Reckon Limited
Annual Report 2010

Plain-text annual report

2010 annual RepoRt Reckon Limited Annual Report ABN 14 003 348 730 for the Financial Year Ended 31 December 2010 Contents Our results at a glance Message to shareholders from the Chairman and the Group CEO Directors’ Report Remuneration Report Corporate Governance Report Auditor’s Independence Declaration Auditor’s Report Financial Report Directors’ Declaration Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Additional Information 2 3 6 10 17 21 22 24 24 25 26 27 28 29 63 Our results at a glance Revenue Operating revenue was up 6% to $90.1 million from $85.3 million $m % Growth EBITDA Group EBITDA was up 20% to $30.2 million from $25.1 million. $m % Growth 90 80 70 60 50 40 30 20 10 - 35 30 25 20 15 10 5 - 2005 2006 2007 2008 2009 2010 85.3 90.1 8% 23% 8% 42% 6% 25.1 30.2 29% 26% 15% 32% 20% 20 16 12 8 4 - 17.8 22.4 19% 21% 14% 18% 26% NPBT Group NPBT was up 26% to $22.4 million from $17.8 million. 22.4 $m % Growth 2 Message to shareholders from the Chairman and Group CEO Overview It is with great pleasure that we present the results for Reckon Limited for the year ended 31 December 2010. We are pleased to report that 2010 was again a successful year for the Company and we have a clear vision for 2011 and beyond. The table below sets out the key indicators for 2010 compared to 2009. 2010 $90.1 million $30.2 million $17.2 million 12.4 cents 2009 $85.3 million $25.1 million $13.6 million 9.9 cents % Change 6% up 20% up 27% up 25% up Operating Revenue EBITDA NPAT EPS Dividend On 8 February 2011, the Board declared a final dividend of 4.5 cents per share, compared with 4 cents per share in 2009. The dividend was 90% franked. The interim dividend announced on 10 August 2010 was 3.5 cents per share franked to 90%. Operations The Reckon Group operations are currently divided into three main divisions: Professional, Business and nQueue Billback. Each of these divisions has contributed to the strong results in 2010. The table below sets out the performance of each division compared to 2009. Operating Revenue Professional Division $26.8 million Business Division $56.0 million nQueue Billback Division $7.3 million % change on 2009 Revenue 5% down 12% up 1% down EBITDA % change on 2009 EBITDA $10.8 million 2% down $20.7 million $3.1 million 32% up 41% up Overall, operating revenue for the Reckon Group rose by 6% to $90.1 million in 2010. The Group NPAT increased to $17.2 million (up 27%) and the Group EBITDA grew to $30.2 million (up 20%). Reckon’s Business Division performed particularly well with overall revenue growth of 12%. In 2010, retail sales rose 32%, direct sales lifted 11% and corporate services grew by 7%. These positive results translated into an EBITDA increase of 32%. The Professional Division results were impacted adverse the foreign exchange rate changes in 2010. The division ended the year with revenue down 5% and an EBITDA decrease of 2%. We do note, that without a negative foreign exchange impact, the EBITDA would in fact have been up by 2%. nQueue Billback Division revenue was down 1%, however without the adverse foreign exchange impact it would have been up 15%. EBITDA grew 41% as a result of the merging of the nQueue and BillBack businesses. 3 Message to shareholders from the Chairman and Group CEO continued Business Division Professional Division One of the growth areas for the Business Division in 2010 was in the take up of online accounting software. QuickBooks, hosted by Reckon Online, has now attracted over 8,000 users. The familiarity and popularity of the QuickBooks product, combined with anytime, anywhere access is expected to attract many more users in 2011 and beyond. The licence agreement between Reckon and Intuit for the exclusive distribution of QuickBooks and Quicken products in Australia and New Zealand was updated at the end of 2010. We are pleased to maintain an excellent relationship with the leading accounting software house, and to have updated the agreement which has a continuing term of five years, followed by a three year rolling renewal periods. The agreement includes terms that guarantee Reckon’s access to the source code well beyond any date that the licence may be terminated. Highlights for the division in 2010 included the release of QuickBooks 2010/11 with a number of enhancements including the well received launch of a company snapshot feature that gives users a quick view of how their business is going. The QuickBooks 2011/12 release will expand this feature to give users greater flexibility over their business snapshot. Reckon Elite, Reckon Docs and Reckon Tools also fall under the Business Division. The 2010 Reckon Elite tax release occurred smoothly and customers continue to rate the product highly. There are plans to expand the Reckon Elite tax software offering into the mid-market space. Reckon Docs is well regarded as a leading corporate services supplier and has continued to attract new customers. Overall the market in Australia for new company formations grew 9%, Reckon Docs increased 11%. We expect to see the Reckon Docs sales grow in 2011 through new online service offerings. Reckon Professional Partnership network continues to grow with membership up 10% indicating strong support from the accounting industry. The Professional Division end-of-year results were impacted by negative foreign exchange effects and weaknesses in the UK economy. However strong new sales in the division were experienced in the fourth quarter of 2010 and we expect to see these delivered early in 2011. APS remains a market leader in the provision of practice management systems for accounting practices. Despite difficult times that have faced the accounting profession as a result of the recent economic downturn, the division continued it's history of new customer acquisitions with 66 new firms added in 2010. Highlights for the division in 2010 included the establishment of alliances with large accounting firms to distribute the QuickBooks software, and a strengthened position as supplier of choice to leading firms. The Professional Division remains focused on top accounting firms and the development of best of breed technology for this segment of the market in Australia, New Zealand and the UK. nQueue Billback Division While the nQueue Billback Division was also impacted by negative foreign exchange impacts, a greater sales focus at the end of 2010 culminated in strong fourth quarter sales that were significantly up on the previous year. Again, these will be delivered in 2011. nQueue Billback now serves 35% of the largest 250 law firms in the United States and 5 of the top 10 firms globally. At the start of 2011 Reckon announced that the BillBack UK team is now managed by the nQueue Billback team, taking advantage of their vast expertise assisting law firms to improve the processing of operational and administrative expenses. This will allow greater cross-sell opportunities, particularly into legal practices which are expanding as a result of global mergers. 4 Message to shareholders from the Chairman and Group CEO continued Future Outlook Partners We would like to acknowledge the support of the Reckon network of partners. We are fortunate to enjoy support from a range of professionals including accountants, bookkeepers and business and IT consultants. We also want to express our thanks to Reckon staff, our customers, our suppliers and our fellow directors who contributed to Reckon’s success in 2010. John Thame Chairman Clive Rabie Group CEO The results from 2010 are a clear indication that the Reckon Group is well placed to tackle 2011. There is a growing demand for online and mobile solutions and we plan to grow the range of these products in both the Business and Professional Divisions. The Business Division will focus on this growing demand for mobile solutions by expanding Reckon’s online offering, including the release of CashBook Online. This new online product will be suitable for small sized businesses. The division will also launch the Reckon GovConnect Activity Statement lodgement application, a feature that will significantly improve how businesses deliver their BAS to the ATO utilising advanced technology. This feature will be available with the QuickBooks 2011/12 release. The Professional Division, while working to address the demand for mobile solutions, will also focus on maintaining and upgrading its existing core product suite. The division has a number of newle developed products in the early stages of rollout to clients. In 2011 the nQueue Billback Division will continue to grow market share and accelerate efforts in new territories, including Europe and Asia. The division will also expand outside the legal market. In 2011 Reckon’s Business and Professional Divisions will merge at the North Sydney Premises enhancing opportunities for cross-selling, efficiencies in product delivery and the further development of integrated products. 5 Clive Rabie Age 51, Group Chief Executive Officer Clive was Chief Operating Officer of Reckon from 2001 until February 2006 and in that time played a pivotal role in its turn-around. In February 2006 Clive was appointed to the position of Group Chief Executive Officer. He has extensive management and operational experience in the IT and retail sectors as both an owner and Director of companies. Myron Zlotnick LLM, GCertAppFin Age 46, General Counsel and Company Secretary Myron Zlotnick has 25 years experience as a legal practitioner, general and corporate counsel, and as a director of companies in the information, communications and technology sector. Myron also assumes responsibility for some aspects of the management and operations of the ReckonDocs and nQueue Billback businesses. He is also a member of the Business Advisory Committee of ASIC’s “Real Economy”. Marianne Kopeinig LLM, GDipApplCorpGov Age 49, Legal Counsel and Assistant Company Secretary Marianne has over 20 years experience as a private practitioner and corporate counsel for private and ASX listed companies and broad industry experience in commercial, risk management and compliance functions. directors' Report The Directors of Reckon Limited submit these financial statements for the financial year ended 31 December 2010 BOARd Of diRECtORs John Thame AAIBF FCPA Age 69, Non-Executive Chairman John Thame has over 35 years’ experience in the retail financial services industry. He was Managing Director of Advance Bank Limited from 1986 until it merged with St George Bank Limited in January 1997 and held a variety of senior positions in his career with Advance. John was Chairman of St George Bank Limited until April 2008 and a member of the St George Bank Limited board until 1 July 2008. He is also Chairman of Abacus Property Trust Group Limited, where he has been a Director since 2002. John was appointed to the Board on 19 July 1999. Ian Ferrier FCA Age 70, Non-Executive Director Ian Ferrier is a Fellow of the Institute of Chartered Accountants in Australia. He has more than 45 years experience in company corporate recovery and turnaround practice. He is also a director of a number of private and public companies. Ian is Chairman of InvoCare Limited, Australian Vintage Limited and Goodman Group Limited. Ian is a director of Energy One Limited. He has significant experience in property and development, tourism, manufacturing, retail, hospitality and hotels, infrastructure and aviation and service industries. Ian joined the Board on 17 August 2004. In January 2008 Ian assumed the Chair of a new accounting practice, Ferrier Green Krejci & Silvia, which after merging with insolvency practice BRI, now trades as BRI Ferrier. Greg Wilkinson Age 55, Founder, Deputy Non-Executive Chairman Greg Wilkinson co-founded Reckon in 1987 and has over 25 years experience in the computer software industry. Greg entered the industry in the early 1980s in London where he managed Caxton Software, which became one of the UK’s leading software publishers. Greg was the Chief Executive Officer until February 2006. He became a member of the Board of the listed entity on 19 July 1999 and was appointed to the position of Deputy Chairman in February 2006. 6 Principal Activities Reckon Limited conducts business predominantly across three following areas: (1) the sales and support of small and enterprise business accounting and personal wealth management software under the QuickBooks and Quicken brands; the sales and support of corporate services such as company incorporations, SMSF documentation and ASIC compliance management under the ReckonDocs brand, (2) the sales and support of accounting practice management and allied software, including the newly acquired modules for revenue and expense management, under the APS brand to larger professional accounting firms, and to smaller professional accounting firms under the Elite brand; (3) supplying software solutions to legal firms in the main areas of revenue management, expense management, print solutions, business process automation, business intelligence, document service automation, and document management. Through strategic acquisition of businesses and technology, Reckon continues to broaden its scope of operations to provide complementary products and services across these business areas. The main products and services are principally organised into three operating units, the Business Division; the Professional Division and nQueue Billback Division. In the Business Division, under the QuickBooks and Quicken brands, Reckon develops, localises, distributes and provides after sales technical support for the accounting software needs of small to medium sized and enterprise businesses and in the personal finance and wealth management sector. In addition, Reckon independently develops and distributes a payroll and point of sale solution. Under the Reckon Tools brand, Reckon develops applications that enhance these products, for example: electronic data interchange (“EDI”) functionality, bill payment solutions, super choice management solutions, on-line backup, and on-line trading. Reckon has also recently developed QuickBooks, hosted by Reckon Online. This offers end users and accountants a convenient secure online version of the QuickBooks application that is accessible from anywhere and that very closely mimics the traditional desktop package. Reckon operates its QuickBooks and Quicken business under an exclusive licence from Intuit Inc. This licence was updated in December 2010 to take account of the parties’ respective online ambitions. Intuit is the leading US-based accounting software house with over 25 million customers worldwide, annual sales of over US$2 billion and a market capitalisation of close to US$10 billion. Intuit’s annual research and development budget exceeds US$300 million. Reckon is able to leverage off this extensive research and development spend without the usual associated development risk. The updated licence from Intuit has an effective continuing term of 5 years plus 3 year renewal periods thereafter. There are also commercial terms that guarantee Reckon’s access to the source code beyond any termination date of the licence. Reckon continues to maintain an excellent working relationship with Intuit Inc. The Reckon Elite business develops and distributes tax return preparation tools, practice management tools and related solutions for accountants and tax agents in public practice. Reckon Elite focuses on sales to smaller accounting firms compared to APS which focuses on the larger firms. Through its New Zealand subsidiary, Reckon distributes QuickBooks and Quicken products as well as IBankData; Intrepid Payroll, Bit Defender and IBackup solutions. ReckonDocs is a corporate services business, part of the Business Division, comprising a services and data business. The ReckonDocs services business comprises the technology and client base for the registration and management of companies and other business structures using the traditional full service method predominantly through an easy to use web based ordering system. This business provides clients with an online company registration service available 24 hours a day, seven days a week. It also provides documentation and services for the establishment of a range of entities, especially trusts for self managed superannuation funds. ReckonDocs also provides services for constitution updates and domain name registrations. The ReckonDocs data business provides comprehensive accredited business name and ASIC information electronically, combined with a highly personalised client relationship. A full range of sophisticated information services to assist customers with the provision of financial, corporate and statutory information is also offered. ReckonDocs also offers a desktop utility called ReckonDocs Desktop (RDD) that is a simple and convenient desktop application for company registration, searches, and ASIC compliance management. The same product has been developed for integration into the Practice Management suite of APS, known as Advance Company Registers (ACR). In the Professional Division, the APS business develops, distributes and supports a suite of solutions for professional service firms in Australia, New Zealand and the United Kingdom. For professional accountants these solutions also include tax and accounts production. APS also delivers a wide range of complementary applications to practice management. 