Kofax Announces Record Software Business Results for the Fiscal Year Ended June 30, 2011

Company Begins Preliminary Work for a U.S. Listing

IRVINE, Calif.--(BUSINESS WIRE)-- Kofax plc (LSE: KFX), a leading provider of capture driven business process automation solutions, today announced its preliminary unaudited results for the fiscal year ended June 30, 2011.

Kofax reported record software business revenues, adjusted earnings before interest, taxes and amortization (Adjusted EBITA)*, adjusted diluted earnings per share from continuing operations (Adjusted Diluted EPS)*, cash generated from operations and year end cash balances, and significant progress in its business that substantially validate the Company’s strategy and ability to execute as well as the fundamental strength in its business.

Financial Highlights:

• Total revenues grew 12% to $243.9 million (2010: $217.6 million), or 10% in organic constant currency
• Adjusted EBITA grew by 54% to $40.2 million (2010: $26.0 million), or a 16% margin (2010: 12%)
• Adjusted Diluted EPS grew by 72% to $0.31 (2010: $0.18)
• Cash generated from operations increased 53% to $35.6 million (2010: $23.3 million)
• Year end cash balances totalled $98.3 million (2010: $55.5 million)

Operating Highlights:

• Harvey Spencer Associates, a leading industry analyst firm, reported that during calendar year 2010 Kofax increased its overall capture market share to 15% from 11% in 2009
• Consistent with this gain in market share the Company grew its total revenues faster than the overall capture market and faster than its two most direct competitors during the calendar year 2010 and the first six months of 2011
• The Company also:
  • Added over 2,155 new customers and closed more six and seven figure sales
  • Received widespread recognition for its market position and software products
  • Successfully launched six new software product releases
  • Disposed of its legacy hardware distribution and maintenance business
  • Acquired Atalasoft to add internet browser based applications and portals to its capture onramp
  • Appointed Wade Loo to its Board of Directors and Audit Committee
• Subsequent to the fiscal year end the Company:
  • Was selected by Microsoft to be part of its exclusive Managed Independent Software Vendor (ISV) Program
  • Put a $40.0 million unused, as of today line of credit in place with Bank of America Merrill Lynch to further enhance its financial position

The Company also announced it has restated its financial statements for the fiscal years ended June 30, 2009 and 2010. This corrected the way in which revenue is recognized for maintenance contracts for the fiscal years ended June 30, 2009 and 2010, and to correct certain tax assets and liabilities arising from the acquisition of 170 Systems and correct the valuation of inventories as of the fiscal year ended June 30, 2010. After the restatement, total software business revenues have increased by $0.6 million and $1.8 million in fiscal years 2009 and 2010, respectively, and Adjusted EBITA has increased by $0.6 million in fiscal year 2009 and $1.1 million in fiscal year 2010. A thorough description of the restatement, including the related balance sheet adjustments, is contained in the Chief Financial Officer’s Review attached hereto.

At their meeting on September 1, 2011 Kofax’s Board of Directors confirmed management are performing the preliminary work needed for the Company to eventually effect an initial public offering in the United States. The Board noted that it has not set a specific timeframe for the offering, which will be subject to Kofax’s performance, financial market conditions and other relevant considerations, but it’s unlikely to occur during the current fiscal year. The Board also noted that its intention would be to then maintain a dual listing on both a U.S. and the London Stock Exchange.

Reynolds C. Bish, Chief Executive Officer, said: “We experienced strong revenue growth during the first half of the past year but less during the second half. As stated in our July trading update, we believe this slowdown was caused by longer sales cycles and decision making that emerged as a result of increasing uncertainty and volatility in the global economic environment. We expect these challenges to continue until more confidence and stability return to markets.”

Bish continued: “We recognize that our performance can always be improved but Management and the Board are nonetheless pleased with the Company’s overall progress. Our pipeline of opportunities has continued to grow, we believe we’re well positioned to continue gaining market share and we remain confident in our business but we are cautious in our outlook. While it’s difficult to provide precise guidance at the present time, during the current fiscal year we conservatively expect between eight and ten percent total revenue growth in U.S. dollars on a constant currency basis.”

Jamie Arnold, Chief Financial Officer, said: “Our progress during this past year led to our decision to begin the preliminary work needed for us to eventually effect an initial public offering in the United States. While market conditions are not currently conducive to effecting such a transaction, we want to be in the position of having the flexibility to do so at the appropriate time. As we become a more U.S. centric business, we’ll need to access the leading financial market for global software companies in order to better pursue our organic revenue growth and acquisition strategies.”

Webcast

The Company will review these results with financial analysts and conduct a question and answer session in the London offices of Financial Dynamics today at 10:00 am GMT. This presentation can be accessed by dialling +44 (0)20 7136 2054 from the UK or +1-212-444-0896 from the U.S. and entering confirmation code 4981463, or via live webcast in the investor relations section of the Company’s website. The presentation will be archived from 1:00 pm GMT in the investor relations section of the Company’s website.

* For a definition of Adjusted EBITA and Adjusted Diluted EPS please refer to the Chief Financial Officer’s Review attached.

About Kofax

Kofax plc (LSE: KFX) is a leading provider of capture driven business process automation solutions. For 25 years, Kofax has provided award-winning products that streamline the flow of information throughout an organization by managing the capture of business critical information in paper, fax and electronic formats in a more accurate, timely and cost effective manner. These solutions provide a rapid return on investment to thousands of customers in banking and financial services, insurance, government, business process outsourcing and other markets. Kofax delivers these solutions through its own sales and service organization, as well as through a global network of more than 700 authorized partners in more than 60 countries throughout the Americas, EMEA and Asia Pacific. For more information, visit www.kofax.com.

“Kofax” is a registered trademark in the U.S., the EU and other regions. All other trademarks and registered trademarks are the property of their respective owners.

Chief Executive Officer’s Review

Financial Performance

The fiscal year ended June 30, 2011 was successful for Kofax, with the Company reporting record revenues, adjusted earnings before interest, taxes and amortization (EBITA), adjusted diluted earnings per share from continuing operations (EPS), cash generated by operations and year end cash balances. For a definition of Adjusted EBITA and adjusted diluted EPS please refer to the Chief Financial Officer’s Review that follows.

Total revenues grew 12% to $243.9 million (2010: $217.6 million), or 10% in organic constant currency. This was driven by:

1. Very strong growth during the first half of the fiscal year, particularly in maintenance service revenues,
2. Continuing progress with our hybrid go-to-market strategy, which allows us to address and penetrate a broad spectrum of the capture market and
3. Improving sales execution and productivity.

We experienced strong revenue growth during the first half of the past year but less during the second half. As stated in our July trading update, we believe this slowdown was caused by longer sales cycles and decision making that emerged as a result of increasing uncertainty and volatility in the global economic environment. We expect these challenges to continue until more confidence and stability return to markets.

This growth, coupled with the benefit of cost saving measures previously implemented and the on-going prudent management of expenses, yielded an Adjusted EBITA of $40.2 million (2010: $26.0 million), or a 16% margin (2010: 12%), and an adjusted diluted EPS of $0.31 (2010: $0.18).

As a result of good operating cash flow generation from operations of $35.6 million (2010: $23.3 million) and the disposal of our legacy hardware distribution and maintenance business, we ended the year with total cash balances of $98.3 million (2010: $55.5 million). This was after paying $8.7 million to settle the one year “hold back” relating to our acquisition of 170 Systems in September 2009, $4.7 million on closing for our acquisition of Atalasoft in May 2011 and $3.2 million for capital expenditures. These cash balances will allow us to further grow revenues and earnings both organically and via our acquisition strategy.

Finally, after the end of the fiscal year we put a $40.0 million unused line of credit in place with Bank of America Merrill Lynch to further enhance the strength of our financial position.

We’re pleased with these achievements and believe they substantially validate our strategy and ability to execute as well as the fundamental strength in our business. We nonetheless recognize that our performance can always be better and we will therefore continue to plan for and strive to achieve improvements in all that we do in this current and future fiscal years.

Operating Highlights & Strategic Progress

In July 2011, Harvey Spencer Associates, a leading industry analyst firm, published its annual report on the capture software and services market, which noted that:

1. The overall market grew 10% in calendar year 2010 to $2.2 billion (2009: $2.0 billion), and is projected to grow at a compound annual growth rate of 13.5% to $4.1 billion in 2015,
2. We increased our overall market share to 15% during 2010 (2009: 11%),
3. We significantly extended our leadership position in the “Batch Image Capture” segment – which is defined as the scanning, indexing and exporting of document images and data for archive purposes – to a 35% share (2009: 25%),
4. We extended our leadership position in the “Batch Content Capture” segment – which is defined as the scanning, classifying, extracting critical business data and exporting of document images and data to downstream business processes – to a 17% share (2009: 13%) and
5. For the first time we achieved a top five position in the important and rapidly growing “Ad Hoc Content Capture” segment with a 10% share, up from virtually nothing in 2009.

