More annual reports from Integrated Research Limited:
2023 ReportIntegrated Research Annual Report 2010 ABN 76 003 588 449 Providing Business InsightTM Contents 1. 2010 Highlights 01 2. Letter from the Chairman 02 3. Chief Executive Officer’s Report 12 4. Review of operations and activities 14 5. Directors and Senior Management 18 6. Directors’ Report 24 7. Remuneration Report 29 8. Corporate Governance 9. Financial Statements 10. Notes to the financial statements 11. Directors’ Declaration 12. Independent Audit Report 13. Lead Auditor’s independence declaration 14. ASX additional Information 15. Corporate Directory 37 44 49 82 83 85 86 89 Access your Annual Report 2010 online, go to www.ir.com/annualreport2010 This report is printed on Impress paper which is FSC certified. Fibre is sourced from sustainable forests or managed plantations. 2010 Highlights Financial summary In millions of AUD (except earnings per share) Year ended 30 June Revenue from licence fees Total revenue Net profit after tax Net assets Cash at balance date Americas revenue Europe revenue Asia Pacific revenue Earnings per share (cents per share) In millions of local currency Year ended 30 June Americas revenue (USD) Europe revenue (UK Sterling) Asia Pacific revenue (AUD) Total revenue (Dollars in millons) $42.7 $37.4 $37.3 2010 17.4 37.3 5.4 24.5 8.4 22.5 5.2 8.0 3.24 19.7 2.9 8.0 2009 21.7 42.7 7.9 27.2 14.5 27.0 7.3 7.3 4.72 19.7 3.3 7.3 % Change (20%) (13%) (31%) (10%) (42%) (17%) (28%) 10% (31%) - (12%) 10% Net profit after tax (Dollars in millons) Revenue from licence fees (Dollars in millons) $7.9 $5.8 $5.4 $21.7 $19.6 $17.4 2008 2009 2010 2008 2009 2010 2008 2009 2010 Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 1 1 Letter from the Chairman The Company’s profit after tax came in at $5.4 million and represents a fall of 31% on the 2009 financial year results. Total revenue for the financial year was $37.3 million, compared to $42.7 million in the prior financial year and represented a fall of 13%. The result was also affected by a decline in HP NonStop revenue which is covered in detail later in this report. There were, however, some pleasing aspects to the Company’s performance, with strong growth in the IP telephony (IPT) business and in Consulting Services. Revenue derived from the Company’s IPT products continued its strong growth. Even with the stronger Australian dollar, new licence sales for IPT were up 14% over the prior year with growth reported in all geographic regions. On currency adjusted terms, IPT new licence sales increased by 29% over the prior year. This was also a watershed year for the Company with IPT now being the largest source of new licence sales. The Company continues to invest in this product line, both in new R&D initiatives and in the sales operation, and expects to maintain its historical growth rates. The Company has expanded the number of IPT platforms that it manages, which now includes Alcatel-Lucent in addition to the existing platforms of Avaya, Cisco and Nortel. The Company will continue to expand on the number of supported platforms, as one of our strategic strengths is the breadth and seamless integration provided for multiple IP telephony platforms. Additionally, the Company’s strategy is to expand its product ranges, so I am pleased to announce that Integrated Research has released a Network Diagnostics product with special emphasis on IP telephony networks. Dear fellow shareholders, The 2010 financial year was a difficult trading year for Integrated Research mainly because of the record appreciation in the Australian dollar against all of the currencies of our major trading partners. 2 Annual Report 2010 I Integrated Research and its controlled entities The Company’s core strategic competency is its world class Research and Development operation, and the Company will continue to invest in its success. For the full financial year Consulting Services grew by 19% over the prior year to $2.0 million. This is the second consecutive year of strong growth with 23% growth being recorded in the 2009 financial year. Whilst only approximately 11% of overall new licence revenue, it does reflect our clients’ interest in having Integrated Research extend our solutions. The company will continue to expand this business segment and we would expect to see similar levels of growth in the coming years. The HP NonStop result was disappointing. There were a number of circumstances that affected this result: adverse currency conditions, more strategic focus on our IPT business unit as it becomes our major source of new licence revenue, and changes in the HP NonStop marketplace. Stock trading has increasingly been moving towards new and evolving technological platforms that are not as reliant on fault tolerant high end systems such as NonStop, particularly in Europe and North America. However, payments systems remain buoyant for HP NonStop and the number of transactions that will be processed by our customers is expected to increase this year and in future years. To take further advantage of this situation, Integrated Research has signed a strategic reseller relationship with ACI, the world’s largest supplier of POS and ATM switches. This is expected to provide a good source of revenue in ensuing years. The Distributed Systems business segment (Windows, UNIX and Linux based servers) recorded growth in Europe and Asia Pacific, mainly due to customers seeking real time monitoring solutions for their mission-critical applications. The Company will maintain its attention on this business unit with special emphasis on the payments systems that run on these platforms. The Company will also continue to expand the Distributed Systems product range with the release of new products over the coming financial year. The Company’s core strategic competency is its world class Research and Development operation, and the Company will continue to invest in its success. R&D expenditure for the 2010 financial year was $8.3 million, representing 22% of total revenue and in line with historical averages. It is also pleasing to note that there has been a significant improvement in R&D processes, resulting in better product quality and improved customer satisfaction. Although the global economic situation has improved, the growth rates in the developed world are still below historical trend lines. Although the future global outlook does not point to a recessionary environment, the Company has developed its plans around subdued economic conditions. The Company expects that the Australian dollar will remain strong, but the steep appreciation in the currency experienced during the 2010 financial year is not expected to be repeated. The future outlook for the Company remains solid. The Company has no debt, the core technologies that the Company’s business units are based upon, including HP NonStop, remain healthy, with expansion expected in both the IP telephony and payments markets. The company has a strong cash position with $8.4 million at 30 June 2010. The Board is pleased to announce a final dividend of 1.0 cents per share, 45% franked, bringing the total dividend for the year to 3.0 cents per share and includes a special dividend of 0.5 cents. This is comparable to total dividends of 4.0 cents for the prior financial year. Thank you for your continued support. Steve Killelea Chairman Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 3 3 In just twelve months at Integrated Research We acquired 148 new customers. We reached four million total phones under management. We signed up and enabled more than 70 new Prognosis VoIP Monitor Resellers. We had a presence at 27 trade shows and events. We released 6 new products, across 4 product lines. We signed two new major alliance agreements with ACI Worldwide and Stratus Technologies. We grew and cemented existing alliances with Avaya, EMC and GE. 4 Annual Report 2010 I Integrated Research and its controlled entities Integrated Research solutions are reaching more people, every day We are living in a world in which data demands are becoming increasingly more real time. Data is instantaneous, it is high- volume, it is delivered and accessed via diverse technology platforms, and it requires constant vigilance to manage and maintain. Integrated Research is well-positioned to take advantage of this shift. 2010 was both a demanding and rewarding year for Integrated Research. Through the efforts of IR staff across the globe in our offices in Australia, USA and United Kingdom, we achieved significant milestones, of which we are justifiably proud. More customers and prospects are hearing about the solutions Integrated Research provide and engaging with us than ever before. The message has reached them online via websites and social networks, through our alliance partners, via advertising and publicity, at events, from analysts and industry experts, and from existing Prognosis users sharing their experiences. They are learning how Prognosis touches the day to day lives of millions of people and hundreds of enterprises, providing critical business insight to our customers. Through our new alliances we now have the opportunity to reach new markets with our monitoring solutions for Payments, Communications and IT Infrastructure. We are continuing to extend our solution range to meet customer needs through Consulting, and reaffirming our commitment to innovation in Research and Development. Most of all, we are listening to and responding to the needs of our customers, which is reflected in our products, both old and new. Integrated Research and its controlled entities I Annual Report 2010 5 Prognosis solutions for Communications With global communications vendors offering more technologies and solutions daily, and buzzwords such as Unified Communications, SIP and TelePresence permeating the market, Integrated Research is responding by offering an ever-growing list of supported technologies, depth of functionality, and multi-platform and multi-vendor support. Our best-in-class Prognosis IP Telephony Manager forms the basis of our Communications monitoring solution, providing a real-time, telephony-centric view across the entire VoIP ecosystem, supporting major vendors including Cisco, Avaya, Nortel and Alcatel-Lucent. Our strong, long-term relationships and alliances with major vendors are providing the basis for widening our product range to include voip monitoring for small to medium business, as well as expanding and updating Prognosis solutions for service providers and enterprise contact centres. Now, Prognosis solutions for Communications have been supplemented with Prognosis Network Diagnostics, extending the power of Prognosis from the telephony application into the network, providing deeper business insight and diagnostic capability than ever before. 6 Annual Report 2010 I Integrated Research and its controlled entities Solutions for mid-to-large enterprises Solutions for small and medium business Solutions for Managed Service Providers Solutions for contact centres Solutions for Unified Communications Solutions for telephony networks Integrated Research and its controlled entities I Annual Report 2010 7 Prognosis solutions for Payments From Australia’s population of just 22.15 million people, there were 118.8 million credit card transactions processed per month in 2009. The total number of non-cash payments grew by 7% over the previous year, and leading analysts believe this number will continue to grow. This is a staggering electronic transaction rate, and financial institutions are reaping the benefits. However, with higher transaction volumes comes higher management complexity. Offering a centralised, real-time view of all transactions and devices in the payments environment forms the core of Prognosis monitoring solutions for Payments. Prognosis supports established platforms, including ACI BASE24 and BASE24-eps, EFD Connex and S1 Postilion, as well as offering extended solutions to monitor transactions from any transaction processing application, including custom and in-house developed platforms. Prognosis is also particularly well positioned to support financial services organisations through mergers and acquisitions, as well as migration to different processing platforms, with the capability to integrate new, legacy, and diverse platforms seamlessly into a single management view. Alliances with ACI Worldwide and Stratus Technologies have opened up new opportunities for Integrated Research, not only for enhanced sales and marketing, but for partnering with these industry leaders to innovate and develop monitoring solutions to address new challenges in the payments market. 8 Annual Report 2010 I Integrated Research and its controlled entities Solutions for ATM and POS payment service management Solutions for ATM and POS device management Solutions for transaction surveillance Solutions for custom and in-house developed financial transaction platforms Solutions for phone, internet and mobile banking Integrated Research and its controlled entities I Annual Report 2010 9 Prognosis solutions for IT Infrastructure Monitoring the performance and availability of critical IT Infrastructure has formed the core of the Prognosis monitoring solution for over twenty years. The HP NonStop platform continues to represent the pinnacle of high availability for critical customer-facing interactions. Integrated Research have maintained a commitment to developing and innovating around the HP NonStop platform. Prognosis monitoring solutions ensure businesses are able to maximise the return on their infrastructure investments, and continue to make HP NonStop the centrepiece of their business operations. Prognosis solutions for IT Infrastructure have now also been expanded dramatically to meet customer demand, supporting industry moves towards virtualisation and cloud applications, and expanding our monitoring capabilities to include high-demand storage arrays. We also continue to support new releases in applications and middleware for distributed systems. With an unparalleled depth of metrics and a customisable, flexible interface, Prognosis provides the real time business insight required to unlock the hidden value in enterprise IT infrastructure. 10 Annual Report 2010 I Integrated Research and its controlled entities Solutions for HP NonStop systems Solutions for distributed systems hardware, applications and middleware Solutions for ensuring customer satisfaction with web applications Solutions for XP Storage Arrays Solutions for virtualised environments Integrated Research and its controlled entities I Annual Report 2010 11 Chief Executive Officer’s report Licence sales were down 20% on the prior year to $17.4 million due to the combined effects of a stronger Australian dollar and lower HP NonStop sales. This in turn reduced total revenue by 13% from last year to $37.3 million. Our annual net profit after tax was down 31% on the prior year to $5.4 million. However, we estimate that our licence sales were down just 7% on a constant currency basis and profit after tax similarly down by 16%. We made a foreign currency hedging gain of $1.6 million in FY2010 and will continue to hedge profits and control costs in order manage currency fluctuations in FY2011. Our IPT business grew in all regions. We added 148 new IPT customers in the year, mostly through the successful execution of strategies to support our alliance with Avaya, including investment in enabling the Avaya channel. IPT licence and maintenance billings were up 6% on the prior year, or about 23% on a constant currency basis. This IPT growth was encouraging considering that according to Gartner the number of IP phones shipped in calendar 2009 was 10% less than 2008. Gartner forecast a return to growth in 2010, fuelled by the ongoing trend to replace digital telephony with IP telephony as older systems are retired, and to take advantage of the lower costs and functionality improvements that IP telephony provides. We are building on our IPT product range in order to expand our addressable market. We recently added support for Alcatel-Lucent, and already have our first major customer using this product. Alcatel-Lucent support opens markets for us in Europe and Northern Africa, and expands upon our existing solutions for Cisco, Avaya and Nortel. We have also launched a Network Diagnostics product that can be sold to new and existing customers, providing visibility of the entire telephony ecosystem for more effective troubleshooting and problem resolution. We grew our Consulting business in FY2010, with Consulting revenue up 19% to $2.0 million. Our consulting services include customisation, implementation, training and integration to help our customers derive more value from Prognosis. We added people and built a scalable foundation of systems and processes in order to support future Consulting revenue growth. Dear Shareholders, The 2010 financial year presented some challenges to Integrated Research, but I’m pleased to report that we have withstood these and that the business is healthy, profitable and debt free. We are also seeing some benefits from our growth strategies and are well prepared for the future. 