7 Overall growth in revenue was generally good. The Professional Division was slightly behind because of weakness in the United Kingdom, the lag of the global financial crisis as well as adverse foreign exchange impacts. The nQueue Billback Division was also impacted by adverse foreign exchange movements. On the other hand, the Business Division performed well with good growth across the board. Overall strong management of costs also contributed to the strong performance of the Group. Dividends On 8 February 2011, the Board declared a final dividend of 4.5 cents per share (90% franked) payable to shareholders recorded on the Company’s Register as at the record date of 18 February 2011. Reckon does not have a dividend re- investment plan currently in operation. On 10 August 2010, the Board declared an interim dividend of 3.5 cents per share (90% franked) payable to shareholders recorded on the Company’s Register as at the record date of 24 August 2010. Principal Activities continued The APS business continues to be considered a market leader in the provision of its products and services to professional accounting firms. This is reflected in the market share that APS enjoys in all its markets. APS has committed several years of research and development to delivering unique integrated practice software to work off a single platform, collectively offering all its solutions within a suite under the Advance brand. The Advance suite comprises several integrated modules for several business critical functions in professional firms: Practice Management (PM); Reporting (PIQ); Document and E-mail Management (DM); Taxation (Tax); Client Accounting (XPA); Client Relationship Management (CRM); Resource Planning (RP); Superannuation (DS); Corporate Secretarial (ACR) Workpaper Management (WM); and others. The nQueue Billback Division provides software and support services in the revenue management, expense management, print solutions, document service automation, and document management markets. APS is also progressively integrating these solutions into its practice management suite, and conversely. APS is also adapting accounting solutions for sale into the legal professional market. In July 2009, Reckon entered into collaboration with nQueue Inc for a more efficient and competitive means of delivering BillBack products in the USA. In January 2011 Reckon announced that it had repeated the strategy for its United Kingdom operation with a collaborative entity set up to continue tackling that market. The nQueue Billback business assists law firms by enhancing the automation and processing of any operational and administrative expenses, including print, copy, scan, telephone, online searches, emails, court fees, car services, credit card charges, courier costs and more. nQueue Billback’s software offerings can be embedded directly into multi-function devices or reside on tablet computers or terminals to provide clients with the knowledge required to run their businesses more profitably. Review of Operations Overview of financial performance • • • • • • Operating revenue was up 6% to $90.1 million from $85.3 million. Group EBITDA was up 20% to $30.2 million from $25.1 million. Group NPAT was up 27% to $17.2 million from $13.6 million. Basic EPS was up 25% to 12.4 cents per share from 9.9 cents per share. Final dividend of 4.5 cents per share – 90% franked with a full year dividend payout ratio of 65%. Operating cash flow was up 49% to $28.2 million for the year. 8 The Future The Company will continue to pursue its historically well tested strategies of expanding its product offering; pursuing recurring revenue; selling across divisions; maintaining and enhancing relationships with its network of partners, including retailers and professional partners; and striving for operational efficiency. Specifically in the Business Division the Company will focus on expanding online services, including improvements to existing connected services as well as launching a new online CashBook product. There are also opportunities to further leverage off the scalability of the QuickBooks Enterprise version. There are plans to expand the Reckon Elite tax product into the so-called mid-market space. For the ReckonDocs business the Company will continue to attain growth in market share through new service offering as well as by expanding into the client base of the Professional Division with integrated products. In the Professional Division there were signs of improved new business growth in the last quarter of 2010. There is also growing demand for online and mobile solutions and the Company will focus on addressing this demand in addition to maintaining and upgrading its existing core product suite. Fledgling new products for 2011 include: Time and expense capture; Workpaper management; Value/contract billing; Credit management; CRM including event management; Resource and capacity planning; and company secretarial and corporate services. For the nQueue Billback business for 2011 we will accelerate efforts in new territories; target the mid-sized law firm market, including through re-seller relationships with hardware and facility managers; extend our channel relationships; and attempt to expand out of the legal professional market. nQueue Billback enjoyed excellent sales in the last quarter of 2010 and will see a revenue impact of this in 2011. The Group has also been taking steps to consolidate its various development teams and this will continue through 2011 with the intended result being closer co-operation for integrated product development. Finally, the Business Division will move from its Pyrmont premises to North Sydney by mid 2011. This will bring Professional and Business Divisions together with expected synergistic benefits. Significant Changes in State of Affairs There were no significant changes made in 2010. Matters Subsequent to the End of the Financial Year Buyback On 8 February 2011 the company announced a buy-back of shares which under the provisions of the Corporations Act permits the Company to buy back up to 10% of its shares on the open market. It is anticipated to keep the buy back in place until 31 December 2011, subject to the normal ASIC requirements. Dividend A final dividend for 2010 was declared on 8 February 2011 as disclosed above. Litigation On 25 February 2011, the Company settled legal proceedings against Espreon Limited in relation to several claims arising from the share sale agreement entered into on 27 November 2008. An amount of $700,000 was paid by Espreon Limited in full and final settlement of all relevant claims. Other matters Other than as disclosed in this Directors’ Report no other matter or circumstance has arisen since 31 December 2010 that has significantly affected, or may significantly affect: • • • the consolidated entity’s operations in future financial years, or the results of those operations in future financial years, or the consolidated entity’s state of affairs in future financial years Future Developments Other than as outlined above, disclosure of information regarding likely developments in the operations of the consolidated entity in future financial years and the expected results of those operations is likely to result in unreasonable prejudice to the consolidated entity. Accordingly, this information has not been disclosed in this report. Directors’ Shareholdings As at the date of this report, the Directors held shares and options in Reckon Limited as set out in the Remuneration Report immediately below. 9 Remuneration Report Key management The key management personnel include the directors and Group executives who have responsibility for planning, directing and controlling the activities of the Company and the consolidated entity. Key management personnel details are set out on page 12 below. Policy for determining remuneration of key management personnel Policy for determining remuneration of key management personnel, including the directors, Group CEO, Group CFO, Divisional CEOs and other Company officers is the ultimate responsibility of this Remuneration Committee comprising the Chairman of the Board and the other independent non-executive directors. The Chairman of the Remuneration Committee is Ian Ferrier. There is no formal charter for the Remuneration Committee. Policy is set with due consideration for the need to motivate directors and management to pursue the long-term growth and success of the Company as well as to tie remuneration in with performance as contemplated in the ASX Corporate Governance Principles and Recommendations (“ASX Guidelines”). It is the view of the Board that the Company complies with the substance of the aims and aspirations of the ASX Guidelines in the context of the size of the Company, the size of the Board, the size of the senior management team and the size of the business. Policy for determining remuneration of other management personnel has been delegated to the Group CEO, Group CFO and Divisional CEO’s by the Board to be exercised in accordance with the same broad principles as apply for the Group CEO, Group CFO, other Company officers and Divisional CEOs. The Board reviews all remuneration in its consideration of the Company’s annual budget process. The Board, through the Remuneration Committee will consider for approval the levels of remuneration set in the annual budget, taking into account the relevant performance budgeted, as well as compared with historical performance. The policy is to pay the relevant officers and employees’ remuneration consistent with applicable market comparisons suited to the unique features of the Company, the competitive landscape, the scale of the business, the responsibilities of the individual directors and employees, internal relativities and performance. The Board is conscious of the need to attract and retain talent. The remuneration policy takes account of striking the right balance between short term benefits and long term incentives. All remuneration is reviewed annually. Generally increases, if justified, will not exceed comparable market increases. 10 Terms of employment for key management personnel Executive directors and Group executives are all appointed on standard employment terms that are not fixed term contracts. These contracts include a notice period of between 1-3 months to be provided by either the executive or the Company. No contract provides for termination payments except where the employee is to receive payment in lieu of notice. For 2010, remuneration for key management personnel including the Group CEO, Group CFO, other Company officers, Divisional CEOs and other senior executives, comprises a fixed element, a short-term incentive element and a long-term incentive element. Fixed component The fixed component of remuneration is determined in preparing the annual budget for the year and then subjected to the approval of the Board through the Remuneration Committee. Short term incentive payments The short-term incentive component of remuneration is dependent on satisfaction of performance conditions. Each annual budget fixes a pool representing the total potential amount in which the relevant employees can share if the performance conditions are met. There are three weighted elements to the performance conditions, viz: a revenue target, a net profit after tax (NPAT) target, and earnings per share (EPS) target measured against the budgeted performance of the Company. The Board retains a discretion regarding the allocation of the pool between employees as well as regarding weightings. Short term incentives are paid in cash as bonuses usually in February or March of the following year. If the relevant performance targets are exceeded, then the amount of short term incentive can be increased by an amount not exceeding 10% of the total pool. Long term incentive payments The long-term incentive component is the last of the mix of the components comprising remuneration packages. It is aimed at retaining the long term services of the key management personnel to whom it applies and to align their remuneration with the longer term performance of the Company. The substance of the long-term incentive component for key management was approved by Special General Meeting on 20 December 2005. In general terms, the long-term incentive component comprises three possible methods of participation: an option plan, a performance share plan and a share appreciation plan. The Board has discretion to approve the making of offers to applicable employees to participate in any of these plans. Options granted and/or performance shares awarded (all in respect of the Company’s ordinary shares) and/or share appreciation rights do not vest before three years after their grant date. Vesting is also conditional upon the Company achieving defined performance criteria. The performance criteria are based upon a total shareholder return (TSR) target. A TSR is the return to shareholders over a prescribed period, based upon the growth in the Company's share price plus dividends or returns of capital for that period. The Company's TSR target will be the Company achieving a median or higher ranking against the TSR position of individual companies within a 'comparator group' of companies (i.e. a group of comparable ASX listed companies pre-selected by the Board) over the same period. The comparator group (and indeed the entire design of the long term incentive component) was determined after taking advice from independent advisers and was set out in the Chairman’s speech at the Special General Meeting on 20 December 2005. The Board will review the suitability of the comparator group on an ongoing basis. Some of the entities comprising the comparator group have delisted either as part of merger and acquisition activity or for other reasons. This was factored into the calculation of the Company’s performance by the independent valuers who undertook the exercise on behalf of the Company. Where companies were delisted for example, it was assumed that the Company out-performed that company. The comparator group of companies used in the performance period for assessment included (1) Adacel Technologies Limited, (2) Firstfolio Limited (previously listed as AFS), (3) Altium Limited, (4) Amcom Telecommunications Limited, (5) ASG Group Limited, (6) CPT Global Limited, (7) Eftel Limited, (8) Eservglobal Limited, (9) Hansen Technologies Limited, (10) Infomedia Ltd, (11) Integrated Research Limited, (12) Melbourne IT Limited, (13) Lifestyle Communities Limited (previously listed as NMB), (14) MYOB Limited (no longer listed), (15) Newsat Limited, (16) Objective Corporation Limited, (17) Oakton Limited, (18) Powerlan Limited, (19) Queste Communications Limited, (20) Rea Group Ltd, (21) Sirius Corporation Limited, (22) Sonnet Corporation Limited (no longer listed), (23) Asian Pacific Limited (previously listed as TMO, no longer listed), (24) Technology One Limited, (25) Talent2 International Limited, (26) Chariot Limited (no longer listed) and (27) Citect Corporation Limited (no longer listed). Only 50 percent of options or performance shares become exercisable or vest if the initial performance criterion is satisfied. The extent to which the balance of options or performance shares become exercisable or vest will depend on the extent to which the initial performance criterion is exceeded (i.e., the extent to which the Company exceeds a median ranking against the TSR position of the comparator group of companies). The share appreciation right plan represents an alternative remuneration component (to offering options or performance shares) under which the Board can invite relevant employees to apply for a right to receive a cash payment from the Company equal to the amount (if any) by which the market price of the Company's shares at the date of exercise of the right exceeds the market price of the Company's shares at the date of grant of the right. The right may only be exercised if performance criteria are met. The performance criteria are fixed by the Board in the exercise of its discretion. At present these are the same as the TSR target set for the right to exercise options or for performance shares to vest. Balance between salary, short term and long term incentives It is the Board’s opinion that an adequate balance is struck between the three components comprising the relevant remuneration. For short term incentives, the performance targets reflect, in part, the key factors that the Company pursues in measuring its performance: volume of sales; profit generated; and value returned to shareholders in terms of EPS. The targets also represent a measure of an incentive to encourage commitment to the business and to its growth. The audited financial results for the year are used to assess whether the performance conditions are satisfied. Audited results represent an independent accurate method of determining the attainment of the conditions. For long-term incentives, the additional targets comprising TSR reflect a further independent assessment of value to shareholders before the remuneration is earned. As stated above the comparator group to which reference will be had will be subject to review. The Remuneration Committee is satisfied that to date, the remuneration of the relevant employees accords with the general upward trend of the performance of the Company and returns to shareholders, as set out in the table below. The remuneration of these employees also takes into account the imperative to retain their services so as to avoid the business and opportunity costs associated with replacing them as well as the need to be commensurate with market rates. Consequence of performance on shareholder wealth NPAT EPS Dividend Changes in Share Price between the beginning and the end of the year Beginning of January End of December 2006 2007 2008 2009 2010 $’000 8,169 9,893 11,312 13,602 17,248 (cents per share) (cents) 6.2 7.5 8.5 9.9 12.4 4.5 5.5 6.0 7.0 8.0 76 102 139 105 184 102 139 105 184 234 The Company’s Trading Policy prohibits directors, key management personnel and employees from entering into a transaction with securities which limit the economic risk of any unvested entitlements awarded under any Reckon equity-based remuneration scheme. Prior to presenting full-year results Reckon equity plan participants are required to confirm that they have not entered into any transactions which would contravene the Company’s Trading Policy. 