These three segments comprise the “enterprise” portion or 67% of the total market, where we extended our leadership position to a 21% share (2010: 16%).

Our achieving a 10% share of the ad hoc content capture segment was made possible by the investments we’ve made in the research and development of our Kofax Front Office Server product. This software allows organizations to move the scanning of documents from centralized, back offices to highly distributed, front office environments. Customer facing employees are able to use familiar equipment such as all-in-one scan, print and fax multi-function peripherals (MFPs) and desktop scanners to capture documents where they originate. This eliminates the need to batch and ship documents to another location, thus reducing costs, and accelerates document processing, which increases an organization’s responsiveness and allows it to gain competitive advantage.

Consistent with the gains in market share we also grew our total revenues faster than the overall capture market and, based on public filings, faster than our two most direct competitors – EMC / Captiva and Readsoft – during calendar year 2010 and the first six months of 2011.

We believe it’s again clear that we’re pursuing a large and growing market opportunity and continuing to gain market share as a result of our strategy, strong competitive advantages and improving execution.

During this last fiscal year we successfully added over 2,155 new customers (2010: 1,924), not including those arising from our acquisition of Atalasoft, and closed more six and seven figure sales. We closed 23 sales greater than $0.5m (2010: 17) and 12 greater than $1.0m (2010: 9). These once again included two of the largest sales in the history of Kofax – one for $4.5 million to a global business process outsourcing firm providing information management services and another for $3.0 million to a U.S. federal government agency. All these achievements are attributable to success in implementing our hybrid go-to-market model and improving sales execution.

During the year we were also pleased to receive widespread recognition for our market position and products. This included:

• As outlined above, Kofax again being recognized as a leader in the capture market by Harvey Spencer Associates
• The Company being named to KMWorld magazine’s “100 Companies that Matter in Knowledge Management” in 2011, marking Kofax’s eighth consecutive appearance on this prestigious list
• Kofax being named “Channel Partner of the Year” and the Kofax Desktop software “Content Management Software Product of the Year” for the Small Office / Home Office (SOHO) category in Document Manager magazine’s 2010 DM Awards
• Kofax Capture and Kofax VirtualReScan (VRS) software being given “Best Channel Product of 2010” awards from Business Solutions magazine
• Subsequent to the fiscal year end the Company being selected by Microsoft to be part of its exclusive Managed Independent Software Vendor (ISV) Program

Our investments in research and development have once again allowed us to better address the needs of our customers and help grow our revenues. In this last fiscal year we successfully launched six new software product releases:

• Kofax Front Office Server 3.5, which added support for Canon, Konica Minolta and Xerox MFPs and an improved thin client desktop scan application for office automation needs
• Kofax Communication Server 9.0, to add important new functionality and tighter integration with Kofax Capture, Kofax Transformation Modules and Microsoft Exchange 2010 environments
• Kofax Express 2.5, a new version of this packaged scan-to-archive software that adds automated indexing capabilities and certification for use with Microsoft SharePoint 2010
• Kofax VRS Elite, a new version of our patented image enhancement and perfection software that provides enhanced functionality to improve overall performance, device health monitoring capabilities and the ability to better support the deployment of multiple scanners
• Kofax Monitor 6.0, which adds Kofax VRS Elite and Kofax Communication Server to Kofax Capture and Kofax Transformation Modules as applications supported by this real-time performance monitoring software
• MarkView Financial Suite 7.0, which provides accounts payable and other business functions with one click approval of invoices in an easily configurable interface to accelerate this process, and new capture enabled workflows to automatically flag inconsistencies in value added tax (VAT) and freight costs, thereby eliminating manual steps that would otherwise be required

Two of the more notable events during this last fiscal year were the disposal of our legacy hardware distribution and maintenance business and our acquisition of Atalasoft.

In January 2011 we announced and at the end of May we closed on the sale of our hardware distribution and maintenance business to a private equity firm and members of the business’ management team. Under the terms of the sale agreement, the buyers agreed to pay gross consideration of $22.2 million with $14.4 million paid at closing, $5.2 million to be paid one year from closing, with $2.0 million thereof subject to certain indemnification terms and conditions, and the remaining $2.6 million, including interest thereon at the rate of five percent per annum, to be paid 18 months from closing, with the payment of all as yet unpaid amounts adequately secured.

In May 2011 we acquired Atalasoft, a leading developer and marketer of imaging software development toolkits (SDKs), to add internet browser based applications and portals to our capture “onramp”. Atalasoft’s flagship product – DotImage – is the number one SDK for document scanning, viewing, annotating and processing in Microsoft .NET environments for traditional client server, portal and internet browser based applications. Its customers include over 2,500 end users who license the SDK for internal software development purposes, and system integrators and independent software vendors (ISVs) who use the SDK to develop proprietary applications that they then resell to end users. In both instances Atalasoft’s SDK significantly reduces a customer’s development effort and costs. This adds unique capabilities to Kofax’s product portfolio, strengthens our competitive position and increases our addressable market.

The wide spread adoption of online applications provides another way for information to enter an organization and Atalasoft’s technology allows us to capture enable those applications. Using a mortgage application process as an example, most lenders allow prospective borrowers to apply for mortgages via traditional, paper based processes or online via portal and internet browser based applications. Applicants using the latter approach still have to provide paper copies of documents evidencing their proof of identity, income and other supporting information to the lender for processing. Capture enabling these web applications will allow applicants to easily scan those paper documents and submit all information electronically. This will in turn eliminate the need to submit paper copies, accelerate the mortgage application process, better serve customer needs and allow lenders to gain competitive advantage.

Kofax acquired all of Atalasoft's stock for cash consideration of $4.7 million paid at closing, $0.8 million to be paid one year from closing, subject to certain indemnification terms and conditions, and additional payments of up to $4.3 million which may be paid during the two and one half years from closing subject to the achievement of specific annual revenue growth rates and EBITA margins, the delivery of defined new product capabilities and the attainment of certain other management objectives.

This transaction was consistent with our stated acquisition strategy and better positions Kofax to further grow its share of the important and rapidly growing ad hoc content capture segment of the capture market. Our integration of Atalasoft was substantially completed by June 30, 2011 and its results to date have been consistent with or better than our original expectations.

Corporate Mission & Strategy

We’ve made significant progress in our business and believe this substantially validates our strategy and ability to execute as well as the fundamental strength in our business. As a result, our mission remains the same – to be the leading provider of capture driven business process automation solutions.

Our software allows businesses, government agencies and other organizations to design, deploy and operate comprehensive solutions that automate the conversion of paper and electronic forms, documents and other communications received from customers, suppliers, partners and employees into digital information usable in enterprise software applications and repositories. By automating what would otherwise be manual, labor intensive processes that are expensive, time consuming tasks also prone to errors and poorly utilizing valuable human resources, our software offers a more accurate, timely and cost effective solution. This in turn allows an organization to improve its responsiveness, gain competitive advantage and enhance its regulatory compliance efforts. As a result of these benefits, many of our end user customers realize a return on investment (ROI) in only 12 to 18 months.

We intend to accomplish our mission by:

1. Delivering organic revenue growth that meets or exceeds capture market growth rates,
2. Controlling costs to meet or exceed our Adjusted EBITA objectives and
3. Augmenting our organic revenue growth and Adjusted EBITA with strategic acquisitions of complementary software companies and products that allow us to better serve the needs of our customers and gain competitive advantage.

Specific revenue growth strategies include leveraging our hybrid go-to-market model to:

1. Drive direct applications software sales by improving our execution and productivity,
2. Drive indirect applications software channel sales by better enabling and adding to our partner ecosystem and
3. Drive OEM / POS sales by adding new partners.

We will also make on-going investments in research and development in order to continually improve and add to our existing product offerings, and over time prudently reallocate those expenditures to better focus on the important and rapidly growing ad hoc content capture segment. This, combined with our acquisition strategy, will eventually expand our vision well beyond the traditional capture market to encompass additional growth opportunities.

We made a great deal of progress in many of these areas during this last fiscal year and created a solid foundation for more aggressively pursuing our mission and strategies during the current and future fiscal years.

Dividend Matters

After careful consideration of the Company’s future opportunities, the Board intends to maintain its policy of not paying a regular dividend in order to invest in growing the Company’s business. As a result, no dividends were declared or paid during the fiscal year ended June 30, 2011.

Management & Board Changes

There have been no changes in the Company’s Executive Management Team since we announced Kofax’s financial results for the fiscal year ended June 30, 2010.