12 Annual Report 2010 I Integrated Research and its controlled entities Consulting makes Prognosis more valuable to our customers, expands our footprint and increases customer retention. It’s important to note that our HP NonStop customer retention remains high at 92%. This underpins the importance of our products and the systems that they manage. We continue to invest in our HP NonStop suite, and released new products and functionality during the financial year. Our development plan is aligned with HP’s server strategy, of which HP NonStop is an important component. Our Distributed Systems products recorded growth in Europe and Asia Pacific. We are committed to the continued development and support of these products, particularly to enable monitoring of multi-platform applications such as payments. The new strategic alliance between Integrated Research and Stratus Technologies, a leading provider of high-availability, fault-tolerant Windows servers, increases the market for our Distributed Systems products and provides a new channel to customers in the financial services, manufacturing, transportation, healthcare and telecommunications sectors that rely on Stratus servers. FY2010 also saw the implementation of a number of new systems and processes within Integrated Research to ensure our agility and scalability, and to build a strong foundation for future growth. These included new CRM and financial systems that give us greater visibility into our business and improve our decision making. These internal changes are having a strategic impact on our business. We’ve re-engineered our R&D processes by implementing the Agile development methodology and this has resulted in measurable improvements in product quality, shorter development cycles and a 53% improvement in R&D output per person. Despite the challenges of FY2010, our business is strong and poised for growth. I would like to thank our customers for their ongoing business and our staff for their hard work and perseverance this year. Thank you for your support. Consulting Services is an important part of our strategy. In addition to contributing services revenue, our consultants look for ways to extend our customers’ use of Prognosis to provide real time business insight. This makes Prognosis more valuable to our customers, expands our footprint and increases customer retention. We also increased our focus on the payments market in FY2010, which offers a significant opportunity for us. It is a high growth market in developing countries, as well as being a rapidly evolving market in western economies, with new payments channels such as mobiles and the internet. Our ability to monitor high volumes of transactions in continuity- critical environments makes Prognosis a strong fit for this market. Our strategy in payments is similar to our IPT strategy, supporting multiple platforms to increase our addressable market, as well as providing solutions for heterogeneous payments environments. We currently support ACI BASE24 and BASE24-eps, EFD Connex and S1 Postilion. We also have a powerful toolkit that enables us to fully integrate any custom-built or bespoke switch into Prognosis. With a large number of payments switches being developed in-house, the level of visibility Prognosis offers to these financial institutions is invaluable. Our new alliance with ACI Worldwide enhances this go to market strategy. ACI’s market share of the top 500 retail payment switches using commercial software is over 50%, and they have selected Prognosis as their payment service management solution for the full range of ACI products. Given that the vast majority of ACI’s customers run their payment switches on HP NonStop servers, the ACI alliance is also expected to have a positive impact on our HP NonStop products and revenue. Our HP NonStop business was down this year due to lower customer spending on HP NonStop servers throughout the year, largely because of changes in the market and customers having sufficient processing capacity for their current business. Also, analysts estimate that IT capital spending declined by more than 10% in 2009. We expect this to be temporary, as our customers will need to invest in additional capacity to cope with increased processing when the economy recovers. Mark Brayan Chief Executive Officer Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 13 13 Review of operations and activities Integrated Research has a twenty-two year heritage of providing performance monitoring and diagnostics software solutions for business- critical computing environments. Principal activities The Company’s principal activities during the year were the design, development and sale of systems and applications management computer software for business-critical computing and IP telephony networks. The Company increased its investment in and revenue from Prognosis-based consulting services during the year and expects to increase this further in future years. Group overview Integrated Research has a twenty-two year heritage of providing performance monitoring and diagnostics software solutions for business-critical computing environments. Since its establishment in 1988, the Company has provided its core Prognosis products to a cross section of large 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 operational insight into their HP NonStop, Windows, UNIX and Linux servers, and IP Telephony environments and the business applications that run on these platforms. 14 Annual Report 2010 I Integrated Research and its controlled entities 14 Annual Report 2010 I Integrated Research and its controlled entities Typical business environments where Prognosis is Currency exchange rates were volatile over the course used include automated teller machine (ATM) and of the 2010 financial year resulting. The average US EFTPOS transaction systems, web applications such as exchange rate for the 2010 financial year was 17% online banking or online shopping, hospital systems, higher than the equivalent prior year. Consolidated emergency services, stock trading applications, and revenues were lower due to the impact of currency telecommunications systems including IP telephony translation of our overseas operations. systems. The Company has developed its Prognosis products flat revenue, Europe reported a decline of 14% and Asia around a fault-tolerant, highly distributed software Pacific increased by 10% over the equivalent prior year. In underlying natural currency the Americas reported architecture, designed to achieve high levels of functionality, scalability and reliability with a low total cost of ownership. Revenue derived from the Company’s IP Telephony (IPT) products continued its strong growth. Even with the stronger Australian dollar, new licence sales for IPT were Integrated Research services customers in more than 50 up 14% over the prior year with growth reported in all countries through direct sales offices in the USA, UK and Australia, and via a global, channel-driven distribution geographic regions. This was a watershed year for the Company with IPT now being the largest source of new network. The Company’s customer base consists of licence sales. many of the world’s largest organisations and includes major stock exchanges, banks, credit card companies, telecommunications companies, computer companies and hospitals. Total revenue was impacted by lower than anticipated HP NonStop sales. However, the product line showed improvement in the second half with 10% increase in new licence sales in the US over the same period The Company generates most of its revenue from upfront last year, in line with improved economic conditions licence fees, recurring maintenance and recurring licence globally. fees. Review and results of operations The Company achieved an annual net profit after tax of $5.4 million compared to the equivalent prior period of $7.9 million, which is within the guidance provided to the ASX on 2 July 2010. Revenue for the full year was $37.3 million representing a 13% decline over the prior year, mainly attributable to a stronger Australian dollar. In constant currency, revenue was down 3% compared to the prior year. Revenue Revenue for the year was $37.3 million, a decrease of 13% over 2009. Licence fees decreased by 20%, and maintenance fees decreased by 12%. The customer retention rate remains high at 93%. Revenue from consulting services increased by 19% over the prior year to $2.0 million which validates the Company’s strategy to invest in this business segment. Revenue derived from the Company’s IP Telephony products continued its strong growth. New licence sales for IPT were up 14% over the prior year with growth reported in all geographic regions. Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 15 15 4 Expenses The Company continued to focus on expanding its capabilities and productivity. The number of staff increased by 13% from 142 to 161. Total expenses were $31.6 million, down 5% against the prior year, which was attributable to the strong Australian dollar. Research and development expenditure of $8.3 million was 22% of total revenue and in line with historical averages. This has been underscored by significant improvement in research and development processes, better product quality and improved customer satisfaction. The company is committed to maintaining and improving its core strategic strength and we expect a comparable level of investment in research and development in the future. Net research and development expenses are represented as follows: In thousands of AUD Gross research and development spending Capitalisation of development expenses Amortisation of capitalised expenses Net research and development expenses 2010 8,290 (5,932) 5,989 8,347 2009 9,001 (5,790) 5,033 8,244 Shareholder returns Returns to shareholders increased through the payment of partly franked dividends: Net profit ($’000) Basic EPS Dividends per share Return on equity Financial position 2010 $5,401 3.24¢ 3.0¢ 22.0% 2009 $7,863 4.72¢ 4.0¢ 28.9% 2008 $5,776 3.47¢ 3.0¢ 24.3% The consolidated entity continues to hold a strong financial position being free of debt and with cash at 30 June 2010 of $8.4 million, compared to $14.5 million at the same time last year. Net cash flow provided by operating activities was $8.3 million, compared to $13.4 million for the same period last year. Net cash flow provided by operating activities ($’000) Current ratio (current assets to current liabilities) Net tangible asset backing per ordinary share 2010 $8,339 1.57 6.32¢ 2009 $13,434 1.98 8.35¢ 2008 $13,201 1.85 6.69¢ 16 Annual Report 2010 I Integrated Research and its controlled entities 16 Annual Report 2010 I Integrated Research and its controlled entities Outlook and strategy for 2011 The Company’s products continue to deliver value for our customers by supporting the performance management of their mission-critical, high availability computing environments in segments such as payments and communications. The Company invested in 2010 in recommendations from its review of its strategy in 2009. This review validated our strategy of maximising the unique core features of Prognosis. We will continue to improve and extend our products to deliver real-time insight to critical business processes and transactions. The HP NonStop platform is an important part of HP’s server strategy and remains at the operational core of many of the world’s largest companies. The payments segment is a growing opportunity for Integrated Research and we have invested in our payments products to add platform support and functionality to exploit this trend. We have signed a strategic alliance with ACI Worldwide, the world’s largest payments software vendor, to be their exclusive partner for payments monitoring. As well as driving payments sales this opens up more HP NonStop opportunities for us given most ACI switches run on HP NonStop. The payments market also includes many customised switches and we have developed a repeatable solution that monitors customised switches, which greatly increases our addressable market. Prognosis for Distributed Systems (Windows, Unix and Linux) continues to be sold alongside our HP NonStop products as customers seek a common monitoring interface for all platforms or convert applications from one platform to another. We expect this trend to continue in 2010 and will invest to extend our platform coverage. We signed a strategic alliance with Stratus, a leading vendor of ultra-high availability Windows servers, to provide real-time monitoring for their customers and application partners. Our IP Telephony products are central to our growth in 2011 and beyond. Sales grew in FY10 and we made important investments in the product line. We added support for Alcatel-Lucent’s IP phones and launched a network diagnostics product that extends the functionality of Prognosis for IP Telephony. Over four million phones are now licensed with Prognosis. We will continue our investments in our IPT products to add functionality that improves our strong market position. Consulting Services is an important element in our strategy. Consultants provide services to implement Prognosis for our customers and train them in its effective use. They also help us develop unique and repeatable solutions that extend the use and value of Prognosis. We will continue to invest in people and processes for our consulting business to grow revenue and margin. In addition to investments in new products and alliances, we have improved our R&D capabilities by implementing the Agile development methodology. This has decreased cycle times, increased product quality and enabled more focus on innovation and new product development. Consulting Services is an important element in our strategy. Consultants provide services to implement Prognosis for our customers and train them in its effective use. Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 17 17 Directors The directors of the Company at any time during or since the end of the financial year are listed below: Steve Killelea, AM Non-Executive Director and Chairman Steve founded Integrated Research in August 1988 and held the position of Managing Director and Chief Executive Officer until retiring from his executive position in November 2004. He was appointed as a Non-Executive Director in November 2004 and elected Chairman in July 2005. Steve is also Chairman of the Institute for Peace and Economics and The Charitable Foundation and for activities involved with these he has received a number of international awards. He is also active in the financial community with investments in many high tech companies. Steve’s current term will expire no later than the close of the 2012 Annual General Meeting. Listed companies directorships held in the past three years: None. Age 61 years. Mark Brayan, MBA Managing Director and Chief Executive Officer Mark Brayan joined Integrated Research in September 2007 and is responsible for the overall strategy and leadership of the Company. Mark has over twenty years experience in the software industry, most recently he was COO of outsourcer Talent2 and previously CEO of the listed software company Concept Systems before its merger with Talent2. Mark has a strong understanding of the systems management market through his time with BMC Software. As Managing Director, Mark is not required to seek re-election to the Board. Listed companies directorships held in the past three years: None. Age 46 years. Alan Baxter, BSc, Dip Ed Independent Non-Executive Director Alan was appointed as a Director in June 2009. Alan has nearly forty years experience in Information Technology covering a broad range of the industry’s activities. These include many years in a variety of roles with IBM Australia, CEO of DMR Consulting in Australia and COO of Fujitsu Consulting’s global operations from London. He was Non-Executive Chairman of Fujitsu Australia & New Zealand, a director of Mincom Ltd and is currently Chairman of Konekt Limited and also of Innogence Limited. Konekt Ltd is a publicly listed company. Alan’s current term will expire no later than the close of the 2012 Annual General Meeting. Listed company directorships held in the past three years other than listed above: None. Age 65 years. John Brown, B Com, FCA, MAICD Independent Non-Executive Director John was appointed a Director in July 2007. He was a partner with KPMG for over 26 years and since retiring in 2006 has been appointed to be the chair or member of the audit committee of a number of NSW and Federal public sector entities. John is also a Director and Chair of the Audit Committee of Sydney Water Corporation and a Director of The Gift Of Life Foundation. John’s current term will expire no later than the close of the 2010 Annual General Meeting. Listed companies directorships held in the past three years: None. Age 62 years. 