================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
Commission File Number 0-28840
IMRGLOBAL CORP.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 59-2911475
- ------------------------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
100 SOUTH MISSOURI AVENUE, CLEARWATER, FLORIDA 33756
-----------------------------------------------------
(Address of principal executive offices and zip code)
727-467-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of August 6, 1999, there were 38,426,202 outstanding shares of the
Registrant's Common Stock, par value $.10 per share.
<PAGE>
IMRGLOBAL CORP.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Consolidated Balance Sheets
as of December 31, 1998 and June 30, 1999.................... 3
Consolidated Statements of Operations
for the Three Months and Six Months Ended
June 30, 1998 and 1999....................................... 4
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998
and 1999..................................................... 5
Notes to Consolidated Financial Statements................... 6
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................... 14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 23
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ........................................... 24
ITEM 5. Other Information ........................................... 24
ITEM 6. Exhibits and Reports on Form 8-K............................. 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMRGLOBAL CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ ----------
(Restated) (Unaudited)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 84,139 $ 58,012
Marketable securities ........................................ 31,609 27,340
Accounts receivable, net of allowance ........................ 40,243 46,292
Unbilled work in process ..................................... 7,943 11,100
Deferred taxes ............................................... 15,148 10,462
Prepaid expenses and other current assets .................... 5,694 4,436
--------- ---------
Total current assets ................................... 184,776 157,642
Property and equipment, net of accumulated depreciation ......... 23,091 36,058
Capitalized software costs, net of accumulated amortization ..... -- 1,271
Deposits and other assets ....................................... 5,269 6,000
Intangible assets, net of accumulated amortization .............. 36,829 60,996
--------- ---------
Total assets ........................................... $ 249,965 $ 261,967
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 8,497 $ 11,511
Accrued compensation ......................................... 20,104 24,115
Deferred revenue ............................................. 5,819 1,715
Other current liabilities .................................... 27,598 23,880
--------- ---------
Total current liabilities .............................. 62,018 61,221
Long-term debt .................................................. 1,791 1,598
Deferred tax liability .......................................... 1,041 791
Accrued compensation ............................................ 8,125 3,118
--------- ---------
Total liabilities ...................................... 72,975 66,728
--------- ---------
Shareholders' equity:
Preferred stock .............................................. -- --
Common stock ................................................. 3,715 3,845
Additional paid-in capital ................................... 142,170 149,560
Retained earnings ............................................ 32,378 45,094
Notes receivable from share sales ............................ (366) (366)
Accumulated other comprehensive expense ...................... (907) (2,894)
--------- ---------
Total shareholders' equity ............................. 176,990 195,239
--------- ---------
Total liabilities and shareholders' equity ............. $ 249,965 $ 261,967
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- ---------------------------
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue .................................................. $ 50,306 $ 67,645 $ 92,244 $ 129,920
Cost of revenue .......................................... 27,155 35,505 50,230 68,269
--------- --------- --------- ---------
Gross profit .................................... 23,151 32,140 42,014 61,651
Selling, general and administrative expenses ............. 12,740 14,064 23,657 28,850
Research and development expenses ........................ 1,204 1,609 2,245 2,893
Goodwill and intangible amortization ..................... 363 1,228 653 2,049
Acquired in-process research and development ............. 8,200 -- 8,200 --
Acquisition costs ........................................ 145 2,828 145 6,613
Acceleration of stock appreciation
rights upon acquisition ............................... -- -- -- 1,804
--------- --------- --------- ---------
Income from operations .......................... 499 12,411 7,114 19,442
Other income (expense):
Interest expense ................................ (116) (14) (192) (70)
Interest income and other ....................... 1,193 1,113 2,360 2,510
--------- --------- --------- ---------
Total other income .............................. 1,077 1,099 2,168 2,440
--------- --------- --------- ---------
Income before provision for income taxes ................. 1,576 13,510 9,282 21,882
Provision for income taxes ............................... 4,069 5,696 6,267 9,166
--------- --------- --------- ---------
Net income (loss) ............................... $ (2,493) $ 7,814 $ 3,015 $ 12,716
========= ========= ========= =========
Earnings (loss) per share:
Basic $ (0.07) $ 0.21 $ 0.09 $ 0.34
========= ========= ========= =========
Diluted $ (0.07) $ 0.17 $ 0.07 $ 0.28
========= ========= ========= =========
Shares outstanding:
Basic ........................................... 34,715 37,919 34,107 37,623
========= ========= ========= =========
Diluted ......................................... 34,715 45,259 44,983 45,303
========= ========= ========= =========
Pro forma (See Note 2):
Net income (loss) as reported ............................ $ (2,493) $ 7,814 $ 3,015 $ 12,716
--------- --------- --------- ---------
Pro forma incremental income tax
(provision) benefit ................................... 591 (320) 591 (240)
--------- --------- --------- ---------
Pro forma net income (loss) .............................. $ (1,902) $ 7,494 $ 3,606 $ 12,476
========= ========= ========= =========
Pro forma basic earnings (loss) per share $ (0.05) $ 0.20 $ 0.11 $ 0.33
========= ========= ========= =========
Pro forma diluted earnings (loss) per share .............. $ (0.05) $ 0.17 $ 0.08 $ 0.28
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1998 1999
-------- --------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 3,015 $ 12,716
Adjustment to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization ............................... 2,115 4,261
Deferred taxes .............................................. (11,227) 6,572
Tax benefit of stock options ................................ 14,219 2,549
Changes in operating assets and liabilities:
Accounts receivable and unbilled work-in-process ......... (9,611) (5,457)
Other current assets ..................................... 1,419 1,651
Deposits and other assets ................................ (604) (675)
Accounts payable and other liabilities ................... 6,672 (1,471)
Accrued compensation ..................................... 8,889 (3,074)
Income tax ............................................... (53) (2,959)
Deferred revenue ......................................... (1,204) (4,286)
-------- --------
Total adjustments ........................................ 10,615 (2,889)
-------- --------
Net cash provided by operating activities ................ 13,630 9,827
-------- --------
Cash flows from investing activities:
Acquisition of consolidated subsidiaries,
net of cash acquired ....................................... (7,944) (20,065)
Investment in marketable securities, net ....................... (16,856) 4,269
Additions to capitalized software costs ........................ -- (1,271)
Additions to property and equipment ............................ (6,433) (14,535)
-------- --------
Net cash used in investing activities .................... (31,233) (31,602)
-------- --------
Cash flows from financing activities:
Net repayments from revolving credit line ...................... 202 117
Payments on long-term debt, notes and capital leases ........... (2,339) (4,328)
Proceeds from issuance of common stock ......................... 343 1,455
-------- --------
Net cash used in financing activities .................... (1,794) (2,756)
-------- --------
Effect of exchange rate changes ................................... (999) (1,596)
-------- --------
Net decrease in cash and cash equivalents ......................... (20,396) (26,127)
Cash and cash equivalents at beginning of period .................. 87,324 84,139
-------- --------
Cash and cash equivalents at end of period ........................ $ 66,928 $ 58,012
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and include all adjustments necessary for a fair presentation. The
results of operations for the three and six month periods ended June 30, 1999
are not necessarily indicative of the results to be expected for the full year.