The Board continued to transform its composition with the appointment of Wade W. Loo as a Non Executive Director and member of the Board’s Audit Committee effective as of February 4, 2011. Wade retired from KPMG during 2010 after working there for 30 years. He was most recently the senior partner in charge of its audit practice in Northern California and leader of KPMG’s Audit Committee Institute Roundtables and Audit Committee Chair Peer Exchanges in Silicon Valley. He has a wealth of experience in working with emerging software and technology companies that are publicly held or in the process of affecting initial public offerings in the United States and major public companies in international markets.

No other Board changes occurred during the fiscal year ended June 30, 2011.

Initial Public Offering in the United States

Subsequent to the fiscal year end, on September 1, 2011 Kofax’s Board of Directors confirmed management performing the preliminary work needed for the Company to eventually affect an initial public offering in the United States. The Board noted that it has not set a specific timeframe for the offering, which will be subject to Kofax’s performance, financial market conditions and other relevant considerations, but it’s unlikely to occur during the current fiscal year. The Board also noted that its intention would be to then maintain a dual listing on both a U.S. and the London Stock Exchange.

Our progress during this past year led to this decision. While market conditions are not currently conducive to effecting such a transaction, we want to be in the position of having the flexibility to do so at the appropriate time. As we become a more U.S. centric business, we’ll need to access the leading financial market for global software companies in order to better pursue our organic revenue growth and acquisition strategies.

Outlook

We experienced strong revenue growth during the first half of the past year but less during the second half. As stated in our July trading update, we believe this slowdown was caused by longer sales cycles and decision making that emerged as a result of increasing uncertainty and volatility in the global economic environment. We expect these challenges to continue until more confidence and stability return to markets.

We recognize that our performance can always be improved but Management and the Board are nonetheless pleased with the Company’s overall progress. Our pipeline of opportunities has continued to grow, we believe we’re well positioned to continue gaining market share and we remain confident in our business but we are cautious in our outlook. While it’s difficult to provide precise guidance at the present time, during the current fiscal year we conservatively expect between eight and ten percent total revenue growth in U.S. dollars on a constant currency basis.

Thank You

Our performance is the direct result of the dedication and hard work of our valued employees, indirect channel partners and suppliers, and the continued support of our customers and shareholders. I would like to use this opportunity to sincerely thank all of these stakeholders for their on-going contributions to our success.

Reynolds C. BishChief Executive Officer
September 5, 2011

Chief Financial Officer’s Review

Kofax achieved significant milestones across multiple strategic fronts during FY 11. For the full year, we delivered revenue growth of 12% based on actual exchange rates, or 10% on an organic, constant currency basis. We significantly overachieved in the first half of the year. However, late in the second half, the license growth was dampened by deteriorating market conditions which led to underperformance. In addition to our revenue growth, we expanded our Adjusted EBITA margins ahead of schedule to 16% of revenue, as compared to 12% in FY 10.

We exited the year in stronger financial condition than we began the year with $98.3 million of cash, an increase of $42.8 million, and essentially no debt. Subsequent to year end, we finalized negotiations for a new $40.0 million line of credit, which we have not currently drawn against.

Strategically, we closed the sale of the hardware business and acquired Atalasoft. We have initiated preliminary efforts to explore a U.S. listing of shares which will provide additional liquidity and drive shareholder value.

We restated our financial results for each of FY 09 and FY 10 to correct how revenue from maintenance contracts is recognized and to correct the valuation of inventory in FY 10. After the restatement, maintenance revenue in FY 09 and FY 10 has increased by $0.6 million and $1.8 million, respectively, and cost of goods sold in FY 10 increased by $0.7 million. As a result, our Adjusted EBITA has increased by $0.6 million and $1.1 million in FY 09 and FY 10, respectively. In addition, we have corrected the FY 10 balance sheet for deferred tax assets, other current liabilities and goodwill in connection with our acquisition of 170 Systems. For the FY 10 Statement of Financial Position, deferred tax assets increased by $1.7 million, other current liabilities decreased by $0.8 million and goodwill decreased by $2.5 million.

We believe that these accomplishments result in a stronger, more scalable foundation to support the Company’s future growth.

Operating Results

Revenue

Total revenue for FY 11 increased $26.3 million, or 12% compared to FY 10. The majority of this increase, $22.1 million, or 10% is derived from “organic” growth at constant currency. We define “organic” as the performance of our business excluding recent acquisitions when those acquisitions do not allow for a comparable comparison of period to period results. Therefore, for purposes of measuring our organic performance in FY 11 we have excluded the entire results of Atalasoft, which we acquired in May 2011, and we have excluded the first quarter results of 170 Systems, which we acquired in September 2009, for both FY 10 and FY 11.

Our mix of revenue, between license, maintenance and professional services changed in FY 11 as compared to FY 10, generally due to significant growth in maintenance revenue over the entire year and relative weakness in license sales in the second half of FY 11. Our license revenue decreased to 48% of total revenue in FY 11 compared to 51% in FY 10, while our maintenance revenue increased to 41% of total revenue compared to 38% in FY 10. Professional services remained consistent at 10% of total revenue.

License revenue increased $5.5 million, or 5% in FY 11. License revenue grew 13% in the first half of FY 11 but due to deteriorating market conditions in the second half of the year we only achieved 5% growth for the year. Our investment in a direct sales force over the past few years has provided us a balance to our historically proportionally larger sales through indirect channels. During FY 11 and FY 10, 44% and 46%, respectively, of our license revenue was attributable to our direct sales team’s efforts.

Maintenance revenue increased $17.6 million, or 21%, in FY11. The increase is attributable to a combination of our efforts to standardize maintenance pricing across our customer base, improve renewal rates to approximately 85%, re-enroll customers who had not been current on their maintenance, and also to our expanding customer base.

Professional service revenue increased $3.3 million, or 15%, in FY 11 as a result of our customers’ increased demand for our application development and training services.

The table below sets forth selected financial information with respect to Kofax’s operating performance for the years ended June 30:

$ millions, except EPS	FY 11				FY 11 (% Total Revenue)			FY 10				FY 10 (% Total Revenue)			Increase (Decrease)				% Increase (Decrease) FY11 v FY10
Revenue	$	243.9			100.0	%		$	217.6			100.0	%		$	26.3			12.1	%
Cost of sales		50.0			20.5	%			50.6			23.3	%			(0.6	)		-1.2	%
Gross Margin		193.9			79.5	%			167.0			76.7	%			26.9			16.1	%
Operating expenses:
Research and development		31.5			12.9	%			33.0			15.2	%			(1.5	)		-4.7	%
Sales and marketing		90.3			37.0	%			77.5			35.6	%			12.8			16.5	%
General and administrative		32.0			13.1	%			30.4			14.0	%			1.6			5.3	%
Acquisition and other transaction-related costs		2.5			1.0	%			0.2			0.1	%			2.3			n/a
Amortization of acquired intangible assets		3.2			1.3	%			4.6			2.1	%			(1.4	)		-30.6	%
Restructuring costs		3.2			1.3	%			-			0.0	%			3.2			n/a
Share-based payment expense		3.7			1.5	%			4.4			2.0	%			(0.7	)		-15.1	%
Other income and expenses		(0.2	)		-0.1	%			-			0.0	%			(0.2	)		n/a
		166.2			68.1	%			150.1			69.0	%			16.1			10.7	%
Operating profit		27.7			11.4	%			16.9			7.8	%			10.8			63.9	%
Finance and other income and expense		(1.7	)		-0.7	%			1.2			0.6	%			(2.9	)		-249.1	%
Profit before tax from continuing operations		26.0			10.7	%			18.1			8.3	%			7.9			43.8	%
Tax expense		(8.7	)		-3.6	%			(9.4	)		-4.3	%			0.7			-7.1	%
Profit from continuing operations		17.3			7.1	%			8.7			4.0	%			8.6			99.0	%
Discontinued operations, net of tax		(10.2	)		-4.2	%			(0.4	)		-0.2	%			(9.3	)		2376.8	%
Profit attributable to equity holders of parent	$	7.1			2.9	%		$	8.3			3.8	%		$	(0.7	)		-8.8	%
Earnings per share:
Basic	$	0.086						$	0.101						$	(0.015	)
Diluted	$	0.081						$	0.098						$	(0.017	)
Statements of Financial Position and Cash Flows:
Cash and cash equivalents	$	98.3						$	55.5						$	42.8			77.2	%
Working capital		52.4							25.7							26.7			103.9	%
Total assets		359.3							346.8							12.5			3.6	%
Total shareholders’ equity		213.7							180.3							33.4			18.5	%
Cash flows from operating activities, before restructuring and taxes		35.6							23.3							12.3			52.8	%

Geographic Segments

We license our software and sell our services to customers around the globe. Based on the location of our customers, our revenue was relatively consistent between years, as shown in the following table:

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$ millions					FY 11				FY 10				% Growth
Revenue by geography
Americas				$	128.3			$	116.1			10.5	%
EMEA						97.4				86.0			13.3	%
APAC						18.2				15.5			17.4	%
Total revenue					$	243.9			$	217.6			12.1	%
% of Total Revenue
Americas						52.6	%			53.4	%
EMEA						39.9	%			39.5	%
APAC						7.5	%			7.1	%
Total revenue						100.0	%			100.0	%

Gross Margin

During FY 11, we expanded our total gross margin to 79.5%, an increase of 2.8% compared to FY 10 when our gross margin was 76.7%. Our gross margin improved primarily due to economies of scale and growth in overall revenue.