18 Annual Report 2010 I Integrated Research and its controlled entities Kate Costello, LLB, FAICD Independent Non-Executive Director Kate was appointed as a Director in August 2005. She is a lawyer and has over twenty years experience in corporate governance and strategy development. She is also a Director of Governance Matters Pty Ltd, listed company, LBT Innovations Ltd, and a number of other private companies. Kate’s current term will expire no later than the close of the 2011 Annual General Meeting. Listed companies directorships held in the past three years other than listed above: None. Age 57 years. Clyde McConaghy, B.Bus., MBA, MAICD, MIOD - UK Non-Executive Director Clyde was appointed a Director in December 2007. He has two decades of international strategic market development experience in the technology, media and online industries. Clyde was a board director of WMRC Plc, an economic analysis publisher, on the London Stock Exchange and a director of the Economist Intelligence Unit GmbH in London. Clyde is managing director of Smarter Capital Pty Limited, another company associated with Mr Steve Killelea, Chairman of Integrated Research. Clyde’s current term will expire no later than the close of the 2011 Annual General Meeting. Listed companies directorships held in the past three years: None. Age 48 years. Peter Lloyd Non-Executive Director Peter was appointed a Director in July 2010. He has 37 years experience in computing technology, having worked for both computer hardware and software solution providers. For the past 26 years Peter has been specifically involved in the provision of payments solutions for the financial services industry. Peter is currently the global sales and marketing Director for Distra Pty Ltd a provider of payments systems. He is also a Director of The Grayrock Group Pty Ltd and Limehouse Creative Pty Ltd. Peter’s current term will expire no later than the close of the 2010 Annual General meeting.Listed companies directorships held in the past three years: None. Age 56 years. David Leighton, MBA, FCPA, ACIS Company Secretary David is a member of Chartered Secretaries Australia. He has been Company Secretary since October 2000. Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 19 19 Senior Leadership Team Peter Adams, B.Com, CA Chief Financial Officer Peter joined Integrated Research in March 2008 and is responsible for overseeing the Company’s finance and administration, including regulatory compliance and investor relations. Peter is a Qualified Chartered Accountant with over 20 years experience. He has held a number of senior accounting and finance roles, including seven years as CFO with Infomedia (an ASX-listed technology company), six years with Renison Goldfields (ex ASX top 100 Resources Company) and two years with Transfield Pty Ltd. Peter’s career began with Arthur Andersen, where he was responsible for managing large audit clients. Alex Baburin, B.App. Sc General Manager, Research and Development Alex Baburin joined Integrated Research in November 2006 and is responsible for the Company’s software development and global support activities. Alex has 20 years experience in the development, creation and management of high-technology hardware and software products for Honeywell and Siemens. Before joining Integrated Research he was responsible for general management of the Siemens Access Control product line globally and for much of that time was based in Germany. 20 Annual Report 2010 I Integrated Research and its controlled entities Andre Cuenin, BSc, MBA Global Head of Sales Andre joined Integrated Research in October 2008 and is responsible for all global business operations. Andre has over 20 years experience in IT sales, most recently as VP of Field Operations at Stratavia, where he was responsible for sales and professional services marketing worldwide. Prior to this he spent 15 years with CA (previously known as Computer Associates) in several senior management positions including VP of Worldwide Sales Operations. Pierre Semaan, BEng, MBA General Manager, Product Management & Marketing Pierre joined Integrated Research in June 2008 and is responsible for the management and strategic direction of all product lines and strategic marketing. Pierre has over 15 years international experience managing teams delivering technology innovations. He was most recently the Senior Vice President of Technology for Sage CRM solutions, which included leading the ACT!, SalesLogix and Mobility R&D organisations. Prior to Sage, Pierre worked at Citrix as the Chief of Operations & Director of the CTO Office and Advanced Products Group. Geoff Bryant, M.Mgt, MAICD Vice President Consulting Geoff joined Integrated Research in June 2009 and is responsible for all Consulting Services activities, which includes professional services and training. With 20 years experience in operations and services positions in the technology sector, Geoff brings expertise that will help ensure Integrated Research customers receive world class consulting services to optimise the value of their PROGNOSIS investments. Prior to Integrated Research he held a number of business and management positions in Asia Pacific, Europe and North America with Cognos, IDS Scheer, Novell, and Software AG. Integrated Research and its controlled entities I Annual Report 2010 Integrated Research and its controlled entities I Annual Report 2010 21 21 Integrated Research customers include* 8 of the worlds 10 largest companies 5 of the top 10 US banks 4 of the 5 biggest aerospace and defense companies 6 of the 10 biggest telecommunications companies 6 of the 10 biggest stock exchanges The 3 biggest oil and gas companies The 2 biggest aircraft manufacturers *Source: Forbes 2000 (2010) and World Federation of Exchanges 22 Annual Report 2010 I Integrated Research and its controlled entities Financials Directors’ Report Remuneration Report Corporate Governance Financial Statements Notes to the financial statements Directors’ Declaration Independent Audit Report Lead Auditor’s independence declaration ASX additional Information Corporate Directory 24 29 37 44 49 82 83 85 86 89 Integrated Research and its controlled entities I Annual Report 2010 23 Directors’ Report The directors present their report together with the Financial Statements of Integrated Research Limited (“the consolidated entity”), being the Company and its controlled entities, for the year ended 30 June 2010 and the Auditor’s Report thereon. Results The net profit of the consolidated entity for the 12 months ended 30 June 2010 after income tax expense was $5.4 million. Dividends Dividends paid or declared by the Company since the end of the previous financial year were: Cents Per Share Total Amount $’000 Date of Payment Final 2009 – Ordinary shares Interim 2010 – Ordinary shares 5% franked 8% franked Special 2010 – Ordinary shares unfranked Final 2010 – Ordinary shares 45% franked 2.5 1.5 0.5 1.0 4,170 2,502 834 1,668 18 Sep 2009 12 Mar 2010 12 Mar 2010 17 Sep 2010 Principal activities and review of operations Detail of the principal activities and review of operations of the consolidated entity are set out on pages 14 to 17. 24 Annual Report 2010 I Integrated Research and its controlled entities Events subsequent to reporting date For dividends declared after 30 June 2010 see Note 19 in the financial statements. The financial effect of dividends declared and paid after 30 June 2010 has not been brought to account in the financial statements for the year ended 30 June 2010 and will be recognised in subsequent financial statements. 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 which is 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 Review of Operations and Activities 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 pages 18 to 19. Details of the company secretary and his qualifications are set out on page 19. 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. 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 2010, and the numbers of meetings attended by each director were: Board Meetings Audit and Risk Committee Meetings Nomination and Remuneration Committee Meetings Strategy Committee Meetings Alan Baxter John Brown Mark Brayan Kate Costello Steve Killelea Clyde McConaghy A 11 12 12 12 11 12 B 12 12 12 12 12 12 A 3 3 - - - 3 B 3 3 - - - 3 A 3 - - 2 3 - B 3 - - 3 3 - A - - 3 3 3 3 B - - 3 3 3 3 A: Number of meetings attended. B: Number of meetings held during the time the directors held office or was a member of the board or committee during the year. Integrated Research and its controlled entities I Annual Report 2010 25 Directors’ Report page 24-28 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. 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 Securities Exchange in accordance with S205G(1) of the Corporations Act 2001, at the date of this report is as follows: Ordinary shares in Integrated Research Options Directly held Beneficially held Total Number of Options - 25,000 101,000 - 94,497,339 - - - - - 200,000 337,612 - - - 25,000 101,000 200,000 94,834,951 - - - 1,000,000 - - - - - Alan Baxter Mark Brayan John Brown Kate Costello Steve Killelea Clyde McConaghy Peter Lloyd Share options Options granted to directors and senior executives The Company granted no options to either executives or non-executive directors of the consolidated entity during or since the end of the financial year. 26 Annual Report 2010 I Integrated Research and its controlled entities Unissued shares under option Unissued ordinary shares of Integrated Research Limited under option at the date of this report are as follows: Expiry date Sep 2010 May 2011 Jan 2012 Jun 2012 Sep 2012 Feb 2013 Apr 2013 July 2013 Oct 2013 Exercise price Number of shares $0.54 $0.41 $0.50 $0.48 $0.42 $0.38 $0.38 $0.35 $0.31 400,000 482,000 160,000 648,000 1,000,000 350,000 300,000 200,000 340,000 May 2014 Options do not entitle the holder to participate in any share issue of the Company or any other body corporate. Total unissued ordinary shares of Integrated Research Limited under option 5,420,000 1,540,000 $0.28 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 15,000 10,000 10,000 Amount paid on each share $0.41 $0.48 $0.28 Indemnification and insurance of officers and auditors 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. Insurance During the financial year Integrated Research Limited paid a premium to insure the directors and executive 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. Integrated Research and its controlled entities I Annual Report 2010 27 Directors’ Report page 24-28 The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred as such on officer or auditor. Remuneration report The Company’s Remuneration Report, which forms part of this Directors’ Report, is on pages 29 to 36. Corporate governance A statement describing the Company’s main corporate governance practices in place throughout the financial year is on pages 37 to 43 of this Annual Report. Non-audit services During the year Deloitte Touche Tohmatsu, 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 and Risk 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 and Risk 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 on page 85 and forms part of the Directors’ Report. 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 Statements 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 Mark Brayan Chief Executive Officer Dated at North Sydney this 16th day of August 2010 28 Annual Report 2010 I Integrated Research and its controlled entities Remuneration Report Remuneration policies 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 Nomination and 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 (including directors) have authority and responsibility for planning, directing and controlling the activities of the Company and the consolidated entity. The remuneration structures explained below are Remuneration packages include a mix of fixed and variable remuneration and short and long-term performance based incentives. Fixed remuneration 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 periodic analysis and advice to ensure the directors’ and senior executives’ remuneration is competitive in the market place. A senior executive’s remuneration is also reviewed on promotion. designed to attract suitably qualified candidates, reward Performance-linked remuneration the achievement of strategic objectives, and achieve the broader outcome of creation of value for shareholders. The remuneration structure takes into account: Performance linked remuneration includes both short- term and long-term incentives and is designed to reward executive directors and senior executives for exceeding The capability and experience of the directors and their financial and personal objectives. The short-term senior executives The directors and senior executives ability to control the relevant segment’s performance 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 The consolidated entity’s performance including: Plan (ESOP). - The consolidated entity’s earnings - The growth in share price and returns on shareholder wealth Integrated Research and its controlled entities I Annual Report 2010 29 Remuneration Report page 29-36 Short-term incentive bonus At the end of the financial year the Nomination The Nomination and Remuneration Committee is and Remuneration Committee assesses the actual responsible for setting the key performance indicators performance of the CEO against the KPIs set at the (KPIs) for the Chief Executive Officer, and for approving beginning of the financial year. A percentage of the the KPIs for the senior executives who report to him. predetermined maximum amounts for each KPI The KPIs generally include measures relating to the is awarded depending on results. The committee consolidated entity, the relevant segment, and the recommends the cash incentive to be paid to the CEO individual, and include financial, people, customer, for approval by the board. strategy and risk measures. The measures are chosen as they directly align the individual’s reward to the KPIs of the consolidated entity and to its strategy and performance. 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 The financial performance objectives vary with position executives to exercise options is conditional on the and responsibility and are aligned with each respective consolidated entity achieving certain profit after tax (PAT) year’s budget. The non-financial objectives vary with performance hurdles over the vesting period. PAT was position and responsibility and include measures such as considered the most appropriate performance hurdle achieving strategic outcomes and staff development. given its intrinsic link to creating shareholder wealth. Consequences of performance on shareholder wealth 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: 2010 2009 2008 2007 2006 New licences Net profit Dividends paid $17,386,000 $21,723,000 $19,623,000 $19,517,000 $18,633,000 $5,401,000 $7,863,000 $7,506,000 $5,003,000 $5,776,000 $5,826,000 $5,433,000 $4,152,000 $6,975,000 $4,146,000 Change in share price $0.125 ($0.06) ($0.23) $0.185 ($0.005) Net profit and new licence sales are considered in setting the STI, as two of the financial performance targets are “profit after tax” and “new sales”. The Nomination and Remuneration Committee considers that the above performance linked structure is generating the desired outcomes. 