The consolidated statements have been restated to include the financial
statements of Atechsys, S.A., Fusion System Japan Co., Ltd., and Orion
Consulting, Inc. These companies were acquired during 1999 in transactions
accounted for as pooling of interests.
These interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998, which are contained in IMRglobal's Annual Report on
Form 10-K ("Form 10-K)") as filed with the Securities and Exchange Commission
(the "Commission"). Form 10-K has not been restated to include the financial
position, results of operations and cash flows of Atechsys, Fusion and Orion.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION --The consolidated financial statements
include the accounts of IMRglobal Corp. ("IMRglobal") and its wholly and
majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
COMPUTATION OF EARNINGS PER SHARE--Per share data and number of shares
outstanding have been adjusted to reflect the 3-for-2 stock split in the form of
stock dividend paid by IMRglobal on April 3, 1998. Basic earnings per share is
computed using the weighted average of common stock outstanding. For the three
months ended June 30, 1998, diluted loss per share, the effect of incremental
shares from common stock equivalents using the treasury stock method, is not
included in the calculation of net loss per share as the inclusion of such
equivalents would be anti-dilutive. Diluted earnings per share is computed using
the treasury stock method which is summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average
common stock outstanding ................... 34,715 37,919 34,107 37,623
Weighted average
common stock equivalents ................... 10,482 7,340 10,876 7,680
------ ------ ------ ------
Subtotal carried forward 45,197 45,259 44,983 45,303
</TABLE>
6
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Subtotal brought forward 45,197 45,259 44,983 45,303
Dilutive affect of common stock equivalents .. (10,482) -- -- --
------ ------ ------ ------
Shares used in diluted earnings
per share calculation ..................... 34,715 45,259 44,983 45,303
====== ====== ====== ======
</TABLE>
CAPITALIZED SOFTWARE COSTS--Capitalized software costs are recorded at
cost less accumulated amortization. Production costs for computer software that
is to be utilized as an integral part of a product or process is capitalized
when both (a) technological feasibility is established for the software and (b)
all research and development activities have been completed. Amortization is
charged to income based upon a revenue formula over the shorter of the remaining
estimated economic life of the product or estimated lifetime revenue of the
product.
PRO FORMA INCOME TAXES AND NET INCOME--IMRglobal's wholly owned
subsidiary, IMRglobal-Orion Consulting, Inc. ("Orion") was taxed as an S
Corporation since its inception. Under the provisions of the Internal Revenue
Code, S Corporation taxable income is generally reported by the shareholders on
their individual income tax return. In connection with Orion's merger with
IMRglobal, the S Corporation election was terminated on June 15, 1999.
Subsequent to the termination of the S Corporation election Orion became subject
to U.S. federal and state income taxes as a C Corporation.
To properly reflect IMRglobal's pro forma net income, the provision for
income taxes has been adjusted as if Orion had been a taxable entity subject to
federal and state income taxes at the marginal rates applicable to such periods.