Research and Development Expenses

Research and development expenses for FY 11 decreased $1.5 million, or 5%, compared to FY 10. In FY 11, we continued to invest in our market leading software products but were able to reduce our research and development expenditures as we moved the development for certain of our more mature products to international sites with lower labour costs. These efforts have allowed us to maintain or increase the number of personnel devoted to research and development while reducing our cost structure.

Sales and Marketing Expenses

Sales and marketing expenses for FY 11 increased $12.8 million, or 16%, compared to FY 10. The increase is due to our strategy of diversifying our sales and marketing activities as part of our hybrid go to market strategy. These efforts include continuing to grow our direct sales team and at the same time augment our support of the existing indirect sales network. In addition, we have expanded our marketing programs around certain of our product lines.

General and Administrative Expenses

General and administrative expenses for FY 11 increased $1.6 million, or 5%, compared to FY 10. We have invested in the necessary infrastructure, hired experienced personnel and centralized certain of our administrative functions in single shared center for EMEA to support a growing and diverse global business. Despite the increase in total dollars spent for general and administrative purposes, our general and administrative expenses as a percentage of total revenue decreased by 0.8% in FY 11 compared to FY 10.

Acquisition and other transaction-related costs

We incurred costs with third party service providers such as attorneys, accountants and other advisors in connection with our financing and acquisition related activities. These costs relate to our longer term strategy, and do not have direct bearing on supporting our existing day-to-day operations. Under IFRS, these costs are expensed as incurred. We have presented these expenses on a separate line to enable the users of our financial statements to better understand our operating results including comparing our performance with other global software companies.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets in FY 11 decreased from FY 10, as a result of certain intangible assets relating to acquisitions that we consummated historically having reached the end of their initially estimated lives. The end of that amortization was partially offset by our having a full year of amortization relating to 170 Systems in FY 11, and our recording approximately one month of amortization relating to our May 2011 acquisition of Atalasoft.

Restructuring Costs

Concurrent with the announcement of the sale of the hardware business, we restructured our business in EMEA and recorded a charge in the amount of $3.2 million. Under this restructuring, we have consolidated our finance, accounting and other back office operations into a single shared services center in Switzerland to improve the timeliness and quality of our reporting and recorded a charge for excess facilities located throughout EMEA.

Share-Based Payment Expense

Share-based payment expense for FY 11 decreased $0.7 million, or 15%, compared to FY 10. The decrease is due to a one-time charge that we recorded in FY 10 due to the cancellation of LTIPs, and was offset in part by expenses associated with share-based awards issued in FY 11.

Finance and Other Income (Expense)

Finance and other income (expense) consists primarily of foreign exchange gains or losses and interest income and expense. The primary component of our FY 11 net finance and other expense of $1.7 million was foreign exchange losses, while in FY 10, we realized foreign exchange gains, which composed the majority of our $1.2 million net finance and other income in that year. Exchange gains or losses fluctuate depending on the movement of exchange rates relative to our assets and liabilities in various geographies. The yields on our bank deposits are very low, so despite our growing cash balances interest income is minimal, having contributed only $0.3 million and $0.1 million in each of FY 11 and FY 10, respectively.

Tax Expense

The tax expense of $8.7 million for FY 11 reflects a tax rate on continuing operations of 34%, as compared to 52% in FY 10. The reduction in the tax rate reflects the utilization of previously incurred losses, enhanced research tax credits in the United States, and increased tax relief in respect of share based payments.

When assessing the tax expense as a percentage of Adjusted EBITA, including having adjusted the tax expense for the impact of the items included in the reconciliation of Adjusted EBITA, the current year tax rate is 32% as compared to 41% for FY 10.

<td class="bwdoublebottom">  

$ millions		FY 11				FY 10
Adjusted EBITA		$	40.2			$	26.1
Tax expense per income statement		$	8.7			$	9.4
Tax impact of adjustments to calculate Adjusted EBITA			4.2				1.3
Adjusted tax expense		$	12.9			$	10.7
Adjusted tax expense as a percentage of Adjusted EBITA		32.3	%			41.3	%

Loss from Discontinued Operations

Total loss from discontinued operations was $10.2 million in FY 11, compared to a loss of $0.4 million in FY 10. This increase in the loss is principally due to a $9.1 million loss recorded on the disposal of the hardware business. In addition, the loss from operating the hardware business increased by $0.7 million in FY 11 compared to FY 10, primarily due to lower revenue.

Statement of Financial Position

Our financial condition remains strong, and in fact improved, during FY 11. We grew our cash balances by 77%, and had $98.3 million of cash on hand at year end. Our net funds position was $98.0 million at year end, an increase of 136% from a net position of $41.5 million as of June 30, 2010. Our shareholders equity increased by 19% during FY 11, to $213.7 million, compared to $180.3 million at the end of FY 10. Our working capital of $52.4 million at the end of FY 11 represents an increase of 104% from the FY 10 ending position of $25.7 million due to strong cash flow from operations.

Cash Flow

Cash flow from operations, contributed $35.6 million during FY 11, which is largely in line with our Adjusted EBITA for the period. Our operations, led by our revenue growth, continue to provide us significant cash to invest in our continued growth, and in our acquisition strategy.

Investing cash flow generated $1.3 million in FY 11, and was the result of $8.9 million in net cash inflow relating to the sale or our hardware business partially offset by $4.6 million of net cash paid relating to our acquisition of Atalasoft, plus $3.2 million invested in property and equipment.

Cash outflows from financing activities amount to $2.9 million composed primarily of $8.7 million related payments of borrowings, including deferred payments relating to our acquisition of 170 Systems, partially offset by $6.1 million received from the stock options exercised by employees during the year.

The majority of our cash is held in U.S. dollars and euros, and to a lesser extent in pounds sterling.

Treasury Management

The Company has continued to generate solid cash flows, including through its operating activities. Kofax’s policy has been to fund its operations internally through the use of retained earnings, equity and bank facilities. Material bank borrowing arrangements are negotiated by management and approved by the Board of Directors. Positive cash balances earn floating rate interest based on relevant national interbank rates.

We terminated our $16.0 million credit facility with a major European bank effective June 30, 2011. The credit facility had been unsecured and we did not draw on the facility in FY 11. Subsequent to year- end, we completed a new, three-year $40.0 million revolving line of credit facility with Bank of America Merrill Lynch that is secured by certain assets of the Company. The credit facility is available for general corporate purposes, including acquisition, and subject to certain conditions can be denominated in multiple currencies, is available to drawn in multiple countries and can be increased by $10.0 million,

The Company has significant overseas subsidiaries, which operate principally in their local currencies. Where appropriate, intra group borrowings are arranged in local currencies to provide a natural hedge against exchange rate movement risks.

During FY 11, we entered into a forward contract arrangement locking in the exchange rate on 17.2 million euros with dates tied to the sale of the hardware business.

Ordinary Share Matters

At the Annual General Meeting on November 5, 2009 the shareholders approved the Board’s authority to buy back up to ten percent of Kofax’s issued share capital for a period of one year or the next Annual General Meeting should it occur at an earlier date. During this past financial year the Company bought none of its ordinary shares.

At the beginning of FY 11 Kofax had 91.3 million ordinary shares issued. During the year 2.2 million shares were issued to satisfy the exercise of stock options. On June 30, 2011, the Company had 93.4 million ordinary shares issued, of which 5.1 million were held in treasury and 4.5 million were held in the Company’s employee benefit trust.

Reconciliation of Non-IFRS Measures

Although IFRS disclosure provides investors and management with an overall view of the Company’s financial performance, Kofax believes that it is important for investors to also understand the performance of the company’s fundamental business without giving effect to certain specific, nonrecurring and/or non-cash charges.

Management and the board utilize this non-IFRS financial information to compare our results of operations to our results for comparable periods in prior years and against our budget. In particular, we review the adjusted operating profit in terms of dollars and as a percentage of total revenue; we assess our tax expense based against this non-IFRS financial measure that excludes certain items that don’t affect the tax expense calculation; and we measure our adjusted net profit in terms of dollars and earnings per share.

