,
occupational health and safety, trade practices, fair dealing, privacy, drugs and alcohol, and the environment.
> Dealing honestly with customers, suppliers and consultants.
> Ensuring reports and other information are accurate and timely.
> Proper use of company resources, avoidance of conflicts of interest and use of confidential or proprietary information.
Trading in company securities by directors and employees
Directors and employees may acquire shares in the company, but are prohibited from dealing in company shares whilst in
possession of price sensitive information, and except in the periods:
> From 24 hours to 28 days after the release of the company’s half-yearly results announcement or following the wide
dissemination of information on the status of the corporation and current results.
> From 24 hours after the release of the company’s annual results announcement to a maximum of 28 days after the
annual general meeting.
Directors must obtain the approval of the chairman of the board and notify the company secretary before they buy or sell shares
in the company, subject to board veto. The company advises the ASX of any transactions conducted by directors in shares in the
company.
The consolidated entity’s trading policy may be reviewed on the company’s website.
39
Integrated Research and its controlled entities > Annual Report 2006
>
Corporate Governance Statement (continued)
Heading (continued)
>
Heading (continued)
Communication with shareholders
The board provides shareholders with information using a comprehensive continuous disclosure policy which includes identifying
matters that may have a material effect on the price of the company’s securities, notifying them to the ASX, posting them on the
company’s website (www.prognosis.com), and issuing media releases. Disclosures under this policy are in addition to the periodic
and other disclosures required under the ASX Listing Rules and the Corporations Act. More details of the policy are available on the
company’s website.
The Chief Executive Officer and the Chief Financial Officer are responsible for interpreting the company’s policy and where
necessary informing the board. The Company Secretary is responsible for all communication with the ASX.
The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability
and identification with the consolidated entity’s strategy and goals. Important issues are presented to the shareholders as single
resolutions. The external auditor is requested to attend the Annual General Meetings to answer any questions concerning the audit
and the content of the auditor’s report.
The shareholders are requested to vote on the appointment and aggregate remuneration of directors, the granting of options
and shares to directors, the Remuneration report and changes to the Constitution. Copies of the Constitution are available to any
shareholder who requests it.
40
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Financial Report
> Income statements
> Statements of recognised income and expense
> Balance sheets
> Statements of cash flows
> Notes to the financial statements
> Significant accounting policies
> Segment reporting
> Financing income
> Expenses
> Personnel expenses
> Auditors’ remuneration
> Income tax expense
> Earnings per share
> Cash and cash equivalents
> Trade and other receivables
> Other current assets
> Investments
> Property, plant and equipment
> Deferred tax assets and liabilities
> Intangible assets
> Trade and other payables
> Income tax payable
> Employee benefits
> Provisions
> Other current liabilities
> Capital and reserves
> Financial instruments
> Operating leases
> Consolidated entities
> Reconciliation of cash flows from operating activities
> Key management personnel disclosures
> Related parties
> Subsequent events
> Explanation of transition to AIFRS
> Changes in accounting policies
42
43
44
45
46
46
54
55
56
56
56
57
58
58
58
59
59
59
60
62
63
63
64
66
67
67
69
71
71
71
72
75
75
75
80
41
Integrated Research and its controlled entities > Annual Report 2006
>
Financial Report
Heading (continued)
Income statements
For the year ended 30 June 2006
In thousands of AUD
Revenue:
Revenue from licence fees
Revenue from maintenance fees
Revenue from consulting and other services
Total revenue
Research and development expenses
Sales and marketing expenses
General and administration expenses
Total expenses
Results from operating activities
Financing income
Profit before tax
Income tax expense
Profit for the period
Basic earnings per share (AUD cents)
Diluted earnings per share (AUD cents)
Dividend paid per share (AUD cents)
>
Heading (continued)
Consolidated
The Company
Notes
2006
2005
2006
2005
12,699
9,739
212
11,648
9,475
46
22,650
21,169
6,687
6,804
2,481
15,972
6,678
2,248
8,926
571
8,355
6,241
6,420
2,444
15,105
6,064
214
6,278
1,332
4,946
19,040
14,909
574
34,523
6,687
16,452
3,782
26,921
7,602
365
7,967
964
7,003
4.22¢
4.22¢
2.50¢
17,790
14,877
446
33,113
6,241
15,431
3,494
25,166
7,947
294
8,241
2,003
6,238
3.77¢
3.75¢
2.50¢
3
7
The income statements are to be read in conjunction with the notes to the financial statements set out on pages 46 to 81.
42
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Financial Report (continued)
Statements of recognised income and expense
For the year ended 30 June 2006
Consolidated
The Company
In thousands of AUD
Notes
2006
Effective portion of changes in fair value of cash flow hedges
Foreign exchange translation differences
21
Net income recognised directly in equity
Profit for the period
Total recognised income and expense for the period
-12
172
160
7,003
7,163
2005
-
-392
-392
6,238
5,846
2006
2005
-12
-
-12
8,355
8,343
-
-
-
4,946
4,946
Other movements in equity arising from transactions with owners as owners are set out in note 21.
The amounts recognised directly in equity are disclosed net of tax – see note 14 for tax effect.
The statements of recognised income and expense are to be read in conjunction with the notes to the financial statements set out
on pages 46 to 81.
43
Integrated Research and its controlled entities > Annual Report 2006
>
Financial Report (continued)
Heading (continued)
>
Heading (continued)
Balance sheets
As at 30 June 2006
In thousands of AUD
Current assets
Cash and cash equivalents
Trade and other receivables
Other current assets
Total current assets
Non-current assets
Investments
Property, plant and equipment
Deferred tax assets
Intangible assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Income tax payable
Employee benefits
Provisions
Other current liabilities
Total current liabilities
Non-current liabilities
Deferred tax liabilities
Employee benefits
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
Consolidated
The Company
Notes
2006
2005
2006
2005
9
10
11
12
13
14
15
16
17
18
19
20
14
18
21
21
21
21
10,736
13,615
4,057
28,408
-
1,267
400
9,567
11,234
39,642
9,699
10,079
3,777
23,555
-
1,294
363
8,885
10,542
34,097
2,378
1,793
77
919
312
10,163
13,849
2,261
244
2,505
16,354
23,288
538
8
22,742
23,288
60
946
297
9,007
12,103
1,855
181
2,036
14,139
19,958
468
-395
19,885
19,958
4,914
11,792
3,634
3,258
8,549
3,258
20,340
15,065
54
672
-
9,558
10,284
30,624
783
-
661
290
5,835
7,569
2,261
244
2,505
10,074
20,550
538
470
19,542
20,550
54
821
-
8,875
9,750
24,815
603
-
680
275
5,186
6,744
1,850
181
2,031
8,775
16,040
468
239
15,333
16,040
The balance sheets are to be read in conjunction with the notes to the financial statements set out on pages 46 to 81.
44
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Financial Report (continued)
Statements of cash flows
For the year ended 30 June 2006
In thousands of AUD
Cash flows from operating activities
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations
Income taxes paid
Consolidated
The Company
Notes
2006
2005
2006
2005
33,150
32,998
-27,730
-26,308
5,420
-335
5,085
-506
-21
365
-
-162
70
-4,146
-4,076
847
9,699
190
10,736
6,690
-1,251
5,439
-671
-131
294
-
-508
41
-3,310
-3,269
1,662
8,510
-473
9,699
20,473
-16,438
4,035
-255
3,780
-275
-21
248
2,000
1,952
70
-4,146
-4,076
1,656
3,258
-
18,605
-15,305
3,300
-762
2,538
-517
-131
214
-
-434
41
-3,310
-3,269
-1,165
4,423
-
4,914
3,258
Net cash provided by operating activities
25
Cash flows from investing activities
Payments for property, plant and equipment
Payments for intellectual property purchases
Interest received
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuing of shares
Payment of dividend
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 July
Effects of exchange rate changes on cash
Cash and cash equivalents at 30 June
21
9
The statements of cash flows are to be read in conjunction with the notes to the financial statements set out on pages 46 to 81.
45
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 1: Significant accounting policies
Integrated Research Limited (the “Company”) is a company domiciled in Australia. The financial report of the Company for the year
ended 30 June 2006 comprises the Company and its subsidiaries (together referred to as the “consolidated entity”).
The financial report was authorised for issue by the directors on 20 September 2006.
a) Statement of Compliance
The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting
Standards (“AASBs”), Urgent Issues Group Interpretations (“UIGs”) adopted by the Australian Accounting Standards Board
(“AASB”) and the Corporations Act 2001. International Financial Reporting Standards (“IFRSs”) form the basis of Australian
Accounting Standards (“AASBs”) adopted by the AASB, and for the purpose of this report are called Australian equivalents to IFRS
(“AIFRS”) to distinguish from previous Australian GAAP. The financial reports of the consolidated entity and the company also
comply with IFRSs and interpretations adopted by the International Accounting Standards Board.
This is the consolidated entity’s first financial report prepared in accordance with Australian Accounting Standards, being AIFRS,
and AASB 1 First-Time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied. An
explanation of how the transition to AIFRS has affected the reported financial position, financial performance and cash flows of the
consolidated entity and the company is provided in note 29.
b) Basis of Preparation
The financial report is presented in Australian dollars and is prepared on the historical cost basis, with the exception of cash flow
hedges, which are at fair value.
Non-current assets are stated at the lower of carrying amount and fair value less costs to sell.
The company is of a kind referred to in ASIC Class Order (CO) 98/100 dated 10 July 1998 (updated by CO 05/641 effective 28
July 2005 and CO 06/51 effective 31 January 2006) and in accordance with that Class Order, amounts in the financial report and
Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated.