In addition, the pro forma adjustments to income tax expense for the three and
six months ended June 30, 1999 exclude the $250,000 one time income tax expense
resulting from the termination of the S Corporation status.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
7
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
3. SHAREHOLDERS' EQUITY
Changes in shareholders' equity for the six months ended June 30, 1999
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
COMPRE- NOTES ACCUMULATED
HENSIVE RECEIVABLE OTHER
INCOME COMMON PAID-IN RETAINED FROM STOCK COMPREHENSIVE
(LOSS) STOCK CAPITAL EARNINGS SALES LOSS TOTAL
--------- --------- --------- -------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 (Restated) $ -- $ 3,715 $ 142,170 $ 32,378 $ (366) $ (907) $ 176,990
Common stock issued in
connection with acquisitions ..... -- 16 3,500 -- -- -- 3,516
Employee stock purchase plan ........ -- 3 436 -- -- -- 439
Stock options exercised ............. -- 111 905 -- -- -- 1,016
Tax benefit of
stock options exercised .......... -- -- 2,549 -- -- -- 2,549
Net income .......................... 12,716 -- -- 12,716 -- -- 12,716
Translation adjustment .............. (1,987) -- -- -- -- (1,987) (1,987)
---------
Comprehensive income ................ $ 10,729 -- -- -- -- -- --
========= --------- --------- --------- --------- --------- ---------
Balance, June 30, 1999 ............. $ 3,845 $ 149,560 $ 45,094 $ (366) $ (2,894) $ 195,239
========= ========= ========= ========= ========= =========
</TABLE>
4. BUSINESS COMBINATIONS
ATECHSYS S.A. ("ATECHSYS")--On January 8, 1999, IMRglobal acquired 100%
of the outstanding stock of Atechsys S.A., a privately held information
technology company based in Paris, France, specializing in business and
technology consulting specific to capital markets businesses. In exchange for
Atechsys' common stock, Atechsys' shareholders received 718,859 shares of
IMRglobal common stock. The Atechsys acquisition is accounted for as a pooling
of interests combination pursuant to the provisions of APB Opinion No. 16.
Financial statements for all periods have been restated to give effect to the
business combination. Costs of approximately $1.7 million related to the
acquisition have been charged to acquisition costs and included in the statement
of income for the six months ended June 30, 1999.
ECWERKS, INC. ("ECWERKS")--On January 15, 1999, IMRglobal acquired 100%
of the outstanding stock of ECWerks, Inc., a privately held electronic commerce
business and technology consulting company based in Tampa, Florida. In exchange
for ECWerks' common stock, ECWerks' shareholders received 163,054 shares (valued
at $3.6 million) of IMRglobal's unregistered common stock. In addition, a
contingent payment of up to $28.0 million of common stock is payable if certain
specified financial goals are achieved during 1999. Any contingent payment would
result in an increase in the purchase price and the resulting goodwill. The
ECWerks acquisition is accounted for as a purchase pursuant to the provisions of
APB Opinion No. 16 and the resulting goodwill is being amortized over a 20-year
period.
8
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
4. BUSINESS COMBINATIONS (CONTINUED)
FUSION SYSTEM JAPAN CO., LTD. ("FUSION")--On March 26, 1999, IMRglobal
acquired 100% of the outstanding stock of Fusion System Japan Co., Ltd., a
privately held business and technology consulting company based in Tokyo, Japan.
Fusion is comprised of three divisions, one focused on the capital markets
businesses in Japan and Asia-Pacific, a Commercial Services division, which
provides information technology ("IT") consulting services to large companies in
Japan and a Client Services division which provides voice/data infrastructure
solutions in Japan. Fusion also has a subsidiary in Boston that provides IT
services to clients in the financial and commercial services industries. In
exchange for Fusion's common stock, Fusion's shareholders received 3,735,536
shares of IMRglobal common stock. The Fusion acquisition is accounted for as a
pooling of interests combination pursuant to the provisions of APB Opinion No.
16. Financial statements for all periods have been restated to give effect to
the business combination. Costs of approximately $2.1 million related to the
acquisition have been charged to acquisition costs and included in the statement
of income for the six months ended June 30, 1999.
During October 1996, Fusion initiated a Stock Appreciation Rights (SAR)
plan for the majority of its employees. The terms of this plan provided a
deferred benefit to employees based on the change in book value of Fusion. The
plan also provided the payment of an amount equal to approximately 3% of
Fusion's fair market value upon a merger or acquisition. Fair market value of
Fusion was based on the consideration received by Fusion's shareholders upon
consummation of the merger. In accordance with the SAR plan, IMRglobal's
acquisition of Fusion resulted in a one-time charge of approximately $1.8
million as a full and final settlement of this plan.
PROFESSIONAL PARTNERS, INC. AND LAKEWOOD SOFTWARE TECHNOLOGY CENTER,
INC. ("PLP")--On April 28, 1999, IMRglobal acquired 100% of the outstanding
stock of PLP, a privately held provider of information technology services to
the Property and Casualty insurance industry. In exchange for PLP's common
stock, PLP's shareholders received $12.0 million in cash. The PLP acquisition is
accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and
the resulting goodwill is being amortized over a 20-year period.
ORION CONSULTING, INC. ("ORION")--On June 15, 1999, IMRglobal acquired
100% of the outstanding stock of Orion, a privately held management consulting
firm, headquartered in Cleveland, Ohio, primarily serving the Health Care
industry. In exchange for Orion's common stock, Orion's shareholders received
3,028,414 shares of IMRglobal's common stock. The Orion merger has been
accounted for as a pooling of interests pursuant to the provisions of APB
Opinion No. 16. Financial statements for all periods have been restated to give
effect to the business combination. Costs of approximately $2.8 million related
to the acquisition have been charged to acquisition costs and included in the
statement of income for the three months and six months ended June 30, 1999.