Adjusted EBITA

We use a metric of ‘Adjusted EBITA’, or IFRS operating profit adding back acquisition and other transaction-related costs, amortization of acquired intangible assets, restructuring costs share-based payment expense and other income and expense. See below for a schedule reconciling Adjusted EBITA from the Income Statement under IFRS. In FY 11, Adjusted EBITA was $40.2 million, or 16% or total revenue, and in FY10, Adjusted EBITA was $26.0 million or 12% of revenue.

We believe that this non-IFRS financial measure facilitates period-to-period comparisons, and provides investors with additional information to evaluate our operating performance. We also present this non-IFRS measure because we use it internally as a benchmark to evaluate our operating performance, including actual to budget results, and in terms of growth in EPS, and to compare our performance to that of our competitors.

Adjusted Profit Attributable to Equity Holders, including Adjusted Diluted EPS

Adjusted profit attributable to equity holders is Adjusted EBITA, less a reduction for tax expense from Adjusted EBITA. A reconciliation of profit attributable to equity holders to the adjusted profit attributable to equity holders follows:

$ millions, except EPS				FY 11				FY 10
Profit attributable to equity holders				$	7.1			$	8.3
Discontinued operations, net of taxes					10.2				0.4
Profit from continuing operations					17.3				8.7
Acquisition and other transaction-related costs					2.5				0.2
Amortization of acquired intangible assets					3.2				4.6
Restructuring costs					3.2				-
Share-based payment expense					3.7				4.4
Finance and other income and expenses					1.5				(1.3	)
Tax effect of above					(4.2	)			(1.3	)
Adjusted profit attributable to equity holders				$	27.2			$	15.3
Calculation of Adjusted EBITA:
Adjusted profit attributable to equity holders				$	27.2			$	15.3
Add-back: tax effect from above reconciliation					4.2				1.3
Add-back: taxes on face of income statements					8.8				9.4
Adjusted EBITA				$	40.2			$	26.0
Adjusted EPS from Continuing Operations:
Adjusted Basic EPS from Continuing Operations				$	0.329			$	0.187
Adjusted Diluted EPS from Continuing Operations				$	0.310			$	0.181

Business Risks and Uncertainties

Under current European Union reporting requirements, the Board is required to comment on risk factors facing the business. As with any business, various risks may affect the Company, its results and management’s ability to execute. The board has implemented systems to identify risks, to assess them and to ensure that reasonable mitigation and action plans are in place. The board is paying particular attention to the operational risks and uncertainties surrounding economic conditions in many of the Company’s markets. Furthermore the following general risk categories have been identified by the Company:

Rapidly changing technology

As a technology based company, we are subject to rapid changes in the marketplace in which we compete. We seek out strategic acquisitions as well as make significant investments in research and development to ensure that we remain competitive in the markets we serve.

Structural transition

A particularly challenging area for the Company has been its complex legal structure and outdated corporate infrastructure. We continued to reduce the number of legal entities we have in place as well as updating our corporate infrastructure. We will continue to refine our legal structure throughout the current financial year.

Identification of key employees and retention program

Recruiting and retaining highly skilled personnel is another risk to our ongoing success. We’ve made a number of important additions to our staff during the past financial year and now have an even more professional employee base in place.

<p>Go-to-market approach

During the year we have continued our “hybrid go-to-market” model to expand our market reach by selling direct to end users in addition to relying on channel sales through value added resellers and system integrators. This balanced approach has helped us maintain and grow our revenues during the year despite global economic challenges.

Financial risks

One of the principal financial risks facing the Company relates to the movements in exchange rates. The Company derives its revenues from a variety of currencies including the U.S. dollar, euro and pounds sterling. Expenses are denominated principally in U.S. dollars, euro and Swiss francs. Fluctuations in exchange rates between these currencies relative to the dollar may cause fluctuations in financial results of the Company as the results of overseas operations are translated into dollars for consolidation. The Company does not hedge the foreign exchange exposure arising on net investments in or assets and liabilities of overseas subsidiaries. The Company does hedge certain net foreign currency cash flows relating to transactions in accordance with policies set by the Board. Assessment of the credit risk profile of the Company’s key customers and resellers is another key area of attention.

Acquisition Risk

As part of the Company’s strategy, we may acquire additional enterprises or technology. We may not be able to continue to grow through such acquisitions which could lead to our revenue not growing at an acceptable rate and may in turn harm our business. We may need to raise additional capital to finance future acquisitions, and such financing may not be available on acceptable terms, or at all, and may be on terms that are dilutive to our shareholders.

Compliance Risk

Our ability to produce accurate and timely financial statements could be impaired and investors’ views of us could be harmed if we fail to maintain proper and effective internal controls. To build out and maintain an internal audit function we may need to hire additional accounting and financial staff with appropriate experience. If we do not maintain proper and effective internal controls or remediate deficiencies in our internal control, the market price of our common shares could decline and we could be subject to sanctions or investigations.

General economic risks

The economic and trading environment has been challenging throughout the financial year. The Company has an extended geographic presence, necessitating a number of local banking relationships, and local cash holdings. While the Company operates a cash pooling system, and has adopted treasury policy designed to ensure that it is not over-exposed to any particular bank failure, the risk remains that such a failure could adversely impact the Company’s assets. Recessionary trading environments have had a significant impact on many previously financially stable businesses. While the Company seeks to minimize the risk of being adversely affected by the failure of a supplier, a reseller or a customer, the volatility of trading and its impact on our trading partners represents a potential risk to the business.

J. R. “Jamie” Arnold, Jr
Chief Financial Officer
September 5, 2011

UnauditedConsolidated Income Statement

$’000	Note			Year to June 30, 2011				Year to June 30, 2010 Restated*
Software Licenses					117,233				111,768
Maintenance					101,191				83,614
Professional services					25,518				22,256
Total Revenue	5				243,942				217,638
Cost of Sales					(50,014	)			(50,633	)
Gross Profit					193,928				167,005
Research and Development					(31,494	)			(33,038 </td>	)
Sales and Marketing					(90,299	)			(77,536	)
General and Administrative					(31,985	)			(30,371	)
Expenses					(153,778	)			(140,945	)
Adjusted EBITA**					40,150				26,060
Acquisition and other transaction-related costs					(2,523	)			(200	)
Amortization of acquired intangible assets					(3,213	)			(4,628	)
Restructuring costs					(3,182	)			-
Share-based payment expense					(3,733	)			(4,395	)
Other income and expenses					251				90
Operating profit					27,750				16,927
Share of results and disposal of associated undertakings					-				(33	)
Finance income					298				1,997
Finance expense					(2,035	)			(799	)
Profit before tax from continuing operations					26,013				18,092
Tax expense					(8,741	)			(9,413	)
Discontinued operations
Loss after tax for the period from discontinued operations					(10,188	)			(392	)
Profit for the year attributable to					7,084				8,287
Equity holders of the parent
Earnings per share	3
> basic				$	0.086			$	0.101
> diluted				$	0.081			$	0.098
> adjusted basic				$	0.218			$	0.208
> adjusted diluted				$	0.176			$	0.199
Earnings per share from continuing operations
> basic				$	0.209			$	0.106
> diluted				$	0.197			$	0.102
> adjusted basic				$	0.329			$	0.187
> adjusted diluted				$	0.310			$	0.181

**		Adjusted EBITA is a key performance indicator (“KPI”) used by the group to help in assessing the underlying trading results of the Group.
*		Please refer to Note 2 for discussion on prior year restatement.

UnauditedConsolidated Statement of Comprehensive Income

$’000	Note			Year to June 30, 2011			Year to June 30, 2010 Restated *
Profit for the year				7,084			8,287
Other comprehensive income/(loss)
Exchange gains/(losses) arising on translation of foreign operations				12,082			(9,238	)
CTA recycling				(496	)		65
Actuarial gains/(losses) on defined benefit pension plans				822			(676	)
Income tax effects on components of other comprehensive income				(409	)		1,082
Other comprehensive income/(loss) for the period, net of tax				11,999			(8,767	)
Total comprehensive income/(loss) for the period, net of tax, attributable to Equity holders of the parent				19,083			(480	)

*Please refer to Note 2 for discussion on prior year restatement.