11 Remuneration Report continued Remuneration 2010 Fixed Short term Incentive Other component component compensation Long term incentive component Office Salary Bonus1 term benefits2 Superannuation Other short Equity settled Cash settled share based share based payments- payments- Performance shares3 8 Appreciation rights4 6 Total remuneration Directors7 John Thame Chairman, Non- executive Director $95,000 Greg Wilkinson Deputy Chairman, Non-executive Director $82,000 $0 $0 Clive Rabie Ian Ferrier Executives7 Group CEO, Executive Director Non-executive Director $550,000 $180,041 $80,000 $0 Brian Armstrong CEO, Professional Division $370,000 $103,934 Chris Hagglund CFO $335,000 $78,447 $0 $0 $0 $0 $0 $0 $8,550 $7,380 $49,500 $7,200 $0 $0 $0 $0 $0 $0 $103,550 $89,380 $980,269 $1,759,810 $0 $87,200 $33,300 $76,797 $30,150 $68,355 Paul James5 GM, Professional Division Australia $182,358 $40,560 $71,269 $20,123 $6,172 Myron Zlotnick General Counsel & Company Secretary $275,000 $51,440 $179,832 $13,200 $370,000 $87,449 $0 $0 $0 $24,750 $42,070 $9,652 $8,642 $33,300 $76,037 $116,627 $19,608 $28,430 $15,259 $169,323 $16,471 $2,243 $16,215 $217,628 $108,814 $9,546 $10,055 $6,172 $8,642 $0 $0 Russell Scott GM, Reckon Docs $200,500 $0 $0 $18,045 Brian Coventry Gavin Dixon Grant Linton Nigel Boland Richard Hellers MD, Professional Division United Kingdom CEO, Business Division GM, Professional Division New Zealand GM Development, Professional Division President and CEO, nQueue Billback Division $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $584,031 $511,952 $320,482 $393,260 $211,326 $566,786 $186,096 $212,894 $346,043 $218,545 TOTAL $3,223,268 $699,964 $111,488 $283,479 $292,887 $980,269 $5,591,355 1 The potential amounts payable for the short term cash performance bonuses are determined at the beginning of the year and are earned based upon the performance criteria for the year described in more detail on pages 10 and 11 The short term bonus for Mr Hellers is based on specific performance targets for nQueue Billback LLC. 2 For Mr James this represents a redundancy termination payment. For Mr Linton this represents sales commission of $26,187 and a car park allowance of $2,243. For Mr Boland this represents a car park allowance. For Mr Hellers this represents a contribution to life and medical insurance.. 3 Mr Armstrong (45,946 shares), Mr Hagglund (41,216 shares), Mr James (5,405 shares), Mr Zlotnick (27,027 shares), Mr Coventry, (7,568 shares), Mr Dixon (45,946 shares), Mr Linton (5,405 shares) and Mr Boland (7,568 shares) are participants in the 2010 performance share plan. The date of grant for each of these participants was 1 January 2010. The value of the long term incentive is the fair value using a model that adopts the Monte Carlo simulation approach allocated over each year of the 3 year performance period. If the performance criteria are met, then the shares are released at no consideration. The fair value of the performance shares at grant date was $1.48. The performance shares are exercisable on 31 December 2012 at zero cents. The fair value of performance shares which vested and were forfeited during the financial year are set out in the table below. 4 Mr Rabie is a participant in the share appreciation plan. 357,873 rights were issued under the plan on 1 January 2010. The value of the rights was $0.489 determined using a model that adapts the Monte Carlo simulation approach to determine the value as at hurdle dates. The fair value of appreciation rights which vested and were forfeited during the financial year are set out in the table below. 5. Employment ended on 31 December 2010. 12 6. The amount is calculated based on the difference between the company share price at vesting and the share price at date of issue spread over the three year performance period. The share based remuneration earned by Mr Rabie relative to share price movement is as follows: Share based remuneration Share price movements 2008 2009 2010 $34,088 $661,843 $980,269 -24% +75% +27% 7. To the extent that any of the above are directors of any wholly owned subsidiaries of the Company listed on page 51 no additional remuneration is paid. 8. No options were granted to any person during the year as part of their remuneration. No options vested during the financial year. All options issued in previous years as set out in Note 27 in the financial statements were fully vested in prior years. No options were exercised during 2010. Remuneration Report continued Remuneration 2010 continued Percentage of total remuneration that is performance related Percentage of available bonus which vested in the year Percentage of available bonus which was forfeited during the year No of performance shares vested in 2010 Value of Performance shares vested in 2010 Value of Performance shares forfeited in 2010 Value of Appreciation rights vested in 2010 Value of Appreciation rights forfeited in 2010 Directors John Thame Greg Wilkinson Clive Rabie Ian Ferrier Executives Brian Armstrong Chris Hagglund Paul James Myron Zlotnick Brian Coventry Gavin Dixon Grant Linton Nigel Boland Richard Hellers Russel Scott TOTAL 0% 0% 66% 0% 31% 29% 15% 24% 10% 29% 14% 12% 31% 0% n/a n/a 94% n/a 94% 94% 100% 94% 33% 94% 100% 50% 100% 0% n/a n/a 6% n/a 6% 6% 0% 6% n/a n/a n/a n/a n/a n/a n/a n/a 58,656 $72,990 51,324 $63,867 n/a n/a n/a n/a $0 $0 15,482 $18,801 $8,836 27,018 $33,621 67% 7,332 $9,124 6% 0% 56,823 $70,710 0 $0 50% 7,332 $9,124 0% 0% n/a n/a n/a n/a n/a n/a $497,585 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $0 $0 $0 $0 $0 n/a n/a 223,967 $278,237 $8,836 $497,585 n/a n/a 0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $0 13 Remuneration Report continued Remuneration 2009 Fixed component Short term Incentive component Other compensation Long term incentive component Office Salary Bonus1 benefits2 Superannuation Other short term Equity settled share based payments- Performance shares3 9 Cash settled share based payments- Appreciation rights4 7 Total remuneration $0 $0 Directors8 John Thame Chairman, Non- executive Director $90,000 Greg Wilkinson Clive Rabie Deputy Chairman, Non-executive Director Group CEO, Executive Director $78,000 $500,000 $181,884 Ian Ferrier Non-executive Director $75,000 $0 Executives8 Brian Armstrong CEO, Professional Division $340,000 $103,934 Chris Hagglund CFO $305,000 $79,250 $203,029 $40,560 $250,000 $51,967 $188,307 $45,000 $340,000 $88,344 Paul James Myron Zlotnick Brian Coventry Gavin Dixon Grant Linton Nigel Boland Richard Hellers5 GM, Professional Division Australia General Counsel & Company Secretary MD, Professional Division United Kingdom CEO, Business Division GM, Professional Division New Zealand GM Development, Professional Division President and CEO, nQueue Billback Division $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $8,100 $7,020 $45,000 $6,750 $0 $0 $0 $0 $0 $0 $98,100 $85,020 $661,8437 $1,388,727 $0 $81,750 $30,600 $83,109 $27,450 $73,472 $21,902 $3,506 $22,500 $40,017 $9,010 $4,908 $30,600 $80,384 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $557,643 $485,172 $268,997 $364,484 $247,225 $539,328 $171,126 $200,687 $203,628 $230,550 $220,014 $105,696 $20,032 $29,928 $11,964 $3,506 $163,346 $20,032 $0 $12,401 $4,908 $126,263 $63,131 $7,380 $6,854 Russell Scott GM, Reckon Docs $195,000 $0 $18,000 $17,550 Andrew Moon6 GM, BillBack $57,340 $0 $157,514 $5,160 TOTAL $3,016,981 $694,134 $212,822 $262,861 $293,810 $661,843 $5,142,451 1 The potential amounts payable for the short term cash performance bonuses are determined at the beginning of the year and are earned based upon the performance criteria for the year. 2 For Mr Linton and this represents a sales commission. For Mr Hellers this represents a contribution to life and medical insurance. For Mr Scott this represents a motor vehicle allowance. For Mr Moon this represents terminations benefits. 3 Mr Armstrong (80,952 shares), Mr Hagglund (72,619 shares), Mr James (9,524 shares), Mr Zlotnick (47,619 shares), Mr Coventry, (13,333 shares), Mr Dixon (80,952 shares), Mr Linton (9,524 shares) and Mr Boland (13,333 shares) are participants in the 2009 performance share plan. The date of grant for each of these participants was 1 January 2009. The value of the long term incentive is obtained by reference to the market price of the shares on the grant date allocated over each year of the 3 year performance period. If the performance criteria are met, then the shares are released at no consideration. The fair value of the performance shares at grant date was $1.05. The performance shares are exercisable on 31 December 2011 at zero cents. The fair value of performance shares which vested and were forfeited during the financial year are set out in the table below. 4 Mr Rabie is a participant in the share appreciation plan. 888,324 rights were issued under the plan on 1 January 2009. The value of the rights was $0.197 determined using a Monte Carlo simulation with a Black Scholes based valuation model to determine the value as at hurdle dates. The fair value of appreciation rights which vested and were forfeited during the financial year are set out in the table below. 14 5 Appointed 1 July 2009. 6. Employment ended on 31 March 2009. 7. The amount is calculated based on the difference between the company share price at vesting and the share price at date of issue spread over the three year performance period. The share based remuneration earned by Mr Rabie relative to share price movement is as follows: Share based remuneration Share price movements 2007 2008 2009 $284,833 $34,088 $661,843 +36% -24% +75% 2009 reflects a catch up of share based payment expense following the strong re-bound of the share price in 2009. 8. To the extent that any of the above are directors of any wholly owned subsidiaries of the Company no additional remuneration is paid. 9. No options were granted to any person during the year as part of their remuneration. No options vested during the financial year. All options issued in previous years as set out in Note 27 in the financial statements were fully vested in prior years. 47,500 options were exercised during 2009. Remuneration Report continued Remuneration 2009 continued Percentage of total remuneration that is performance related Percentage of available bonus which vested in the year Percentage of available bonus which was forfeited during the year No of performance shares vested in 2009 Value of Performance shares vested in 2009 Value of Performance shares forfeited in 2009 Value of Appreciation rights vested in 2009 Value of Appreciation rights forfeited in 2009 2009 Directors John Thame Greg Wilkinson 0% 0% n/a n/a Clive Rabie 61% 100% Ian Ferrier Executives Brian Armstrong Chris Hagglund Paul James Myron Zlotnick Brian Coventry Gavin Dixon Grant Linton Nigel Boland Richard Hellers Russel Scott Andrew Moon TOTAL 0% n/a 34% 31% 16% 25% 20% 31% 31% 12% 31% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% n/a n/a 0% n/a 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $477,528 n/a n/a 72,451 $86,937 63,630 $76,350 0 $0 28,204 $33,843 9,823 $11,788 67,539 $81,042 0 $0 9,823 $11,788 0 0 0 $0 $0 $0 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 251,470 $301,748 $0 $477,528 Options and shareholding for directors and relevant employees can be found at Note 27 to the accounts. n/a n/a $0 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $0 15 directors Report continued Indemnification of Directors and Officers and Auditors During the financial year, the Company paid a premium in respect of a contract insuring the directors of the Company (as named above), the Company Secretary and all executive officers of the Company, and of any related body corporate, against a liability incurred as a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. In addition, Rule 12 of the Company’s constitution obliges the Company to indemnify on a full indemnity basis and to the full extent permitted by law, every director, officer or former officer for all losses or liabilities incurred by the person as an officer. This obligation continues after the person has ceased to be a director or an officer of the Company or a related body corporate, but operates only to the extent that the loss or liability is not covered by insurance. 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 an officer or auditor. Directors’ Meetings The following table sets out the number of directors’ meetings held during the financial year and the number of meetings attended by each director. Directors Board Audit & Risk Committee Remuneration Committee Reckon Limited - Attendance Tables Meetings A 10 10 10 10 B 10 10 10 10 A 2 2 1* n/a B 2 2 1* n/a A 2 2 n/a n/a B 2 2 n/a n/a Key: A – number of meetings eligible to attend; B - number of meetings attended *Joined Committee in August 2010 JM Thame I Ferrier GJ Wilkinson C Rabie Non-Audit fees Details of the non-audit services can be found in Note 4 to the financial statements. The directors are satisfied that the provision of non-audit services, during the year, by the auditor (or by another person or firm on the auditor’s behalf) is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are of the opinion that the services as disclosed in Note 4 to the financial statements do not compromise the external auditor’s independence, based on advice received from the Audit & Risk Committee, for the following reasons: • all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor, and • none of the services undermine the general principles relating to auditor independence as set out in Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional & Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the company or jointly sharing economic risks and rewards. On behalf of the directors Mr J Thame Chairman Sydney, 30 March 2011 16 Corporate Governance Report The Company is committed to a system of relationships, policies and processes which align with the ASX Corporate Governance Principles and Recommendations, 2nd Edition (“the ASX Governance Principles”) and the recent 2010 Amendments. It is a priority of the Board to ensure the Company’s governance framework and support processes uphold these principles. The Board is of the opinion that the Company’s existing policies and processes effectively achieve the objectives of the relevant Recommendations. The few departures from the Recommendations in the ASX Governance Principles are generally justified on the basis that the formal requirements of the Recommendations are not applicable to the size of the Company and the resources available. Where appropriate, the Board seeks opportunities to adopt these Recommendations to suit the circumstances of the Company and continue to improve the Company’s governance policies and processes. The Board notes disclosure relating to the 2010 Amendments are not required before financial year ending 31 December 2011. However, where applicable, the extent to which the Company has already applied these amended principles and recommendations will be included in this Report. 1. Management and Oversight The Company is governed on behalf of the shareholders by its board of directors who in turn oversee the Company’s management team. The responsibilities and duties of the Board are set out in the Constitution. The Board is responsible for ensuring appropriate risk management, accountability and control mechanisms. The Board also provides advice and input into development of the businesses generally, overall corporate strategy, performance objectives, and appointment of senior executives. The Board monitors and reviews the performance of the Company, financial reporting and implementation of strategy. The Board approves the annual budget, material capital expenditure and large acquisitions. The Company has adopted each of the Recommendations relating to Principle 1 of the ASX Governance Principles, except for the requirement in Recommendation 1.1, only to the extent that there is no formal charter. The Board is of the opinion, given the relatively small size of the composition of the board, the relatively flat structure of management, the size of the management team and open and frequent channels of communication between management and the Board, that there is adequate definition and understanding of the functions and responsibilities of the board and management. The Board maintains sufficiently close oversight of operations and has close input to material decisions to ensure compliance with principles of good corporate governance. The Board recognises that with the growth and evolution of the Company, it is important to review the division of matters and responsibilities reserved to the Board or delegated to senior executives regularly and where needed, to formalise these by way of a charter. The Board is able to efficiently deal with issues which, in other larger enterprises, may normally be delegated to committees because of the size of the Company and the management team. The Audit & Risk Committee and Remuneration Committee are the only committees of the Board. The Company undertakes an annual performance evaluation of key management personnel. The nature of the review process is as follows: • In the case of key management personnel other than head of divisions the review process is managed and administered by the Group Human Resources Manager. It generally involves a 360 degree feedback review in which selected peers and reporting staff assess the performance of relevant executives and managers according to a set of questions benchmarked against key performance indicators. The process also includes a series of reviews with the Divisional CEO’s in which the 360 degree feedback review is discussed with the relevant executive or manager and remedial steps and coaching, if applicable, are implemented. There may be further additional reviews undertaken through the year if necessary. • In the case of head of divisions and head office management (CFO, General Counsel and Company Secretary) the review process is managed and administered by the Group Chief Executive Officer. The review involves a one-on-one interview in which performance against key performance indicators is assessed and discussed and feedback from peers (where relevant) is reviewed. Where necessary remedial steps are identified and coaching is implemented. There may be additional reviews undertaken through the year if necessary. In addition, a portion of remuneration for key management personnel is tied into the financial performance of the Company as set out in more detail in the Remuneration Report. Performance evaluation for key management personnel was undertaken in 2010 and it was in accordance with the processes disclosed in this report. The independent non-executive directors also generally informally monitor and review the ongoing performance of senior executives. The Group Human Resources Manager is also responsible for managing and administering an induction process for newly appointed senior executives. In addition the Group CEO and divisional CEO’s undertake a rigorous process of briefing new senior executives. 