9
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
4. BUSINESS COMBINATIONS (CONTINUED)
Separate results of operations for the periods prior to the merger with
Atechsys, Fusion and Orion are summarized below (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1998 1998
------------------ ----------------
<S> <C> <C>
Revenue:
IMRglobal ................................ $ 37,222 $ 69,584
Adjustment for pooling of interests ...... 13,084 22,660
--------------- ---------------
Combined ........................... $ 50,306 $ 92,244
=============== ===============
Pro forma net income:
IMRglobal ................................ $ (1,892) $ 3,621
Adjustments for pooling of interests ..... (10) (15)
--------------- ---------------
Combined ........................... $ (1,902) $ 3,606
=============== ===============
Other changes in shareholders' equity:
IMRglobal ................................ $ 22,098 $ 23,742
Adjustments for pooling of interests ..... 1,814 2,113
--------------- ---------------
Combined ........................... $ 23,912 $ 25,855
=============== ===============
</TABLE>
10
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
5. SEGMENT INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1999 1998 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue by service offering:
Core service offerings .................. $ 26,773 $ 51,706 $ 48,115 $ 94,807
Year 2000 ............................... 20,262 12,044 38,083 27,719
Professional services ................... 3,271 3,895 6,046 7,394
--------- --------- --------- ---------
Total revenue ..................... $ 50,306 $ 67,645 $ 92,244 $ 129,920
========= ========= ========= =========
Income from operations:
Sales organizations ..................... $ 8,701 $ 16,331 $ 14,400 $ 28,989
Software Development Centers ............ 1,710 1,745 3,957 3,812
--------- --------- --------- ---------
Income from operations -
sales and delivery centers ..... 10,411 18,076 18,357 32,801
Research and development ................ (1,204) (1,609) (2,245) (2,893)
Goodwill amortization ................... (363) (1,228) (653) (2,049)
Other costs ............................. (8,345) (2,828) (8,345) (8,417)
--------- --------- --------- ---------
Income from operations ............ $ 499 $ 12,411 $ 7,114 $ 19,442
========= ========= ========= =========
</TABLE>
The Company is engaged in one business segment. The sales organization
provides IT transitional outsourcing services to large companies in North
America, Europe, Japan and Australia. Software Development Centers consist of
two Indian facilities and one Northern Ireland facility that provide software
development services to the sales organizations. Intercompany sales are
accounted for at prices representative of unaffiliated party transactions and
are eliminated in consolidation.
11
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
6. ACQUISITIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
During 1998 and 1999, IMRglobal completed several acquisitions (see
Note 4). The following unaudited table compares IMRglobal's reported operating
results to pro forma information prepared on the basis that the acquisition had
taken place at the beginning of the fiscal year for each of the periods
presented (in thousands except per share amounts):
JUNE 30,
----------------------------
1998 1999
----------- -----------
As reported:
Revenue ........................ $ 92,244 $ 129,920
Net income ..................... $ 3,606 $ 12,476
Basic earnings per share ....... $ 0.11 $ 0.33
Diluted earnings per share ..... $ 0.08 $ 0.28
Pro forma (unaudited):
Revenue ........................ $ 121,010 $ 136,474
Net income ..................... $ 3,168 $ 11,466
Basic earnings per share ....... $ 0.09 $ 0.30
Diluted earnings per share ..... $ 0.07 $ 0.25
In management's opinion, the unaudited pro forma combined results of
operations are not indicative of the actual results that would have occurred had
the acquisition been consummated at the beginning of 1998 or 1999 or of future
operations of the combined companies under the ownership and management of
IMRglobal.
7. CONTINGENCIES
During May 1998, IMRglobal acquired 100% of Lyon Consultants S.A.
("Lyon") for approximately $16.7 million in cash and 531,353 shares in IMRglobal
(See Note 4). In addition, the acquisition agreement provides that if the
average price of the IMRglobal shares on NASDAQ is less than $27.24 per share
for the seven trading days prior to May 15, 1999, then IMRglobal will pay the
former Lyon shareholders the difference between the average price on NASDAQ and
$27.24 multiplied by 499,353 shares. On May 15, 1999 the average price of
IMRglobal's shares for the seven trading days prior to May 10, 1999 was $18.768
per share. Accordingly, the liability to the former shareholders of Lyon is
approximately $4.2 million unless this provision is renegotiated as discussed
below.
12
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
7. CONTINGENCIES (CONTINUED)
IMRglobal has been in continuing negotiations with the former
shareholders of Lyon regarding the above contingency. IMRglobal's current
proposal is that if the average price of the IMRglobal shares on NASDAQ is less
than $34.05 per share for the seven trading days prior to May 15, 2000, then
IMRglobal will pay the former Lyon shareholders the difference between the
average price on NASDAQ and $34.05 for only the shares continuing to be held by
the former Lyon shareholders. In addition, if the IMRglobal shares on NASDAQ is
$34.05 per share or higher for any consecutive trading days between May 15, 1999
and May 15, 2000, then the above contingency is released without any further
obligation to IMRglobal. The above proposal has not yet been accepted by the
former shareholders of Lyon.
13
<PAGE>
IMRGLOBAL CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information, some matters discussed in our report
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended:
o rates of wage cost increases in comparison to rates of
inflation in the countries in which we do business
o our ability to expand our infrastructure
o the rate of revenue growth
o future income from operations
o the impact of the year 2000 on our results of operations and
financial condition
We note that a variety of risk factors could cause our actual results and
experience to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements. Reference is made in
particular to the remaining discussion in this report and set forth in our
Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as filed
with the Commission.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
REVENUE. For the three months ended June 30, 1999, our revenue
increased to $67.6 million, representing a 34.5% increase over revenue of $50.3
million for the three months ended June 30, 1998. Acquisitions contributed
approximately one-half of the revenue increase. Revenue from our service
offerings not related to our Year 2000 service offerings, increased to $55.6
million (including revenue from purchase acquisitions), representing an 85.1%
increase over non Year 2000 revenue of $30.0 million for the three months ended
June 30, 1998. Revenue from our Year 2000 conversion services decreased 40.6% to
$12.0 million for the quarter ended June 30, 1999 compared to $20.3 million for
the quarter ended June 30, 1998. As a percentage of total revenue, Year 2000
revenue decreased to 17.8% for the three months ended June 30, 1999 as compared
to 40.3% for the three months ended June 30, 1998. We expect that Year 2000
revenue will continue to decrease over the next three quarters.