UnauditedConsolidated Statement of Financial Position

$’000	Note			At			At			At
				June 30, 2011			June 30, 2010			June 30, 2009
							Restated*			Restated*
Non-current assets
Intangible assets*				158,151			161,587			135,218
Property, plant and equipment				6,900			7,879			9,808
Deferred tax assets				13,372			7,847			8,441
Other non-current assets				7,881			4,176			2,252
Total non-current assets				186,304			181,489			155,719
Current assets
Inventories				2,133			15,676			15,902
Trade and other receivables				67,473			83,769			95,623
Investments – current				250			311			348
Current tax assets				4,888			10,075			2,173
Cash and cash – equivalents	7			98,274			55,451			49,294
Total current assets				173,018			165,282			163,340
Total assets				359,322			346,771			319,059
Current liabilities
Trade and other payables				45,069			61,234			62,281
Deferred income – current				55,806			55,816			46,449
Other financial liabilities				491			9,802			2,531
Current tax liabilities				13,547			10,044			2,389
Provisions – current				5,691			2,645			5,531
Total current liabilities				120,604</b>			139,541			119,181
Non-current liabilities
Other payables				279			1,403			3
Employee benefits				2,958			3,769			3,048
Deferred income – non-current				3,496			10,238			10,127
Deferred tax liabilities				14,911			10,866			10,488
Provisions – non-current				3,394			646			717
Total non-current liabilities				25,038			26,922			24,383
Total liabilities				145,642			166,463			143,564
Net assets				213,680			180,308			175,495
Capital and reserves
Share capital				4,240						4,121
Share premium account				11,538			5,519			3,880
ESOP shares				(14,518	)		(14,518	)		(14,478	)
Treasury shares				(15,980	)		(15,980	)		(15,980	)
Merger Reserve				2,835			2,835			2,835
Retained earnings				197,979			181,891			170,513
Currency translation adjustment				27,586			16,409			24,604
Shareholders’ equity	4			213,680			180,308			175,495
Total equity				213,680			180,308			175,495

*		Please refer to Note 2 for discussion on prior year restatement.

UnauditedConsolidated Statement of Changes in Equity

$’000	Share capital		Share premium account		ESOP shares			Treasury shares			Merger reserve		Retained earnings			Currency translation adjustment			Total equity
July 1, 2009	4,121		3,880		(14,478	)		(15,980	)		2,835		170,146			24,604			175,128
Impact of prior year restatements	-		-		-			-			-		367			-			367
July 1, 2009 (restated) *	4,121		3,880		(14,478	)		(15,980	)		2,835		170,513			24,604			175,495
Change in accounting policy of 170 Systems1	-		-		-			-			-		(752	)		-			(752	)
Profit for the period	-		-		-			-			-		8,287			-			8,287
Other comprehensive loss, net of tax	-		-		-			-			-		(572	)		(8,195	)		(8,767	)
Total comprehensive loss for the year	-		-		-			-			-		7,715			(8,195	)		(480	)
Share-based payment charge	-		-		-			-			-		4,415			-			4,415
Changes in ESOP shares	-		-		(40	)		-			-		-			-			(40	)
New share capital issued	31		1,639		-			-			-		-			-			1,670
June 30, 2010 *	4,152		5,519		(14,518	)		(15,980	)		2,835		181,891		</td>	16,409			180,308
July 1, 2010 *	4,152		5,519		(14,518	)		(15,980	)		2,835		181,891			16,409			180,308
Profit for the period	-		-		-			-			-		7,084			-			7,084
Other comprehensive income, net of tax	-		-		-			-			-		822			11,177			11,999
Total comprehensive income for the year	-		-		-			-			-		7,906			11,177			19,083
Tax on equity awards	-		-		-			-			-		4,427			-			4,427
Share-based payment charge	-		-		-			-			-		3,755			-			3,755
Changes in ESOP shares	-		-		-			-			-		-			-			-
New share capital issued	88		6,019		-			-			-		-			-			6,107
June 30, 2011	4,240		11,538		(14,518	)		(15,980	)		2,835		197,979			27,586			213,680

1		Following the adoption of International Financial Reporting Standard (“IFRS”) 3R “Business Combinations,” the transaction costs in 2009 amounting to $0.8m have been adjusted against retained earnings.
*		Please refer to Note 2 for discussion on prior year restatement.

Unaudited Consolidated and Parent Statements of Cash Flows for the year ended June 30,

In $'000	Note	Group			Group			Parent			Parent
		2011			2010			2011			2010
					Restated
Cash flows from operating activities
Profit before tax from continuing operations		26,013			18,092			(8,793	)		(1,596	)
Loss before tax from discontinued operations		(10,428	)		(732	)		-			-
Profit before tax		15,585			17,360			(8,793	)		(1,596	)
Share results of associated undertakings		-			(145	)		-			-
Finance income		(298	)		(1,997	)		-			(232	)
Finance expense		2,035			799			690			-
Depreciation and amortization		9,682			11,065			-			-
Impairment related to disposal		603			-			-			-
Share-based payment expense		3,837			4,415			-			-
Movement in provisions		6,993			1,000			233			-
Loss on disposal of discontinued operations		9,108			-			-			-
Loss on disposal of property, plant and equipment		2			116			-			-
Movement in working capital		(12,791	)		1,254			1,936			(106	)
Cash generated from/(used in) operations before restructuring		34,756			33,867			(5,934	)		(1,934	)
Payments under restructuring - personnel		(1,792	)		(3,504	)		-			-
Cash generated from/(used in) operations		32,964			30,363			(5,934	)		(1,934	)
Income tax received/(paid)		2,616			(7,021	)		-			-
Net cash inflow/(outflow) from operating activities		35,580			23,342			(5,934	)		(1,934	)
Cash flows from investing activities
Purchase of property, plant and equipment, licences and similar rights		(3,185	)		(5,315	)		-			-
Disposal of property, plant and equipment, licences and similar rights		59			17			-			-
Acquisition of a subsidiary, net of cash acquired		(4,608	)		(19,998	)		-			-
Disposal of associates		-			2,282			-			-
Net inflow from sale of discontinued operations		8,853			-			-			-
Interest received		139			294			1			-
Net cash inflow/(outflow) from investing activities		1,258			(22,720	)		1			-
Cash flows from financing activities
Issue of share capital		6,107			1,670			6,107			1,670
(Decrease) in short term borrowings		-			(1,312	)		-			-
(Decrease)/Increase in long term borrowings/lendings		(8,721	)		9,000			-			-
Interest paid		(292	)		(168	)		-			(1	)
Net cash (outflow)/inflow from financing activities		(2,906	)		9,190			6,107			1,669
Net increase/(decrease) in cash and cash-equivalents in the period		33,932			9,812			174			(265	)
Cash and cash-equivalents at start of the period		55,018			48,067			(120	)		145
Exchange rate effects		9,321			(2,861	)		(7	)		-
Cash and cash-equivalents at the end of the period		98,271			55,018			47			(120	)
Cash and cash-equivalents consists of:
Cash and cash-equivalents	33	98,274			55,451			47			-
Overdrafts		(3	)		(433	)		-			(120	)
		98,271			55,018			47			(120	)

*Please refer to Note 2 for discussion on prior year restatements.

Announcement of Preliminary Results

Notes to the unaudited consolidated financial statements

1Basis of preparation

The preliminary financial information set out in this announcement, which was approved by the Board of Directors on September 4, 2011, does not constitute statutory financial statements as defined by s435 of the Companies Act 2006 and are unaudited. The 2010 results are extracted from the audited accounts of Kofax plc, on which the auditors have issued an unqualified opinion which did not contain a statement under s498(2) or (3) Companies Act 2006.

The financial statements for the year ended 30 June 2011 have yet to be signed by the auditors.

The audited financial statements for the year ended 30 June 2010 have been delivered to the Registrar of Companies. The Annual Report for the year ended 30 June 2011 will be mailed to shareholders in October 2011 and will be delivered to the Registrar of Companies following the Annual General Meeting which will be held on 3 November 2011 at the offices of Dechert LLP located at 160 Queen Victoria Street, London, EC4V 4QQ. Copies will be available to the public from the Company's registered office at 1 Cedarwood, Chineham Business Park, Basingstoke, Hampshire RG24 8WD, United Kingdom.

The Group's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU"). The accounting policies have been consistently applied to all periods presented.

2Prior Year Restatements

Maintenance Revenue

In the prior years, the Group’s amortization of deferred maintenance revenue did not accurately reflect the terms of the maintenance contract. The Group used a “half-month” convention to amortize deferred maintenance revenue rather than a “daily rate” amortization, which created the error outlined below. This error resulted in a restatement of prior year’s maintenance revenues in the income statement and corresponding restatement of deferred maintenance revenue in the balance sheet for financial years 2009 and 2010 in the amounts as follows:

$’000		As previously reported			Adjustments				As Restated
2009
Deferred Revenue		47,049			(600	)			46,449
Revenue		169,391			600				169,991
Tax expense		3,748			233				3,981
2010
Deferred revenue*		58,216			(2,400	)			55,816
Revenue **		215,838			1,800				217,638

*Includes adjustment from 2009 and 2010 of $0.6m and $1.8m, respectively.