The preparation of a financial report in conformity with Australian Accounting Standards requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates. These accounting policies have been consistently applied by each entity in the consolidated entity.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods
if the revision affects both current and future periods.
46
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 1. Significant accounting policies (continued)
The consolidated entity has the option not to apply new and revised accounting standards prior to their application date. The
following table summarises the standards the consolidated entity has elected not to early adopt and the estimate of the impact on
these financial statements:
Standard
Application date
Estimated financial impact on the consolidated entity
AASB 7 Financial Instruments:
1 July 2007
$nil – disclosure requirement only, replacing the presentation
Disclosures
requirements of financial instruments in AASB 132 Financial
Instruments: Disclosure and Presentation.
AASB 119 Employee benefits
1 July 2006
$nil – recognition of actuarial gains and losses associated with a
defined benefit plan.
AASB 2004-3 Amendments to Australian
1 July 2006
$nil – adopting the “corridor” approach to accounting for defined
Accounting Standards
benefit plans or recognize all cumulative actuarial gains and
losses in equity at the date of transition.
AASB 2005-1 Amendments to Australian
1 July 2006
Impact not yet estimated – amends cashflow hedging
Accounting Standards
requirements for a highly probable intra-group forecast
transaction.
AASB 2005-4 Amendments to Australian
1 July 2006
Accounting Standards
Impact not yet estimated - restricts the option to fair value
through profit & loss.
AASB 2005-5 Amendments to Australian
1 July 2006
Impact not yet estimated - arises as a consequence of the
Accounting Standards
approval of UIG 4 & UIG 5.
AASB 2005-6 Amendments to Australian
1 July 2006
$nil – amends the scope to exclude business combinations
Accounting Standards
involving entities or businesses under common control.
AASB 2005-7 Amendments to Australian
1 July 2005
Impact not yet estimated – removes the “Aus” paragraph on
Accounting Standards
corresponding calendar periods.
AASB 2005-9 Amendments to Australian
1 July 2006
$nil – relative to issuers of financial guarantee contracts.
Accounting Standards
AASB 2005-10 Amendments to
1 July 2007
$nil – disclosure requirements only, amending existing standards
Australian Accounting Standards
for the release of AASB 7 Financial Instruments: Disclosure.
AASB 2006-1 Amendments to Australian
1 July 2006
Impact not yet estimated – a monetary item can be denominated
Accounting Standards
in any currency.
AASB 2006-2 Amendments to Australian
1 July 2006
$nil – disclosure item for not-for-profit public sector entities.
Accounting Standards
The consolidated entity will adopt these new and revised accounting standards in the financial years commencing on the above
application dates, if applicable.
47
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 1. Significant accounting policies (continued)
The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report
and in preparing an opening AIFRS balance sheet at 1 January 2004 for the purposes of the transition to Australian Accounting
Standards – AIFRS. The accounting policies have been applied consistently throughout the consolidated entity.
c) Basis of consolidation
Subsidiaries are entities controlled by the company. Control exists when the company has the power, directly or indirectly, to govern
the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting
rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in
the consolidated financial report from the date that control commences until the date that control ceases.
Investments in subsidiaries are carried at their cost of acquisition in the company’s financial statements.
Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are
eliminated in preparing the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment.
d) Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are translated to Australian dollars at the foreign
exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-
monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair
value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, generally
are translated to Australian dollars at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of
foreign operations, are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the
transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity.
e) Derivative financial instruments
Current accounting policy
The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange risks arising from
operational activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial
instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading
instruments.
Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments
are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. However, where
derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.
The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the
quoted forward price.
48
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 1. Significant accounting policies (continued)
Comparative period policy
The consolidated entity is exposed to changes in foreign exchange rates. The consolidated entity uses forward foreign exchange
contracts to hedge this risk. Derivative financial instruments are not held for speculative purposes. The quantative effect of the
change in accounting policy is set out in note 30.
f ) Hedging
Current accounting policy
On entering into a hedging relationship, the consolidated entity formally designates and documents the hedge relationship and
risk management objective and strategy for undertaking the hedge. The documentation included identification of the hedging
instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging
instrument’s effectiveness in offsetting the exposure to changes in the item’s fair value or cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective offsetting changes in fair value or cash flows and are assessed on an ongoing
basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are
designated.
For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction affects profit or loss. The ineffective part of any gain or loss is
recognised immediately in the income statement.
Comparative period policy
Transactions are designated as a hedge of the anticipated specific purchase or sale of goods or services, only when they are
expected to reduce exposure to the risks being hedged. These transactions are designated prospectively so that it is clear when an
anticipated transaction has or has not occurred and it is probable the anticipated transaction will occur as designated.
Gains or losses on the hedge arising up to the date of the anticipated transaction, together with any costs or gains arising at the
time of entering into the hedge, are deferred and included in the measurement of the anticipated transaction when the transaction
has occurred as designated. Any gains or losses on the hedge transaction after that date are included in the income statement.
The net amount receivable or payable under forward exchange contracts and the associated deferred gains or losses are recorded
in the balance sheet from the date of inception of the hedge transaction. When recognised, the net receivables or payables are
revalued using the foreign currency rate current at reporting date.
When the anticipated transaction is no longer expected to occur as designated, the deferred gains or losses relating to the hedged
transaction are recognised immediately in the income statement.
g) Property, plant and equipment
Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation (see below) and
impairment losses (see accounting policy (k)). The cost of acquired assets includes (i) the initial estimate at the time of installation
and during the period of use, when relevant, of the costs of dismantling and removing the items and restoring the site on which
they are located, and (ii) changes in the measurement of existing liabilities recognised for these costs resulting from changes in the
timing or outflow of resources required to settle the obligation or from changes in the discount rate.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of
property, plant and equipment.
49
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 1. Significant accounting policies (continued)
Depreciation
Depreciation is charged to the income statement on a reducing balance basis over the estimated useful lives of each part of an item
of property, plant and equipment. The residual value, if not insignificant, is reassessed annually. The estimated useful lives in the
current and comparative periods are as follows:
> Computer equipment
4 years
> Furniture and fittings
8 years
> Computer software
2.5 years
h) Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or
substantially improved products and processes, is capitalised if the product or process is technically and commercially feasible and
the consolidated entity has sufficient resources to complete development.
The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Other
development expenditure is recognised in the income statement as an expense as incurred. Capitalised development expenditure is
stated at cost less accumulated amortisation and impairment losses (see accounting policy (k)).
Amortisation is charged to the income statement on a straight-line basis over the estimated useful life, but no more than three
years.
i) Trade and other receivables
Current accounting policy
Trade and other receivables are stated at their amortised cost less impairment losses (see accounting policy (k)). Standard trade
terms are 30 days, but may be extended up to 90 days in response to competitive situations.
Comparative period policy
Trade debtors are carried at amounts due. The collectibility of debts is assessed at reporting date and specific provision is made for
any doubtful debts.
j) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand and form
an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
k) Impairment
The carrying amounts of the consolidated entity’s assets, other than deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
For intangible assets that are not yet available for use, the recoverable amount is estimated at each balance sheet date.
50
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 1. Significant accounting policies (continued)
An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income statement unless the asset has previously been revalued, in which case
the impairment loss is recognised as a reversal to the extent of that previous revaluation with any excess recognised through the
income statement.
Impairment of receivables is not recognised until objective evidence is available that a loss event has occurred. Significant
receivables are individually assessed for impairment. Impairment testing is performed by placing non-significant receivables in
portfolios of similar risk profiles, based on objective evidence from historical experience adjusted for any effects of conditions
existing at each balance date.
The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
l) Employee benefits
Superannuation
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as
incurred. There are no defined benefit plans in operation.
Long-term service benefits
The consolidated entity’s net obligation in respect of long-term service benefits, other than pension plans, is the amount of
future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated
using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is
discounted using the rates attached to the Commonwealth Government bonds at the balance sheet date which have maturity dates
approximating to the terms of the consolidated entity’s obligations.
Share-based payment transactions
The share option programme allows consolidated entity employees to acquire shares of the Company. The fair value of options
granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date
and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the
options granted is measured using a Binomial lattice model, taking into account the terms and conditions upon which the options
were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except
where forfeiture is only due to share prices not achieving the threshold for vesting.
Wages, salaries, annual leave, sick leave and non-monetary benefits
Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting from
employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage and salary
rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as, workers compensation
insurance and payroll tax.
51
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 1. Significant accounting policies (continued)
m) Provisions
A provision is recognised in the balance sheet when the consolidated entity has a present legal or constructive obligation as a
result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
n) Warranties
A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical
warranty data and a weighting of all possible outcomes against their associated probabilities.
o) Trade and other payables
Current accounting policy
Trade and other payables are stated at their amortised cost. Trade payables are non-interest bearing and are normally settled on
30-day terms.
Comparative period policy
Trade and other payables are carried at cost, which is the fair value of the consideration to be paid in the future for goods and
services received, whether or not billed to the company.
p) Revenue
The consolidated entity allocates revenue to each element in software arrangements involving multiple elements based on the
relative fair value of each element. The typical elements in the multiple element arrangement are licence and maintenance fees. The
company’s determination of fair value is based on the price charged when the same element is sold separately.
Revenue from the sale of licences where the licence period is for the major part of the economic life of the software is recognised in
the income statement when the significant risks and rewards of ownership have been transferred to the buyer.
In other cases, revenue from software licences is recognised ratably over the term of the agreement.
Maintenance contracts are typically priced based on a percentage of licence fees and have a one year term. Services provided to
customers under maintenance contracts include technical support. Revenue from maintenance contracts is recognised ratably over
the term of the agreement, which is typically one year.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, the costs incurred or to
be incurred cannot be measured reliably, there is a risk of return of goods or there is continuing management involvement with the
goods.
q) Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement as an integral part of the total lease expense and spread over the
lease term.