30 Annual Report 2010 I Integrated Research and its controlled entities Key management personnel 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: Directors Other key management personnel Steve Killelea – Chairman Peter Adams – Chief Financial Officer Mark Brayan – Chief Executive Officer Alex Baburin – General Manager, Research & Development Alan Baxter John Brown Kate Costello Geoff Bryant – Vice President Consulting Andre Cuenin – Global Head Of Sales Rick Ferguson – Vice President Asia Pacific Clyde McConaghy David Leighton – Company Secretary Pierre Semaan – General Manager, Product Management & Marketing David Stark – Vice President Europe (resigned Nov 2009) Service agreements Service contracts for executive directors and senior executives are unlimited in term but capable of termination by either party according to a period specified in the employment contract and the consolidated entity retains the right to terminate the contract immediately by payment in lieu of notice or Mr Peter Adams, Chief Financial Officer, has a contract of employment with Integrated Research Limited dated 23 January 2008, which provides for specific notice and severance undertakings of up to three months compensation depending on the particular circumstances. Mr Adams can terminate his employment by giving three months prior notice in writing. a severance payment or an amount for redundancy Mr Alex Baburin, General Manager Research and equal to the scale of payments prescribed in the NSW Development, has a contract of employment with Employment Protection Act. Mr Mark Brayan, Chief Executive Officer, has a contract of employment with Integrated Research Limited dated 29 August 2007, which provides for specific notice and severance undertakings of up to four months compensation depending on the particular circumstances. Mr Brayan can terminate his employment by giving four months prior notice in writing. Integrated Research Limited dated 18 October 2006, which provides for specific notice and severance undertakings of up to one month’s compensation depending on the particular circumstances. Mr Baburin can terminate his employment by giving one month’s prior notice in writing. Integrated Research and its controlled entities I Annual Report 2010 31 Remuneration Report page 29-36 Mr Geoff Bryant, Vice President Consulting, has a Director’s base fees in FY2010 were $50,000 per annum contract of employment with Integrated Research plus compulsory superannuation. The chairman receives Limited dated 19 June 2009, which provides for specific the base fee by a multiple of two. Director’s fees cover notice and severance undertakings of up to one all main board activities and committee membership. month’s compensation depending on the particular Directors can elect to salary sacrifice their directors fees circumstances. Mr Bryant can terminate his employment into superannuation. by giving one month’s prior notice in writing. Mr Andre Cuenin, Global Head of Sales, has a contract of related compensation or retirement benefits. Non-executive directors do not receive performance employment with Integrated Research Limited dated 22 September 2008, which provides for specific notice and severance undertakings of one month’s compensation depending on the particular circumstances. Mr Cuenin can terminate his employment by giving one month’s prior notice in writing. Mr Rick Ferguson, Vice President Asia Pacific, has a contract of employment with Integrated Research Limited dated 20 February 2008, which provides for specific notice and severance undertakings of up to three months compensation depending on the particular circumstances. Mr Ferguson can terminate his employment by giving three months prior notice in writing. Mr Pierre Semaan, General Manager Product Management & Marketing, has a contract of employment with Integrated Research Limited dated 22 May 2008, which provides for specific notice and severance undertakings of one month’s compensation depending on the particular circumstances. Mr Semaan can terminate his employment by giving one month’s prior notice in writing. Non-executive directors 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. Directors’ and executive officers’ remuneration Details of the nature and amount of each major element of the remuneration of each director of the Company and each of the 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. No director or executive appointed during the year received a payment as part of his or her consideration for agreeing to hold the position. 32 Annual Report 2010 I Integrated Research and its controlled entities Short Term Salary & fees $ Bonus $ Non- cash benefits $ Post- employment Super- annuation contribution* $ Share- based payments Value of options $ Other compen- sation Termina- tion benefit $ Proportion of remuneration Perfor- mance related Total $ Value of options In AUD Directors: Non-executive Alan Baxter (appointed June 2009) David Boyles (resigned November 2008) John Brown Kate Costello 2010 2009 2010 2009 2010 2009 2010 2009 50,000 1,603 - - 50,000 45,000 37,500 - Steve Killelea (Chairman) Clyde McConaghy 2010 100,000 2009 2010 2009 90,000 50,000 33,750 Directors: Executive - - - - - - - - - - - - - - - - - - - - - - - - 4,500 144 - 26,773 4,500 4,050 17,000 49,050 9,000 8,100 4,500 15,300 - - - - - - - - - - - - Mark Brayan 2010 395,468 45,260 2009 395,468 149,870 4,532 4,532 14,461 (22,455) 13,334 85,956 * Superannuation contribution contain salary sacrifice. - - - - - - - - - - - - - - 54,500 1,747 - 26,773 54,500 49,050 54,500 49,050 109,000 98,100 54,500 49,050 - - - - - - - - - - - - - - - - - - - - - - - - 437,266 649,160 10% 23% (5%) 13% Integrated Research and its controlled entities I Annual Report 2010 33 Remuneration Report page 29-36 Short Term Salary & fees $ Non-cash benefits $ Bonus $ Post- employment Super- annuation contribution $ Share- based payments Value of options $ Other compen- sation Termina- tion benefit $ Proportion of remuneration Perfor- mance related Total $ Value of options In AUD Executive officers (excluding directors) Consolidated Peter Adams Alex Baburin Geoff Bryant (appointed June 2009) Rick Ferguson David Leighton Pierre Semaan Andre Cuenin (appointed October 2008) Kurt Roscow (resigned July 2008) David Stark (resigned Nov 2009) Total compensation: key management (including directors) 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 241,008 37,412 229,950 49,330 207,891 35,536 188,503 41,870 185,154 69,109 - - 209,144 106,642 206,851 115,725 43,759 45,000 - - 221,007 61,519 207,436 41,889 233,069 164,972 162,847 143,965 - 11,691 - - 135,794 45,482 265,217 118,559 4,532 1,133 3,399 4,532 8,988 - 4,532 4,532 1,241 - 4,532 4,532 - - - - - - 14,461 (5,695) 18,918 20,306 18,710 (8,952) 16,965 13,068 16,731 - - - 18,823 (4,555) 18,617 17,178 4,050 4,050 - - 14,461 (12,189) 16,932 - - - - - - 8,831 2,574 8,689 - - (23,416) 22,463 2010 2,159,794 565,932 31,756 141,197 (74,688) 2009 1,883,316 661,208 19,261 192,233 176,491 13% 15% 14% 16% 25% - 32% 32% - - 21% 15% 41% 46% - - (2%) 6% (3%) 5% - - (1%) 5% - - (4%) 3% 1% 3% - - 29% 29% (15%) 6% - - - - - - - - - - - - - - - - - - - - 291,718 319,637 256,584 264,938 279,982 - 334,586 362,903 49,050 49,050 289,330 279,620 400,615 315,501 - 11,691 157,860 406,239 2,823,991 2,932,509 34 Annual Report 2010 I Integrated Research and its controlled entities Analysis of bonuses included in remuneration 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: Included in remuneration % vested in year % forfeited in year Short-term incentive bonuses Directors Mark Brayan Executives Peter Adams Alex Baburin Geoff Bryant Andre Cuenin Rick Ferguson Pierre Semaan David Stark $ (A) 45,260 37,412 35,536 69,109 164,972 106,642 61,519 45,482 23% 75% 89% 69% 83% 76% 87% 23% (B) 77% 25% 11% 31% 17% 24% 13% 77% (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 2010 financial year. (B) The amounts forfeited are due to the performance or service criteria not being met in relation to the current financial year. 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 No options have been granted to named executives either during or since the end of the financial year. There were no options vesting during the year that were granted to named executives in prior reporting periods. 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 16 to the financial statements. Integrated Research and its controlled entities I Annual Report 2010 35 Remuneration Report page 29-36 Exercise of options granted as compensation During the reporting year no shares were issued to executives on the exercise of options previously granted as compensation. Analysis of options and rights over equity instruments granted as compensation 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 Number Date Value yet to vest ($) Min (B) Max (C) % vested in year % Forfeited in year (A) Financial year in which grant expires Directors Mark Brayan 1,000,000 Sep 2007 Executives Peter Adams Alex Baburin Andre Cuenin Rick Ferguson Pierre Semaan 350,000 160,000 40,000 300,000 300,000 200,000 Mar 2008 Aug 2006 Oct 2008 Oct 2008 Apr 2008 Jul 2008 David Stark 350,000 Mar 2008 - - - - - - - - - - - - - - - 100% 2012 nil $108,075 2013 2012 2013 2013 2013 2013 2013 nil nil nil nil nil nil nil $58,861 $25,748 $5,191 $38,933 $50,453 $29,305 n/a (A) The percentage forfeited in the year represents the reduction from the maximum number of options available to vest due to the performance hurdles not being achieved or due to the resignation of the executive. (B) The minimum value of options yet to vest is $nil as the executives may not achieve the required performance hurdles or may terminate their employment prior to vesting. (C) 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. 36 Annual Report 2010 I Integrated Research and its controlled entities Corporate Governance Statement 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 evaluating and approving 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 assessing 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 are located on the Company’s website (www.ir.com). Integrated Research and its controlled entities I Annual Report 2010 37 Corporate Governance Statement page 37-43 Board process Independent advice and access to company information To assist in the execution of its responsibilities, the Each director has the right of access to all relevant Board has established a number of board committees company information and to the company’s executives including a Nomination and Remuneration Committee, and, subject to prior consultation with the chairman, may an Audit and Risk Committee and a Strategy Committee. seek independent professional advice from a suitably These committees have written mandates and operating qualified adviser at the consolidated entity’s expense. procedures, which are reviewed on a regular basis. A copy of the advice received by the director is made The board has also established a framework for the available to all other members of the board. management of the consolidated entity including board- endorsed policies, a system of internal control, a business Composition of the board risk management process and the establishment of The names of the directors of the company in office at appropriate ethical standards. the date of this report are set out on pages 18 to 19 of The full board currently holds twelve scheduled meetings this report. each year and any extraordinary meetings at such The company’s constitution provides for the board other times as may be necessary to address any specific to consist of between three and twelve members. At matters that may arise. 30 June 2010 the board members were comprised as follows: The agenda for its meetings is prepared in conjunction with the chairman, chief executive officer and company secretary. Standing items include strategic matters Mr Steve Killelea – non executive director (Chairman). for discussion, the CEO’s report, financial reports, key Mr Alan Baxter – independent non executive performance indicator reports and presentations by director. Mr John Brown – independent non executive director. Ms Kate Costello – independent non executive director. Mr Clyde McConaghy – non executive director. Mr Mark Brayan – executive director (Chief Executive Officer). Mr Peter Lloyd was appointed as an independent non executive director in July 2010. key executives and external industry experts. Board papers are circulated in advance. 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 with operational matters. Directors are expected to access external continuing education opportunities to update and enhance their skills and knowledge. 38 Annual Report 2010 I Integrated Research and its controlled entities The election of Mr Killelea, who holds a majority of the the board and implement actions for the retirement and company’s issued shares, as non-executive chairman, re-election of directors. does not comply with the ASX Corporate Governance Council recommendation that the chairman be an Responsibilities regarding remuneration independent director. However, the board is satisfied that The Committee reviews and makes recommendations to the company benefits from Mr Killelea’s experience and the board on: knowledge gained through his long involvement with Integrated Research and his associations throughout the information technology 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 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 At each Annual General Meeting one-third of directors, senior executives. 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 CEO 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, in conjunction with the board, determines the selection criteria for the position based on the skills deemed necessary for the board to best carry out its responsibilities. The committee then selects a panel of candidates and the board appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. Executive remuneration and incentive policies. Policies on employee incentive plans, including equity incentive plans. Superannuation arrangements. 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 Nomination and Remuneration Committee The Committee develops and makes recommendations The Nomination and Remuneration Committee is a to the board on: committee of the board of directors and is empowered The CEO and senior executive succession planning. 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 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. Integrated Research and its controlled entities I Annual Report 2010 39 Corporate Governance Statement page 37-43 Board succession plans to maintain a balance of During the year, the Audit and Risk Committee skills, experience and expertise on the board. provided the Board with updates to the Company’s risk Evaluation of the board’s performance. Appointment and removal of directors. Appropriate composition of committees. management register (with the Board approving this document). The external auditor, Chief Executive Officer and Chief Financial Officer are invited to Audit and Risk The terms and conditions of the appointment of non- Committee meetings at the discretion of the committee. executive directors are set out in a letter of appointment, The committee met three times during the year and including expectations for attendance and preparation committee members’ attendance record is disclosed in for all board meetings, expected time commitments, the table of directors’ meetings on page 25. procedures when dealing with conflicts of interest, and the availability of independent professional advice. The external auditor met with the audit committee/ board three times during the year, two of which included The members of the Nomination and Remuneration time without the presence of executive management. Committee during the year were: Ms Kate Costello (Chairperson) – Independent Non-Executive Mr Alan Baxter – Independent Non-Executive 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 2010 comply with accounting standards and present a true and fair view, in all material respects, of the company’s financial Mr Steve Killelea – Non-Executive condition and operational results. This statement is 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 and Risk Committee required annually. The Audit and Risk 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 The Audit and Risk Committee has a documented partners. 