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
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3
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10
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21
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24
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25
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27
28
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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.
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