17 Corporate Governance Report continued 2. The Board At present, the Board comprises four members: John Thame, Ian Ferrier, Greg Wilkinson and Clive Rabie. Mr Thame is Chairman of the Board and he, together with Mr Ferrier, are independent non-executive directors. Further details of the directors, including a summary of their skills and experience and period of office, are set out in the Directors’ Report. The Company has adopted each of the Recommendations relating to Principle 2 of the ASX Governance Principles, except for the requirement in Recommendation 2.1 and 2.4 due to the size and circumstances of the Board. However in the opinion of the Board, the existing structure and processes are appropriate for the Company and still meet the objectives of the Recommendations and Principle 2. While there is not strictly an independent majority in the sense described in Recommendation 2.1, as there are only four directors, the non-executive directors ensure that all issues that come before the Board are considered in an impartial manner and from a variety of perspectives and meet the objectives of Recommendation 2.1. Mr Wilkinson, although still a substantial shareholder, has occupied a non-executive position for more than three years since he resigned from the management of the Company. The Chairman, who is independent, has a casting vote where necessary. The independent non-executive directors oversee the nomination of any potential directors. The criteria for directorship and the election process are set out in the Company’s constitution. The directors periodically review the composition of the Board to ensure that members have the desired breadth of experience and expertise to govern the Company effectively. The size of the Board dictates that there is no efficiency obtained in establishing a formal nomination committee. Accordingly, the Company departs from this requirement in Recommendation 2.4. Directors are entitled to seek independent professional advice at the Company’s expense to assist them in fulfilling their duties in order to comply with all applicable laws and regulations. There is no formal procedure for the Board to agree when to take independent advice at the expense of the Company, but given the size of the Board there is no efficiency to be obtained in formalising this process. The independent non-executive directors exercise their judgment to call for such advice when they deem appropriate. The Chairman also has frequent contact with internal legal counsel to assess the need for external advice. The Board met ten times during 2010. The details of attendance at these meetings are set out in the Directors’ Report. The independent non-executive directors monitor and review the ongoing performance of the executive directors and key executives. The independent non-executive directors occasionally meet informally without management being present to generally discuss the affairs of the Company and the overall performance of key executives. The independent non-executive directors are subject to the Company’s constitution and their continuity of tenure is dependent on re-election by shareholders in accordance with the constitution. Any decision regarding the appointment of new directors is taken cognisant of the need to appoint someone who is technically qualified and as far as possible familiar with the Company’s market sector. While there is no formal induction process in place, the Chairman, Deputy Chairman and Group CEO undertake a rigorous process of briefing new board members. Given the size of the Company there is also direct informal communication on a regular basis between the Chairman and the Company Secretary on governance matters. 3. Ethical and Responsible Decision Making The Company’s governance policies and processes incorporate all the Recommendations relating to Principle 3 of the ASX Governance Principles. The Board’s policy is that the Company, the directors and employees in addition to their legal obligations must maintain high ethical standards in their dealings with the public and other members of the industry. The initial Directors’ Code of Conduct adopted in 2003 was reviewed and updated in 2007 to apply to all employees and will be reviewed in 2011. The Company’s Human Resources Policy and Procedures, binding on all employees, also collectively embraces the substance of the ASX Governance Principles in a Code of Conduct, including expectations regarding behaviour in the workplace, disciplinary processes, grievance processes, discrimination and harassment, occupational health and safety, ethical business practices, conflict of interest, corporate opportunity. The Company is committed to training employees and maintaining employees’ relevant technical expertise and understanding of their ethical and legal obligations, for example by way of trade practices training from time to time for relevant staff. The Company is creating a profile of executive, management and employees to benchmark the Company’s current position on diversity, particularly as to gender. The Board will then be in a position to consider appropriate objectives on diversity and formulate a diversity policy relevant to the Company and its objectives. The Board will report in more detail on its application of Recommendations 3.2-3.2 in the 2011 Annual Report. 18 Corporate Governance Report continued 4. Integrity in Financial Reporting 5. Timely and Balanced Disclosure The Company has adopted each of the Recommendations relating to Principle 5 of the ASX Governance Principles. The Board remains conscious of the Company’s disclosure obligations under the Corporations Act, the ASX listing rules and the ASIC guidance principles. These obligations are reflected in the Continuous Disclosure Policy. All required disclosures are also made in accordance with the Continuous Disclosure policy which is accessible to the public at the Company web site. A review of operations and commentary on the financial results is provided in the Directors' Report and the Financial Report. 6. Rights of Shareholders The Board is conscious of the requirements of Principle 6 of the ASX Governance Principles and takes into account the rights and needs of shareholders to balanced and understandable information about the Company and acts in accordance with this Principle. The Company communicates with shareholders through its ASX disclosures to the market. The Company also communicates with shareholders through the posting of statutory notices to shareholders and at the general and special meetings of the Company. The Company keeps recent announcements and general Company information on its web site with a dedicated investor relations section which is accessible to the public. The web site contains a link to the ASX web site for older announcements. Given the size and circumstances of the Company, there is no formally documented communications strategy, and in this respect the Company has not adopted Recommendation 6.1. The Company’s auditor attends the Annual General Meeting and is available to answer shareholder questions about the conduct of the audit and the preparation and content of the Auditor’s Report at the meeting. The Board assumes the responsibility to ensure the integrity of the Company’s financial reporting and has established the Audit & Risk Committee to focus on the issues relating to the integrity of the financial reporting of the Company and oversight and review of the Company’s risk management. The terms of reference for the Audit & Risk Committee, to review and monitor all financial, risk management and compliance policies, were formalised in a Charter in 2003 to meet the requirements of the ASX Governance Principles. The Audit & Risk Committee consists of John Thame and Ian Ferrier, independent, non-executive directors, as well as the non- executive director Greg Wilkinson, to ensure independent review of financial reporting over and above formal audit processes. Details of their experience and qualifications are set out in the Directors’ Report. The Audit & Risk Committee also meets informally to discuss matters including risk management and reporting. With the appointment of Greg Wilkinson to the Audit & Risk Committee in February 2010, the Board is of the opinion that the structure of the Committee, together with its considerable technical expertise in the market sector of the Company and financial literacy, enables it to discharge it functions effectively and meet the objectives of Principle 4 and that the Company has fully adopted Recommendation 4.2. Deloitte Touche Tohmatsu, the Company’s auditors, report directly to the Audit & Risk Committee on the appropriateness of the Company’s internal accounting policies and practices. The Board reviews the adequacy of existing external audit arrangements each year, with particular emphasis on the scope and quality of the audit. The Audit & Risk Committee provides written advice to the Board on the standard of independence of the auditors in light of any non-audit services during the 2010 and which is reported in the Directors' Report. At each Audit & Risk Committee meeting, the independent non-executive directors meet separately with the auditors without management being present to review any concerns that the auditors may have regarding the financial management of the Company. The Audit & Risk Committee met twice during 2010. The Audit & Risk Committee reports back to the Board after each Audit & Risk Committee meeting. The details of attendance at these meetings are set out in the Directors’ Report. The Board is aware of its obligations to ensure the appropriate selection and rotation of external auditors and the external audit engagement partners and closely monitors and reviews the engagement of the Company’s external auditors. 19 Corporate Governance Report continued Due to the effectiveness of the existing processes and the size of the business, business risk management systems, policies and procedures have not been comprehensively formalised. With a view to fully adopting Recommendations 7.1 and 7.2, the Company’s risk management systems, policies and processes are under consideration to be formalised and documented, if necessary. 8. Remunerate Fairly and Responsibly The Company remunerates directors and key executives in accordance with the aspirations set out in ASX Governance Principle 8. Accordingly, the Board has adopted a remuneration policy designed to attract and maintain talented and motivated directors and senior employees so as to encourage enhanced performance of the Company. There is a clear relationship between performance and remuneration and a desire to strike the correct balance between the various components making up remuneration. The Remuneration Committee consists of the independent, non-executive directors, John Thame and Ian Ferrier. Details of their experience and qualification are set out in the Directors’ Report. The Remuneration Committee ensures independent review of financial reporting over and above formal audit processes. The Remuneration Committee supervises the development and implementation of the Company’s remuneration policy including the operation of option plans, and reviews the performance of the executive directors and senior executives. There is no formal charter for the Remuneration Committee, but it does fix policy and reward in accordance with ASX Governance Principle 8. The full detail of the policy and remuneration is contained in the Remuneration Report. The Remuneration Committee met twice during 2010. The details of attendance at these meetings are set out in the Directors’ Report. 7. Recognise and Manage Risk As stated above in paragraph 1, the Board is responsible for ensuring appropriate risk management, accountability, and control mechanisms. It constantly monitors the operational and financial aspects and material risks of the Company’s activities and, through the Audit & Risk Committee, considers the recommendations and advice of the auditors and other external advisers on the operational and financial risks that face the Company. The Group CEO and Group CFO monitor and review the financial performance of the Company and monitor any potential risk virtually on a daily basis. The Board has received assurance from the CEO and the CFO that the S295A Declaration provided in the Financial Report is founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks. The Board is of the opinion that there is substantial compliance with the ASX Governance Principle 7 although Recommendations 7.1 and 7.2 have not yet been fully adopted. As described above, the size of the Company and the management team enables the Board to have effective oversight of the overall risk management of the Company. In the Board’s opinion, especially with the existence of an Audit & Risk Committee, there is no efficiency for the Company to establish a separate risk management committee. The Board is provided with a declaration from the Group CEO and the Group CFO under section 295A of the Corporations Act, that due consideration is given to budgets, cash flows, realisation of current assets, continuity of terms of trade, and consideration of contingencies in the day to day operations of the Company and in the monthly management financial reporting and statutory reporting of the Company. At present the nature of operations and scope of the business is reasonably well established and understood by management and the Board. The decision making and reporting processes in the Company incorporate an assessment of the relevant material risks, for example in the planning, budget, HR, product development, R&D, legal and compliance activities and, where relevant, any material risk issues are reported to and considered by the Board. The planning and budget process involves both the executive and senior management, which means all of these employees have a more than adequate understanding of the issues, activities and opportunities across the Company. In turn this enables them to manage operational, planning, strategic and risk issues in the Company. In addition, the Company regularly conducts reviews of the material risks in the context of the annual insurance renewals and, in relation to acquisitions through due diligence. Relevant risk factors are included in the various management and financial reports to the Board and are then considered by the Board. The reporting, identification and management of risk are now effectively a standing board agenda item. 20 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia DX 10307SSE Tel: +61 (0) 2 9322 7000 Fax: +61 (0) 2 9322 7001 www.deloitte.com.au 30 March 2011 The Board of Directors Reckon Limited 35 Saunders Street Pyrmont NSW 2009 Dear Board Members RECKON 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 Reckon Limited. As lead audit partner for the audit of the financial statements of Reckon Limited for the financial year ended 31 December 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 approved under Professional Standards Legislation. 21 Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 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 Reckon Limited Report on the Financial Report We have audited the accompanying financial report of Reckon Limited, which comprises the statement of financial position as at 31 December 2010, the statement of comprehensive income, the statement of cash flows and the 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 24 to 62. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply 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. Those 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 of the financial report that gives a true and fair view, in order to 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. Liability limited by a scheme approved under Professional Standards Legislation. 