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 risk management, The main responsibilities of the Audit and Risk Committee include: Serve as an independent party to monitor the financial reporting process and internal control internal control and appropriate ethical standards for the systems. management of the consolidated entity. The members of the Audit and Risk Committee during the year were: Mr John Brown (Chairman) – Independent Non- Executive Review the performance and independence of the external auditors and make recommendations to the board regarding the appointment or termination of the auditors. Review the scope and cost of the annual audit, negotiating and recommending the fee for the Mr Alan Baxter – Independent Non-Executive annual audit to the board. Mr Clyde McConaghy – Non-Executive 40 Annual Report 2010 I Integrated Research and its controlled entities Review the external auditor’s management letter - Review the draft financial report and and responses by management. recommend board approval of the financial Provide an avenue of communication between the report. auditors, management and the board. As required, to organise, review and report on any Monitor compliance with all financial statutory special reviews or investigations deemed necessary requirements and regulations. by the board. Review financial reports and other financial Strategy Committee information distributed to shareholders so that they provide an accurate reflection of the financial health of the company. The Strategy Committee has a documented charter, approved by the board and is responsible for reviewing strategy and recommending strategies to the board to Monitor corporate risk management and enhance the company’s long-term performance. The assessment processes, and the identification and committee is comprised of at least three members, management of strategic and operational risks. including the chairman of the board and the Chief Enquire of the auditors of any difficulties encountered during the audit, including any restrictions on the scope of their work, access to information or changes to the planned scope of the audit. The Audit and Risk Committee reviews the performance of the external auditors on an annual basis and normally Executive Officer. The board appoints a member of the committee to be chairman. The members of the Strategy Committee during the year were: Mr Steve Killelea (Chairman) – Non-Executive Mr Mark Brayan – Executive meets with them during the year as follows: Mr Clyde McConnaghy – Non-Executive To discuss the external audit plans, identifying any Ms Kate Costello – Independent Non-Executive 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. Prior to announcement of results: The Strategy Committee is responsible for: Review and assist in defining current strategy. Assess new strategic opportunities, including M&A proposals and intellectual property - To review the half-year and preliminary final developments or acquisitions. 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. Stay close to the business challenges and monitor operational implementation of strategic plans. Endorse strategy and business cases for consideration by the full board. The Committee met three times during the year under review. Integrated Research and its controlled entities I Annual Report 2010 41 Corporate Governance Statement page 37-43 Risk management Under the Audit and Risk Charter, the Audit and Risk Committee reviews the status of business risks to the consolidated entity through integrated risk management programs ensuring risks are identified, assessed and appropriately managed and communicated to the board. Major business risks arise from such matters as actions 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. by competitors, government policy changes and the Investment appraisals – Guidelines for capital impact of exchange rate movements. expenditure include annual budgets, detailed Comprehensive policies and procedures are established such that: appraisal and review procedures and levels of authority. Capital expenditure above a certain size requires Internal audit Board approval. The Company does not have an internal audit function Financial exposures are controlled, including the use but utilises its financial resources as needed to assist the of forward exchange contracts. board in ensuring compliance with internal controls. Risks are identified and managed, including internal audit, privacy, insurances, business continuity and Ethical standards 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 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. management and internal compliance and control which Conflict of interest 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: Each Director 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. Financial reporting – Monthly actual results are Details of director related entity transactions with the reported against budgets approved by the consolidated entity are set out in Note 25. directors and revised forecasts for the year are prepared monthly. 42 Annual Report 2010 I Integrated Research and its controlled entities Code of conduct The consolidated entity has advised each director, they buy or sell shares in the company, subject to board veto. The company advises the ASX of any transactions manager and employee that they must comply with conducted by directors in shares in the company. 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 The consolidated entity’s trading policy may be reviewed on the company’s website. Communication with shareholders employees to act with honesty and integrity, The board provides shareholders with information using 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 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.ir.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. Integrated Research and its controlled entities I Annual Report 2010 43 Financial Statements Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the financial statements 1. Significant accounting policies 2. Segment reporting 3. Finance income 4. Expenses 5. Auditors’ remuneration 6. Income tax expense 7. Earnings per share 8. Cash and cash equivalents 9. Trade and other receivables 10. Other current assets 11. Other financial assets 12. Property, plant and equipment 13. Deferred tax assets and liabilities 14. Intangible assets 15. Trade and other payables 16. Employee benefits 17. Provisions 18. Other liabilities 19. Capital and reserves 20. Financial instruments 21. Operating leases 22. Consolidated entities 23. Reconciliation of cash flows from operating activities 24. Key management personnel disclosures 25. Related parties 26. Parent entity disclosures 27. Contingent liabilities 28. Subsequent events 44 Annual Report 2010 I Integrated Research and its controlled entities Consolidated statement of comprehensive income For the year ended 30 June 2010 In thousands of AUD Revenue Revenue from licence fees Revenue from maintenance fees Revenue from consulting and other activites Total revenue Research and development expenses Sales, consulting and marketing expenses General and administration expenses Total expenses Profit before finance income and tax Finance income Profit before tax Income tax expense Profit for the year Other comprehensive income Gain/(loss) on cash flow hedge taken to equity Foreign exchange translation differences 4 3 6 Income tax relating to components of other comprehensive income 13 Other comprehensive income (net of tax) Consolidated Notes 2010 2009 17,386 16,846 3,071 37,303 8,347 19,197 4,054 31,598 5,705 341 6,046 645 5,401 (797) (153) 239 (711) 21,723 19,217 1,744 42,684 8,244 18,932 6,142 33,318 9,366 454 9,820 1,957 7,863 657 (162) (197) 298 Total Comprehensive income for the year 4,690 8,161 Profit attributable to: Owners of the parent Total comprehensive income attributable to: Owners of the parent 5,401 7,863 4,690 8,161 Basic earnings per share (AUD cents) Diluted earnings per share (AUD cents) 7 7 3.24¢ 3.23¢ 4.72¢ 4.71¢ The consolidated statement of comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 49 to 81. Integrated Research and its controlled entities I Annual Report 2010 45 Financial Statements page 44-48 Consolidated statement of financial position As at 30 June 2010 In thousands of AUD Current assets Cash and cash equivalents Trade and other receivables Current tax assets Other current assets Total current assets Non-current assets Trade and other receivables Other financial assets Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Income tax liabilities Other current liabilities Total current liabilities Non-current liabilities Deferred tax liabilities Provisions Other non-current liabilities Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Consolidated Notes 2010 2009 8 9 10 9 11 12 13 14 15 17 18 13 17 18 19 19 8,396 14,548 336 879 24,159 1,514 1,818 2,064 742 13,957 20,095 44,254 3,088 1,445 211 10,615 15,359 3,473 555 365 4,393 19,752 24,502 835 (860) 24,527 24,502 14,459 11,012 1,683 2,142 29,296 - 1,823 2,355 394 13,323 17,895 47,191 2,913 1,132 - 10,740 14,785 3,802 635 723 5,160 19,945 27,246 816 (44) 26,474 27,246 The consolidated statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 49 to 81. 46 Annual Report 2010 I Integrated Research and its controlled entities Consolidated statement of changes in equity For the year ended 30 June 2010 In thousands of AUD Balance at 1 July 2008 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Lapsed employee options Expensed employee options Shares issued Dividends to shareholders Balance at 30 June 2009 Balance at 1 July 2009 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Lapsed employee options Expensed employee options Shares issued Dividends to shareholders Balance at 30 June 2010 Consolidated Share capital Hedging reserve Translation reserve Employee benefit reserve 509 - - - (135) 284 (9) - Retained earnings Total 23,479 7,863 23,791 7,863 - 298 7,863 8,161 135 - - - 284 13 (5,003) (5,003) - - 460 460 - - - - (991) - (162) (162) - - - - 460 (1,153) 649 26,474 27,246 460 - (1,153) 649 - 26,474 5,401 27,246 5,401 - (711) 5,401 158 - - 4,690 - 60 12 (7,506) (7,506) - - - (158) 60 (7) - (558) (153) (558) (153) - - - - - - - - (98) (1,306) 544 24,527 24,502 794 - - - - - 22 - 816 816 - - - - - 19 - 835 The consolidated statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 49 to 81. Integrated Research and its controlled entities I Annual Report 2010 47 Financial Statements page 44-48 Consolidated statements of cash flows For the year ended 30 June 2010 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/(refunded) Net cash provided by operating activities Cash flows from investing activities Payments for capitalised development Payments for property, plant and equipment Payments for intangible assets Interest 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/(decrease) 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 Consolidated Notes 2010 2009 33,059 (25,588) 7,471 868 8,339 41,513 (26,494) 15,019 (1,585) 13,434 (5,932) (5,790) (334) (624) 341 (501) (24) 454 (6,549) (5,861) 12 (7,506) (7,494) (5,704) 14,459 (359) 8,396 13 (5,003) (4,990) 2,583 11,148 728 14,459 23 19 8 The consolidated statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 49 to 81. 48 Annual Report 2010 I Integrated Research and its controlled entities Notes to the Financial Statements For the year ended 30 June 2010 Note 1: Significant accounting policies b) Basis of Preparation Integrated Research Limited (the “Company”) is a company domiciled in Australia. The financial report of the Company for the year ended 30 June 2010 comprises the Company and its subsidiaries (together referred to as the “consolidated entity”). The financial report was authorised for issue by the directors on 16 August 2010. a) Statement of Compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards, and Interpretations and the Corporations Act 2001. Accounting Standards include Australian Equivalent to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures the financial statements of the consolidated entity also comply with the measurement requirements of International Financial Reporting Standards and interpretations adopted by the International Accounting Standards Board. The financial statements are presented in Australian dollars and are prepared on the historical cost basis, with the exception of cash flow hedges, which are at fair value. 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 financial statements 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. Integrated Research and its controlled entities I Annual Report 2010 49 Notes to the Financial Statements page 49-81 Significant accounting policies (continued) 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. Standards and Interpretations issued not yet effective At the date of authorisation of the financial report, a number of standards and Interpretations were in issue but not yet effective. Initial application of the following Standards will not affect any of the amounts recognised in the financial statements, but will change the disclosures presently made in relation to the consolidated entity’s financial statements: Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 2009-8 ‘Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions’ 1 January 2010 30 June 2011 AASB 124 ‘Related Party Disclosures (2009)’, AASB 2009-12 ‘Amendments to Australian Accounting Standards’ 1 January 2011 30 June 2012 AASB 9 ‘Financial Instruments’, AASB 2009-11 ‘Amendments to Australian Accounting Standards arising from AASB 9’ 1 January 2013 30 June 2014 AASB 2009-10 ‘Amendments to Australian Accounting Standards – Classification of Rights Issues’ 1 February 2010 30 June 2011 AASB 2009-14 ‘Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement’ 1 January 2011 30 June 2012 AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project 1 July 2010 30 June 2011 AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project 1 January 2011 30 June 2012 AASB Interpretation 19 ‘Extinguishing Liabilities with Equity Instruments’ 1 July 2010 30 June 2011 50 Annual Report 2010 I Integrated Research and its controlled entities Significant accounting policies (continued) arising on consolidation are translated to Australian dollars at foreign exchange rates ruling at the year end date. The revenues and expenses of foreign The accounting policies set out below have been applied operations, are translated to Australian dollars at rates consistently to all periods presented in the consolidated approximating the foreign exchange rates ruling at the financial statements. 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 dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in other comprehensive income. e) Derivative financial instruments 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 are included in the consolidated financial report from the trading purposes. However, derivatives that do not date that control commences until the date that control qualify for hedge accounting are accounted for as trading ceases. instruments. Intragroup balances and any gains and losses or income Derivative financial instruments are recognised initially at and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. d) Foreign currency 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 In preparing the financial statements of the individual loss depends on the nature of the item being hedged. entities 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 year end date are translated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on The fair value of forward exchange contracts is their quoted market price at the year end date, being the present value of the quoted forward price. f) Hedging translation are recognised in profit or loss. Non-monetary On entering into a hedging relationship, the consolidated 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. entity normally 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 On consolidation, the assets and liabilities of foreign risk. Such hedges are expected to be highly effective operations, including goodwill and fair value adjustments Integrated Research and its controlled entities I Annual Report 2010 51 Notes to the Financial Statements page 49-81 Significant accounting policies (continued) offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they The following useful lives are used in the calculation of depreciation: Leasehold improvements Plant and equipment 4 to 8 years 6 to 10 years actually have been highly effective throughout the h) Intangible Assets financial reporting periods for which they are designated. Research and development For cash flow hedges, the associated cumulative gain Expenditure on research activities, undertaken with the or loss is removed from equity and recognised in profit prospect of gaining new scientific or technical knowledge or loss in the same period or periods during which and understanding, is recognised in profit or loss as the hedged forecast transaction affects profit or loss. incurred. The ineffective part of any gain or loss is recognised immediately in the profit or loss. Expenditure on development activities, whereby research findings are applied to a plan or design for the production g) Property, plant and equipment of new or substantially improved products and processes, Items of property, plant and equipment are stated at cost or deemed cost less accumulated depreciation 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. Depreciation is provided on property, plant and equipment. Depreciation is calculated on a straight line basis so as to write off the net cost of each asset over its expected useful life to its estimated residual value. Leasehold improvements are depreciated over the period of the lease or estimated useful life, whichever is the shorter, using the straight line method. The estimated useful lives, residual values and depreciation method are reviewed annually, with the effect of any changes recognised on a prospective basis. 