**See below for tax impact.

The 2009 opening balance sheet at July 1, 2008 includes the $0.6m as an adjustment to retained earnings.

Inventory

In 2010, as a result of an inaccurate transfer of work-in-progress items to finished goods, the Group overstated inventory. The changes to inventory and the corresponding costs of sales amounts are as follows:

$’000		As previously reported			Adjustments				As Restated
Inventory		16,380			(704	)			15,676
Cost of sales		49,929			704				50,633

The effect on 2010 tax expense of these two restatements is as follows:

$’000		As previously reported			Adjustment - revenue			Adjustment – cost of sales				As Restated
Tax expense		8,988			698			(273	)			9,413

Note that tax items on the balance sheet were not impacted by these restatements.

The effect on EPS as a result of these two restatements:

2010 Earnings per share
> basic		$	0.093			$	0.008				$	0.101
> diluted		$	0.090			$	0.008				$	0.098
> adjusted basic		$	0.208			$	0.000				$	0.208
> adjusted diluted		$	0.201				($0.002	)			$	0.199

Goodwill

The Group identified two adjustments associated with the purchase accounting for certain tax related items. The result of these adjustments restates the net assets acquired and has a direct effect on the goodwill acquired at acquisition. A description of the adjustments is as follows:

Balance sheet correction of an overstated sales tax liability included in Other Current Liabilities and a corresponding overstatement of goodwill totalling $0.8m associated with the acquisition of 170 Systems, Inc.

Balance sheet restatement of goodwill and Other Current Liabilities:

$’000			Group
			2010
Other current liability as reported			23,618
Adjustment			(765	)
Restated balance			22,853
Goodwill as reported			138,663
Adjustment			(765	)
Goodwill restated			137,898

Balance sheet correction of an understatement of a Deferred Tax Asset and a corresponding overstatement of goodwill totalling $1.7m associated with the deduction for share based payments related to the acquisition of 170 Systems, Inc.

Balance sheet restatement of goodwill and deferred tax assets

$’000			Group
			2010
Deferred tax asset			6,110
Adjustment			1,737
Restated balance			7,847
Goodwill as reported			138,663
Adjustment			(1,737	)
Goodwill restated			136,926

Total Goodwill adjustments:

$’000			Group
			2010
Goodwill as reported			138,663
Adjustment 1 above			(765	)
Adjustment 2 above			(1,737	)
Goodwill restated			136,161

3Earnings per share

Basic earnings per share of $0.209 for the year to June 30, 2011 (2010: $0.106) for the continuing business have been calculated based on the profit attributable to shareholders of $17.3 million (2010: $8.7 million) using the weighted average number of ordinary shares in issue totalling 82.5 million (2010: 82.0 million) during the period.

Adjusted earnings per share of $0.329 for the year to June 30, 2011 (2010: $0.187) for the continuing business are based on profit of $27.2 million (2010: $15.3 million), being adjusted for the expenses as stated below using the weighted average number of ordinary shares in issue totalling 82.5 million (2010: 82.0 million) during the period. The Board considers that Adjusted EPS better reflects the underlying performance of the Group.

Reconciliation of adjusted profit		Group			Group				Group			Group
		2011				2011			2010			2010
		EPS in $			$'000				EPS in $			$'000
Profit for the period attributable to the equity holders of the Parent		0.086				7,084			0.101				8,287
Earnings per share from discontinued operations		(0.123	)			(10,188	)		(0.005	)			(392	)
Earnings per share from continued operations		0.209				17,272			0.106				8,679
Acquisition and other transaction-related costs		0.031				2,523			0.002				200
Amortization of acquired intangible assets		0.039				3,213			0.056				4,628
Restructuring costs		0.038				3,182			-				-
Share based payment expense		0.045				3,733			0.054				4,395
Net financial income and expense and other income and expenses		0.018				1,486			(0.015	)			(1,255	)
Tax effect of above		(0.051	)			(4,239	)		(0.016	)			(1,347	)
Adjusted profit for the period attributable to the continuing operations of the equity holders of the Parent		0.329				27,170			0.187				15,300

Diluted earnings per share from continuing operations of $0.197 for the year to June 30, 2011 (2010: $0.102) have been calculated based on the profit after tax attributable to equity holders of the parent of $17. 3 million (2010: $8.7 million) using 87.7 million (2010: 84.7 million) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares.

Adjusted, diluted earnings per share from continuing operations of $0.310 for the year to June 30, 2011 (2010: $0.181) have been calculated based on profit of $27.2 million (2010: $15.3 million), being adjusted for the operating expenses as stated above using 87.7 million (2010: 84.7 million) ordinary shares.

Reconciliation of the denominator for EPS		Group			Group
Millions of shares		2011			2010
Basic weighted average number of ordinary shares (excluding ESOP and Treasury shares)		82.5			82.0
Dilutive impact of share options		3.2			1.6
Dilutive impact on LTIPs		2.0			1.1
Diluted weighted average number of shares		87.7			84.7

4Reconciliation of movements in shareholders' equity

$’000		Year to				Year to
		30 June 2011				30 June 2010
Opening Shareholders' equity		180,308				175,128
Impact of restatement from prior year		--				367
Opening shareholders’ equity (restated)		180,308				175,495
Change in accounting policy 170 Systems		--				(752	)
Profit for the period		7,084				8,287
Exchange differences arising on retranslation of foreign operations		11,586				(9,173	)
Actuarial losses on defined benefit pension plans		822				(676	)
Net proceeds from issue of share capital		6,107				1,670
Share-based payment expense		3,755				4,415
Tax on equity awards		4,427				--
Tax on items taken directly to equity		(409	)			1,082
Change in ESOP shares		--				(40	)
Shareholders' equity at end of the year		213,680				180,308

5Operating Segments

Following the disposal of the hardware business Kofax operates one business segment, the software business. The Group manages its business based on the key measures for resource allocation, such as revenue generation and Adjusted EBITA. All products and services are considered one solution to customers and are operated and analysed under one statement of income. The following table presents the software business.

$’000		Year to June 30, 2011				Year to June 30, 2010
Revenue external		243,942				217,638
Cost of sales		(50,014	)			(50,633	)
Gross profit		193,928				167,005
Depreciation and amortization		(4,127	)			(5,407	)
Adjusted operating profit*		40,150				26,060
Acquisition and other transaction-related costs		(2,523	)			(200	)
Amortization of acquired intangible assets		(3,213	)			(4,628	)
Restructuring costs		(3,182	)			-
Share based payment expense		(3,733	)			(4,395	)
Other income and expenses		251				90
Share of results and disposal of associated undertakings		-				(33	)
Finance income		298				1,997
Finance expense		(2,035	)			(799	)
Profit before tax		26,013				18,092

* Adjusted EBITA represents IFRS operating profit before adding back acquisition and other transaction-related costs, amortization of acquired intangibles, restructuring costs, share-based payment expense, finance income/expense and other income/expenses. It is used by the Group as a KPI to help assess the underlying trading of the business.

There are no reportable assets that meet the criteria under IFRS 8 to be reported under the operating segments above.

Entity-wide Disclosures

The revenue classified by the geographic areas in which we operate is as follows:

$’000		America		UK		Germany		Rest of EMEA		Asia-Pacific		Total
Year to June 30, 2011
Revenue external		128,321		17,927		17,148		62,325		18,221		243,942
Non-current assets		108,630		5,749		7,129		42,168		6,011		169,687

Non-current assets for this purpose consist of property, plant and equipment, investment in associates, other non-current assets – excluding security deposits, and intangible assets (including goodwill).