52
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 1. Significant accounting policies (continued)
Net financing costs
Net financing costs comprise interest payable on borrowings calculated using the effective interest method, dividends on
redeemable preference shares, interest receivable on funds invested, dividend income, foreign exchange gains and losses, and
gains and losses on hedging instruments that are recognised in the income statement (see accounting policy (f )).
r) Segment reporting
A segment is a distinguishable component of the consolidated entity that is engaged in providing products or services within a
particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of
other segments.
s) Income tax
Income tax on the income statement for the periods presented comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be
realised.
Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.
t) Goods and Services Tax
Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), or similar taxes, except where the
amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the
cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or payable is included as
a current asset or liability in the balance sheet.
Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing
and financing activities, which are recoverable or payable are classified as operating cash flows.
53
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 2. Segment reporting
The consolidated entity operates predominantly in the computer software products business segment. Segment information is
presented in respect of the consolidated entity’s geographic segments, which are the primary basis of segment reporting. The
geographic segment reporting format reflects the consolidated entity’s management and internal reporting structure.
Inter-segment pricing is determined on an arm’s length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and
expenses, and corporate assets and expenses.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for
more than one period.
The consolidated entity is managed on a worldwide basis, but operates in the following three geographical segments:
> The Americas. Operating from the United States with responsibility for the countries in North, Central and South
America.
> Europe. Operating from the United Kingdom with responsibility for the countries in Europe.
> Asia Pacific. Operating from Australia with responsibility for the countries in the rest of the world, including Head
Office revenue and expenses.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of
customers. Segment assets are based on the geographical location of the assets.
54
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 2. Segment reporting (continued)
Geographic
segments
Americas
Europe
Asia Pacific
Unallocated
Eliminations
Consolidated
In thousands of AUD
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
2006
2005
Sales to customers
20,137
19,078
8,414
6,956
6,080
5,476
-19
1,603
-89
-
34,523
33,113
outside the
consolidated entity
Inter-segment sales
-
-
-
-
-
-
16,589
14,090 -16,589 -14,090
-
-
Total segment
20,137
19,078
8,414
6,956
6,080
5,476
16,570
15,693 -16,678 -14,090
34,523
33,113
revenue
Total revenue
34,523
33,113
Segment results
711
1,521
302
258
390
489
6,288
5,576
-89
103
7,602
7,947
Results from
operating activities
Financing income
Income tax expense
Profit for the period
7,602
7,947
365
294
-964
-2,003
7,003
6,238
Segment assets
15,947
14,770
6,670
4,695
3,368
3,028
27,256
21,952 -13,599 -10,348
39,642
34,097
Total assets
39,642
34,097
Segment liabilities
14,013
11,387
5,848
4,097
3,193
2,796
6,881
6,152
-13,581
-10,293
16,354
14,139
Total liabilities
16,354
14,139
Cash flow from
11,529
11,111
3,937
4,607
3,649
1,508
147
1,033
-14,177 -12,820
5,085
5,439
operating activities
Cash flow from
-89
-18
-11
-52
-7
-12
1,945
-426
-2,000
investing activities
Cash flow from
-2,000
-
-
financing activities
Capital expenditure
206
83
25
-
71
-
7
-
-4,076
-3,269
2,000
12
289
636
-
-
-
-
-162
-508
-4,076
-3,269
527
527
802
802
Total capital
expenditure
Note 3. Financing income
In thousands of AUD
Interest income
Dividends received
>
Consolidated
The Company
2006
365
-
365
2005
294
-
294
2006
248
2,000
2,248
2005
214
-
214
55
Integrated Research and its controlled entities > Annual Report 2006
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 4. Expenses
Total expenses includes:
In thousands of AUD
Research expenses as incurred
Increase in provisions
Note 5. Personnel expenses
In thousands of AUD
Wages and salaries
Other associated personnel expenses
Superannuation contributions
Employee options and share grant
Increase in liability for annual leave
Increase in liability for long service leave
Consolidated
The Company
Note
2006
496
15
19
2005
615
12
2006
496
15
2005
615
12
Consolidated
The Company
Note
18
2006
16,993
1,616
727
243
-27
63
2005
16,017
1,440
751
197
103
-80
2006
9,783
698
727
243
-19
63
2005
9,479
643
751
197
92
-80
19,615
18,428
11,495
11,082
Note 6. Auditors’ remuneration
In AUD
Consolidated
The Company
2006
2005
2006
2005
Remuneration for audit and review of the financial reports of the Company or any entity in the consolidated entity:
Audit services:
Auditors of the company - KPMG
Audit and review of financial reports
184,000
200,700
128,000
147,000
Remuneration for other services by the auditors of the Company or any entity in the consolidated entity:
Taxation services:
Auditors of the company - KPMG
58,000
101,500
22,000
5,400
56
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 7. Income tax expense
Recognised in the income statement
In thousands of AUD
Current tax expense:
Current year
Prior year adjustments
Deferred tax expense:
Origination and reversal of temporary differences
Total income tax expense in income statement
Consolidated
The Company
Note
2006
2005
2006
2005
735
-140
595
369
964
1,496
-8
1,488
515
2,003
239
-79
160
411
571
820
23
843
489
1,332
Numerical reconciliation between income tax expense and profit before tax
In thousands of AUD
Profit before tax
Income tax using the domestic corporate tax rate of 30%
Increase in income tax expense due to:
Non-deductible expenses
Effect of tax rates in foreign jurisdictions
Decrease in income tax expense due to:
R&D tax incentive
Foreign sourced income (net of expense)
Remission of FDT offset reduction (see below)
Prior year adjustments
Income tax expense
Franking deficit tax offset
Consolidated
The Company
2006
7,967
2,390
29
106
-615
-
-806
-140
964
2005
8,241
2,472
95
128
-655
-29
-
-8
2,003
2006
8,926
2,678
20
-
-615
-627
-806
-79
571
2005
6,278
1,883
81
-
-655
-
-
23
1,332
In March 2004, the Australian Taxation Office (ATO) notified the company of retrospective changes in franking deficit tax (FDT)
legislation (Taxation Laws Amendment Act (No. 8) 2003) that reduced the value of the company’s deferred tax assets by a deficit tax
offset reduction in the amount of $806,000. Accordingly, the company wrote down the value of its franking deficit tax offset benefit
by $806,000 in the 30 June 2004 financial report.
In June 2006, the FDT legislation was amended by the Australian Parliament to allow the ATO to determine not to apply the deficit
tax offset reduction. The company requested consideration under the terms of the amended legislation and was subsequently
advised by the ATO that its request was approved. Accordingly the company has re-recognised the related franking deficit tax offset
benefit of $806,000 at 30 June 2006.
57
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 8. Earnings per share
The calculation of basic and diluted earnings per share at 30 June 2006 was based on the profit attributable to ordinary
shareholders of $7,003,000 (2005: $6,238,000); a weighted number of ordinary shares outstanding during the year ended 30 June
2006 of 165,561,470 (2005: 165,443,533); and a weighted number of ordinary shares (diluted) outstanding during the year ended
30 June 2006 of 165,818,384 (2005: 166,226,748), calculated as follows:
Consolidated
2006
7,003
2005
6,238
Consolidated
2006
2005
165,561,470
165,443,533
256,914
783,215
165,818,384
166,226,748
Consolidated
The Company
2006
10,736
2005
9,699
2006
4,914
2005
3,258
Consolidated
The Company
2006
13,905
-290
13,615
-
2005
10,333
-254
10,079
-
13,615
10,079
2006
2,598
-38
2,560
9,232
11,792
2005
2,334
-57
2,277
6,272
8,549
In thousands of AUD
Profit for the period
Weighted average number of shares used as the denominator
(Number)
Number for basic earnings per share:
Ordinary shares
Effect of employee share options on issue
Number for diluted earnings per share
Note 9. Cash and cash equivalents
In thousands of AUD
Cash at bank and on hand
Note 10. Trade and other receivables
In thousands of AUD
Trade debtors
Less: Provision for returns
Receivable from controlled entities
58
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 11. Other current assets
In thousands of AUD
Franking deficit tax offset benefit
Income taxes receivable
Other prepayments
Unrealised FX gain
Deposits
Note 12. Investments
Consolidated
The Company
2006
1,809
296
539
-
1,413
4,057
2005
1,516
344
542
2
1,373
3,777
2006
1,809
-
448
-
1,377
3,634
2005
1,516
-
387
2
1,353
3,258
In thousands of AUD
Shares in controlled entities at cost (refer Note 24)
Consolidated
The Company
2006
-
2005
-
2006
54
2005
54
Note 13. Property, plant and equipment
In thousands of AUD
Plant and equipment at cost
Less: Accumulated depreciation
Reconciliation
Consolidated
The Company
2006
5,161
-3,894
1,267
2005
4,672
-3,378
1,294
2006
3,697
-3,025
672
2005
3,407
-2,586
821