COST OF REVENUE. Cost of Revenue was $35.5 million, or 52.5% of
revenue, for the three months ended June 30, 1999, as compared to $27.2 million,
or 54.0% of revenue, for the three months ended June 30, 1998. The decrease in
cost of revenue as a percentage of revenue primarily reflects productivity gains
from the use of our toolsets.
Wage costs continue to increase at a greater rate than general
inflation in each of the countries in which we have operations, and we
anticipate that this trend will continue in the near term. Historically, we have
been able to pass these wage increases on to our clients in the form of
increased prices for our service offerings. However, we cannot assure you that
we will be able to continue to increase prices to our clients to offset future
wage increases.
14
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
GROSS PROFIT. Gross profit increased 38.8% to $32.1 million in the
three months ended June 30, 1999 compared to $23.2 million in the three months
ended June 30, 1998. As a percentage of revenue, our gross profit increased to
47.5% in the three months ended June 30, 1999 compared to 46.0% in the three
months ended June 30, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months
ended June 30, 1999, SG&A expenses increased to $14.1 million, compared to $12.7
million for the three months ended June 30, 1998. The increase in SG&A expense
is primarily attributable to the following:
o purchase acquisitions
o expansion of sales personnel
o expansion of our general support staff, primarily recruiting
and human resources personnel
The above increases were offset by a reduction in bad debt expense.
During 1998, Orion incurred a $1.5 million bad debt from a major client, which
filed for bankruptcy.
As a percentage of revenue, SG&A expenses for the three months ended
June 30, 1999 decreased to 20.8% from 25.3% for the same period in 1998. The
primary reason for the decrease as a percentage of revenue was due to the $1.5
million bad debt write-off during the three months ended June 30, 1998.
We intend to continue to expand our SG&A infrastructure in preparation
for anticipated revenue growth. We do not expect SG&A to decrease further as a
percentage of revenue in the near term.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $1.6 million for the three months ended June 30, 1999 from $1.2
million in the three months ended June 30, 1998. As a percentage of revenue, R&D
was 2.4% for both the three months ended June 30, 1999 and for the three months
ended June 30, 1998. We anticipate that R&D expenses will continue to be
approximately 2.0% to 2.5% of revenue for the remainder of 1999.
During the second quarter of 1999, in accordance with Statement of
Financial Accounting Standard (SFAS) 86, we capitalized approximately $567,000
of software costs related to our component based products for the insurance
industry and our maintenance toolset. We did not capitalize software costs
during 1998. We anticipate that the amount of capitalized software will continue
to increase through the remainder of 1999 at levels consistent with the rate of
increase for the first half of 1999.
GOODWILL AND INTANGIBLE AMORTIZATION. Goodwill and intangible
amortization increased to approximately $1.2 million for the three months ended
June 30, 1999 from approximately $363,000 for the three months ended June 30,
1998. The additional expense primarily reflects the amortization of goodwill and
intangibles generated by our 1998 and 1999 acquisitions.
15
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
ACQUISITION COSTS AND ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
COSTS. During the three months ended June 30, 1999, we completed one acquisition
that was accounted for as a pooling of interests. Acquisition expenses
attributable to this transaction were approximately $2.8 million.
During the quarter ended June 30, 1998, in connection with our
acquisition of Lyon, we incurred an $8.2 million expense for acquired in-process
research and development costs. This expense was based on an appraisal of the
intangible assets acquired in the Lyon acquisition.
INCOME FROM OPERATIONS. Income from operations for the three months
ended June 30, 1999 was $12.4 million compared to $499,000 for the three months
ended June 30, 1998. As a percentage of revenue, income from operations for the
three months ended June 30, 1999 increased to 18.3% from 1.0% in the three
months ended June 30, 1998. Both periods reflect certain one-time charges
related to acquisition costs and acquired in-process research and development
costs. Excluding these one-time charges, as a percentage of revenue, income from
operations for the three months ended June 30, 1999 increased to 22.5% from
17.6% in the three months ended June 30, 1998. Due to increased infrastructure
investments we do not expect income from operations excluding one-time charges,
as a percentage of revenue, to increase significantly from current levels in the
near term.
OTHER INCOME. We realized $1.1 million of other income (net of other
expenses) in the three months ended June 30, 1999 and in the three months ended
June 30, 1998. Net other income consists primarily of investment income
generated by our cash and marketable securities.
PRO FORMA PROVISION FOR INCOME TAXES. A pro forma provision for income
taxes has been calculated due to Orion being a Subchapter S Corporation until
June 1999. The pro forma provision for income taxes increased to $6.0 million
for the three months ended June 30, 1999 from $3.5 million for the three months
ended June 30, 1998. Excluding one-time charges, our effective tax rate was
36.8% for the three months ended June 30, 1999 compared to 35.1% for the three
months ended June 30, 1998. The effective tax rate is calculated by dividing the
provision for income taxes by income before provision for income taxes and
minority interest.
The higher effective tax rate for the three months ended June 30, 1999
is partially attributable to goodwill and acquired technology amortization not
being fully deductible for income tax purposes. Intangible asset amortization
has increased 238.3% from the three months ended June 30, 1998 to the three
months ended June 30, 1999. In addition, we have historically enjoyed a low
effective tax rate primarily due to our industry's low tax rates in India.
Accordingly, the effective tax rate has increased as a result of recent
acquisitions in France, Canada, Japan, Australia and the United States, which
have higher tax rates than India.