22 Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Reckon Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Reckon 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 31 December 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 10 to 15 of the Directors’ Report for the year ended 31 December 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. Opinion In our opinion the Remuneration Report of Reckon Limited for the year ended 31 December 2010, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Michael Kaplan Partner Chartered Accountants Sydney, 30 March 2011 23 financial Report Directors’ Declaration The directors of the Company declare that: 1. the financial statements and notes as set out on pages 25 to 62 are in accordance with the Corporations Act 2001, and: • comply with Accounting Standards; and • comply with International Financial Reporting Standards issued by the International Accounting Standards Board, as set out in Note 1; and • give a true and fair view of the financial position as at 31 December 2010 and of the performance for the year ended on that date of the consolidated group; 2. the Chief Executive Officer and the Chief Finance Officer have each declared that: • the financial records of the company for the financial year have been properly maintained in accordance with s 286 of the Corporations Act 2001; • the financial statements and notes for the financial year comply with the Accounting Standards, and • the financial statements and notes for the financial year give a true and fair view; 3. 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; and This declaration is made in accordance with a resolution of the Board of Directors. On behalf of the directors Mr J Thame Chairman Sydney, 30 March 2011 24 statement of Comprehensive income for the year ended 31 December 2010 Continuing operations Revenue Product and selling costs Royalties Employee benefits expenses Share-based payments expenses Marketing expenses Premises and establishment expenses Depreciation and amortisation of other non-current assets Telecommunications Legal and professional expenses Finance costs Other expenses Profit before business acquisition restructure costs Business acquisition restructure costs Profit before income tax Income tax expense Profit for the year Other comprehensive income Consolidated 2010 $’000 2009 $’000 Note 2 90,273 85,389 (14,588) (14,623) (4,786) (4,204) (27,461) (26,913) (1,300) (2,471) (2,685) (7,769) (920) (981) (161) (1,027) (3,106) (2,683) (6,897) (995) (889) (303) (4,752) (4,761) 22,399 - 22,399 (5,151) 18,988 (1,176) 17,812 (4,210) 17,248 13,602 2 2 3 Exchange difference on translation of foreign operations 21 (294) (258) Total comprehensive income for the year 16,954 13,344 Profit attributable to: Owners of the parent Non-controlling interest Total comprehensive income attributable to: Owners of the parent Non-controlling interest Basic Earnings per Share Diluted Earnings per Share 22 16,478 13,226 770 376 17,248 13,602 16,184 12,968 770 376 16,954 13,344 Cents 12.4 12.4 Cents 9.9 9.9 23 23 The above statement of comprehensive income should be read in conjunction with the accompanying notes. 25 statement of financial Position as at 31 December 2010 Consolidated ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other assets Total Current Assets Non-Current Assets Receivables Financial assets Property, plant and equipment Deferred tax assets Intangible assets Other assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Borrowings Current tax payables Provisions Deferred revenue Deferred rent contribution Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liabilities Provisions Deferred rent contribution Total Non-Current Liabilities Total Liabilities Net Assets Equity Issued capital Reserves Retained earnings Equity attributable to owners of the parent Non-controlling interest Total Equity Note 28 6 5 7 6 8 9 10 11 12 13 14 15 16 17 15 20 21 22 29 2010 $’000 8,095 6,756 831 1,320 17,002 236 56 3,760 56 46,438 - 50,546 67,548 5,838 2 920 2,007 5,742 233 14,742 - 1,607 1,337 721 3,665 18,407 49,141 18,048 (63) 31,156 49,141 - 49,141 2009 $’000 2,350 9,152 1,159 1,164 13,825 617 64 3,768 586 45,270 192 50,497 64,322 6,022 375 813 1,899 6,048 250 15,407 2,023 1,972 850 795 5,640 21,047 43,275 18,037 239 24,625 42,901 374 43,275 The above statement of financial position should be read in conjunction with the accompanying notes. 26 statement of Changes in Equity for the year ended 31 December 2010 Consolidated Issued capital Foreign currency translation reserve Share- based payments reserve Retained earnings Attributable to owners of the parent Non- controlling interest Total $’000 $’000 $’000 $’000 $’000 $’000 $'000 Balance at 1 January 2010 18,037 Profit for the year Other comprehensive income: Exchange differences on translation of foreign operations Total comprehensive income for the year Share based payments expense Dividends paid Treasury shares vested/lapsed Transfer to share capital Treasury shares acquired Proceeds from issues of equity securities - - - - - 314 18 (370) 49 (400) - (294) (294) - - - - - - 639 - - - 24,625 16,478 42,901 16,478 374 770 43,275 17,248 - (294) - (294) 16,478 16,184 770 16,954 324 - 324 - 324 - (9,947) (9,947) (1,144) (11,091) (314) (18) - - - - - - - - (370) 49 - - - - - - - (370) 49 49,141 Balance at 31 December 2010 18,048 (694) 631 31,156 49,141 Balance at 1 January 2009 17,566 Profit for the year Other comprehensive income: Exchange differences on translation of foreign operations Total comprehensive income for the year Share based payments expense Dividends paid Treasury shares vested/lapsed Transfer to share capital Treasury shares acquired Proceeds from issues of equity securities - - - - - 498 132 (415) 256 (142) - (258) (258) - - - - - - 958 - - 20,003 13,226 38,385 13,226 (2) 38,383 376 13,602 - (258) - (258) 13,226 12,968 376 13,344 311 - 311 - (8,604) (8,604) (498) (132) - - - - - - - - (415) 256 - - - - - - 311 (8,604) - - (415) 256 Balance at 31 December 2009 18,037 (400) 639 24,625 42,901 374 43,275 The above statement of changes in equity should be read in conjunction with the accompanying notes. 27 statement of Cash flows For the year ended 31 December 2010 Consolidated Inflows/(Outflows) Note Cash Flows From Operating Activities Receipts from customers Payments to suppliers and employees Interest received Interest paid Income taxes paid Net cash inflow from operating activities 28(c) Cash Flows From Investing Activities Payment for purchase of business, net of cash acquired Payments for purchase of intellectual property Payment for capitalised development costs Payment for property, plant and equipment Proceeds/(payments) for security deposits Net cash outflow from investing activities Cash Flows From Financing Activities Proceeds from issues of equity securities Proceeds from/(repayment of) borrowings Payment for treasury shares Dividends paid Non-controlling interest dividends paid Net cash outflow from financing activities Net Increase/(Decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 28(a) 2010 $’000 101,523 (68,461) 158 (161) (4,879) 28,180 - (61) (7,568) (1,387) 8 (9,008) 49 (2,396) (370) (9,947) (763) (13,427) 5,745 2,350 8,095 The above statement of cash flows should be read in conjunction with the accompanying notes. 2009 $’000 93,451 (69,701) 81 (303) (4,647) 18,881 (18,394) (164) (6,485) (1,822) 565 (26,300) 256 2,398 (415) (8,604) - (6,365) (13,784) 16,134 2,350 28 Notes to the financial statements For the year ended 31 December 2010 1 Summary of Significant Accounting Policies (c) Depreciation and Amortisation The principal accounting policies adopted in the preparation of the Financial Report are set out below. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. The Financial Report includes the consolidated entity consisting of Reckon Limited and its subsidiaries. Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards and Interpretations and the Corporations Act 2001, and complies with the other requirements of the law. Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial statements and notes of Reckon Limited, comply with International Financial Reporting Standards (IFRSs). The Financial Report has been prepared in accordance with the historical cost convention, except for the revaluation of certain non-current assets and financial instruments. Significant Accounting Policies (a) Trade Payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. These amounts are unsecured and are usually paid within 30 days of the month of recognition. Trade payables are recognised initially at fair value, and subsequently at amortised cost. (b) Acquisition of Assets Assets acquired are recorded at the cost of acquisition, being the fair value of the purchase consideration determined as at the date of acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is the weighted average of their closing market price for the total of the five business days either side of the acquisition date. Acquisition related costs are recognised in the profit or loss as incurred. In the event that settlement of all or part of the consideration given in the acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present value as at the date of acquisition. However, where the deferred component is subject to certain criteria being met, the amount deferred is recognised based on an estimate where it is probable that the relevant criteria will be met. If the amount is not probable or cannot be reliably measured, no amount is recognised. Depreciation is provided on plant and equipment. Depreciation is calculated on a straight-line basis. Leasehold improvements are amortised over the period of the lease or the estimated useful life, whichever is the shorter, using the straight-line method. The following estimated useful lives are used in the calculation of depreciation and amortisation: Plant and equipment Leasehold improvements 3 - 5 years 3 - 6 years (d) Employee Benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave, when it is probable that settlement will be required and they are capable of being measured reliably. Provisions made in respect of wages and salaries, annual leave, and other employee entitlements expected to be settled within 12 months are measured at the amounts expected to be paid when the liabilities are settled. Provisions made in respect of long service leave which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to the reporting date, using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. The Group recognises a liability and an expense for the long- term incentive plan for selected executives based on a formula that takes into consideration the ranking of total shareholder return measured against a comparator group of companies. Contributions are made by the Group to defined contribution employee superannuation funds and are charged as expenses when incurred. (e) Contributed Equity Transaction Costs on the Issue of Equity Instruments Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued. 29 Notes to the financial statements For the year ended 31 December 2010 (f) Foreign Currency Translation (g) Goods and Services Tax Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Australian dollars, which is Reckon Limited’s functional and presentation currency. Transactions and balances All foreign currency transactions during the financial year have been brought to account in the functional currency using the exchange rate in effect at the date of the transaction. Foreign currency monetary items at reporting date are translated at the exchange rate existing at that date. Exchange differences are brought to account in the profit or loss in the period in which they arise. Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency of the consolidated entity as follows: • Assets and liabilities are translated at the closing rate at the date of the statement of financial position; • Income and expenses are translated at average rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of monetary items forming part of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken directly to reserves. When a foreign operation is sold, a proportionate share of such exchange differences are recognised in profit or loss as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity at the closing rate. Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except: i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or ii. for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables. (h) Intangible assets Goodwill Where an entity or operation is acquired, the identifiable net assets acquired are measured at fair value. Goodwill represents the excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired. Goodwill is not amortised, and is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. Following initial recognition goodwill is measured at cost less any accumulated impairment losses. If an impairment has been identified, the goodwill is written down and an expense recognised in profit or loss. Impairment losses recognised for goodwill are not subsequently reversed. Intellectual Property Acquired Intellectual Property is recognised at cost, less accumulated amortisation and any impairment losses, and is amortised on a straight line basis between 3-10 years. Research and development costs Research and development expenditure is recognised as an expense when incurred, except in the undernoted instances. Development costs in respect of enhancements on existing Professional and nQueue Billback Division and Elite suites of software applications are capitalised and written off over a 3 to 4 year period. Development costs on technically and commercially feasible new Professional Division and Elite products are capitalised and written off on a straight line basis over a period of 3 to 4 years commencing at the time of commercial release of the new product. Development costs include cost of materials, direct labour and appropriate overheads. At each balance date, a review of the carrying value of the capitalised development costs being carried forward is undertaken to ensure the carrying value is recoverable from future revenue generated by the sale of that software. 30 Notes to the financial statements For the year ended 31 December 2010 (i) Income Tax (m) Principles of Consolidation The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities, and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to those temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. All deferred tax liabilities are recognised. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. (j) Inventories Inventories are stated at the lower of cost and net realisable value. Costs are assigned to inventory on hand on a weighted average cost basis. (k) Investments in subsidiaries Investments in subsidiaries are recorded at cost. Dividend revenue is taken to income on a receivable basis. (l) Leased Assets A distinction is made between finance leases which effectively transfer from the lessor to the lessee substantially all the risks and benefits incident to ownership of leased assets, and operating leases under which the lessor effectively retains substantially all the risks and benefits. Operating lease payments are recognised on a straight line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. Lease incentives are initially recognised as a liability and are amortised over the term of the lease on a straight line basis. The consolidated financial statements have been prepared by combining the financial statements of all the entities that comprise the consolidated entity, being the Company (the parent entity) and its subsidiaries. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies. The consolidated financial statements include the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control the entity. In preparing the consolidated financial statements, all inter- company balances and transactions, and unrealised profits arising from transactions within the consolidated entity are eliminated in full. (n) Receivables Trade receivables and other receivables are recorded at amortised cost, less impairment. (o) Impairment of assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). (p) Revenue Recognition Sale of Goods and Disposal of Assets Revenue from the sale of goods and disposal of other assets is recognised when the consolidated entity has passed control of the goods or other assets to the buyer, the fee is fixed or determinable and collectability is probable. Professional and nQueue Billback Division software licence fee revenue is recognised at the point when the customer is in agreement for a “live operation” (i.e. when the customer accepts that all users can use the system on a fully functional basis). Rendering of Services Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract or on a time and materials basis depending upon the nature of the contract. 