Reconciliation of the carrying amounts of plant and equipment at the beginning and end of the current and previous financial year
are set out below:
In thousands of AUD
Carrying amount at start of year
Additions
Revaluation of lease make-good
Disposals
Depreciation expense
Carrying amount at end of year
>
Consolidated
The Company
2006
1,294
506
15
-16
-532
1,267
2005
1,081
671
12
-
-470
1,294
2006
2005
821
275
15
-
-439
672
671
517
12
-
-379
821
59
Integrated Research and its controlled entities > Annual Report 2006
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 14. Deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Consolidated
Assets
Liabilities
Net
In thousands of AUD
2006
2005
2006
2005
2006
2005
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Translation of foreign entities
Deferred tax assets/liabilities
Set off of tax
Net deferred tax assets/liabilities
4
6
-
257
370
105
51
-
793
-393
400
41
-17
-
140
353
115
284
50
966
-603
363
-
-
-
-
4
6
41
-17
2,654
2,458
-2,654
-2,458
-
-
-
-
-
2,654
-393
2,261
-
-
-
-
-
2,458
-603
1,855
257
370
105
51
-
-1,861
-
-1,861
The Company
Assets
Liabilities
Net
In thousands of AUD
2006
2005
2006
2005
2006
140
353
115
284
50
-1,492
-
-1,492
2005
19
-17
-
-
-
-
4
-
2,654
2,458
-2,654
-2,458
-
-
-
-
-
2,654
-393
2,261
-
-
-
-
-
-
272
96
21
-
34
258
83
181
50
2,458
-608
1,850
-2,261
-1,850
-
-
-2,261
-1,850
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Translation of foreign entities
Deferred tax assets/liabilities
Set off of tax
Net deferred tax assets/liabilities
4
-
-
-
272
96
21
-
393
-393
-
19
-17
-
34
258
83
181
50
608
-608
-
60
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 14. Deferred tax assets and liabilities (continued)
Movement in temporary differences during the year:
For year ended 30 June 2006
Consolidated
The Company
In thousands of AUD
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Translation of foreign entities
Balance
1 Jul 05
Recognised
in income
Balance
30 Jun 06
Balance
1 Jul 05
Recognised
in income
Balance
30 Jun 06
41
-17
-2,458
140
353
115
284
50
-1,492
-37
23
-196
117
17
-10
-233
-50
-369
4
6
19
-17
-2,654
-2,458
257
370
105
51
-
34
258
83
181
50
-1,861
-1,850
-15
17
-196
-34
14
13
-160
-50
-411
4
-
-2,654
-
272
96
21
-
-2,261
For year ended 30 June 2005
Consolidated
The Company
In thousands of AUD
Trade and other receivables
Property, plant and equipment
Intangible assets
Trade and other payables
Employee benefits
Provisions
Other current liabilities
Translation of foreign entities
Balance
1 Jul 04
Recognised
in income
Balance
30 Jun 05
Balance
1 Jul 04
Recognised
in income
Balance
30 Jun 05
138
-28
-2,005
147
348
114
290
19
-977
-97
11
-453
-7
5
1
-6
31
41
-17
114
-28
-2,458
-2,005
140
353
115
284
50
30
255
79
175
19
-515
-1,492
-1,361
-95
11
-453
4
3
4
6
31
-489
19
-17
-2,458
34
258
83
181
50
-1,850
Deferred tax recognised directly in equity:
In thousands of AUD
Relating to changes in fair value of cashflow hedge
Consolidated
The Company
2006
2005
2006
2005
-5
-5
-
-
-5
-5
-
-
61
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 15. Intangible assets
The amortisation and impairment charge is recognised in the following line item in the income statement :
In thousands of AUD
Research and development expenses
General and administration expenses
Consolidated
The Company
2006
3,995
1
3,996
2005
2,607
2
2,609
2006
3,995
-
3,995
2005
2,607
-
2,607
Cost
Consolidated
The Company
In thousands of AUD
Software
development
Patents &
trademarks
Third
party
software
Total
Software
development
Patents &
trademarks
Balance at 1 July 2004
10,687
33
556
11,276
10,687
Fully amortised &
offset
Internally developed
Acquired
Balance at 30 June
2005
-2,964
4,112
-
11,835
Balance at 1 July 2005
11,835
Fully amortised &
offset
Internally developed
Acquired
Balance at 30 June
2006
-3,285
4,657
-
-
-
-
33
33
-
-
-
-
-
131
-2,964
4,112
131
-2,964
4,112
-
687
12,555
11,835
687
12,555
11,835
-
-
21
-3,285
4,657
21
-3,285
4,657
-
13,207
33
708
13,948
13,207
Third
party
software
Total
556
11,243
-
-
131
-2,964
4,112
131
687
12,522
687
12,522
-
-
21
-3,285
4,657
21
708
13,915
-
-
-
-
-
-
-
-
-
-
Amortisation
Consolidated
The Company
Software
development
Patents &
trademarks
Third
party
software
Total
Software
development
Patents &
trademarks
Third
party
software
Total
3,648
-2,964
2,563
3,247
21
-
2
23
356
4,025
3,648
-
44
-2,964
2,609
-2,964
2,563
400
3,670
3,247
-
-
-
-
356
4,004
-
44
-2,964
2,607
400
3,647
In thousands of AUD
Balance at 1 July
2004
Fully amortised &
offset
Amortisation for year
Balance at 30 June
2005
62
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 15. Intangible assets (continued)
Amortisation
(continued)
In thousands of AUD
Balance at 1 July
Consolidated
The Company
Software
development
Patents &
trademarks
Third
party
software
Total
Software
development
Patents &
trademarks
Third
party
software
Total
2005
3,247
23
400
3,670
3,247
Fully amortised &
offset
Amortisation for year
Balance at 30 June
-3,285
3,911
-
1
-
84
-3,285
3,996
-3,285
3,911
2006
3,873
24
484
4,381
3,873
-
-
-
-
400
3,647
-
84
-3,285
3,995
484
4,357
Carrying amounts
Consolidated
The Company
In thousands of AUD
Balance at 1 July
2004
Balance at 30 June
2005
Balance at 1 July
2005
Balance at 30 June
2006
Software
development
Patents &
trademarks
Third
party
software
Total
Software
development
Patents &
trademarks
7,039
8,588
8,588
9,334
12
10
10
9
200
7,251
7,039
287
8,885
8,588
287
8,885
8,588
224
9,567
9,334
-
-
-
-
Third
party
software
Total
200
7,239
287
8,875
287
8,875
224
9,558
Note 16. Trade and other payables
In thousands of AUD
Payable to controlled entities
Trade and other creditors
Note 17. Income tax payable
In thousands of AUD
Income tax provision
>
Consolidated
The Company
2006
-
2,378
2,378
2005
-
1,793
1,793
2006
2005
32
751
783
36
567
603
Consolidated
The Company
2006
77
2005
60
2006
-
2005
-
63
Integrated Research and its controlled entities > Annual Report 2006
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 18. Employee benefits
Current
In thousands of AUD
Liability for untaken annual leave
Non-current
In thousands of AUD
Liability for long service leave
Consolidated
The Company
2006
919
2005
946
2006
661
2005
680
Consolidated
The Company
2006
244
2005
181
2006
244
2005
181
Pension plans
Employees of the consolidated entity accumulate pension benefits through statutory contributions by the entities in the
consolidated entity as required by the laws of the jurisdictions in which they operate, supplemented by individual contributions.
The consolidated entity does not provide any defined benefit pension plans.
Share based payments
On 4 October 2000, the consolidated entity established a share option programme that entitles employees to purchase shares in
the entity. In accordance with this programme, options are exercisable at the market price of the shares at the date of grant.
1,103,400 equity settled share option grants made prior to 7 November 2002 are outstanding. In accordance with the transitional
provisions in AASB 1 and AASB 2, the recognition and measurement principles in AASB 2 have not been applied to these grants.
At 1 November 2005, the consolidated entity granted 45,000 shares to the Chief Executive Officer, as approved by shareholders at
the 2005 AGM.
The terms and conditions of the grants made and number outstanding at 30 June 2006 are as follows:
> All option vest at the rate of 25% per annum, starting on the first anniversary of the grant date
> The contractual life of each option is five years from the grant date
> Exercises are settled by physical delivery of shares
> Grants marked (*) include performance hurdles as conditions for vesting
Number of
Instruments
Outstanding
268,000
268,500
281,000
189,750
350,000
317,500
1,200,000
404,000
790,000
869,000
Grant date
Exercise Price
Dec 2001
May 2002
Feb 2003
Aug 2003
Apr 2004 (*)
Jul 2004
Nov 2004 (*)
Apr 2005 (*)
Feb 06 (*)
$0.51
$0.63
$0.24
$0.22
$0.46
$0.40
$0.57
$0.46
$0.48
Number of
Instruments
Outstanding
120,400
165,500
260,750
315,250
585,000
372,750
400,000
516,500
200,000
Grant date
Exercise Price
$0.54
$0.62
$0.57
$0.12
$0.26
$0.33
$0.47
$0.52
$0.54
$0.41
Aug 2001
Jan 2002
July 2002
Jun 2003
Feb 2004
Jun 2004
Nov 2004 (*)
Feb 2005
Sep 2005
May 06
64
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 18. Employee benefits (continued)
The number and weighted average exercise prices of share options is as follows:
Weighted Average
exercise price
Number of
options
Weighted Average
exercise price
Number of
options
In thousands of options
Outstanding at the beginning of the period
Forfeited during the period
Exercised during the period
Granted during the period
Outstanding at the end of the period
Exercisable at the end of the period
(vested)
2006
$0.44
$0.51
$0.24
$0.47
$0.45
$0.44
2006
7,752
-1,489
-298
1,859
7,824
2,878
2005
$0.41
$0.45
$0.13
$0.48
$0.44
$0.48
2005
6,794
-2,014
-318
3,290
7,752
1,977
The options outstanding at 30 June 2006 have an exercise price in the range of $0.12 to $0.63 and a weighted average of
contractual life of five years.
During the year ended 30 June 2006, 298,108 options were exercised (2005: 318,000).
The fair values of services received in return for share options granted to employees is measured by reference to the fair value of
share options granted. The estimate of the fair value of the services received is measured based on the Binomial option-pricing
model. The contractual life of the option (five years) is used as an input into this formula. Expectations of early exercise are
incorporated into the Binomial formula.