We have not recorded deferred income taxes applicable to undistributed
earnings of IMRglobal-India. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal and state
income tax has been provided thereon.
16
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
PRO FORMA NET INCOME. Pro forma net income increased to $7.5 million
for the three months ended June 30, 1999 compared to a $1.9 million loss for the
three months ended June 30, 1998. Pro forma net income for the three months
ended June 30, 1999, excluding one-time charges, was approximately $10.3 million
compared to pro forma net income of approximately $6.4 million for the three
months ended June 30, 1998. Excluding one-time charges, as a percentage of
revenue, pro forma net income for the three months ended June 30, 1999 increased
to 15.3% from 12.8% in the three months ended June 30, 1998.
PRO FORMA DILUTED EARNINGS PER SHARE. Pro forma diluted earnings per
share was $0.17 for the three months ended June 30, 1999 and ($0.05) for the
three months ended June 30, 1998. Excluding one-time charges, pro forma diluted
earnings per share was $0.23 for the three months ended June 30, 1999 as
compared to $0.14 for the three months ended June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
REVENUE. For the six months ended June 30, 1999, our revenue increased
to $129.9 million, representing a 40.8% increase over revenue of $92.2 million
for the six months ended June 30, 1998. The acquisitions accounted for under the
purchase method between May 1998 and June 1999 contributed approximately
one-half of the revenue increase. Revenue from our service offerings not related
to our Year 2000 service offerings, increased to $102.2 million (including
purchase acquisitions), representing an 88.7% increase over non Year 2000
revenue of $54.2 million for the six months ended June 30, 1998. Revenue from
our Year 2000 conversion services decreased 27.2% to $27.7 million for the six
months ended June 30, 1999 compared to $38.1 million for the six months ended
June 30, 1998. As a percentage of total revenue, Year 2000 revenue decreased to
21.3% for the six months ended June 30, 1999 as compared to 41.3% for the six
months ended June 30, 1998. We expect that Year 2000 revenue will continue to
decrease over the next three quarters.
COST OF REVENUE. Cost of Revenue was $68.3 million, or 52.5% of
revenue, for the six months ended June 30, 1999, as compared to $50.2 million,
or 54.5% of revenue, for the six months ended June 30, 1998. The decrease in
cost of revenue as a percentage of revenue primarily reflects productivity gains
from the use of our toolsets.
Wage costs continue to increase at a greater rate than general
inflation in each of the countries in which we have operations, and we
anticipate that this trend will continue in the near term. Historically, we have
been able to pass these wage increases on to our clients in the form of
increased prices for our service offerings. However, we cannot assure you that
we will be able to continue to increase prices to our clients to offset future
wage increases.
GROSS PROFIT. Our gross profit increased 46.7% to $61.7 million in the
six months ended June 30, 1999 compared to $42.0 million in the six months ended
June 30, 1998. As a percentage of revenue, our gross profit increased to 47.5%
in the six months ended June 30, 1999 compared to 45.5% in the six months ended
June 30, 1998.
17
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the six months ended
June 30, 1999, SG&A expenses increased to $28.9 million, compared to $23.7
million for the six months ended June 30, 1998. The dollar increase in SG&A
expense is attributable to the following:
o purchase acquisitions
o addition of seven sales offices
o the expansion of sales personnel
o expansion of our general support staff, primarily recruiting
and human resources personnel
The above increases were offset by a reduction in bad debt expense.
During 1998, Orion incurred a $1.5 million bad debt from a major client, which
filed for bankruptcy.
As a percentage of revenue, SG&A expenses for the six months ended June
30, 1999 decreased to 22.2% from 25.6% for the same period in 1998. The primary
reason for the decrease as a percentage of revenue was due to the $1.5 million
bad debt write-off during the six months ended June 30, 1998.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to approximately $2.9 million for the six months ended June 30, 1999
from approximately $2.2 million in the six months ended June 30, 1998. As a
percentage of revenue, R&D decreased to 2.2% in the six months ended June 30,
1999 from 2.4% for the six months ended June 30, 1998.
During the first six months of 1999, in accordance with Statement of
Financial Accounting Standard (SFAS) 86, we capitalized approximately $1.3
million of software costs related to our component based products for the
insurance industry and our maintenance toolset. We did not capitalize software
costs during 1998. We anticipate that the amount of capitalized software will
continue to increase through the remainder of 1999 at levels consistent with the
rate of increase for the first half of 1999.
GOODWILL AND INTANGIBLE AMORTIZATION. Goodwill and intangible
amortization increased to approximately $2.0 million for the six months ended
June 30, 1999 from approximately $653,000 for the six months ended June 30,
1998. The additional expense primarily reflects the amortization of goodwill and
intangibles generated by two acquisitions in 1998 and three acquisitions in
1999.
18
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
ACQUISITION COSTS, ACCELERATION OF STOCK APPRECIATION RIGHTS UPON
ACQUISITIONS AND ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS. During the
six months ended June 30, 1999, we completed three acquisitions that were
accounted for as pooling of interests. Acquisition expenses attributable to
these mergers were approximately $6.6 million. In addition, the acquisition of
Fusion accelerated the settlement of Fusion's stock appreciation rights plan.
This resulted in a one-time and final charge of approximately $1.8 million in
accordance with the plan.
During the six months ended June 30, 1998, in connection with our
acquisition of Lyon, we incurred an $8.2 million expense for acquired in-process
research and development costs. This expense was based on an appraisal of the
intangible assets acquired in the Lyon acquisition.