31 Notes to the financial statements For the year ended 31 December 2010 Support and maintenance revenue is recognised on a straight-line basis over the period of the contract, unless the cost of providing the technical support is insignificant. Under those circumstances the revenue and the associated cost of providing the technical support is accrued upon shipment of the goods. In multiple element arrangements where goods and services are sold as a bundled product, the fair value of the services is recognised as revenue over the period during which the service is performed, unless the cost of providing those services is insignificant. Under those circumstances the revenue and the associated cost of providing the services is accrued upon shipment of the goods. Interest and Other Revenue Interest revenue is recognised on a time proportional basis taking into account the effective interest rates applicable to the financial assets. Other revenue is recognised when the right to receive the revenue has been established. (q) Deferred Revenue Revenue earned from maintenance and support services provided on sales of certain products by the consolidated entity are deferred and then recognised in the statement of comprehensive income over the contract period as the services are performed, normally 12 months. Refer note 1(p) for further detail. (r) Earnings per share Basic earnings per share is determined by dividing net profit after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. Diluted earnings per share adjusts the figures in the determination of basic earnings per share by taking into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of dilutive potential ordinary shares. (s) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and bank overdrafts. (t) Other financial assets Other financial assets represent security deposits held as rental guarantees. They are valued at amortised cost. (u) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that the outflow can be reliably measured. (v) Fair Value estimation The fair value of financial instruments and share based payments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and assumptions that are based on existing market conditions. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining instruments. The Directors consider that the nominal value less estimated credit adjustments of trade receivables and payables approximate their fair values. (w) Rounding of amounts The parent entity has applied the relief available to it under ASIC Class Order 98/100, and accordingly, amounts in the financial report have been rounded off to the nearest thousand dollars, except where otherwise indicated. (x) Significant accounting judgments, estimates and assumptions Significant accounting judgments In applying the Group’s accounting policies, management has made the following judgments which have the most significant effect on the financial statements: Capitalisation of development costs – the Group has adopted a policy of capitalising development costs only for products for which an assessment is made that the product is technically feasible and will generate definite economic benefits for the Group going forward. The capitalised costs are subsequently amortised over the expected useful life of the product. Revenue recognition - in multiple element arrangements where goods and services are sold as a bundled product, the fair value of the services is recognised as revenue over the period during which the service is performed. Significant accounting estimates and assumptions The carrying amount 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 material adjustment to the carrying amounts of certain assets and liabilities are: Impairment of goodwill – the Group determines whether goodwill is impaired on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which the goodwill is allocated. The assumptions used in this estimation, and the effect if these assumptions change, are disclosed in Note 11. Share based payments – the Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date on which they are granted. The fair value has been determined using a model that adopts Monte Carlo simulation approach, and the assumptions related to this can be found in Note 19. 32 Notes to the financial statements For the year ended 31 December 2010 (y) New accounting standards 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 report, but will change the disclosures presently made in relation to the Financial Report. Standard/Interpretation • AASB 9 Financial Instruments, AASB 2009-11 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending 1 January 2013 31 December 2013 • AASB 124 Related Party Disclosures (2009), AASB 2009- 1 January 2011 31 December 2011 12 Amendments to Australian Accounting Standards • AASB 2009-10 Amendments to Australian Accounting 1 February 2010 31 December 2011 Standards – Classification of Rights Issues • AASB 2009-14 Amendments to Australian Interpretation – 1 January 2011 31 December 2011 Prepayments of a Minimum Funding Requirement • AASB 2010-3 Amendments to Australian Accounting 1 July 2010 31 December 2011 Standards arising from the Annual Improvements Project • AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project 1 January 2011 31 December 2011 • AASB 2010-5 Amendments to Australian Accounting 1 January 2011 31 December 2011 Standards • AASB 2010-6 Amendments to Australian Accounting 1 July 2011 31 December 2012 Standards – Disclosures on Transfers of Financial Assets • AASB 2010-7 Amendments to Australian Accounting 1 January 2013 31 December 2013 Standards arising from AASB9 (December 2010) • AASB 2010-8 Amendments to Australian Accounting 1 January 2012 31 December 2012 Standards – Deferred Tax: Recovery of Underlying Assets • AASB Interpretation 19 Extinguishing Financial Liabilities 1 July 2010 31 December 2011 with Equity Instruments 33 Notes to the financial statements For the year ended 31 December 2010 2 Profit for the year Consolidated 2010 $’000 2009 $’000 Profit before income tax includes the following items of revenue and expense: Revenue Sales revenue Sale of goods and rendering of services 90,042 85,231 Other Revenue Other income Interest revenue – bank deposits Expenses Cost of Sales Bad debt expense: Other Entities Finance costs expensed: Bank loans and overdraft Net transfers to/(from) provisions: Sales returns and rebates Employee benefits Allowance for doubtful debts Depreciation of non-current assets: Property, plant and equipment Amortisation of non-current assets: Leasehold improvements Intellectual property Development costs Foreign exchange losses/(gains) Research and Development costs Operating lease rental expenses: Minimum lease payments Business acquisition restructure costs 73 158 231 77 81 158 90,273 85,389 19,374 18,827 51 161 158 891 332 915 422 1,332 5,100 (83) 2,339 2,425 0 103 303 149 796 47 871 425 1,529 4,072 (59) 2,190 2,362 1,176 Business acquisition restructure costs in 2009 relate predominantly to surplus premises and staff redundancies 34 Notes to the financial statements For the year ended 31 December 2010 3 Income Tax Consolidated (a) Income tax expense Current tax Deferred tax Under /(over) provided in prior years (b) The prima facie income tax expense on pre-tax accounting profit reconciles to the income tax expense/(income tax revenue) in the financial statements as follows: Profit before income tax Income tax expense calculated at 30% of profit Tax Effect of: Effect of higher tax rates on overseas income Tax effect of non-deductible/non-taxable items: Non-taxable income Research and development claims Sundry items Reversal of withholding tax on pre-acquisition dividend Under/(over) provision in prior years Income tax expense attributable to profit (c) Future income tax benefits not brought to account as an asset: not probable of recovery Tax losses: Revenue Capital 2010 $’000 5,114 165 (128) 5,151 2009 $’000 4,215 733 (738) 4,210 22,399 6,720 17,812 5,344 86 (231) (787) (79) 5,709 (430) (128) 5,151 - 2,295 2,295 60 (113) (389) 46 4,948 - (738) 4,210 - 2,295 2,295 35 Consolidated 2010 $ 2009 $ 194,153 98,765 292,918 32,078 24,085 56,163 349,081 2010 $’000 831 184,851 71,617 256,468 56,842 19,766 76,608 333,076 2009 $’000 1,159 Consolidated Notes to the financial statements For the year ended 31 December 2010 4 Remuneration of Auditors (a) Deloitte Touche Tohmatsu During the year, the auditors of the parent entity earned the following remuneration: Auditing and reviewing of financial reports Tax compliance and consulting services, due diligence and other assurance services (b) Other Auditors Auditing and reviewing of financial reports Tax compliance services 5 Inventories Finished goods: At lower of cost and net realisable value 36 Notes to the financial statements For the year ended 31 December 2010 6 Trade and Other Receivables Consolidated Current: Trade receivables (i) Allowance for doubtful debts Other receivables Non current: Other receivables: non-controlling interest holder (i) The ageing of past due receivables at year end is detailed as follows: Past due 0 - 30 days Past due 31 - 60 days Past due 61+ days Total The movement in the allowance for doubtful accounts in respect of trade receivables is detailed below: Balance at beginning of the year Amounts written off during the year Increase in allowance recognised in the profit and loss Balance at end of year 2010 $’000 6,652 (542) 6,110 646 6,756 236 236 1,468 520 1,058 3,046 261 (51) 332 542 2009 $’000 8,552 (261) 8,291 861 9,152 617 617 1,271 988 1,474 3,733 317 (103) 47 261 37 Notes to the financial statements For the year ended 31 December 2010 7 Other Assets Consolidated Prepayments Other 8 Other Financial Assets 2010 $’000 970 350 1,320 2009 $’000 820 344 1,164 Security deposits 56 64 9 Property, Plant And Equipment Leasehold Improvements At cost Less: Accumulated amortisation Total leasehold improvements Plant and equipment At cost Less: Accumulated depreciation Total plant & equipment Reconciliations 2,464 1,234 1,230 5,591 3,061 2,530 3,760 2,472 858 1,614 5,382 3,228 2,154 3,768 Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the financial year are set out on the next page. 38 Notes to the financial statements For the year ended 31 December 2010 9 Property, Plant And Equipment continued Consolidated Carrying amount at 1 January 2010 Additions Depreciation/amortisation expense Balance at 31 December 2010 Consolidated Carrying amount at 1 January 2009 Additions Depreciation/amortisation expense Balance at 31 December 2009 10 Deferred Tax Asset The balance comprises temporary differences attributable to: Doubtful debts Employee benefits Deferred revenue Other provisions Details of unrecognised deferred tax assets can be found in Note 3(c) Reconciliation: Opening balance at 1 January Credited/(charged) to profit or loss Acquisition of businesses Balance at 31 December Leasehold Improvements Plant and Equipment Total $’000 1,614 38 (422) 1,230 $’000 2,154 1,349 (973) 2,530 $’000 3,768 1,387 (1,395) 3,760 Leasehold Improvements Plant and Equipment Total $’000 1,210 829 (425) 1,614 Consolidated $’000 1,333 1,741 (920) 2,154 2010 $’000 3 29 - 24 56 586 (530) - 56 $’000 2,543 2,570 (1,345) 3,768 2009 $’000 22 319 65 180 586 426 (955) 1,115 586 39 Notes to the financial statements For the year ended 31 December 2010 11 Intangibles Consolidated Intellectual property – at cost Accumulated amortisation Development costs – at cost Accumulated amortisation Goodwill – at cost Impairment test for goodwill Professional Division Australia Professional Division New Zealand Professional Division United Kingdom nQueueBillback Elite Corporate Services 2010 $’000 11,950 (7,387) 4,563 30,732 (17,496) 13,236 28,639 46,438 10,361 1,742 426 2,449 2,536 11,125 28,639 2009 $’000 12,588 (6,667) 5,921 23,107 (12,397) 10,710 28,639 45,270 10,361 1,742 426 2,449 2,536 11,125 28,639 The recoverable amount of a CGU is determined based on value-in-use calculations. Management has based the value in use calculations on the most recently completed Board approved budget for the forthcoming one year (2011) period. Subsequent cash flows are projected using constant growth rates of 3% per annum. An average post-tax discount rate of 13.4% (2009: 13.4%) (pre-tax rate: 18%) reflecting assessed risks associated with CGU’s have been applied to determine the present value of future cash flow projections. No impairment write-offs have been recognized during the year (2009: nil). Should the projected growth rates reduce to 0%, an impairment would still not arise. 40 Notes to the financial statements For the year ended 31 December 2010 11 Intangibles continued Consolidated movements in intangibles At 1 January 2010 Additions Amortisation charge At 31 December 2010 At 1 January 2009 Additions Amortisation charge At 31 December 2009 Goodwill Intellectual Property Development Costs $’000 $’000 $’000 28,639 - - 28,639 14,708 13,931 - 28,639 5,921 (26) (1,332) 4,563 1,132 6,318 (1,529) 5,921 10,710 7,626 (5,100) 13,236 8,248 6,534 (4,072) 10,710 12 Other Assets Consolidated Prepayments - other 13 Trade and Other Payables Current: Trade payables and sundry accruals (i) Employee benefits (Note 19) (i) The credit period for the majority of goods purchased is 30 days. No interest is charged. The Group has policies in place to ensure payables are paid within the credit periods. 2010 $’000 - - 4,420 1,418 5,838 Total $’000 45,270 7,600 (6,432) 46,438 24,088 26,783 (5,601) 45,270 2009 $’000 192 192 4,683 1,339 6,022 41 Notes to the financial statements For the year ended 31 December 2010 14 Borrowings Consolidated 2010 $’000 - 2 2 2009 $’000 258 117 375 Current: Bank overdraft (i) Other borrowings (i) During 2009 the consolidated entity secured bank facilities totaling $23 million. The facility comprises a bank overdraft facility, and a multi option facility (which includes a bill facility and bank guarantee/transactional facility). The facility covers a 3 year term, except for $1 million which is subject to annual review. The facility is secured over the Australian net assets of the Group ($48.4 million at 31 December 2010). The facilities, apart from the bank guarantee, are undrawn. Bank overdraft Bill facility Bank guarantee facility 2010 $’000 $’000 $’000 The available, used and unused components of the facility at year end is as follows: Available Used Unused The remaining contractual maturity for the facility (including both interest and principal) is as follows: 0 -12 months 12-24 months 1,000 19,000 - - 1,000 19,000 - - - - Weighted average interest rate 8.26% 6.14% 3,000 1,078 1,922 1,078 - - 42 Notes to the financial statements For the year ended 31 December 2010 15 Provisions Consolidated Current: Sales returns, volume rebates Employee benefits (Note 19) Commissions and sundry provisions Non-current: Employee benefits (Note 19) Movement in provisions Movements in each class of provision during the financial year, excluding employee benefits, are set out below: 2010 Consolidated Carrying amount at the start of the year Released to profit or loss Carrying amount at the end of the year 2010 $’000 181 1,377 449 2,007 1,337 2009 $’000 339 1,052 508 1,899 850 Sales returns, volume rebates Commissions and sundry Total $’000 $’000 $’000 339 (158) 181 508 (59) 449 847 (217) 630 16 Borrowings Consolidated Non–current: Bank loans (Note 14) Other borrowings 2010 $’000 - - - 2009 $’000 2,012 11 2,023 43 Notes to the financial statements For the year ended 31 December 2010 17 Deferred Tax Liabilities Consolidated The temporary differences are attributable to: Withholding tax payable in event of distribution of pre-acquisition dividend Doubtful debts Employee benefits Sales returns and volume rebates Deferred revenue Difference between book and tax value of non-current assets Other provisions Details of unrecognised deferred tax assets can be found in Note 3(c) Reconciliation: Opening balance at 1 January Charged (credited) to profit or loss Acquisition of businesses Balance at 31 December 2010 $’000 - (137) (1,220) (54) (641) 4,307 (648) 1,607 1,972 (365) - 1,607 2009 $’000 430 (54) (600) (101) (762) 3,387 (328) 1,972 640 (222) 1,554 1,972 44 Notes to the financial statements For the year ended 31 December 2010 18 Parent Entity Disclosures Parent Financial position Assets Current assets Non-current assets Liabilities Current liabilities Non-current liabilities Equity Share capital Share based payments reserve Retained earnings Financial performance Profit for the year Other comprehensive income Total comprehensive income 2010 $’000 9,054 55,534 64,588 12,918 3,596 16,514 18,049 631 29,394 48,074 17,205 - 17,205 2009 $’000 2,953 52,803 55,756 11,081 3,862 14,943 18,037 639 22,137 40,813 12,249 - 12,249 Capital commitments for the acquisition of property, plant and equipment Not longer than 1 year 1,042 - Other Reckon Limited assets have been used as security for the bank facilities set out in Note 14. The parent entity has no contingent liabilities. 