Fair value of share options and assumptions
For year ended 30 June 2006
Grant date
Fair value at measurement date
Share price
Exercise price
16 Sep 2005
10 Jan 06
31 May 06
$0.24
$0.54
$0.54
$0.21
$0.48
$0.48
$0.18
$0.41
$0.41
Expected volatility (expressed as weighted average volatility used in the
modelling under the Binomial formula)
70%
70%
70%
Option life (expressed as weighted average life used in the modelling under the
Binomial formula)
Expected dividends
Risk-free interest rate (based on national government bonds)
5 years
5 years
5 years
5%
5%
5%
5%
5%
5%
65
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 18. Employee benefits (continued)
For year ended 30 June 2005
Grant date
Fair value at measurement date
Share price
Exercise price
Expected volatility (expressed as weighted
average volatility used in the modelling under
22 Jul 04
1 Nov 04
16 Nov 04
25 Feb 05
14 Apr 05
$0.22
$0.40
$0.40
$0.23
$0.47
$0.47
$0.28
$0.57
$0.57
$0.22
$0.52
$0.52
$0.22
$0.46
$0.46
the Binomial formula)
70%
70%
70%
70%
70%
Option life (expressed as weighted average
life used in the modelling under the Binomial
formula)
Expected dividends
Risk-free interest rate (based on national
government bonds)
5 years
5 years
5 years
5 years
5 years
5%
5%
5%
5%
5%
5%
5%
5%
5%
5%
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share
options), adjusted for any expected changes to future volatility due to publicly available information.
Share options are granted under a service condition and, for grants to key management personnel, a non-market performance
condition related to profitability of the consolidated entity. Such conditions are not taken into account in the grant date fair value
measurement of the services received. There are no market conditions associated with the share option grants.
The fair value of the options at grant date is determined based on the Binomial formula using the above model inputs. The fair
value of the liability is remeasured at each balance sheet date and at settlement date. During the year ended 30 June 2006, the
consolidated entity recognised expense of $243,000 related to the fair value of options (2005: $197,000).
Note 19. Provisions
In thousands of AUD
Consolidated:
Balance at 1 July 2005
Provision made during the year
Balance at 30 June 2006
The Company:
Balance at 1 July 2005
Provision made during the year
Balance at 30 June 2006
66
Integrated Research and its controlled entities > Annual Report 2006
Lease make good
Other
Total
275
15
290
275
15
290
22
-
22
-
-
-
297
15
312
275
15
290
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 20. Other current liabilities
In thousands of AUD
Deferred revenue
Hedge liability
Note 21. Capital and reserves
Consolidated
The Company
2006
10,151
12
10,163
2005
9,007
-
9,007
2006
5,823
12
5,835
2005
5,186
-
5,186
Reconciliation of movement in capital and reserves attributed to equity holders in the parent:
Consolidated
In thousands of AUD
Share capital
Hedging
reserve
Translation
reserve
Employee
benefit
reserve
Balance at 1 July 2004
Total recognised income and
expense
Expensed employee options
Shares issued
Dividends to shareholders
Balance at 30 June 2005
Balance at 1 July 2005
Total recognised income and
expense
Expensed employee options
Shares issued
Dividends to shareholders
Balance at 30 June 2006
427
-
-
41
-
468
468
-
-
70
-
538
-
-
-
-
-
-
-
-12
-
-
-
-242
-392
-
-
-
-634
-634
172
-
-
-
-12
-462
42
-
197
-
-
239
239
-
243
-
-
482
Retained
earnings
16,957
6,238
-
-
-3,310
19,885
19,885
7,003
-
-
-4,146
22,742
Total
17,184
5,846
197
41
-3,310
19,958
19,958
7,163
243
70
-4,146
23,288
67
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 21. Capital and reserves (continued)
The Company
In thousands of AUD
Share capital
Hedging
reserve
Translation
reserve
Employee
benefit
reserve
427
-
-
41
-
468
468
-
-
70
-
538
-
-
-
-
-
-
-
-12
-
-
-
-12
-
-
-
-
-
-
-
-
-
-
-
-
42
-
197
-
-
239
239
-
243
-
-
482
Balance at 1 July 2004
Total recognised income and
expense
Expensed employee options
Shares issued
Dividends to shareholders
Balance at 30 June 2005
Balance at 1 July 2005
Total recognised income and
expense
Expensed employee options
Shares issued
Dividends to shareholders
Balance at 30 June 2006
Share capital
In thousands of shares
On issue 1 July
Issued to CEO under employment contract and approved by shareholders at 2005 AGM
Issued for cash against employee options exercised under ESOP
On issue 30 June
Retained
earnings
13,697
Total
14,166
4,946
4,946
-
-
-3,310
15,333
197
41
-3,310
16,040
15,333
16,040
8,355
-
-
-4,146
19,542
8,343
243
70
-4,146
20,550
Ordinary shares
2006
2005
165,561
165,244
45
299
-
317
165,905
165,561
Effective 1 July 1998, the Company Law Reform Act abolished the concept of par value shares and the concept of authorised capital.
Accordingly, the company does not have authorised capital or par value in respect of its issued shares.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments
related to hedged transactions that have not yet occurred.
68
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 21. Capital and reserves (continued)
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations where their functional currency is different to the presentation currency of the reporting entity, as well as from the
translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
Employee benefit reserve
The reserve for employee benefits represents the fair value of share options granted to employees under the consolidated entity’s
Employee Share Option Plan. Refer to note 18 for further detail.
Dividends
Dividends recognised in the current year by the company are:
In thousands of AUD
Cents per share
Total amount
Franked/ unfranked
Date of payment
2006
Final 2005
Interim 2006
Total amount
2005
Final 2004
Interim 2005
Total amount
1.5¢
1.0¢
1.0¢
1.0¢
2,487
1,659
4,146
1,655
1,655
3,310
Unfranked
Unfranked
16 Sep 05
10 Mar 06
Unfranked
Unfranked
17 Sep 04
11 Mar 05
After the balance sheet date, the following dividend was proposed by the directors. The declaration and subsequent payment of
dividends has no income tax consequences. The financial effect of this dividends has not been brought to account in the financial
statements for the year ended 30 June 2006 and will be recognised in subsequent financial reports:
In thousands of AUD
Cents per share
Total amount
Franked/ unfranked
Date of payment
Final 2006
1.5¢
2,483
Unfranked
15 Sep 06
Note 22. Financial instruments
Exposure to credit, interest rate and currency risks arise in the normal course of the company’s and consolidated entity’s business.
Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates.
Credit risk
Exposure to credit risk is monitored on an ongoing basis. The consolidated entity does not require collateral in respect of financial
assets.
69
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 22. Financial instruments (continued)
At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet.
Interest rate risk
The consolidated entity’s exposure to interest rate risk and the effective interest rates are set out below:
2006
In thousands of AUD
Notes
Effective interest
rate
Total
6 months or less
6-12 months
Consolidated
Cash and cash equivalents
Deposits
The Company
Cash and cash equivalents
Deposits
2005
9
11
9
11
3.03%
5.37%
3.30%
3.82%
5.51%
4.19%
10,736
1,413
12,149
4,914
1,377
6,291
10,736
1,000
11,736
4,914
1,000
5,914
-
413
413
-
377
377
In thousands of AUD
Notes
Effective interest
rate
Total
6 months or less
6-12 months
Consolidated
Cash and cash equivalents
Deposits
The Company
Cash and cash equivalents
Deposits
Foreign currency risk
9
11
9
11
3.28%
5.37%
3.54%
3.80%
5.52%
4.30%
9,699
1,373
11,072
3,258
1,353
4,611
9,699
1,000
10,699
3,258
1,000
4,258
-
373
373
-
353
353
The consolidated entity is exposed to foreign currency risk on sales and purchases that are denominated in a currency other than
the AUD. The currencies giving rise to this risk are primarily USD and GBP.
The consolidated entity uses forward exchange contracts to hedge its foreign currency risk. The forward exchange contracts have
maturities of less than one year after the balance sheet date. Where necessary, the forward exchange contracts are rolled over at
maturity.
The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and
measures them at fair value. The fair value of hedge contracts at 30 June 2006 is a loss of $12,000 (30 June 2005: fair value loss
of $2,000).
70
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 23. Operating leases
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
Note 24. Consolidated entities
Parent entity:
Integrated Research Limited
Subsidiaries:
Integrated Research, Inc
Integrated Research UK Limited
Consolidated
The Company
2006
992
834
1,826
2005
1,268
777
2,045
2006
759
-
759
2005
1,104
777
1,881
Country of incorporation
Ownership interest
2006
2005
Australia
USA
UK
100%
100%
100%
100%
In the financial statements of the company, investments in controlled entities are measured at cost.