INCOME FROM OPERATIONS. Income from operations for the six months ended
June 30, 1999 was $19.4 million compared to $7.1 million for the six months
ended June 30, 1998. As a percentage of revenue, income from operations for the
six months ended June 30, 1999 increased to 15.0% from 7.7% in the six months
ended June 30, 1998. Both periods reflect certain one-time charges related to
acquisition costs, acceleration of stock appreciation rights and acquired
in-process research and development costs. Excluding these one-time charges, as
a percentage of revenue, income from operations for the six months ended June
30, 1999 increased to 21.4% from 16.8% in the six months ended June 30, 1998.
Due to increased infrastructure investments we do not expect income from
operations excluding one-time charges, as a percentage of revenue, to increase
significantly from current levels in the near term.
OTHER INCOME. We realized approximately $2.4 million of other income
(net of other expenses) in the six months ended June 30, 1999 compared to net
other income of approximately $2.2 million in the six months ended June 30,
1998. Net other income consists primarily of investment income generated by our
cash and marketable securities.
PRO FORMA PROVISION FOR INCOME TAXES. A pro forma provision for income
taxes has been calculated due to Orion being a Subchapter S Corporation until
June 1999. The pro forma provision for income taxes increased to $9.4 million
for the six months ended June 30, 1999 from $5.7 million for the six months
ended June 30, 1998. Excluding one-time charges, our effective tax rate was
36.8% for the six months ended June 30, 1999 compared to 32.2% for the six
months ended June 30, 1998. The effective tax rate is calculated by dividing the
provision for income taxes by income before provision for income taxes and
minority interest.
The higher effective tax rate for the six months ended June 30, 1999 is
partially attributable to goodwill and acquired technology amortization not
being fully deductible for income tax purposes. Intangible asset amortization
has increased 213.8% from the six months ended June 30, 1998 to the six months
ended June 30, 1999. In addition, we have historically enjoyed a low effective
tax rate primarily due to our industry's low tax rates in India. Accordingly,
the effective tax rate has increased as a result of recent acquisitions in
France, Canada, Japan, Australia and the United States, which have higher tax
rates than India.
19
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
We have not recorded deferred income taxes applicable to undistributed
earnings of IMRglobal-India. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal and state
income tax has been provided thereon.
PRO FORMA NET INCOME. Pro forma net income increased to $12.5 million
for the six months ended June 30, 1999 compared to $3.6 million for the six
months ended June 30, 1998. Pro forma net income for the six months ended June
30, 1999, excluding one-time charges, was approximately $19.2 million compared
to pro forma net income of approximately $12.0 million for the six months ended
June 30, 1998. Excluding one-time charges, as a percentage of revenue, pro forma
net income for the six months ended June 30, 1999 increased to 14.7% from 13.0%
in the six months ended June 30, 1998.
PRO FORMA DILUTED EARNINGS PER SHARE. Pro forma diluted earnings per
share was $0.28 for the six months ended June 30, 1999 and $0.08 for the six
months ended June 30, 1998. Excluding one-time charges, pro forma diluted
earnings per share was $0.42 for the six months ended June 30, 1999 as compared
to $0.27 for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, we had:
o working capital of $96.4 million
o liquid assets including cash, cash equivalents and marketable
securities of approximately $85.4 million
o available bank lines of credit of approximately $13.9 million
Net cash provided by operating activities was $9.8 million for the six
months ended June 30, 1999. The positive cash flow from operations primarily
reflects our continuing profitability and the tax benefits generated through the
exercise of employee stock options.
Net cash used in investing activities was $31.6 million for the six
months ended June 30, 1999. For the six months ended June 30, 1999, we invested
an additional $20.1 million in the acquisition of subsidiaries and purchased
$14.0 million of property and equipment.
Net cash used in financing activities was $2.8 million for the six
months ended June 30, 1999.
20
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
We maintain an uncollateralized $10.0 million revolving credit facility
which allows us to borrow up to 80% of the book value of our United States
accounts receivable. Our interest rate for this facility varies and is 1% above
LIBOR (currently 6.3%). At June 30, 1999, we had not borrowed any funds under
this facility and the $10.0 million was available to us. Provisions of this line
of credit and certain notes payable contain financial covenants, including
covenants that require us to maintain certain financial ratios. At June 30,
1999, we were in compliance with these covenants. This credit facility can be
canceled at any time by the bank or by us.
Certain of our subsidiaries maintain additional revolving credit line
arrangements. Interest rates are based on the lending institution's prime rate
(ranging from 6.5% to 9.0% at June 30, 1999). At June 30, 1999, the amount
outstanding under these facilities was $219,000 and the maximum amount available
was approximately $3.9 million. The respective subsidiary's accounts receivable
and certain property and equipment collateralize these facilities.
During June 1998, we entered into contracts to purchase land and
construct new facilities for our corporate headquarters. The total price of this
project (including furniture, fixtures and equipment) is expected to be
approximately $28.0 million of which $14.4 million has been expended as of June
30, 1999. Completion of this project is scheduled for January 2000. In addition,
we have a contingent liability of approximately $4.5 million to the former
shareholders of Lyon.
We continuously review our future cash requirements, together with our
available bank lines of credit and internally generated funds. We believe we
have adequate capital resources to meet all working capital obligations and fund
the development of our current business operations, including the following
business objectives:
o Continued expansion of existing business
o Continued funding of research and development initiatives
o Anticipated levels of capital expenditures including the
construction of our corporate headquarters
o Any debt repayment requirements, including those that may be
required pursuant to the integration of our acquisitions
ASSET MANAGEMENT
Our accounts receivable balance was $46.3 million at June 30, 1999. The
increase of $6.0 million from December 31, 1998 was primarily due to new
acquisitions and revenue growth of 40.8%. A significant portion of our business
is executed on a fixed-price, fixed-time frame basis. Revenue on fixed-price
contracts does not necessarily correlate to actual billings. Accordingly,
accounts receivable may increase significantly in periods where there is a
significant increase in deferred revenue (I.E., billings issued in advance of
revenue recognition).