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 profit or loss 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 profit or loss on a straight-line basis over the estimated useful life, but no more than three years. Intellectual property Intellectual property acquired from third parties is amortised over its estimated useful life. Computer software Computer software is stated at cost and depreciated on a straight-line basis over a 2½ to 3 year period. 52 Annual Report 2010 I Integrated Research and its controlled entities Significant accounting policies (continued) i) Trade and other receivables Trade and other receivables are stated at their amortised cost less impairment losses. The carrying amount of uncollectible trade receivables is reduced 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 by an impairment loss through the use of an allowance asset belongs. account. l) Employee benefits Allowance for returns is offset against trade receivables Superannuation for estimated warranty claims based upon historical experience. j) Cash and cash equivalents Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred. There are no defined benefit plans in Cash and cash equivalents comprises cash balances and operation. call deposits with an original maturity of three months or Long-term service benefits less. 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 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 year end date. 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 year end date which have maturity dates approximating to the terms of the consolidated entity’s obligations. Share-based payment transactions The share option programme allows the company and the consolidated entity employees to acquire shares An impairment loss is recognised whenever the carrying of the Company. The fair value of options granted is amount of an asset or its cash generating unit exceeds its recognised as an employee expense with a corresponding recoverable amount. Impairment losses are recognised increase in equity. The fair value is measured at in profit or loss unless the asset has previously been grant date and spread over the period during which revalued, in which case the impairment loss is recognised the employees become unconditionally entitled to as a reversal to the extent of that previous revaluation the options. The fair value of the options granted is with any excess recognised through profit or loss. measured using a binomial option pricing model, taking into account the terms and conditions upon which the The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In options were granted. Integrated Research and its controlled entities I Annual Report 2010 53 Notes to the Financial Statements page 49-81 Significant accounting policies (continued) Revenue from the sale of licences, where the consolidated entity has no post delivery obligations to perform is recognised in profit or loss at the date of The amount recognised as an expense is adjusted to delivery of the licence key. reflect the actual number of share options that are expected to vest except where forfeiture is only due to share prices not achieving the threshold for vesting. Wages, salaries, annual leave, and non-monetary benefits Liabilities for employee benefits for wages, salaries and annual leave represent present obligations resulting from employees’ services provided to the year end date, calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at the year end date. m) Provisions Revenue from maintenance contracts is recognised rateably over the term of the service agreement, which is typically one year. 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 and supply of software updates. Revenue from multiple element software arrangements, where the fair value of an undelivered element cannot be reliably measured are recognised over the period the undelivered services are provided. Revenue from consulting services is recognised over the period the services are provided. A provision is recognised in the statement of financial position when the consolidated entity has a present legal No revenue is recognised if there are significant 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) Trade and other payables Trade and other payables are stated at their amortised cost. o) Revenue uncertainties regarding the 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. p) Expenses Operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense and spread over the lease term. The consolidated entity allocates revenue to each element in software arrangements involving multiple Financing income 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 Financing income comprises interest receivable on funds invested, dividend income, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in profit or loss (see accounting policy price charged when the same element is sold separately. 1(f)). 54 Annual Report 2010 I Integrated Research and its controlled entities Significant accounting policies (continued) q) Income tax payable is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows Income tax on the profit or loss for the periods presented on a gross basis. The GST components of cash flows comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it arising from investing and financing activities, which are recoverable or payable are classified as operating cash relates to items recognised directly in equity, in which flows. case it is recognised in equity. s) Significant accounting judgements, estimates and Current tax is the expected tax payable on the taxable assumptions income for the year, using tax rates enacted or substantively enacted at the year end date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised on 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 year end 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 dividend franking deficit tax that arise from The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Intangible assets An intangible asset arising from development expenditure on an internal project is recognised only when the consolidated entity can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the the distribution of dividends are recognised at the same cost model is applied requiring the asset to be carried at time as the liability to pay the related dividend. cost less any accumulated amortisation and accumulated r) Goods and Services Tax impairment losses. Any expenditure so capitalised is amortised over the period of expected benefits from Revenue, expenses and assets are recognised net of the related project commencing from the commercial the amount of goods and services tax (GST), or similar release of the project. The carrying value of an intangible taxes, except where the amount of GST incurred is asset arising from development expenditure is tested for not recoverable from the taxation authority. In these impairment annually when the asset is not yet available circumstances, the GST is recognised as part of the cost for use or more frequently when an indication of of acquisition of the asset or as part of the expense. impairment arises during the reporting period. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or Integrated Research and its controlled entities I Annual Report 2010 55 Notes to the Financial Statements page 49-81 Significant accounting policies (continued) Share based payment transactions The consolidated entity measures the cost of equity- settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a binomial option pricing model and applying management determined probability factors relating to non-market vesting conditions. Receivables The consolidated entity assesses impairment of receivables based upon assessment of objective evidence for significant receivables and by placing non significant The information reported to the CODM (being the Chief Executive Officer) for the purposes of resource allocation and assessment of performance is focused on geographical performance. The principal geographical regions are 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 and Corporate Australia - includes revenue and expenses for research and development and corporate head office functions of the company. Inter-segment pricing is determined on an arm’s length basis. receivables in portfolios of similar risk profiles, based on Segment profit represents the profit earned by each objective evidence from historical experience adjusted for any effects of conditions existing at each reporting segment without allocation of investment revenue and income tax expense. This is the measure reported to date. This assessment includes judgements and estimates the CODM for the purposes of resource allocation and of future outcomes the actual results of which may differ assessment of segment performance. from the estimates at the reporting date. Note 2: Segment Reporting The Group has adopted AASB 8 Operating Segments and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 8 with effect from 1 Information regarding these segments is presented below. Amounts reported for the prior period have been restated to conform to the requirements of AASB 8. The accounting policies of the reportable segments are the same as the Group’s accounting policies. July 2008. AASB 8 requires operating segments to The directors have elected under Section 334(5) of the be identified on the basis of internal reports about Corporations Act 2001 to apply “AASB2009-5 Further components of the Group that are regularly reviewed Amendments to Australian Accounting Standards arising by the chief operating decision maker (CODM) in from the Annual Improvements Project” in advance of order to allocate resources to the segment and to its effective date. The effect of this amendment is that assess its performance. In contrast, the predecessor entities are not required to disclose information regarding Standard (AASB 114 Segment Reporting) required an segment assets and liabilities where that information is entity to identify two sets of segments (business and not reported to the CODM. geographical), using a risks and rewards approach, with the entity’s system of internal financial reporting to key management personnel serving only as the starting point for the identification of such segments. 56 Annual Report 2010 I Integrated Research and its controlled entities Segment Reporting (continued) Americas Europe Asia Pacific Corporate Australia* Eliminations Consolidated 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 22,482 26,988 5,198 7,276 7,955 7,317 1,668 1,103 - - 37,303 42,684 - - - - - - 18,503 19,659 (18,503) (19,659) - - 22,482 26,988 5,198 7,276 7,955 7,317 20,171 20,762 (18,503) (19,659) 37,303 42,684 806 829 116 201 1,179 687 3,604 7,649 - - 5,705 9,366 37,303 42,684 5,705 9,366 341 454 (645) (1,957) 5,401 7,863 958 525 6,770 5,683 870 435 6,672 5,589 - - - - 17,627 17,272 (54) (54) 20,095 17,895 73 52 15 38 61 56 37 38 2,417 540 105 137 - - - - - - In thousands of AUD Sales to customers outside the consolidated entity Inter- segment sales Total segment revenue Total revenue Segment results Results from operating activities Financing income Income tax expense Profit for the year Capital additions** Depreciation and amortisation expenditure Non-current assets In thousands of local currency*** Sales to customers outside the consolidated entity Inter-segment sales Total segment revenue Segment results Americas (USD) Europe (UK Sterling) 2010 19,719 - 19,719 493 2009 19,710 - 19,710 494 2010 2,871 - 2,871 75 2009 3,321 - 3,321 83 * Corporate Australia includes both the research and development and corporate head office functions of the Company. ** Excludes internal development costs capitalised but includes third party assets acquired. *** Segment results represented in local currencies as reviewed by the Chief Operating Decision Maker Integrated Research and its controlled entities I Annual Report 2010 57 Notes to the Financial Statements page 49-81 Note 3. Finance income In thousands of AUD Interest income Note 4. Expenses Total expenses include: In thousands of AUD Depreciation and amortisation Bad and doubtful debt expense Operating lease rental expenses Note 5. Auditors’ remuneration Consolidated 2010 341 2009 454 Consolidated 2010 6,770 129 1,343 2009 5,683 78 1,266 2010 and 2009 – Deloitte Touche Tohmatsu In AUD Consolidated 2010 2009 Remuneration for audit and review of the financial reports of the Company or any entity in the consolidated entity: Audit and review of financial reports: Auditors of the company Other auditors 139,913 20,804 126,796 23,333 Remuneration for other services by the auditors of the Company or any entity in the consolidated entity: Taxation services: Auditors of the company Other auditors Other services: Auditors of the company (sundry accounting advice) 17,405 2,857 3,600 44,604 3,229 10,900 58 Annual Report 2010 I Integrated Research and its controlled entities Note 6. Income tax expense Recognised in profit for the year Consolidated Note 2010 2009 In thousands of AUD Current tax expense: Current year Prior year adjustments Deferred tax expense: 1,356 (273) 1,083 (438) 645 1,743 (140) 1,603 354 1,957 2009 9,820 2,946 177 102 (1,065) (63) (140) 1,957 Origination and reversal of temporary differences 13 Total income tax expense in income statement Numerical reconciliation between income tax expense and profit Consolidated 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 Other Prior year adjustments Income tax expense Note 7. Earnings per share 2010 6,046 1,814 30 58 (979) (5) (273) 645 The calculation of basic and diluted earnings per share at 30 June 2010 was based on the profit attributable to ordinary shareholders of $5,401,000 (2009: $7,863,000); a weighted number of ordinary shares outstanding during the year ended 30 June 2010 of 166,809,097 (2009: 166,778,141); and a weighted number of ordinary shares (diluted) outstanding during the year ended 30 June 2010 of 167,450,698 (2009: 166,938,786), calculated as follows: In thousands of AUD Profit for the year Consolidated 2010 5,401 2009 7,863 Integrated Research and its controlled entities I Annual Report 2010 59 Notes to the Financial Statements page 49-81 Earnings per share (continued) Weighted average number of shares used as the denominator Consolidated (Number) Number for basic earnings per share: Ordinary shares Effect of employee share options on issue Number for diluted earnings per share Basic earnings per share (AUD cents) Diluted earnings per share (AUD cents) Note 8. Cash and cash equivalents In thousands of AUD Cash at bank and on hand Note 9. Trade and other receivables Current In thousands of AUD Trade debtors Less: Allowance for doubtful debts Less: Allowance for returns GST receivable 2010 2009 166,809,097 166,778,141 641,601 160,645 167,450,698 166,938,786 3.24¢ 3.23¢ 4.72¢ 4.71¢ Consolidated 2010 8,396 2009 14,459 Consolidated 2010 15,993 (470) (1,073) 14,450 98 14,548 2009 11,749 (521) (320) 10,908 104 11,012 60 Annual Report 2010 I Integrated Research and its controlled entities Trade and other receivables (continued) Non-current In thousands of AUD Trade debtors Consolidated 2010 1,514 2009 - The credit period on sales ranges from 30 to 90 days although in limited circumstances extended payment terms have been offered. No interest is charged on trade debtors. Ageing of past due but not impaired: In thousands of AUD Past due 90 days Consolidated 2010 3,884 2009 1,523 The movement in the allowance for doubtful debts in respect of trade receivables is detailed below: In thousands of AUD Balance at beginning of year Amounts written off during the year Increase in provision Balance end of year Consolidated 2010 521 (180) 129 470 2009 187 (810) 1,144 521 The consolidated entity has used the following basis to assess the allowance loss for trade receivables and as a result is unable to specifically allocate the allowance to the ageing categories shown above: a general provision based on historical bad debt experience; the general economic conditions; an individual account by account specific risk assessment based on past credit history; and any prior knowledge of debtor insolvency or other credit risk. Included in the consolidated entity’s trade receivable balance are debtors with a carrying amount of $2,341,000 (2009: $682,000) which are past due at the reporting date which the consolidated entity has not provided for as there has been no significant change in credit quality and the consolidated entity believes that the amounts are still considered recoverable. The consolidated entity does not hold any collateral over these balances. Integrated Research and its controlled entities I Annual Report 2010 61 Notes to the Financial Statements page 49-81 Note 10. Other current assets In thousands of AUD Other prepayments Fair value of hedge asset Note 11. Other financial assets In thousands of AUD Deposits Consolidated 2010 608 271 879 2009 887 1,255 2,142 Consolidated 2010 1,818 2009 1,823 Deposits are term deposits which are held to secure a bank guarantee on leased premises and a foreign exchange facility. The carrying amount of other financial assets is a reasonable approximation of their fair value. Note 12. Property, plant and equipment In thousands of AUD Plant and Equipment At cost Accumulated depreciation Leasehold Improvements At cost Accumulated depreciation Total property, plant and equipment At cost Accumulated depreciation Total written down amount Consolidated 2010 4,690 (3,902) 788 2,012 (736) 1,276 6,702 (4,638) 2,064 2009 4,303 (3,448) 855 2,026 (526) 1,500 6,329 (3,974) 2,355 62 Annual Report 2010 I Integrated Research and its controlled entities Property, plant and equipment (continued) In thousands of AUD Plant and Equipment Carrying amount at start of year Additions Effects of foreign currency exchange Depreciation expense Carrying amount at end of year Leasehold Improvements Carrying amount at start of year Additions Effects of foreign currency exchange Depreciation expense Carrying amount at end of year Note 13. Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: Consolidated 2010 855 338 (1) (404) 788 1,500 1 (5) (220) 1,276 2009 687 501 - (333) 855 1,718 - - (218) 1,500 Net 2010 28 2009 34 Consolidated In thousands of AUD Property, plant and equipment Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain Unrealised foreign exchange loss Deferred tax assets/liabilities Set off of deferred tax asset Net deferred tax assets/liabilities Assets Liabilities 2010 2009 2010 2009 28 - 339 510 670 - - 69 1,616 (874) 742 34 - 148 381 351 40 - 29 983 (589) 394 - - 4,185 3,993 (4,185) (3,993) - - - - 162 - 4,347 (874) 3,473 - - - - 398 - 4,391 (589) 3,802 339 510 670 - (162) 69 148 381 351 40 (398) 29 (2,731) (3,408) - - (2,731) (3,408) Integrated Research and its controlled entities I Annual Report 2010 63 Notes to the Financial Statements page 49-81 Deferred tax assets and liabilities (continued) Movement in temporary differences during the year: For year ended 30 June 2010 In thousands of AUD Property, plant and equipment Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain Unrealised foreign exchange loss For year ended 30 June 2009 In thousands of AUD Property, plant and equipment Intangible assets Trade and other payables Employee benefits Provisions Other current liabilities Unrealised foreign exchange gain Unrealised foreign exchange loss Consolidated Balance 1 July 09 Recognised in income Recognised in equity Balance 30 June 10 34 (3,993) 148 381 351 40 (398) 29 (3,408) (6) (192) 191 129 319 (40) (3) 40 438 - - - - - - 239 - 239 28 (4,185) 339 510 670 - (162) 69 (2,731) Consolidated Balance 1 July 08 Recognised in income Recognised in equity Balance 30 June 09 50 (3,754) 67 372 281 27 - 100 (2,857) (16) (239) 81 9 70 13 (201) (71) (354) - - - - - - (197) - (197) 34 (3,993) 148 381 351 40 (398) 29 (3,408) Note 14. Intangible assets The amortisation is recognised in the following line item in the statement of comprehensive income: In thousands of AUD Research and development expenses Consolidated 2010 6,146 2009 5,132 64 Annual Report 2010 I Integrated Research and its controlled entities Intangible assets (continued) Cost In thousands of AUD Balance at 1 July 2008 Internally developed Acquired Balance at 30 June 2009 Balance at 1 July 2009 Fully amortised & offset Effects of foreign currency exchange Internally developed Acquired Balance at 30 June 2010 Amortisation In thousands of AUD Balance at 1 July 2008 Amortisation for year Balance at 30 June 2009 Balance at 1 July 2009 Fully amortised & offset Effects of foreign currency exchange Amortisation for year Balance at 30 June 2010 Consolidated Software development Patents & trade-marks Third party software 26,618 5,790 - 32,408 32,408 (10,539) - 5,932 392 28,193 33 - - 33 33 (33) - - - - 1,101 - 24 1,125 1,125 - (21) - 447 1,551 Consolidated Software development Patents & trade-marks Third party software 14,201 5,033 19,234 19,234 (10,539) - 5,989 14,684 33 - 33 33 (33) - - - 877 99 976 976 - (30) 157 1,103 Total 27,752 5,790 24 33,566 33,566 (10,572) (21) 5,932 839 29,744 Total 15,111 5,132 20,243 20,243 (10,572) (30) 6,146 15,787 Carrying amounts In thousands of AUD Balance at 30 June 2009 Balance at 30 June 2010 Consolidated Software development Patents & trade-marks Third party software 13,174 13,509 - - 149 448 Total 13,323 13,957 Integrated Research and its controlled entities I Annual Report 2010 65 Notes to the Financial Statements page 49-81 Note 15. Trade and other payables In thousands of AUD Trade and other creditors The average credit period on trade and other payables is 30 days. Note 16. Employee benefits Current In thousands of AUD Liability for annual leave Liability for long service leave Non-current In thousands of AUD Liability for long service leave Pension plans Consolidated 2010 3,088 2009 2,913 Consolidated 2010 1,168 277 1,445 Consolidated 2010 171 2009 1,002 130 1,132 2009 255 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. 66 Annual Report 2010 I Integrated Research and its controlled entities Employee benefits (continued) The terms and conditions of the grants made and number outstanding at 30 June 2010 are as follows: All options 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 Grant date Exercise Price Sep 2005 May 2006 Jan 2007 (*) Jun 2007 Sep 2007 (*) $0.54 $0.41 $0.50 $0.48 $0.42 Number of Instruments Outstanding 400,000 482,000 160,000 648,000 1,000,000 Grant date Exercise Price Mar 2008 (*) Apr 2008 (*) Jul 2008 (*) Oct 2008 (*) May 2009 $0.38 $0.38 $0.35 $0.31 $0.28 Number of Instruments Outstanding 350,000 300,000 200,000 340,000 1,540,000 The number and weighted average exercise prices of share options is as follows: In thousands of options Outstanding at the beginning of the year Forfeited during the year Exercised during the year Granted during the year Outstanding at the end of the year Exercisable at the end of the year (vested) Weighted Average exercise price 2010 Number of options 2010 Weighted Average exercise price 2009 Number of options 2009 $0.40 $0.47 $0.39 $- $0.38 $0.45 6,996 (1,541) (35) - 5,420 1,986 $0.44 $0.41 $0.23 $0.29 $0.40 $0.47 6,376 (1,523) (57) 2,200 6,996 2,082 The options outstanding at 30 June 2010 have a weighted average exercise price of $0.38 and a weighted average of contractual life of five years. During the year ended 30 June 2010, 35,000 options were exercised (2009: 57,250). 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. Integrated Research and its controlled entities I Annual Report 2010 67 Notes to the Financial Statements page 49-81 Employee benefits (continued) There were no options granted during the 2010 financial year. The fair value of options granted and assumptions for the 2009 financial year are disclosed as follows: Fair value of share options and assumptions For year ended 30 June 2009 Grant date Fair value at measurement date Share price Exercise price Expected volatility (expressed as weighted average volatility used in the modelling under the Binomial formula) 18 Jul 08 16 Oct 08 5 May 09 $0.15 $0.35 $0.35 63% $0.13 $0.31 $0.31 63% $0.12 $0.28 $0.28 63% Option life (expressed as weighted average life used in the modelling under the Binomial formula) 5 years 5 years 5 years Expected dividends Risk-free interest rate (based on national government bonds) 5% 5.3% 5% 5.3% 5% 5.3% 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. During the year ended 30 June 2010, the consolidated entity recognised expense of $60,000 related to the fair value of options granted (2009: $284,000). Note 17. Provisions Current In thousands of AUD Employee benefits Consolidated Note 16 2010 1,445 2009 1,132 68 Annual Report 2010 I Integrated Research and its controlled entities Provisions (continued) Non-current In thousands of AUD Employee benefits Lease make good Other Note 18. Other liabilities Current In thousands of AUD Fair value of hedge liabilities Deferred revenue Non-current In thousands of AUD Deferred revenue Note 19. Capital and reserves Share capital In thousands of shares On issue 1 July Issued against employee options exercised under ESOP On issue 30 June Consolidated Note 16 2010 171 384 - 555 2009 255 360 20 635 Consolidated 2010 232 10,383 10,615 2009 - 10,740 10,740 Consolidated 2010 365 2009 723 Consolidated 2010 166,792 35 166,827 2009 166,735 57 166,792 Integrated Research and its controlled entities I Annual Report 2010 69 Notes to the Financial Statements page 49-81 Capital and reserves (continued) 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. 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 Consolidated Entity’s net investment in a foreign subsidiary. Employee benefit reserve The employee benefit reserve arises on the grant of share options to employees under the consolidated entity’s Employee Share Option Plan. Amounts are transferred out of the reserve and into share capital when the options are exercised. Refer to note 16 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 2010 Final 2009 Interim 2010 Special 2010 Total amount 2009 Final 2008 Interim 2009 Total amount 2.5 1.5 0.5 1.5 1.5 4,170 2,502 834 7,506 2,501 2,502 5,003 5% franked 8% franked Unfranked 18 Sep 09 12 Mar 10 12 Mar 10 Unfranked Unfranked 12 Sep 08 9 Mar 09 70 Annual Report 2010 I Integrated Research and its controlled entities Capital and reserves (continued) After the end of the financial year, 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 dividend has not been brought to account in the financial statements for the year ended 30 June 2010 and will be recognised in subsequent financial statements: In thousands of AUD Final 2010 Cents per share 1.0 Total amount Franked/ unfranked 1,668 45% franked Date of payment 17 Sep 10 The final dividend declared of 1.0 cent together with the interim and special dividends paid in March 2010 of 1.5 cents and 0.5 cents respectively takes total dividends for the 2010 financial year to 3.0 cents. Franking account disclosure: In thousands of AUD Adjusted franking account balance Impact on franking account balance of dividends not recognised Income tax consequence of unrecognised dividends Company 2010 375 (322) - 2009 184 (89) - Note 20. Financial instruments Capital risk management The consolidated entity manages its capital to ensure that controlled entities will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of treasury management. The capital structure of the consolidated entity consists of cash and cash equivalents and equity attributable to equity holders of the company, comprising issued capital, reserves, and retained earnings as disclosed in Notes 8 and 19 respectively. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in Note 1 to the financial statements. Financial risk management objectives The Board of Directors has overall responsibility for the establishment and oversight of the consolidated entity’s financial management framework. The Board has an established Audit and Risk Committee, which is responsible for developing and monitoring the consolidated entity’s financial management policies. The Committee provides regular reports to the Board of Directors on its activities. Integrated Research and its controlled entities I Annual Report 2010 71 Notes to the Financial Statements page 49-81 Financial instruments (continued) The Audit and Risk Committee oversees how Management monitors compliance with risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks. The main risks arising from the consolidated entity’s financial instruments are currency risk, credit risk, liquidity risk and cash flow interest rate risk. The consolidated entity seeks to minimise the effects of these risks, where deemed appropriate, by using derivative financial instruments to hedge these risk exposures. The use of financial derivatives is governed by the consolidated entity’s policies on foreign exchange risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. The consolidated entity does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. Market risk The consolidated entity’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and cash flow interest rate risks. The consolidated entity enters into foreign exchange forward contracts to hedge the exchange rate risk arising from transactions not recorded in an entity’s functional currency. Foreign currency risk management The consolidated entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts. The carrying amount of the consolidated entity’s foreign currency denominated monetary assets and monetary liabilities at the reporting date that are denominated in a currency that is different to the functional currency of the respective entities undertaking the transactions is as follows: Consolidated Liabilities Assets In thousands of AUD 2010 2009 US Dollar Euro UK Sterling - - - - - - 2010 3,119 1,200 10 2009 1,388 720 61 72 Annual Report 2010 I Integrated Research and its controlled entities Financial instruments (continued) (i) Foreign currency sensitivity At 30 June 2010, if the US Dollar, Euro and UK sterling weakened against the Australian dollar by the percentage shown, with all other variables held constant, net profit for the year would increase (decrease) by: In thousands of AUD Net profit Retained earnings Change in currency (i) – 10% decrease Consolidated US Impact Euro Impact Sterling Impact 2010 346 346 2009 154 154 2010 133 133 2009 2010 2009 80 80 1 1 7 7 (i) This has been based on the change in the exchange rate against the Australian dollar in the financial years ended 30 June 2010 and 30 June 2009. The sensitivity analysis has been based on the sensitivity rates used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates based on historical volatility. In management’s opinion, the sensitivity analysis is not fully representative of the inherent foreign exchange risk as the year end exposure does not necessarily reflect the exposure during the course of the year. The consolidated entity includes certain subsidiaries whose functional currencies are different to the consolidated entity presentation currency. The main operating entities outside of Australia are based in the United States and the United Kingdom. As stated in the consolidated entity’s accounting policies per Note 1, on consolidation the assets and liabilities of these entities are translated into Australian dollars at exchange rates prevailing on the year end date. The income and expenses of these entities is translated at the average exchange rates for the year. Exchange differences arising are classified as equity and are transferred to a foreign exchange translation reserve. The consolidated entity’s future reported profits could therefore be impacted by changes in rates of exchange between either the Australian Dollar and the United States Dollar, or the Australian Dollar and the UK Sterling. Forward foreign exchange contracts 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 United States Dollar, UK Sterling and Euros. The consolidated entity uses forward exchange contracts to hedge its foreign currency risk. The forward exchange contracts have maturities of less than two years after the year end date. The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and measures them at fair value. The following table details the forward foreign currency contracts outstanding as at reporting date: Integrated Research and its controlled entities I Annual Report 2010 73 Notes to the Financial Statements page 49-81 Financial instruments (continued) Outstanding contracts Consolidated Sell US Dollar Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months 12 to 15 months Sell UK Sterling Average exchange rate 2010 2009 Foreign Currency Contract Value Fair Value 2010 FC’000 2009 FC’000 2010 A$’000 2009 A$’000 2010 A$’000 2009 A$’000 0.82 0.88 0.86 0.85 0.80 0.64 0.72 0.72 0.71 0.71 3,700 1,625 1,000 1,500 1,000 1,675 1,600 2,050 750 250 4,455 1,856 1,166 1,758 1,244 2,622 2,230 2,830 1,058 354 Less than 3 months 0.54 0.40 35 100 64 254 Sell Euros Less than 3 months 3 to 6 months 6 to 9 months 9 to 12 months 0.60 0.59 0.60 - 0.56 0.55 0.55 0.55 430 80 100 - 50 100 100 100 716 135 168 - 90 181 182 182 84 (83) (39) (64) 8 2 95 17 19 - 39 549 238 260 110 36 47 2 5 4 4 1,255 These hedge assets are classified as a level 2 fair value measurement, being derived from inputs rather than quoted prices that are observable for the asset either directly (ie as prices) or indirectly (ie derived from prices). Interest rate risk management The consolidated entity is exposed to interest rate risk on the cash held in bank deposits. Cash in bank and term deposits of $7.1 million were held by the consolidated entity at the reporting date, attracting an average interest rate of 4.6% (2009: 3%). If interest rates had been 50 basis points higher or lower and all other variables were held constant, the consolidated entity’s net profit would increase by $35,000 (2009: $57,000). Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral where appropriate, as a means of mitigating the risk of financial loss from defaults. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts. 74 Annual Report 2010 I Integrated Research and its controlled entities Financial instruments (continued) The consolidated entity does not have any significant credit risk exposure to any single counterparty or any consolidated entity of counterparties having similar characteristics. The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, who have built an appropriate liquidity risk management framework for the management of the consolidated entity’s short, medium and long-term funding and liquidity management requirements. The consolidated entity manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. All creditor and other payables shown in note 15 for both 2010 and 2009 carry no interest obligation and have a maturity of less than three months. Fair value of financial instruments The carrying value of financial assets and financial liabilities of the consolidated entity is a reasonable approximation of their fair value. Note 21. Operating leases Non-cancellable operating lease rentals is for office space with payables as follows: In thousands of AUD Less than one year Between one and five years Greater than five years Note 22. Consolidated entities Parent entity: Integrated Research Limited Subsidiaries: Integrated Research, Inc Integrated Research UK Limited Consolidated 2010 1,040 2,213 - 3,253 2009 1,136 2,406 - 3,542 Country of incorporation Ownership interest 2010 2009 Australia USA UK 100% 100% 100% 100% Integrated Research and its controlled entities I Annual Report 2010 75 Notes to the Financial Statements page 49-81 Note 23. Reconciliation of cash flows from operating activities In thousands of AUD Profit for the year Depreciation and amortisation Provision for doubtful debts Allowance for returns 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 Consolidated 2010 5,401 6,770 (51) 753 (341) - 359 (5,752) (348) 2,615 (48) (482) 211 (329) 233 (652) 8,339 2009 7,863 5,683 334 (13) (454) - (729) (1,172) (110) (1,959) 465 2,170 - 661 114 581 13,434 Note 24. 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: Directors Other key management personnel Steve Killelea – Chairman Peter Adams – Chief Financial Officer Mark Brayan – Chief Executive Officer Alex Baburin – General Manager, Research & Development Alan Baxter John Brown Kate Costello Geoff Bryant – Vice President Consulting Andre Cuenin – Global Head Of Sales Rick Ferguson – Vice President Asia Pacific Clyde McConaghy David Leighton – Company Secretary Pierre Semaan – General Manager, Product Management & Marketing David Stark – Vice President Europe (resigned Nov 2009) 76 Annual Report 2010 I Integrated Research and its controlled entities Key management personnel disclosures (continued) Key management personnel compensation The key management personnel compensation are as follows: In AUD Short-term benefits Post-employment benefits Equity compensation benefits Consolidated 2010 2009 2,757,482 2,563,785 141,197 (74,688) 192,233 176,491 2,823,991 2,932,509 Individual directors and executives compensation disclosures Information regarding individual directors and executives compensation is provided in the remuneration report on pages 29 to 36. Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year-end. Key management personnel transactions with the consolidated entity 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 between one to three 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 or an amount for redundancy equal to the scale of payments prescribed in the NSW Employment Protection Act. Information regarding individual key management personnel’s service contracts is provided in the remuneration report on pages 29 to 36. 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). Integrated Research and its controlled entities I Annual Report 2010 77 Notes to the Financial Statements page 49-81 Key management personnel disclosures (continued) Options and rights over equity instruments granted as compensation The movement during the reporting year 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: Current Year Granted as compensation Exer- cised Other changes* Held at 1 July 2009 Held at 30 June 2010 Vested during the year - - - - - - - - - - - - - - - - - - - - (350,000) 1,000,000 350,000 200,000 300,000 300,000 200,000 - - - - - - - - Vested and exercisable at 30 June 2010 250,000 - - - - - - Directors Mark Brayan 1,000,000 Executives Peter Adams Alex Baburin Andre Cuenin Rick Ferguson Pierre Semaan David Stark Prior Year 350,000 200,000 300,000 300,000 200,000 350,000 Held at 1 July 2008 Granted as compensation Exer- cised Other changes* Directors Mark Brayan 1,000,000 Executives Peter Adams Alex Baburin Andre Cuenin 350,000 160,000 - Rick Ferguson 300,000 Kurt Roscow 300,000 - - 40,000 300,000 - - Pierre Semaan - 200,000 David Stark 350,000 - - - - - - - - - - - - - - (300,000) - - Held at 30 June 2009 Vested during the year Vested and exercisable at 30 June 2009 1,000,000 250,000 250,000 350,000 200,000 300,000 300,000 - 200,000 350,000 - - - - - - - - - - - - - - * Other changes represent options that expired or were forfeited during the year There were no options granted as compensation during the current year. 78 Annual Report 2010 I Integrated Research and its controlled entities Key management personnel disclosures (continued) 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 no shares were issued or granted as compensation. 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: Current Year Held at 1 July 2009 Purchases Received on exercise of options Received as compensa- tion Sales Held at 30 June 2010 Directors Non-executive John Brown 50,000 51,000 Kate Costello 200,000 Steve Killelea 94,834,951 Executive Mark Brayan 25,000 - - - - - - - - - - - - - - - 101,000 200,000 94,834,951 25,000 Prior Year Held at 1 July 2008 Purchases Received on exercise of options Received as compensa- tion Sales Held at 30 June 2009 Directors Non-executive David Boyles** 1,700,000 John Brown Kate Costello Steve Killelea Executive Mark Brayan 50,000 200,000 94,834,951 25,000 ** - resigned November 2008 - - - - - - - - - - - - - - - - - - - - 1,700,000 50,000 200,000 94,834,951 25,000 Shareholdings at the date of the Directors’ Report for existing Key Management Personnel remain unchanged. Integrated Research and its controlled entities I Annual Report 2010 79 Notes to the Financial Statements page 49-81 Key management personnel disclosures (continued) Other transactions with the consolidated entity There were no other transactions between the key management personnel, or their personally-related entities, and the consolidated entity. Note 25. Related parties The consolidated entity has a related party relationship with its key management personnel (see note 24). At 30 June 2010 Mr Steve Killelea, the Chairman of the Company, owned either directly or indirectly 56.85% of the Company (2009: 56.86%). Note 26. Parent entity disclosures Financial Position In thousands of AUD Assets Current assets Non-current assets Total Assets Liabilities Current Liabilities Non-current liabilities Total Liabilities Net Assets Equity Issued Capital Employee benefits Reserve Hedging reserve Retained Earnings Total Equity Parent Entity 2010 2009 18,463 17,626 36,089 10,058 4,073 14,131 21,958 835 544 (98) 20,677 21,958 22,091 17,272 39,363 9,705 4,505 14,210 25,153 816 649 460 23,228 25,153 80 Annual Report 2010 I Integrated Research and its controlled entities Note 26. Parent entity disclosures (continued) Financial Performance In thousands of AUD Profit for the year Other comprehensive income Total comprehensive income Parent Entity 2010 4,798 (558) 4,240 2009 7,377 460 7,837 Note 27. Contingent liabilities Integrated Research Inc (the group’s USA based subsidiary) is subject to a tax audit by the United States Internal Revenue Service (IRS). The audit covers the financial years ending 30 June 2007, 30 June 2008 and 30 June 2009. The company is in the process of responding to issues raised by the IRS relating to its US withholding tax obligations. The Board of Directors has received advice from its US subsidiary tax advisors confirming their position that Integrated Research Inc has complied with its US withholding tax obligations. Note 28. Subsequent events For dividends declared after 30 June 2010 see Note 19 in the financial statements. The financial effect of dividends declared and paid after 30 June 2010 have not been brought to account in the financial statements for the year ended 30 June 2010 and will be recognised in subsequent financial reports. 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, which is 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. Integrated Research and its controlled entities I Annual Report 2010 81 Directors’ declaration The directors declare that: (a) in the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; (b) the financial statements are in compliance with International Financial Reporting Standards, as stated in note 1 to the financial statements; (c) in the directors’ opinion, the financial statements and notes thereto are in accordance with the Corporations Act 2001, including compliance with accounting standards and giving a true and fair view of the financial position and performance of the consolidated entity; and (d) the directors have been given the declarations required by Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the directors made pursuant to Section 295(5) of the Corporations Act 2001. Dated at North Sydney this 16th day of August 2010. Steve Killelea Chairman Mark Brayan Chief Executive Officer 82 Annual Report 2010 I Integrated Research and its controlled entities Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1219 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au Independent Auditor’s Report to the Members of Integrated Research Limited Report on the Financial Report We have audited the accompanying financial report of Integrated Research Limited, which comprises the consolidated statement of financial position as at 30 June 2010, and the consolidated statement of comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year as set out on pages 45 to 82. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to Liability limited by a scheme under Professional Standards Legislation Integrated Research and its controlled entities I Annual Report 2010 83 Independent Audit Report page 83-84 design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s Opinion In our opinion: (a) the financial report of Integrated Research Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 29 to 36 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s Opinion In our opinion the Remuneration Report of Integrated Research Limited for the year ended 30 June 2010, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Michael Kaplan Partner Chartered Accountants Sydney, 16 August 2010 84 Annual Report 2010 I Integrated Research and its controlled entities Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1219 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au The Board of Directors Integrated Research Limited Level 9, 100 Pacific Highway, NORTH SYDNEY, NSW, 2000 16 August 2010 Dear Board Members Auditor’s Independence Declaration to Integrated Research Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Integrated Research Limited. As lead audit partner for the audit of the financial statements of Integrated Research Limited for the financial year ended 30 June 2010, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Michael Kaplan Partner Chartered Accountants Liability limited by a scheme under Professional Standards Legislation Integrated Research and its controlled entities I Annual Report 2010 85 ASX Additional Information Shareholder information Analysis of numbers of equity security holders by size of holding at 31 August 2010: 1 1,001 5,001 10,001 - - - - 1,000 5,000 10,000 100,000 100,001 and over Class of equity security Ordinary shares Shares 102 888 522 921 79 2,512 Options - 1 14 67 7 89 86 Annual Report 2010 I Integrated Research and its controlled entities Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities as at 31 August 2010 are listed below: Ordinary Shares Number held Percentage of issued shares 1 2 3 4 5 6 7 8 9 10 11 12 13 Stephen John Killelea Andrew Rhys Rutherford B&R James Investments Pty Limited JP Morgan Nominees Australia Limited National Australia Trustees Limited David Leroy Boyles Spectrok Pty Ltd Ralph Chiarella Forbar Custodians Limited Custodial Services Limited Citicorp Nominees Pty Ltd Five Talents Limited Howard Securities Pty Ltd 14 Mr Philip Julian Eriksen + Mr Julian Hans Eriksen 15 Bell Potter Nominees Ltd 16 Mr Kevin John Cairns 17 Mr Rodney Walter Ross 18 Fergfam Nominees Pty Ltd 19 Mr Richard Ewan Bromley Mews + Mrs Wee Khoon Mews 94,497,339 5,426,589 3,000,000 2,778,268 2,517,735 2,000,000 1,270,472 932,000 893,368 822,550 770,800 655,000 600,000 563,155 532,000 400,000 385,000 375,263 363,460 20 Mr Brenton Alan Scott + Ms Eleanor Joy Nurton 350,000 56.64 3.25 1.80 1.67 1.51 1.20 0.76 0.56 0.54 0.49 0.46 0.39 0.36 0.34 0.32 0.24 0.23 0.22 0.22 0.21 Integrated Research and its controlled entities I Annual Report 2010 87 ASX Additional Information page 86-88 Unquoted equity securities Number on issue * Number of holders Options issued under the Integrated Research Limited Employee Option Plan to take up ordinary shares 5,415,000 89 *Number of unissued ordinary shares under the options. No person holds 20% or more of these securities. 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 56.64 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. 88 Annual Report 2010 I Integrated Research and its controlled entities Corporate Directory Directors Secretary Registered Office Share Registry Auditors Solicitors Steve Killelea Chairman and Non-Executive Director Mark Brayan Managing Director and CEO Alan Baxter Independent Non-Executive Director John Brown Independent Non-Executive Director Kate Costello Independent Non-Executive Director Peter Lloyd Independent Non-Executive Director Clyde McConaghy Non-Executive Director David Leighton Level 9, 100 Pacific Highway North Sydney, NSW, 2060 Phone: (+61 2) 9966 1066 Computershare Deloitte Touche Tohmatsu 225 George Street Sydney, NSW, 2000 Blake Dawson Level 36, Grosvenor Place 225 George Street Sydney, NSW, 2000 Bankers Westpac Banking Corporation Securites Exchange Listing Australian Securities Exchange Code IRI Country of Incorporation Integrated Research Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares. Notice of Annual General Meeting The Annual General Meeting of Integrated Research Limited will be held at 3:00pm on Friday, 26th November 2010, at the Museum of Sydney, Corner of Phillip and Bridge Streets, Sydney. Corporate Headquarters Asia Pacific/Middle East/Africa Integrated Research Ltd Level 9, 100 Pacific Hwy North Sydney NSW 2060 Australia t: +61 (2) 9966 1066 f: +61 (2) 9966 1042 e: info.ap@ir.com Americas - West Coast Integrated Research Inc. 8055 East Tufts Avenue, Suite 950 Denver, CO 80237 t: +1 (303) 390 8700 f: +1 (303) 390 8777 e: info.usa@ir.com Americas - East Coast Integrated Research Inc. 1818 Library Street Suite 500 Reston, VA 20190 t: +1 (703) 956 3025 f: +1 (703) 390 8777 e: info.usa@ir.com Europe Integrated Research UK Ltd Orchard Lea, Winkfield Lane Windsor Berkshire SL4 4RU t: +44 (0) 1344 894 200 f: +44 (0) 1344 890 851 e: info.europe@ir.com For more information visit our website at www.ir.com
Continue reading text version or see original annual report in PDF format above