Note 25. Reconciliation of cash flows from operating activities
Consolidated
The Company
In thousands of AUD
Profit for the period
Depreciation and amortisation
Change in value of PP&E
Provision for doubtful debts
Interest received
Dividend received
Net exchange differences
Change in operating assets and liabilities:
(Increase)/decrease in trade debtors
(Increase)/decrease in future income tax benefit
(Increase)/decrease in other operating assets
Increase/(decrease) in trade creditors
Increase/(decrease) in other operating liabilities
Increase/(decrease) in provision for income taxes payable
Increase/(decrease) in provision for deferred income taxes
Increase/(decrease) in other provisions
Increase/(decrease) in reserves
Net cash from operating activities
2006
7,003
4,528
1
-36
-365
-
-172
-3,197
-733
-4,678
535
863
476
406
51
403
5,085
2005
6,238
3,079
-12
58
-294
-
392
-192
-509
-4,362
-778
512
259
1,230
13
-195
5,439
2006
8,355
4,434
-15
19
-248
-2,000
-89
-3,022
-696
-4,740
178
-
403
411
559
231
3,780
2005
4,946
2,986
-12
193
-214
-
103
-2,266
-706
-4,176
-594
270
594
1,225
-8
197
2,538
71
>
Integrated Research and its controlled entities > Annual Report 2006
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 26. Key management personnel disclosures
The following were key management personnel of the consolidated entity at any time during the reporting period and unless
otherwise indicated were key management personnel for the entire period:
Non-Executive directors
Steve Killelea (Chairman)
Executive directors
Keith Andrews (Chief Executive Officer)
David Boyles (appointed Deputy Chairman September 2005)
David Leighton (Chief Financial Officer, retired March 2006)
Kate Costello (appointed August 2005)
Alex Kennedy
Ian Winlaw
Executives (full year)
Steve Douglas (GM Europe)
Ben Garton (GM R&D)
Executives (part year)
Nathan Brumby (GM IP Telephony, appointed October 2005)
Kurt Roscow (GM Americas, appointed July 2005)
David Leighton (Company Secretary)
Steve Sarjeant (GM Asia Pacific, appointed October 2005)
Belinda York (Global Marketing Manager)
David Purdue (Acting CFO, appointed March 2006)
Casey Ives (GM Americas, resigned July 2005)
David Priestley (GM Asia Pacific, resigned August 2005)
Key management personnel compensation
The key management personnel compensation included in “personnel expenses” (see note 5) are as follows:
In AUD
Short-term benefits
Post-employment benefits
Termination benefits
Equity compensation benefits
Consolidated
The Company
2006
2005
2006
2005
2,765,189
3,146,094
1,919,641
2,051,430
248,063
284,103
152,130
233,324
112,500
137,456
248,063
158,899
136,625
233,324
112,500
90,612
3,449,485
3,629,374
2,463,228
2,487,866
Individual directors and executives compensation disclosures
Information regarding individual directors and executives compensation is provided in the remuneration report on pages 24 to 32.
Apart from the details disclosed in this note, no director has entered into a material contract with the company or the consolidated
entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end.
72
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 26. Key management personnel disclosures (continued)
Key management personnel transactions with the company or its controlled entities
It is the consolidated entity’s policy that service contracts for executive directors and senior executives be unlimited in term but
capable of termination by either party on one months notice and that the consolidated entity retains the right to terminate the
contract immediately by payment in lieu of notice or a severance payment equal to three months remuneration or up to an amount
for redundancy equal to the scale of payments prescribed in the NSW Employment Protection Act.
Mr Keith Andrews, Chief Executive Officer, has a contract of employment with Integrated Research Limited dated 5 October 2004,
which provides for specific notice and severance understandings of up to two years compensation depending on the particular
circumstances. Mr Andrews can terminate his employment by giving three months prior notice in writing.
Following the retirement of Mr David Leighton on 31 March 2006 from his position as Chief Financial Officer and Executive Director,
the company entered into an agreement with Mr Leighton for assistance with the transition to a new CFO for twelve months after 31
March 2006 on a part-time basis for $80,000. He will receive $45,000 per annum compensation to perform his duties as Company
Secretary.
Equity instruments
All options refer to options over ordinary shares of Integrated Research Limited, which are exercisable on a one-for-one basis under
the Employee Share Option Plan (ESOP).
Options and rights over equity instruments granted as compensation
The movement during the reporting period in the number of options over ordinary shares in Integrated Research Limited held,
directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 July 2005
Granted as
compensation
Exercised
Other
changes*
Held at 30
June 2006
Vested during
the year
Vested and
exercisable
at 30 June
2006
Directors
Keith Andrews
1,000,000
David Leighton
400,000
-
-
Executives
Nathan Brumby
-
200,000
Steve Douglas
300,000
Casey Ives
Ben Garton
400,000
200,000
David Priestley
300,000
David Purdue
Kurt Roscow
Belinda York
193,500
300,000
200,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,000,000
400,000
200,000
300,000
-
-
100,000
100,000
-
-
75,000
78,750
52,500
347,500
-
-
-
-
-
200,000
50,000
50,000
2,500
297,500
-
-
-
-
-
-
-
193,500
300,000
200,000
-
50,000
75,000
50,000
-
50,375
75,000
50,000
* Other changes represent options that expired or were forfeited during the year.
73
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 26. Key management personnel disclosures (continued)
Options granted as compensation in the current year were granted on 10 January 2006, have an expiration date of 9 January 2011,
an exercise price of $0.48 per share, and a market value of $0.48 per share at grant date. The earliest exercise date is 10 January
2007. 25% of options granted vest annually on the anniversary of the grant date, and may also be subject to the consolidated
entity achieving certain performance hurdles. Options expire on the earlier of their expiry date or termination of the individual’s
employment. No options have been granted since the end of the financial year. The options were provided at no cost to the
recipients.
No options held by key management personnel are vested but not exercisable.
Exercise of options and shares granted as compensation
During the reporting period, the following shares were issued on the exercise of options previously granted as compensation:
Number of shares
Amount paid $/ share
Executives
Casey Ives
David Priestley
52,500
2,500
$0.25
$0.26
During the reporting period, the following shares were issued granted as compensation:
Director
Keith Andrews
45,000
-
There are no amounts unpaid on the shares issued as a result of the exercise of the options.
Movements in shares
The movement during the reporting period in the number of ordinary shares in Integrated Research Limited held, directly, indirectly
or beneficially, by each key management person, including their related parties, is as follows:
Held at
1 July 2005
Purchases
Received on exercise
of options
Received as
compensation
Sales
Held at
30 June 2006
Directors
Non-Executive
David Boyles
1,500,000
Kate Costello
-
Alex Kennedy
350,000
Steve Killelea
94,984,951
Ian Winlaw
Executive
150,000
Keith Andrews
100,000
David Leighton
277,172
Executives
Casey Ives
David Priestley
-
-
David Purdue
36,500
200,000
200,000
-
-
-
-
-
-
-
-
Belinda York
110,800
343,794
74
Integrated Research and its controlled entities > Annual Report 2006
-
-
-
-
-
-
-
52,500
2,500
-
-
-
-
-
-
-
45,000
-
-
-
-
-
100,000
1,600,000
-
-
200,000
350,000
150,000
94,834,951
-
-
150,000
145,000
25,000
252,172
-
52,500
2,500
-
-
-
36,500
454,594
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 26. Key management personnel disclosures (continued)
Changes in key management personnel in the period after the reporting date and prior to the date when
financial report is authorised for issue
Mr Ben Garton left the company on 18 July 2006. Mr Stephen Rorie was appointed Chief Financial Officer on 7 August 2006. There
were no other changes.
Other transactions with the company or its controlled entities
There were no other transactions between the key management personnel, or their personally-related entities, and the company or
its controlled entities.
Note 27. Related parties
The consolidated entity has a related party relationship with its subsidiaries (see note 24) and its key management personnel (see
note 26).
During the financial year ended 30 June 2006, subsidiaries purchased goods from the consolidated entity in the amount of
$16,589,000 (2005: $14,158,000) and at 30 June 2006 subsidiaries owed the consolidated entity $9,232,000 (2005: $6,272,000).
Transactions with subsidiaries are priced on an arm’s length basis. A dividend of $2,000,000 was received from Integrated
Research, Inc in the 2006 financial year (2005: nil).
Note 28. Subsequent events
For dividends declared after 30 June 2006 see Note 21 in the financial statements. The financial effect of dividends declared and
paid after 30 June 2006 have not been brought to account in the financial statements for the year ended 30 June 2006 and will be
recognised in subsequent financial reports.
In July 2006, the company received a letter from solicitors representing a distributor of the company’s products, located in Germany,
claiming commission on sales made in Germany. The company is seeking advice from its solicitors on this matter, but does not
expect the outcome to be material. No further disclosure is provided as to do so may seriously prejudice the position of the
consolidated entity.
No other transaction or event of a material or unusual nature has arisen in the interval between the end of the financial year and
the date of this report any item, likely, in the opinion of the directors of the company, to affect significantly the operations of the
consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years.
Note 29. Explanation of transition to AIFRS
As stated in significant accounting policies note 1(a), these are the consolidated entity’s first consolidated financial statements
prepared in accordance with AIFRSs.
The policies set out in the significant accounting policies section of this report have been applied in preparing the financial
statements for the year ended 30 June 2006, the comparative information presented in these financial statements for the year
ended 30 June 2005 and in the preparation of an opening AIFRS balance sheet at 1 July 2004 (the consolidated entity’s date of
transition).
In preparing its opening AIFRS balance sheet, the consolidated entity has adjusted amounts reported previously in financial
statements prepared in accordance with its old basis of accounting (previous GAAP). An explanation of how the transition from
previous GAAP to AIFRSs has affected the consolidated entity’s financial position, financial performance and cash flows is set out in
the following tables and the notes that accompany the tables.