21
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
A common financial measure is the calculation of days sales outstanding
in accounts receivable. We refer to days sales outstandings as DSO. We believe
that the calculation of DSO should be done on our quarterly results of
operations to factor in our historic rapid revenue growth rate. Based on the
above, DSO was 62 days at June 30, 1999. The Lyon and Atechsys acquisitions add
approximately 3 days to our DSO as collection practices of accounts receivable
in France have historically been slower than collections in other geographical
areas. In addition, accounts receivable in Canada, France, Japan and U.K.
include value added taxes that are not included in revenue. Without value added
taxes, DSO would be approximately 3 days less than the above levels.
COSTS ASSOCIATED WITH THE ASSESSMENT AND RESOLUTION OF OUR YEAR 2000 CONVERSION
PROJECTS
INTRODUCTION. Many existing computer systems run software programs
permitting only two-digit entries to reference the year in the date field. For
example, 1999 is read as 99. As a result of this limitation, many existing
computer systems cannot properly process dates in the next century. Software
programs that use the two-digit year date field to perform computations or
decision-making functions may fail due to an inability to correctly interpret
dates in the 21st century. For example, many software systems will misinterpret
"00" to mean the year 1900 rather than 2000.
OUR STATE OF READINESS. We are in the process of assessing the impact
the Year 2000 will have on our information technology and non-information
technology systems, relationships with our third-party vendors and relationships
with our clients.
Although we continue to review all of our systems, for Year 2000
compliance, we have discovered that only our internal accounting system is not
Year 2000 compliant. A new accounting system has been selected and we expect to
have replaced the non-compliant accounting system by the end of October, 1999.
The implementation of a new accounting system was made for reasons other than
the fact that the system to date is not Year 2000 compliant. Accordingly, we
have not accelerated replacement plans for such system in light of its
non-compliance. To date, we have incurred expenses approximating $30,000 related
to Year 2000 compliance and we anticipate that the total cost should not exceed
$100,000. These estimates primarily reflect the costs related to our personnel.
We do not believe that the costs associated with the replacement of the
accounting system will have a material impact on our results of operations and
financial condition. We have not identified any other IT or non-IT system that
is subject to a material risk of disruption due to Year 2000. We do not believe
a formal contingency plan is required for internal systems.
We have assessed whether a system failure experienced by any of our
third-party vendors would negatively impact our operations or financial
condition. We have determined that a Year 2000 system failure experienced by our
satellite and communications vendors could potentially interrupt communications
between
22
<PAGE>
IMRGLOBAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
client sites and our software development centers. This interruption could
result in loss of revenue, increased costs and project delays. We have contacted
our satellite and communications vendors in order to assess whether they
anticipate any communications failures or interruptions as a result of the Year
2000. We have been informed that no such failures or interruptions are presently
anticipated. If, however, further analysis determines that one or more of our
satellite or communications vendors may encounter Year 2000 related failures or
interruptions, we will be required to develop a contingency plan. It is
anticipated that a contingency plan, if necessary, will be developed by the
third quarter of 1999. We have determined that a system failure experienced by
the satellite and communication vendors could have a material effect on our
results of operations and financial condition. System failure by any other
third-party vendor would not have a material affect on our results of operations
and financial condition.
RISKS PRESENTED BY THE YEAR 2000. Many of our client engagements
include Year 2000 conversion services that are critical to the operations of our
clients' businesses. Any failure in a client's system could result in a claim
for substantial damages against us, regardless of our responsibility for such
failure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
IMRglobal is exposed to market risk from changes in interest rates and
exchange rates between the U.S. dollar and the currencies of various countries
in which we operate. IMRglobal does not engage in hedging transactions and is
not a party to any leveraged derivatives.
23
<PAGE>
IMRGLOBAL CORP.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending material litigation.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
o The Registrant filed a report on Form 8-K on April 8,
1999 under Item 2 disclosing the acquisition of Fusion
Systems Japan Co., Ltd.
o The Registrant filed a report on Form 8-K on June 29,
1999 under Item 2 disclosing the acquisition of Orion
Consulting, Inc.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMRGLOBAL CORP.
Date AUGUST 13, 1999 /s/ SATISH K. SANAN
--------------------------- ---------------------------------
Satish K. Sanan
Chief Executive Officer
Date AUGUST 13, 1999 /s/ ROBERT M. MOLSICK
--------------------------- ---------------------------------
Robert M. Molsick
Chief Financial Officer
25
<PAGE>
IMRGLOBAL CORP.
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 58,012
<SECURITIES> 27,340
<RECEIVABLES> 48,487
<ALLOWANCES> 2,195
<INVENTORY> 0
<CURRENT-ASSETS> 157,642
<PP&E> 45,455
<DEPRECIATION> 9,397
<TOTAL-ASSETS> 261,967
<CURRENT-LIABILITIES> 61,221
<BONDS> 1,598
0
0
<COMMON> 3,845
<OTHER-SE> 191,394
<TOTAL-LIABILITY-AND-EQUITY> 261,967
<SALES> 0
<TOTAL-REVENUES> 129,920
<CGS> 0
<TOTAL-COSTS> 68,269
<OTHER-EXPENSES> 42,059
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 21,882
<INCOME-TAX> 9,166
<INCOME-CONTINUING> 12,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,716
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.28
</TABLE>