45 Notes to the financial statements For the year ended 31 December 2010 19 Employee Benefits The aggregate employee benefit liability recognised and included in the financial statements is as follows: Accrued annual leave: Current (Note 13) Long term incentive: Current (Note 15) Non-current (Note 15) Provision for long service leave: Current (Note 15) Non-current (Note 15) Long-term incentive plan Consolidated 2010 $’000 2009 $’000 1,418 1,339 526 892 851 445 492 407 560 443 4,132 3,241 The long-term incentive plan was approved at the Special General Meeting on 20 December 2005, and comprises three possible methods of participation: an option plan, a performance share plan and a share appreciation plan. The Board has discretion to make offers to applicable employees to participate in any of these plans. Options granted and/or performance shares awarded (all in respect of the Company’s ordinary shares) and/or share appreciation rights do not vest before three years after their grant date. Vesting is also conditional upon the Company achieving defined performance criteria. The performance criteria are based upon a total shareholder return (TSR) target. A TSR is the return to shareholders over a prescribed period, being the growth in the Company's share price plus dividends or returns of capital for that period. The Company's initial TSR target will be the Company achieving a median or higher ranking against the TSR position of individual companies within a 'comparator Group' of companies (i.e. a group of comparable ASX listed companies pre-selected by the Board) over the same period. The initial comparator group was determined by independent advisers and was set out in the Chairman’s speech at the Special General Meeting on 20 December 2005. The Board will review the suitability of the comparator group on an on going basis. Only 50% of options or performance shares become exercisable or vest if the initial performance criterion is satisfied. The extent to which the balance of options or performance shares become exercisable or vest will depend on the extent to which the initial performance criterion is exceeded (i.e. the extent to which the Company exceeds a median ranking against the TSR position of the comparator group of companies). The performance shares are held in trust after vesting. The share appreciation rights plan represents an alternative remuneration element (to offering options or performance shares) under which the Board can invite relevant employees to apply for a right to receive a cash payment from the Company equal to the amount (if any) by which the market price of the Company's shares at the date of exercise of the right exceeds the market price of the Company's shares at the date of grant of the right. The right may only be exercised if performance criteria are met. The performance criteria are fixed by the Board in the exercise of its discretion. At present these are the same as the TSR target set for the right to exercise options or for performance shares to vest. No options were issued during the year (2009: nil). 357,873 (2009: 888,324) appreciation rights and 214,190 (2009:375,475) performance shares were issued during the year. The fair value of these rights was 48.9 cents (2009: 19.7 cents) and the shares were $1.48 (2009: $1.05), using a model that adopts the Monte Carlo simulation approach. The assumptions used in this model are: grant date share price of $1.85; expected volatility of 35.2%; dividend yield of 3.5%; and a risk free rate of 4.9%. The expense recognised in 2010 for appreciation rights/performance shares was $1,299,810 (2009: $1,027,823). 46 Notes to the financial statements For the year ended 31 December 2010 19 Employee Benefits continued Set out below are summaries of performance shares and appreciation rights granted under the long-term incentive plan: Performance Shares Grant Date Expiry Date Shares Granted Shares lapsed during the year Shares vested during the year Shares available at the end of the year Jan’07 Jan’08 Jan’09 Jan’10 Dec’09 300,590 Dec’10 252,477 Dec’11 375,475 Dec’12 214,190 Appreciation Rights 2010 - - 3,175 3,604 2009 9,823 7,332 - - 2010 2009 2010 2009 - 290,762 245,145 6,349 1,801 - - - - - - 245,145 365,951 375,475 208,785 - Grant Date Expiry Date Rights Granted Rights lapsed during the year Rights vested during the year Rights available at the end of the year 2010 2009 2010 2009 2010 2009 Jan’07 Jan’08 Jan’09 Jan’10 Dec’09 561,798 Dec’10 495,356 Dec’11 888,324 Dec’12 357,873 - - - - - - - - - 561,798 495,356 - - - - - - - - 495,356 888,324 888,324 357,873 - Reckon Limited Employee Option Plans The Company has previously had two ownership-based remuneration schemes: Executive share option plan The executive share option plan has been terminated. Executive share option plan No. 2 The Reckon Limited Executive Share Option Plan No. 2 was established on 19 July 2000. Under the provisions of the plan, the directors may grant options over unissued shares in the Company to executives and directors of the Company (or their associates) or subsidiaries of the Company selected by the directors from time to time, subject to the ASX Listing Rules and the Corporations Act 2001. Options are granted for a five-year period and 50% of each new tranche becomes exercisable after each of the first two anniversaries of the grant date. The entitlements are vested as soon as they are exercisable (i.e. they are not conditional on future employment). Each option entitles the holder to one ordinary share. Amounts receivable on exercise of any options are recognised as share capital. Options exercised during the year were exercised with an average exercise price of $0.75 (2009: $0.67). 47 Notes to the financial statements For the year ended 31 December 2010 19 Employee Benefits continued Set out below are summaries of options granted under the Executive Share Option Plan No. 2. Grant date Expiry date Exercise Price Options Initially Granted Options lapsed during the year Options exercised and shares issued during the year Options vested and available at the end of the year 2010 2009 2010 2009 2010 2009 Feb 01 Mar 01 Jun 03 Sep 03 Dec 03 Jan 04 Mar 04 Jun 04 Sep 04 Dec 04 Mar 05 Jul 05 Sep 05 Dec 05 Feb 06 Mar 06 Jun 08 Sep 08 Dec 08 Jan 09 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jul 10 Sep 10 Dec 10 $0.198 1,123,334 $0.162 $0.270 $0.505 $0.619 22,145 58,891 115,002 48,890 $0.551 1,061,159 $0.789 $0.960 $0.823 56,110 76,668 151,166 $0.796 250,554 $0.743 $0.741 $0.779 $0.722 75,555 79,999 113,887 144,445 - - - - - - - - - - 41,166 30,349 39,319 68,087 - - - 8,339 10,555 217,076 35,889 45,389 45,441 78,281 - - - - 178,921 440,970 - - - 950 1,419 9,340 5,937 - 18,050 7,298 633 161,168 - - - 171 16,361 19,527 13,722 13,722 66,505 - 24,278 42,223 80,315 - - 31,139 - 379,748 - - - - - - - - - - - - - - - - - - - 950 1,419 633 - - - 171 57,527 49,876 53,041 81,809 245,426 245,426 Number of shares that can be issued for unexercised options 20 Issued Capital Fully Paid Ordinary Share Capital Balance at beginning of financial year Transfer from share-based payments reserve for options exercised during the year Issue of shares Balance at end of financial year Less Treasury shares Balance at beginning of financial year Shares purchased in current period Shares lapsed Prior year lapsed shares utilised Shares vested Balance at end of financial year 2010 2009 No. $’000 No. $’000 133,317,555 18,766 132,937,807 18,378 - 66,505 18 49 - 379,748 132 256 133,384,060 18,833 133,317,555 18,766 620,620 197,030 (6,779) 17,160 (253,295) 574,736 729 370 (10) 20 (324) 785 717,319 375,475 (17,155) - (455,019) 620,620 812 415 (20) - (478) 729 Balance at end of financial year net of treasury shares 132,809,324 18,048 132,696,935 18,037 Fully paid ordinary shares carry one vote per share and carry the right to dividends. Changes to the then Corporations Law abolished the authorised capital and par value concepts in relation to share capital from 1 July 1998. Therefore the Company does not have a limited amount of authorised capital and issued shares do not have a par value. 66,505 (2009: 379,748) options were exercised during the year with an average exercise price of $0.75. Details of the options that were exercised and further details in respect of the share option plans are contained in Note 19 to the financial statements. Total consideration for options exercised during the year is $49,793 (2009: $255,419). 48 Notes to the financial statements For the year ended 31 December 2010 21 Reserves Consolidated Foreign currency translation reserve Balance at beginning of financial year Translation of foreign operations Balance at end of financial year Share-based payments reserve Balance at beginning of financial year Treasury share expense Treasury shares vested/lapsed Transfer to share capital (options exercised) Balance at end of financial year Nature and purpose of reserves (a) Foreign currency translation reserve 2010 $’000 (400) (294) (694) 639 324 (314) (18) 631 (63) 2009 $’000 (142) (258) (400) 958 311 (498) (132) 639 239 Exchange differences arising on translation of the financial reports of foreign subsidiaries are taken to the foreign currency translation reserve, as described in Note 1(f). (b) Share-based payments reserve The share-based payments reserve is for the fair value of options granted and recognised to date but not yet exercised, and treasury shares purchased which have not yet vested. 22 Retained Earnings Consolidated Balance at beginning of financial year Net profit Dividends Balance at end of financial year 23 Earnings Per Share Basic earnings per share Diluted earnings per share 2010 $’000 24,625 16,478 (9,947) 31,156 2010 cents 12.4 12.4 2009 $’000 20,003 13,226 (8,604) 24,625 2009 cents 9.9 9.9 Consolidated Weighted average number of ordinary shares used in the calculation of basic earnings per share 132,779,303 132,494,486 Weighted average number of ordinary shares and potential ordinary shares used in the calculation of diluted earnings per share 133,354,038 133,358,778 49 Notes to the financial statements For the year ended 31 December 2010 24 Contingent Liabilities There are no material contingent liabilities as at 31 December 2010. 25 Commitments For Expenditure (a) Capital Expenditure Commitments The consolidated entity has capital expenditure commitments of $1,042 thousand as at 31 December 2010 (2009: $nil), payable within 12 months. (b) Lease Commitments Operating Leases Within 1 year Later than 1 year and not longer than 5 years Later than 5 years Consolidated 2009 $’000 1,976 7,344 1,949 11,269 2010 $’000 2,520 10,907 2,127 15,554 Operating leases relate to office and warehouse premises with lease terms of between 1 to 7 years. All operating lease contracts contain market review clauses in the event that the consolidated entity exercises its option to renew. The consolidated entity does not have an option to purchase the leased asset at the expiry of the lease period. 50 Notes to the financial statements For the year ended 31 December 2010 26 Subsidiaries Name of Entity Country of Incorporation Parent Entity Reckon Limited Subsidiaries Reckon.com.au Pty Limited Reckon Australia Pty Limited Reckon Investment Centre Limited Reckon Online Holdings Pty Limited Reckon Pacrim Pty Limited Reckon Training Pty Limited Reckon Limited Performance Share Plan Trust Australia Australia Australia Australia Australia Australia Australia Australia Reckon New Zealand Pty Limited New Zealand Advanced Professional Solutions Pty Limited Australia Advanced Professional Solutions Limited New Zealand Advanced Professional Solutions Limited United Kingdom Reckon Docs Pty Limited Independent Corporate Services Pty Limited Quickdocs.com.au Pty Limited Recount Expense Management Pty Limited Australia Australia Australia Australia Billback Systems (UK) Limited1 United Kingdom Billback LLC nQueue Billback LLC1 United States of America United States of America All shares held are ordinary shares. Ownership Interest 2010 % 2009 % 100 100 100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 67 100 100 100 100 100 90 100 100 100 100 100 100 100 100 100 100 100 67 1. Subsequent to year end 25% of Billback Systems (UK ) Limited has been sold to nQueue Inc in return for an additional 7% of nQueueBillback LLC. 51 Notes to the financial statements For the year ended 31 December 2010 27 Related Party Disclosures Consolidated (a) Key Management Personnel Remuneration Short term benefits Post-employment benefits Share based payments 2010 $ 3,963,452 354,747 1,273,156 5,591,355 2009 $ 3,923,937 262,861 955,653 5,142,451 The names of and positions held by the key management are set out in note 27(d). Further details of the remuneration of key management are disclosed in the Directors’ Report. (b) Other Transactions with Key Management Personnel There were no transactions with directors apart from those disclosed in this note. (c) Other Related Party Transactions Intuit Ventures Inc Intuit Ventures Inc, a significant shareholder (11.1%) in Reckon Limited provides the rights for Reckon to market and distribute Intuit software throughout Australasia. In return for this, Intuit receives a royalty payment based on sales made throughout the territory. These royalties amounted to $4,714,664 (2009: $4,056,227) which is expensed in the month that the associated product was sold. The balance due at 31 December 2010 is $167,898 (2009: $161,238). 52 Notes to the financial statements For the year ended 31 December 2010 27 Related Party Disclosures continued d) Directors’ and Key Management Equity Holdings Options and Shareholding 2010 Shareholding Shareholding Performance Performance Performance Performance at start of at end of Options at start Options at end shares at start shares vested shares issued shares held at 2010 20103 of 2010 of 20101 of 2010 in 2010 in 2010 end of 2010 Greg Wilkinson Office Deputy Chairman, Non-executive Director 7,450,000 7,450,000 Clive Rabie CEO, Executive Director 10,508,000 10,508,000 Brian Armstrong CEO, Professional Division 768,673 776,107 Brian Coventry John Thame Myron Zlotnick MD, Professional Division United Kingdom Chairman,Non- executive Director 297,589 109,589 19,000 19,000 General Counsel & Co Secretary 28,204 50,215 Ian Ferrier Non-executive Director 0 0 Chris Hagglund Nigel Boland Paul James Gavin Dixon Grant Linton Russell Scott Richard Hellers Chief Financial Officer GM, Development Professional Division GM Professional Division Australia2 CEO Business Division GM, Professional Division New Zealand GM Reckon Docs President & CEO nQueue Billback Division 111,130 162,454 13,039 20,371 0 15,482 67,539 124,362 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 229,508 58,656 45,946 216,798 20,665 7,332 7,568 20,901 0 0 0 0 107,075 27,018 27,027 107,084 0 0 0 0 165,857 51,324 41,216 155,749 20,665 7,332 7,568 20,901 16,856 15,482 5,405 0 137,775 56,823 45,946 126,898 9,524 0 0 0 0 0 5,405 14,929 0 0 0 0 1 No options were issued in 2010. 2 Mr James' employment ended on 31 December 2010 (6,779 performance shares lapsed). 3 Shareholdings as at the date of the Directors' Report remain unchanged. 53 Notes to the financial statements For the year ended 31 December 2010 27 Related Party Disclosures continued d) Directors’ and Key Management Equity Holdings continued Options and Shareholding 2009 Shareholding Shareholding Performance Performance Performance Performance at start of at end of Options at start Options at end shares at start shares vested shares issued shares held at 2009 2009 of 2009 of 20091 of 2009 in 2009 in 2009 end of 2009 0 0 0 0 0 0 0 Greg Wilkinson Office Deputy Chairman, Non-executive Director 7,450,000 7,450,000 Clive Rabie CEO, Executive Director 10,508,000 10,508,000 Brian Armstrong CEO, Professional Division 748,222 768,673 Brian Coventry John Thame Myron Zlotnick MD, Professional Division United Kingdom Chairman,Non- executive Director General Counsel & Co Secretary Ian Ferrier Non-executive Director Chris Hagglund Nigel Boland Paul James Gavin Dixon Grant Linton Russell Scott Andrew Moon2 Richard Hellers3 Chief Financial Officer GM, Development Professional Division GM Professional Division Australia CEO Business Division GM, Professional Division New Zealand GM Reckon Docs GM BillBack President & CEO nQueue Billback Division 287,766 297,589 19,000 19,000 28,204 0 0 0 0 111,130 47,500 23,222 13,039 0 0 0 0 0 0 0 67,539 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 221,007 72,451 80,952 229,508 17,155 9,823 13,333 20,665 0 0 0 0 87,660 28,204 47,619 107,075 0 0 0 0 156,868 63,630 72,619 165,857 17,155 9,823 13,333 20,665 7,332 0 9,524 16,856 124,362 67,539 80,952 137,775 0 0 0 0 0 0 0 0 9,524 9,524 0 0 0 0 0 0 1 No options were issued in 2009. 2 Employment ended on 31 March 2009. 3 Mr Hellers was appointed President & CEO of the merged BillBack USA and nQueue business effective 1 July 2009. 54 Notes to the financial statements For the year ended 31 December 2010 28 Notes to the Statement of Cash Flows Consolidated (a) Reconciliation of Cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the statement of financial position as follows: Cash (i) (i) Cash balance is predominantly in the form of short-term money market deposits, which can be accessed at call. (b) Businesses Acquired Corporate Services and BillBack businesses Consideration: Cash consideration (i) Net debt acquired Direct costs relating to the acquisition Consideration yet to be paid Fair value of net assets of entity acquired: Receivables Inventories Intellectual property – customer contracts Intellectual property – development and software Intellectual property – trademarks and domain names Fixed assets Deferred tax liabilities Trade payables Deferred revenue Other current liabilities Other non-current liabilities Goodwill 2010 $’000 8,095 8,095 - - - - - - - - - - - - - - - - - - - 2009 $’000 2,350 2,350 18,000 228 1,045 - 19,273 3,437 881 4,210 1,793 150 728 (439) (772) (3,361) (1,121) (138) 5,368 13,905 19,273 (i) On 25 February 2011 Reckon Limited settled legal proceedings against Espreon in relation to several claims. An amount of $700,000 was paid by Espreon to Reckon in full and final settlement of all claims. 55 Notes to the financial statements For the year ended 31 December 2010 28 Notes to the Statement of Cash Flows continued (b) Businesses aquired continued Consolidated nQueue Billback Consideration: Cash consideration Direct costs relating to the acquisition Fair value of net assets of entity acquired: Receivables - current Receivables - non current Inventories Fixed assets Deferred revenue Other current liabilities Goodwill 2010 $’000 - - - - - - - - - - - - 2009 $’000 - 26 26 334 684 301 20 (1,082) (257) - 26 26 Corporate Services and BillBack businesses Reckon Limited acquired the Corporate Services and BillBack businesses previously owned by Espreon Limited effective from 2 January 2009 for $18 million. The acquisition was funded predominantly from existing cash reserves. Debt funding was used to fund the difference. The Corporate Services business is a provider of documentation for company formations, secretarial services, trusts and self managed super fund trust deeds. This is a range of products and services which is similar to Reckon’s Shelco business. The BillBack business is a provider of technologies for the capture, reporting and billing of client expenses by professional services suppliers such as lawyers and accountants, and hence has a natural fit with Reckon’s Professional Division. nQueue Billback Reckon Limited merged its United States subsidiary of BillBack with nQueue Inc effective from 1 July 2009. Reckon holds a 67% controlling interest in the merged entity. The merged entity brings together the best of the parties cost recovery and cost management products and service offerings in the USA and gives the business greater scale. 