75
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 29. Explanation of transition to AIFRS (continued)
Reconciliation of equity
Consolidated
The Company
1 July 2004
30 June 2005
1 July 2004
30 June 2005
In
thousands
of AUD
Note AGAAP Impact AIFRS AGAAP Impact AIFRS AGAAP Impact AIFRS AGAAP Impact AIFRS
8,510
10,433
4,006
22,949
196
-
-
-
-
-
-
-
8,510
9,699
10,433
10,079
4,006
3,777
22,949 23,555
196
-
-
-
-
-
-
-
-
-
9,699
4,423
10,079
6,725
3,777
3,082
23,555 14,230
-
-
196
54
-
-
-
-
-
-
4,423
3,258
6,725
8,549
3,082
3,258
14,230
15,065
196
54
-
54
-
-
-
-
-
-
3,258
8,549
3,258
15,065
-
54
(a)
988
93
1,081
1,238
56
1,294
578
93
671
765
56
821
(f )
445
115
560
255
108
363
-
-
-
-
-
-
(b)
8,302
-1,051
7,251
10,169
-1,284
8,885
8,290
-1,051
7,239
10,159
-1,284
8,875
9,931
-843
9,088
11,662
-1,120
10,542
9,118
-958
8,160
10,978
-1,228
9,750
32,880
-843
32,037 35,217
-1,120
34,097 23,348
-958
22,390 26,043
-1,228
24,815
Current assets
Cash
and cash
equivalents
Trade
& other
receivables
Other
current
assets
Total
current
assets
Non-current assets
Trade
& other
receivables
Investments
Property,
plant and
equip
Deferred
tax assets
Intangible
assets
Total non-
current
assets
Total
assets
76
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 29. Explanation of transition to AIFRS (continued)
Reconciliation of equity (continued)
Consolidated
The Company
1 July 2004
30 June 2005
1 July 2004
30 June 2005
In
thousands
of AUD
Note AGAAP Impact AIFRS AGAAP Impact AIFRS AGAAP Impact AIFRS AGAAP Impact AIFRS
Current liabilities
Trade
& other
payables
Income tax
payable
Employee
benefits
Provisions
(a)(e)
2,636
960
843
145
-
-
-
208
2,636
1,793
960
60
843
353
946
77
-
-
-
220
1,793
1,199
60
-
946
297
588
55
-
-
-
208
1,199
603
-
-
588
263
680
55
-
-
-
220
603
-
680
275
Other
current
liabilities
Total
current
liabilities
(e)
8,225
950
9,175
8,121
886
9,007
4,651
637
5,288
4,581
605
5,186
12,809
1,158
13,967
10,997
1,106
12,103
6,493
845
7,338
5,919
825
6,744
Non-current liabilities
Deferred
tax
liabilities
Employee
benefits
Total non-
current
liabilities
Total
liabilities
(f )
1,166
-541
625
2,465
-610
1,855
1,166
-541
625
2,465
-615
1,850
261
-
261
181
-
181
261
-
261
181
-
181
1,427
-541
886
2,646
-610
2,036
1,427
-541
886
2,646
-615
2,031
14,236
617
14,853
13,643
496
14,139
7,920
304
8,224
8,565
210
8,775
Net assets
18,644
-1,460
17,184
21,574
-1,616
19,958
15,428
-1,262
14,166
17,478
-1,438
16,040
Equity
Issued
capital
427
-
Reserves
(c)(d)
-
-200
427
-200
468
-
-
-395
468
-395
427
-
-
42
427
42
468
-
-
239
468
239
Retained
earnings
Total
equity
18,217
-1,260
16,957
21,106
-1,221
19,885
15,001
-1,304
13,697
17,010
-1,677
15,333
18,644
-1,460
17,184
21,574
-1,616
19,958
15,428
-1,262
14,166
17,478
-1,438
16,040
77
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 29. Explanation of transition to AIFRS (continued)
Reconciliation of profit for 2005
Research and development expenses
(b)(c)
5,881
Sales and marketing expenses
(a)(c)(d)
15,704
General and administration expenses
(a)(c)(d)
3,494
In thousands of AUD
Revenue:
Revenue from license fees
Revenue from maintenance fees
Revenue from other operating activities
Total revenue
Expenses:
Total expenses
Results from operating activities
Financing income (interest received)
Profit before tax
Income tax expense
Profit for the period
Basic earnings per share attributed to
ordinary equity holders (AUD cents)
Diluted earnings per share attributed to
ordinary equity holders (AUD cents)
For the year-ended 30 June 2005
Consolidated
The Company
Note
AGAAP
Impact
AIFRS
AGAAP
Impact
AIFRS
(e)
(d)
17,726
14,877
446
33,049
25,079
7,970
294
8,264
2,065
6,199
(f )
64
-
-
64
360
-273
-
87
-23
-
-23
-62
39
17,790
14,877
446
11,618
9,475
149
33,113
21,242
6,241
15,431
3,494
5,881
6,434
2,416
25,166
14,731
7,947
294
8,241
2,003
6,238
6,511
214
6,725
1,406
5,319
30
-
-103
-73
360
-14
28
374
-447
-
-447
-74
-373
11,648
9,475
46
21,169
6,241
6,420
2,444
15,105
6,064
214
6,278
1,332
4,946
3.75¢
0.02¢
3.77¢
3.73¢
0.02¢
3.75¢
Notes to the reconciliation of equity and profit:
a) Lease assets
Make good provisions
The consolidated entity has certain operating leases that require the leased premises to be returned to the lessor in its original
condition. The operating lease payments do not include an element for the repairs/overhauls.
Under previous Australian GAAP the costs of refurbishment was not recognised until the expenditure was incurred, whereas
under AIFRS a provision for refurbishment must be recognised over the period of the lease, measured at the expected cost of
refurbishment at each reporting date.
The impact on the consolidated entity of the above changes is to increase property, plant and equipment by $93,000 at 30 June
2004 and $56,000 at 30 June 2005; to increase provisions by $263,000 at 30 June 2004, and by $275,000 at 30 June 2005; and to
increase operating expenses for the twelve months ended 30 June 2005 by $49,000.
78
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 29. Explanation of transition to AIFRS (continued)
b) Intangible assets
Research and development
Under AIFRS, expenditure on research activities is expensed as incurred whereas under previous Australian GAAP certain research
costs are included with development projects and therefore capitalised.
Under AIFRS, expenditure on development activities must be capitalised if the product or process is technically and commercially
feasible and the consolidated entity has sufficient resources to complete the development. Capitalised development expenditure
will be stated at cost less accumulated amortisation and impairment losses.
The impact on the consolidated entity of the above changes is to reduce intangible assets by $1,051,000 at 30 June 2004 and
$1,284,000 at 30 June 2005; and to increase operating expenses for the twelve months ended 30 June 2005 by $233,000.
c) Employee benefits
Share based payments
Under previous Australian GAAP no expense was recognised for options issued to employees.
Under AIFRS, the fair value of options granted is recognised as an employee benefit expense with a corresponding increase
in equity. The fair value is measured at grant date taking into account market performance conditions only, and spread over
the vesting period during which employees become unconditionally entitled to the options. The fair value of options granted
is measured using the binomial method, taking into account the terms and conditions attached to the options. The amount
recognised as an expense will be adjusted to reflect the actual number of options that vest except where forfeiture is due to market
related conditions.
The impact on the consolidated entity of the above changes is to create an employee equity benefit reserve of $42,000 at 30 June
2004 and $239,000 at 30 June 2005; and to increase operating expenses for the twelve months ended 30 June 2005 by $197,000.
d) Foreign currency
Financial statements of foreign operations
Under previous Australian GAAP, the assets and liabilities of foreign operations that are integrated were translated using the
temporal method. Monetary assets and liabilities were translated at rates of exchange current at reporting date, while non-
monetary items and revenue and expense items are translated at exchange rates current when the transaction occurred. Exchange
differences arising on translation were brought to account in the statement of financial performance.
The impact on the consolidated entity of the above changes is to create a debit translation reserve of $242,000 at 30 June 2004 and
$634,000 at 30 June 2005; and to reduce operating expenses for the twelve months ended 30 June 2005 by $392,000.
e) Revenue
Annual licence fees
The adoption of AIFRS required a change in the company’s policy for recognising annual licence fee (ALF) contracts. Under previous
Australian GAAP, the practice was to separate the licence and maintenance elements of an ALF, and account for them separately.
Under AIFRS, licences with terms that do not represent the major part of the economic life of the software are recognised ratably
over the term of the agreement.
79
Integrated Research and its controlled entities > Annual Report 2006
>
Notes to the Financial Statements (continued)
Heading (continued)
For the year ended 30 June 2006
>
Heading (continued)
Note 29. Explanation of transition to AIFRS (continued)
Warranty
The entity currently extends a period of free maintenance support as part of its warranty. Under Australian GAAP, provision for
warranty expense was made for claims expected to be received in relation to sales made prior to the reporting date, based on
historic claim rates. Under AIFRS the fair value of free maintenance is determined and recognised as revenue over the period the
warranty is provided.
The impact on the consolidated entity of the above changes is to reduce provisions by $55,000 at 30 June 2004 and 30 June 2005;
to increase deferred revenue (other current liabilities) by $950,000 at 30 June 2004 and $886,000 at 30 June 2005; and to increase
revenue from licence fees for the twelve months ended 30 June 2005 by $64,000.
f ) Taxation
The balance sheet method of tax effect accounting was adopted on transition to AIFRS, rather than the liability method applied
previously under Australian GAAP.
Under the balance sheet approach, income tax on the profit and loss for the year comprises current and deferred taxes. Income tax
will be recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it
will be recognised in equity.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised.
The impact on the consolidated entity of the above changes is to increase deferred tax assets by $115,000 at 30 June 2004 and
$108,000 at 30 June 2005; to reduce deferred tax liabilities by $541,000 at 30 June 2004 and $610,000 at 30 June 2005; and to
reduce income tax expense for the twelve months ended 30 June 2005 by $62,000.
Note 30. Changes in accounting policies
Reconciliation of financial instruments as if AASB 139 was applied at 1 July 2005
In the current financial year the consolidated entity adopted AASB 132: Financial Instruments: Disclosure and Presentation and
AASB 139: Financial Instruments: Recognition and Measurement. This change in accounting policy has been adopted in accordance
with the transition rules contained in AASB 1, which does not require the restatement of comparative information for financial
instruments within the scope of AASB 132 and AASB 139.