$’000		America		UK		Germany		Rest of EMEA		Asia-Pacific		Total
Year to June 30, 2010
Revenue external		116,169		19,718		16,202		50,080		15,469		217,638
Non-current assets		100,565		5,872		11,390		49,956		5,333		173,116

5Taxes

Tax charged to the income statement

$’000		Group 2011				Group 2010 Restated
Current tax expense
Income tax on profits for the year		8,329				9,904
Adjustment for over provision in prior periods		(660	)			(130	)
Total		7,669				9,774
Deferred tax expense
Origination and reversal of temporary differences		81				(42	)
Adjustment for under/ (over) provision in prior periods		751				(659	)
Total		832				(701	)
Total tax expense		8,501				9,073

Total tax expense in the income statement is disclosed as follows:

$’000		Group 2011				Group 2010 Restated
Income tax expense on continuing operations		8,741				9,413
Income tax (credited) on discontinued operations		(240	)			(340	)
Total		8,501				9,073

Tax relating to items charged or credited to retained reserves:

$’000		Group 2011				Group 2010 Restated
Current tax
Net gain on share options exercised		(784	)			-
Deferred tax
Tax impact on share based payment		(3,643	)			-
Tax (credit) to retained earnings		(4,427	)			-

The reasons for the difference between the actual tax charge and the rate of corporation tax in the UK applied are as follows:

$’000		Group 2011				Group 2010 Restated
Total profit before tax		15,585				17,360
Expected tax expense based on the standard rate in the UK of 27.5% (2010: 28%)		4,286				4,861
Tax losses not recognised in current period		2,251				2,909
Utilisation of previously unrecognised tax losses		(1,485	)			(1,596	)
Adjustments for provision in prior periods		92				1,082
Expenses not deductible for tax purposes and income not subject to tax		2,015				(1,529	)
Different tax rates applied in overseas jurisdictions		1,342				3,960
Other differences		-				(614	)
Total tax expense on operations		8,501				9,073

7Analysis of Net Funds

$'000		Group				Group
		2011				2010
Cash in hand, at bank		96,337				54,082
Current asset investments		1,937				1,369
Total cash and cash-equivalents		98,274				55,451
Overdrafts		(3	)			(433	)
Debt due within 1 year*		(158	)			(12,496	)
Debt due after 1 year		(103	)			(1,000	)
Total debt and finance leases		(264	)			(13,929	)
Net funds		98,010				41,522

* Includes cash hold back amounting to $0 million (2010: $3.1 million).

Total cash and cash-equivalents of $98.3 million (2010: $55.5 million) are shown on the Statement of Financial Position.

8Analysis of exchange rates used for consolidation

		At					At					At
		30 June 2011					30 June 2010					30 June 2009
		Average rate		Closing rate			Average rate		Closing rate			Closing rate
Sterling Pounds		1.59		1.45			1.58		1.50			1.65
Euro		1.36		1.60			1.39		1.23			1.41
Swiss Franc		1.05		1.19			0.94		0.92			0.92

9Discontinued operations

During the six months ended December 31, 2010, the Board of Directors made a decision to dispose of the Group’s hardware business segment to better position the Group to focus on, and further grow, the software business revenues and earnings. As of December 31, 2010, final negotiations of the sale were in progress with the buyer and the Group considered the disposal to be highly probable. On January 15, 2011, the Group entered into a definitive Share Purchase Agreement to sell the hardware business. On May 31, 2011, the Group completed the sale of the hardware business.

Under the terms of the definitive agreement, Hannover Finanz, paid a gross consideration of $22.2m to acquire certain legal entities, the Dicom brand and name, the assets and liabilities of the hardware business, other than those that must remain with Kofax – such as taxes payable, and assume the employment of personnel in the hardware business. Of the $22.2m, $14.4m was paid at closing, $5.2m will be paid one year from closing, with $2.0m thereof subject to certain indemnification terms and conditions. The remaining $2.6m, including interest thereon at a rate of five percent per annum, will be paid 18 months from closing. The payments of all amounts beyond the closing date are adequately secured by Hannover Finanz for Dicom.

In addition, Kofax lent $0.5m, at closing of the transaction, to certain members of the business unit’s management team to partially finance the cost of their minority equity purchases in the new hardware business entity. These loans were in the form of full recourse promissory notes to be paid over a four year period, together with interest thereon at the rate of five percent per annum, or in full upon the earlier disposal of said equity.

The results of the hardware business operations and loss on disposal for the year to date of sale, May 31, 2011 are presented below.

$’000		Year to June 30, 2011			Year to June 30, 2010
Operating Results:
Hardware distribution		72,667			90,826
Hardware services		31,303			35,758
Total hardware revenue		103,970			126,584
Cost of sales		(87,473	)		(106,397	)
Gross profit		16,497			20,187
Sales and marketing		(10,571	)		(11,947	)
General and administrative		(6,149	)		(6,414	)
Expenses		(16,720	)		(18,361	)
Adjusted operating (loss)/ profit		(223	)		1,826
Share based payment expense			)		(20	)
Restructuring costs		(390	)		(2,538	)
Impairment of intangible assets		(603	)		-
Loss before tax from discontinued operations		(1,320	)		(732	)
Tax (expense)/income
Related to current pre-tax profit/(loss)		246			340
Loss for the year from discontinued operations		(1,074	)		(392	)
Loss on disposal:
Loss on sale before tax		(9,108	)		-
Tax expense		(6	)		-
Loss on sale after tax		(9,114	)		-
Total loss from discontinued operations		(10,188	)		(392	)

The valuation and sale price of the hardware business as per the share purchase agreement was based upon the hardware business’ balance sheet as of February 28, 2011. Subsequently, on May 17, 2011, a memorandum of understanding was executed with the buyer, and required that any changes in working capital from February 28, 2011 to May 31, 2011 would result in a commensurate change in the sale price at the date of sale. Additionally, any profits realized from the hardware business during this intervening period were remitted back to the buyer.

The cash inflow on sale of the hardware business is presented below.

$’000
Gross consideration – share purchase agreement		22,233
Costs paid on behalf of Hardware business		935
Cash disposed with the discontinued operation		(6,506	)
Deferred consideration		(7,809	)
Net cash inflow at date of sale		8,853

The following presents a reconciliation of the loss on disposal:

$’000			May 31, 2011
Property, plant and equipment			232
Prepaid maintenance			3,795
Inventories net			12,695
Trade receivables			17,153
Other assets			1,215
Cash*			7,293
Trade payables			(9,824	)
Deferred income – current			(17,798	)
Pension and employee benefits			(2,060	)
Total net assets sold			12,701
Goodwill			15,695
Total net assets disposed			28,396
Considerations			22,500
Disposal costs			1,687
Transition services			1,525
Loss on disposal before tax			(9,108	)

*The cash and other amounts do not tie to the same items in the table above as a result of using an average rate for cash flow purposes whereas the table above uses the spot rate on date of sale.

EPS from the hardware business is as follows:

$’000		Year to June 30, 2011			Year to June 30, 2010
Earnings per share from discontinued operations:
Basic		($0.123	)		($0.005	)
Diluted		($0.111	)		($0.005	)

Basic EPS was calculated using the weighted average number of ordinary shares in issue totalling 82.5m (2010: 82.0m) during the period. Diluted EPS was calculated using 87.7m (2010: 84.7m) ordinary shares, the difference to the basic calculation representing the additional shares that would be issued on the conversion of all the dilutive potential ordinary shares.

As the hardware business was sold prior to June 30, 2011, the disposal group assets and liabilities are no longer included in the statement of financial position. Additionally, Dicom Logistics AG, formerly Kofax Logistics AG, the entity that was sold to the Buyer for 100% of the outstanding shares, recycled cumulative translation adjustment, which is included in the Consolidated Statement of Changes in Equity.

Transition Services Agreement

As part of the transaction to sell the hardware business, the Group has entered into a transition services agreement to provide and transfer certain back office functions, information management systems/ infrastructure, and facilities to the new hardware business entity for a period of up to twelve months following the closing. These services are provided at no cost to the buyer for the first four months following the sale and at a fair value consideration for the subsequent eight months thereafter. The fair value of the services to be provided at no cost is estimated at $1.5m and has been reallocated from the gross consideration to deferred income. As of June 30, 2011, one month of this liability has been released.

Impairment

The Group evaluated the Hardware Business disposal as of the date it was classified as held for sale on December 31, 2010 relative to the Goodwill that was to be disposed. Based on the facts and circumstances, including the selling price and list of specific assets and liabilities included in the most current share purchase and asset transfer agreements at the time, there were no indicators of impairment at the date it was classified as held for sale and throughout the remainder of the year. Thus, all Hardware Business related Goodwill was disposed at the time of final sale and included in the loss on sale calculation noted above.

As a result of the conclusion that the hardware business should be presented as a discontinued operation, non-currents assets were reclassified as disposal assets held for sale, and the group incurred an impairment charge deriving from capitalised software, which is of no further use for the Group.

Other transactions

In addition to the transition services agreement and loans provided to certain members of the business unit’s management team discussed above, the Group entered into a reselling arrangement with the newly formed, separate Hardware business to facilitate sales in the Middle East and South Africa since the legal formation of the new Hardware business has not occurred. Although such legal transfer of these specific net assets has not occurred, a change of control has occurred and, consistent with IFRS, has been included in the loss on disposal of the discontinued operations. Accordingly, all profits and losses are considered to be realized by the new Hardware business and remitted back to them.

Kofax plc
Investor Contacts:Jamie Arnold , Chief Financial Officer, +1 949-783-1473
[email protected]
or
Financial DynamicsJames Melville-Ross, +44 (0) 20 7831 3113
[email protected]
or
The Blueshirt GroupStacie Bosinoff, +1 415-217-5868
[email protected]
or
Media Contact:Rob Jensen, Senior Director, Corporate Communications, +1 949-783-1295
[email protected]

Source: Kofax plc