56 Notes to the financial statements For the year ended 31 December 2010 28 Notes to the Statement of Cash Flows continued Consolidated (c) Reconciliation of Profit After Income Tax to Net Cash Profit after income tax Depreciation and amortisation of non-current assets Non-cash employee benefits expense – share based payment Increase/(decrease) in current tax liability/asset Increase/(decrease) in deferred tax balances Unrealised foreign currency translation amount (Increase)/decrease in assets: Current receivables Current inventories Other current assets Non-current receivables Increase/(decrease) in liabilities: Current trade payables Other current liabilities Other non-current liabilities Net cash inflow from operating activities 29 Outside Equity Interests in Controlled Entities Interest in: Share Capital Accumulated profits 30 Dividends – ordinary shares Final franked dividend for the year ended 31 December 2009 of 4.0 cents (2008: 3.5 cents) per share paid on 5 March 2010 Interim dividend for the year ended 31 December 2010 of 3.5 cents per share franked to 90% (2009: 3.0 cents) paid on 10 September 2010 Franking credits available for subsequent financial years based on a tax rate of 30% (2009: 30%) 2010 $’000 17,248 7,769 324 107 165 (294) 2,396 328 36 - 11 (323) 413 28,180 - - - 5,307 4,640 9,947 1,441 2009 $’000 13,602 6,897 311 (1,106) 733 (258) (388) 463 (309) (125) (371) (629) 61 18,881 - 374 374 4,636 3,968 8,604 1,932 57 Notes to the financial statements For the year ended 31 December 2010 31 Financial Instruments (a) 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 revenues 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. (b) Financial Risk Management Objectives The Board of Directors has overall responsibility for the establishment and oversight of the Company and Group’s financial management framework. The Board of Directors 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 risk arising from the Company and Group’s financial instruments are currency risk, credit risk, liquidity risk and cash flow interest rate risk. (c) Interest Rate Risk The Group is exposed to interest rate risk on the cash held in bank deposits and on bank borrowings. Cash deposits of $8,095 thousand were held by the consolidated entity at the reporting date, attracting an average interest rate of 4.2% (2009: 1.5%). If interest rates had been 50 basis points higher or lower (being the relevant volatility considered relevant by management) and all other variables were held constant, the Group’s net profit would increase/decrease by $40 thousand (2009: $12 thousand). Borrowings by the consolidated entity at the reporting date were $2 thousand. Borrowings during the year attracted an average interest rate of 8.26% on overdraft facilities and 6.14% on bank bill facilities (2009: 4.33%). The Board of Directors monitors these exposures and does not presently hedge against these risks. (d) Credit Risk Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the consolidated entity. The consolidated entity has adopted the policy of only dealing with creditworthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The consolidated entity does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the consolidated entity’s maximum exposure to credit risk without taking account of the value of any collateral or other security obtained. (e) Foreign Currency Risk The consolidated entity and company undertakes certain transactions denominated in foreign currencies that are different to the functional currencies of the entities undertaking the transactions, hence exposures to exchange rate fluctuations arise. The Board of Directors monitor these exposures and does not presently hedge against this risk. The carrying amount of the consolidated entity’s foreign currency denominated monetary assets and liabilities at the reporting date that are denominated in a currency that is different to the functional currency of respective entities undertaking the transactions is as follows: Liabilities 2010 $’000 - - Consolidated 2009 $’000 - - Assets 2010 $’000 21 - 2009 $’000 33 28 Euro US Dollar 58 Notes to the financial statements For the year ended 31 December 2010 31 Financial Instruments continued At 31 December 2010, if the Euro weakened against the UK Pound by 10% (being the relevant volatility considered relevant by Management), with all other variables held constant the net profit of the consolidated entity would increase by $2 thousand (2009: $3 thousand). At 31 December 2010, if the New Zealand Dollar, US Dollar and UK Sterling weakened against the Australian Dollar by 10% (being the relevant volatility considered relevant by management), with all other variables held constant the net profit of the consolidated entity would increase by $37 thousand (2009: $231 thousand). This latter sensitivity relates to inter-group loan balances denominated in Australian Dollars, which are eliminated on consolidation. 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 years. 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 New Zealand, United States of America and the United Kingdom. These entities transact primarily in their functional currency and, aside from inter-group loan balances, do not have significant foreign currency exposures due to outstanding foreign currency denominated items. 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 at year end. 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 the Australian Dollar and the New Zealand Dollar, and the Australian Dollar and the US Dollar and the Australian Dollar and the UK Sterling. (f) Liquidity The Group manages liquidity risk by maintaining adequate cash reserves and banking facilities by continuously monitoring forecast and actual cash flows. (g) Capital risk management The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The capital structure of the Group consists of cash, debt and equity attributable to equity holders of the parent. The Board reviews the capital structure on a regular basis. Based upon this review, the Group balances its overall capital structure through borrowings, the payment of dividends, issues of shares, share buy-backs and returns of capital. This strategy remains unchanged since the prior year. (h) Fair Value The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets, is determined with reference to quoted market prices. The fair value of other financial assets and liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable market transactions. The carrying amount of financial assets and financial liabilities recorded in the financial report approximates their respective fair values, determined in accordance with the accounting policies disclosed in Note 1 to the financial statements. 59 Notes to the financial statements For the year ended 31 December 2010 32 Segment Information 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 January 2009. AASB 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. (a) Business segment information The consolidated entity is organised into three operating divisions: Business Division Professional Division nQueueBillback Division These divisions are the basis upon which the consolidated entity reports its financial information to the chief operating decision maker, being the Board of Directors. The principal activities of these divisions are as follows: • Business Division - development, distribution and support of personal financial and accounting software, as well as related products and services to professional partners. Products sold in this division include QuickBooks, Quicken, ReckonDocs and Reckon Elite. • Professional Division - development, distribution and support of practice management, tax, client accounting, cost management and related software under the APS and BillBack brands. • nQueue Billback Division – distribution and support of cost recovery, cost management and related software to the USA legal market. Segment revenues and results Business Division Professional Division nQueue Billback Division Total 2010 $’000 2009 $’000 2010 $’000 2009 $’000 2010 $’000 2009 $’000 2010 $’000 2009 $’000 Operating revenue 56,050 49,854 26,803 28,115 7,262 7,339 90,115 85,308 Interest revenue Total revenue 158 81 90,273 85,389 Segment EBITDA 20,720 15,677 10,837 11,021 Depreciation and amortisation (2,017) (1,865) (5,053) (4,703) 3,109 (699) 2,205 34,666 28,903 (545) (7,769) (7,113) Total segment profit before tax 18,703 13,812 5,784 6,318 2,410 1,660 26,897 21,790 Central administration costs Interest revenue/(Financing costs) Profit before income tax Income tax expense Profit for the year (4,495) (3,756) (3) (222) 22,399 17,812 (5,151) (4,210) 17,248 13,602 The revenue reported above represents revenue generated from external customers. Segment profit represents the profit earned by each segment without allocation of central administration costs, finance costs and income tax expense, all of which are allocated to corporate head office. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessing performance. 60 Notes to the financial statements For the year ended 31 December 2010 32 Segment Information continued Segment assets and liabilities Assets Liabilities 2010 $’000 29,308 36,052 8,760 74,120 (6,572) 2009 $’000 23,331 35,107 10,486 68,924 (4,602) 2010 $’000 2009 $’000 15,794 12,613 6,215 2,970 9,182 3,854 24,979 25,649 (6,572) (4,602) Additions to non-current assets 2010 $’000 2,196 5,461 1,330 8,987 - 2009 $’000 6,673 8,152 7,081 21,906 - 67,548 64,322 18,407 21,047 8,987 21,906 Business Division Professional Division nQueueBillback Division Total of all segments Eliminations Consolidated (b) Geographical information Revenues from external customers Non-current assets Australia Other countries (i) 2010 $’000 73,199 16,916 90,115 2009 $’000 67,628 17,680 85,308 2010 $’000 37,137 13,409 50,546 2009 $’000 36,512 13,985 50,497 (i) No single country outside of Australia is considered to generate revenues which are material to the Group. (c) Segment revenues External sales Business and wealth management products Accounting industry products Legal industry products 2010 $’000 49,694 28,298 12,123 90,115 2009 $’000 44,433 28,203 12,672 85,308 61 Notes to the financial statements for the year ended 31 December 2010 33 Economic Dependency Reckon Limited generates a significant volume of its revenue from products supplied by Intuit Inc under the manufacturing and distribution agreement it has with Intuit Inc. The agreement was renegotiated effective from December 2010 to ensure that it also catered for the emerging online market. The initial term of the agreement is 5 years with automatic rolling terms of 3 years. The agreement is subject to commercial terms relating to royalties and termination. Previously the term of the agreement was 10 years and was subject to annual market growth objectives being achieved. 34 Subsequent Events Subsequent to the end of the financial year: Share buy back A share buy back of up 10% of the company’s share capital, was announced on 8 February 2011, as part of the Company’s strategy to manage its capital base. Dividend The Board has declared a dividend of 4.5 cents per share to shareholders on 8 February 2011. The dividend will be 90% franked. The record date for the dividend is 18 February 2011. The impact on the franking account balance of unrecognised dividends is $2,561 thousand. nQueue Billback UK Subsequent to year end 25% of Billback Systems (UK ) Limited has been sold to nQueue Inc in return for an additional 7% of nQueue Billback LLC. Espreon Litigation On 25 February 2011 Reckon Limited settled legal proceedings against Espreon Limited in relation to several claims. An amount of $700,000 was paid by Espreon to Reckon in full and final settlement of all relevant claims. 35 Company information Reckon Limited is a listed public company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Up to 17 April 2011 35 Saunders Street Pyrmont Sydney NSW 2009 From 18 April 2011 Level 12, 65 Berry Street North Sydney NSW 2060 A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities in the Directors’ Report, which is not part of this Financial Report. The Financial Report was authorised for issue by the Directors on 30 March 2011 62 Additional information as at 16 March 2011 Twenty Largest Holders of Quoted Equity Securities Ordinary Shareholder National Nominees Limited Intuit Ventures Inc JP Morgan Nominees Australia Limited HSBC Custody Nominees (Australia) Limited Gregory John Wilkinson UBS Nominees Pty Limited DJZ Investments Pty Limited RBC Dexia Investor Services Australia Nominees Pty Ltd Cogent Nominees Pty Limited Citicorp Nominees Pty Limited Australian Executor Trustees NSW Ltd Mr Clive Rabie and Mrs Kerry Rose Rabie Mr Stephen James Rickwood Mr Clive Alan Rabie Rawform Pty Ltd Mr Philip Ross Hayman Reckon Australia Pty Ltd Citicorp Nominees Pty Limited Queensland Investment Corporation Mr Philip Ross Hayman Number Percentage 16,448,564 14,828,304 14,579,653 9,595,769 6,247,800 4,843,475 4,690,000 4,526,483 4,507,389 4,378,728 4,322,759 4,285,611 2,651,062 1,532,389 1,202,200 1,000,000 987,883 941,204 695,757 679,264 12.33 11.12 10.93 7.19 4.68 3.63 3.52 3.39 3.38 3.28 3.24 3.21 1.99 1.15 0.90 0.75 0.74 0.71 0.52 0.51 102,944,294 77.17 Number of Holders of Equity Securities Ordinary Share Capital 133,384,060 fully paid ordinary shares are held by 4,000 individual shareholders as at 16 March 2011. All issued ordinary shares carry one vote per share. Shareholdings less than marketable parcels The number of shareholdings held in less than marketable parcels is 69. 63 Additional information as at 16 March 2011 Distribution of Holders of Equity Securities As at 16 March 2011 Number of Ordinary Shares Number of Shareholders 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total 930 1,871 602 549 48 4,000 Substantial Shareholders As at 16 March 2011 Ordinary Shares (Number) Ordinary Shares (Percentage) National Nominees Limited 16,448,564 Intuit Ventures Inc 14,828,304 12.33 11.12 Principal Registered Office Up to 17 April 2011 Ground Floor, 35 Saunders Street Pyrmont NSW 2009 Tel: (02) 9577 5000 From 18 April 2011 Level 12, 65 Berry Street North Sydney NSW 2060 Tel: (02) 9577 5000 Share Registry Computershare Investor Services Pty Limited Level 3 60 Carrington Street Sydney NSW 2000 Tel: (02) 8234 5000 Auditors Deloitte Touche Tohmatsu 225 George Street Sydney NSW 2000 JP Morgan Nominees Australia Limited Mr Clive Rabie and Mrs Kerry Rose Rabie 14,579,653 10.93 10,508,000 7.88 Principal Administration Office Up to 17 April 2011 Ground Floor, 35 Saunders Street Pyrmont NSW 2009 Tel: (02) 9577 5000 HSBC Custody Nominees (Australia) Limited 9,595,769 Gregory John Wilkinson 7,450,000 7.19 5.58 From 18 April 2011 Level 12, 65 Berry Street North Sydney NSW 2060 Tel: (02) 9577 5000 Stock Exchange Listings Reckon Limited’s ordinary shares are listed on the Australian Securities Exchange Limited under the symbol ‘RKN’. Company Secretary Mr Myron Zlotnick 64 Additional information as at 16 March 2011 Annual General Meeting The Annual General Meeting for Reckon Limited will be held on Tuesday 24 May 2011 at 10:00am at level 12, 65 Berry Street, North Sydney, NSW. If you are unable to attend, you are invited to complete the Proxy Form included with your Notice of Meeting. The completed Proxy Form must be received no later than 48 hours before the Annual General Meeting. Important Information – Corporate Notices Securityholders will be aware that they have options as to how they want to receive statutory corporate notices and reports. In the interest of cost saving and the environment (every little bit helps), we encourage you to opt in to receive all notices and reports electronically. Please go to: www.computershare. com.au and follow the prompts to register your opting in to receive ALL NOTICE AND REPORTS IN ELECTRONIC FORMAT. To register to be notified by email when the Annual Report and other Announcements are available online: • Visit the share registry at www.computershare.com.au • Click on ‘Investor Centre’ • Click on ‘Update my details’ and select 'communications options' • Type ‘RKN’ in the Company Code field • You will need to enter your personal security information: Holder Identification Number (HIN) or Securityholder Reference Number (SRN); family or company name, postcode or country (if outside Australia); and click ‘Login’ • After you have entered your email address and selected the publications you wish to receive, a confirmation email will be sent to you. Should you have any further enquiries, contact the Registry on 1300 855 080 or +61 3 9415 4000 (if outside Australia). For web enquiries, please send an email to web.queries@computershare.com.au. Alternatively, email your full name and address to shareholders@reckon.com.au to receive the Annual Report, corporate and statutory notices electronically. 65 66 67 68 

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