The adoption of AASB 139 has resulted in the consolidated entity recognising all derivative financial instruments as assets or
liabilities at fair value. This change has been accounted for by adjusting the opening balance of equity (retained earnings, hedging
reserve and fair value reserve) at 1 July 2005.
The impact on the balance sheet in the comparative period is set out below as an adjustment to the opening balance sheet at 1 July
2005. The impact on the income statement of the comparative period would have been to increase financial expenses and decrease
profit for the period to the extent that cash flow hedges were not 100% effective. The transitional provisions will not have any effect
in future reporting periods.
80
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Heading (continued)
Notes to the Financial Statements (continued)
For the year ended 30 June 2006
Note 30. Changes in accounting policies (continued)
Application of AASB 132 and AASB 139 prospectively from 1 July 2005
In thousands of AUD
Fair value derivatives – asset
Deferred gain on hedges
Hedging reserve
Retained earnings
Previous GAAP
Impact of change in
accounting policy
AIFRS
-
2
-
2
2
-2
2
-2
2
-
2
-
81
Integrated Research and its controlled entities > Annual Report 2006
>
Directors’ Declaration
Heading (continued)
>
Heading (continued)
In the opinion of the directors of Integrated Research Limited (“the Company”):
a) the financial statements and notes, set out in pages 42 to 81, are in accordance with the Corporations Act 2001,
including:
(i)
giving a true and fair view of the financial position of the Company and consolidated entity as at 30 June 2006
and of their performance, as represented by the results of their operations and their cash flows, for the year
ended on that date; and
(ii)
complying with Accounting Standards in Australia and the Corporations Regulations 2001; and
b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due
and payable.
c) The directors have been given the declarations required under Section 295A of the Corporations Act 2001 from the
Chief Executive Officer and the Chief Financial Officer for the financial year ended 30 June 2006.
Dated at North Sydney this 20th day of September 2006.
Signed in accordance with a resolution of the directors:
Steve Killelea
Chairman
Keith Andrews
Managing Director and CEO
82
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Independent Audit Report
Heading (continued)
Independent audit report to the members of Integrated Research Limited
Scope
We have audited the financial report of Integrated Research Limited (“the Company”) for the
financial year ended 30 June 2006, consisting of the income statements, statements of recognised
income and expense, balance sheets, statements of cash flows, accompanying notes 1 to 30 and
the directors’ declaration, set out on pages 42 to 82. The financial report includes the consoli-
dated financial statements of the consolidated entity, comprising the Company and the entities it
controlled at the end of the year or from time to time during the financial year. The Company’s
directors are responsible for the financial report. The directors are also responsible for prepar-
ing the relevant reconciling information regarding the adjustments required under the Australian
Accounting Standard AASB 1 First-time Adoption of Australian equivalents to International
Financial Reporting Standards. We have conducted an independent audit of this financial report
in order to express an opinion on it to the members of the Company.
Our audit has been conducted in accordance with Australian Auditing Standards to provide rea-
sonable assurance whether the financial report is free of material misstatement. Our procedures
included examination, on a test basis, of evidence supporting the amounts and other disclosures
in the financial report, and the evaluation of accounting policies and significant accounting
estimates. These procedures have been undertaken to form an opinion whether, in all material
respects, the financial report is presented fairly in accordance with Australian equivalents to
International Financial Reporting Standards and other mandatory professional reporting require-
ments in Australia and statutory requirements so as to present a view which is consistent with
our understanding of the Company’s and the consolidated entity’s financial position, and perfor-
mance as represented by the results of their operations and their cash flows.
The audit opinion expressed in this report has been formed on the above basis.
KPMG, an Australian partnership, is part of the KPMG International
network KPMG International is a Swiss cooperative.
83
Integrated Research and its controlled entities > Annual Report 2006
>
Independent Audit Report (continued)
Heading (continued)
>
Heading (continued)
Audit opinion
In our opinion, the financial report of Integrated Research Limited is in accordance with:
a)
the Corporations Act 2001, including:
i. giving a true and fair view of the Company’s and the consolidated entity’s
financial position as at 30 June 2006 and of their performance for the financial
year ended on that date; and
ii. complying with Australian Accounting Standards and the Corporations
Regulations 2001; and
b) other mandatory professional reporting requirements in Australia.
KPMG
John Wigglesworth
Partner
Sydney, 20 September 2006
KPMG, an Australian partnership, is part of the KPMG International
network KPMG International is a Swiss cooperative.
84
Integrated Research and its controlled entities > Annual Report 2006
Heading (continued)
Lead Auditor’s Independence Declaration
Heading (continued)
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
To: the directors of Integrated Research Limited
I declare that, to the best of my knowledge and belief, in relation to the audit for the financial
year ended 30 June 2006 there have been:
(i) no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the
audit.
KPMG
John Wigglesworth
Partner
Sydney, 20 September 2006
KPMG, an Australian partnership, is part of the KPMG International
network KPMG International is a Swiss cooperative.
85
Integrated Research and its controlled entities > Annual Report 2006
>
>
Heading (continued)
Heading (continued)
ASX Additional Information
Shareholder information
Analysis of numbers of equity security holders by size of holding at 31 August 2006:
Class of equity security
Ordinary shares
Shares
Options
1
1,001
5,001
10,001
100,001
-
-
-
-
1,000
5,000
10,000
100,000
and over
89
1,045
581
687
66
2,468
-
1
8
51
24
84
Equity security holders
Twenty largest quoted equity security holders
The names of the twenty largest holders of quoted equity securities as at 31 August 2006 are listed below:
1
2
3
4
5
6
7
8
9
10
11
11
12
13
14
15
16
17
Stephen John Killelea
National Nominees Limited
Westpac Custodian Nominees Limited
Andrew Rhys Rutherford
ANZ Nominees Limited
JP Morgan Nominees Australia Limited
Vicki Maree Lewis and David William Lewis
David Leroy Boyles
Citicorp Nominees Pty Limited
UBS Nominees Pty Limited
B&R James Investments Pty Ltd
Farvex Corporation Pty Limited
CitiCorp Nominees Pty Limited
Belinda York and Hugh Webster
Bell Potter Nominess Limited
Howard Securities Pty Limited
Bipeta Pty Limited
Caratel Pty Limited
18 Mark Lamkin
19
FLH Nominees Pty Ltd
86
Integrated Research and its controlled entities > Annual Report 2006
Ordinary Shares
Number held
Percentage of issued shares
94,497,339
56.94
7,695,603
7,056,642
5,626,589
2,668,760
1,871,954
1,850,000
1,700,000
1,659,765
1,102,110
937,531
715,882
556,075
454,594
400,000
392,205
337,612
330,556
307,712
296,263
4.64
4.25
3.39
1.61
1.13
1.12
1.02
1.00
0.66
0.56
0.43
0.34
0.27
0.24
0.24
0.20
0.20
0.19
0.18
130,456,652
78.60
Heading (continued)
Heading (continued)
ASX Additional Information (continued)
Unquoted equity securities
Options issued under the Integrated Research Limited Employee Option Plan to
take up ordinary shares
*Number of unissued ordinary shares under the options.
No person holds 20% or more of these securities.
Number on issue *
Number of holders
7,823,900
84
On-market buy-back
There is no current on-market buy-back.
Substantial holders
Substantial holders in the Company are set out below:
Stephen John Killelea
94,497,339
56.94
Number held
Percentage
Voting rights
The voting rights attaching to each class of equity securities are set out below:
1. Ordinary shares.
On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall
have one vote.
2. Options.
No voting rights.
Other information
Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.
87
Integrated Research and its controlled entities > Annual Report 2006
>
Corporate Directory
>
Directors
Secretary
Registered Office
Share Registry
Auditors
Solicitors
Steve Killelea
Chairman and Non-Executive Director
Keith Andrews
Chief Executive Officer
David Boyles
Independent Non-Executive Director and Deputy Chairman
Kate Costello
Independent Non-Executive Director
Alex Kennedy
Independent Non-Executive Director
Ian Winlaw
Independent Non-Executive Director
David Leighton
Level 10, 168 Walker Street
North Sydney, NSW, 2060
Phone: (+61 2) 9966 1066
Computershare Investor Services Pty Limited
KPMG
10 Shelley Street
Sydney, NSW, 2000
Dibbs Abbott Stillman
Level 8, Angel Place
123 Pitt Street
Sydney, NSW, 2000
Bankers
Westpac Banking Corporation
Stock Exchange Listing
Country of Incorporation
Notice of Annual General Meeting
Australian Stock Exchange Code IRI
Integrated Research Limited, incorporated and domiciled in Australia, is a
publicly listed company limited by shares.
The Annual General Meeting of Integrated Research Limited will be held at
3:00pm on Tuesday, 14th November 2006, at the Museum of Sydney, Corner of
Phillip and Bridge Streets, Sydney.
88
Integrated Research and its controlled entities > Annual Report 2006
>
Contents
2006 Highlights
Letter from the Chairman
Chief Executive Officer’s Report
Review of operations and activities
Directors
Senior Management
Directors’ Report
Remuneration Report
Corporate Governance
Financial Report
Notes to the financial statements
Director’s Declaration
Independent Audit Report
Lead Auditor’s Independence Declaration
ASX additional information
Corporate Directory
01
03
08
10
14
15
18
24
33
42
46
82
83
85
86
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Integrated Research and its controlled entities > Annual Report 2006
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Integrated Research and its controlled entities > Annual Report 2006
For more information visit our website at www.prognosis.com or email info@prognosis.com
integrated research
Integrated Research Limited > ABN 76 003 588 449
Annual Report 2006
Performance monitoring software for business-critical systems