SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: AUGUST 26, 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)
N/A
-------------------------------
(Former Name or Former Address,
if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS
During 1999, IMRglobal Corp. acquired Atechsys S.A., Fusion Systems
Japan Co. Ltd. and Orion Consulting, Inc. in transactions that have
been accounted for as pooling of interests in accordance with APB
Opinion 16, "Business Combinations". These transactions have been
described in our previous filings on Forms 10-Q and/or Form 8-K. In
accordance with pooling of interests rules the following consolidated
financial statements for all prior periods have been restated to
include the accounts of Atechsys S.A., Fusion Systems Japan Co. Ltd.
and Orion Consulting, Inc. Restated financial statements for the years
ended December 31, 1996, 1997, and 1998 and for the six months ended
June 30, 1998 and 1999 are attached to this Form 8-K.
2
<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 26, 1999 /s/ SATISH K. SANAN
--------------------------- ----------------------------
Satish K. Sanan
Chief Executive Officer
Date August 26, 1999 /s/ ROBERT M. MOLSICK
--------------------------- ------------------------------
Robert M. Molsick
Chief Financial Officer
3
<PAGE>
IMRGLOBAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Auditors.......................................... 2
Report of Independent Certified Public Accountants...................... 3
Report of Independent Public Accountants................................ 4
Consolidated Balance Sheets as of December 31, 1997 and 1998,
and June 30, 1999 (Unaudited)........................................ 5
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997 and 1998 and for the Six Months ended
June 30, 1998 and 1999 (Unaudited)................................... 6
Consolidated Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 and for the
Six Months Ended June 30, 1999 (Unaudited) .......................... 7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and for the Six Months ended
June 30, 1998 and 1999 (Unaudited)................................... 8
Notes to Consolidated Financial Statements.............................. 9
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
IMRglobal Corp.
We have audited the accompanying consolidated balance sheets of IMRglobal Corp.
as of December 31, 1998 and 1997, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1998, as restated for the 1999 poolings of interests
described in Note 2. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of IMRglobal Corp. as of December 31, 1997 and for the two years then
ended, prior to their restatements for the 1999 poolings of interests described
in Note 2, which statements reflect total assets of $135.4 million as of
December 31, 1997 and total revenues of $83.6 million and $27.9 million for the
years ended December 31, 1997 and 1996, respectively. We also did not audit the
financial statements of Orion Consulting, Inc. as of December 31, 1998 and 1997,
and for the three years ended December 31, 1998, which statements reflect total
assets of $11.7 million and $6.8 million as of December 31, 1998 and 1997,
respectively, and total revenues of $22.6 million, $17.2 million and $17.4
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Those financial statements were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to data included
for IMRglobal Corp. as of December 31, 1997 and for the two years then ended
prior to the restatement for the 1998 poolings of interests described in Note 2,
and Orion Consulting, Inc. is based solely on the reports of other auditors.
We conducted out audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of IMRglobal Corp. at
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Tampa, Florida
August 20, 1999
2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of IMRglobal Corp.
We have audited the consolidated balance sheet of IMRglobal Corp. and
subsidiaries (the Company) (formerly Information Management Resources, Inc.) as
of December 31, 1997, and the related consolidated statements of income, changes
in shareholders' equity and cash flows for the years ended December 31, 1997 and
1996 prior to restatement for the pooling of interests transactions discussed in
Note 2 to the consolidated financial statements. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements (not presented
herein) referred to above present fairly, in all material respects, the
consolidated financial position of IMRglobal, Inc. and subsidiaries as of
December 31, 1997, and the consolidated results of their operations and their
cash flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
PricewaterhouseCoopers LLP
Tampa, Florida
February 13, 1998, except for certain information
in Note 13, for which the date is March 9, 1998.
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Orion Consulting, Inc.:
We have audited the accompanying balance sheets of Orion Consulting, Inc. (an
Ohio corporation) as of December 31, 1998 and 1997, and the related statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orion Consulting, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio
January 22, 1999.
4
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ---------
1997 1998 1999
--------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 87,324 $ 84,139 $ 58,012
Marketable securities .................................... 4,453 31,609 27,340
Accounts receivable ...................................... 21,331 40,243 46,292
Unbilled work in process ................................. 8,484 7,943 11,100
Deferred income taxes .................................... 2,133 15,148 10,462
Prepaid expenses and other current assets ................ 5,481 5,694 4,436
--------- --------- ---------
Total current assets ............................... 129,206 184,776 157,642
Property and equipment, net of accumulated depreciation ..... 11,324 23,091 36,058
Deposits and other assets ................................... 2,777 5,269 7,271
Intangible assets, net of accumulated amortization .......... 10,157 36,829 60,996
--------- --------- ---------
Total assets ....................................... $ 153,464 $ 249,965 $ 261,967
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 4,009 $ 8,497 $ 11,511
Accrued compensation ..................................... 12,713 20,104 24,115
Deferred revenue ......................................... 6,189 5,819 1,715
Other current liabilities ................................ 10,793 27,598 23,880
--------- --------- ---------
Total current liabilities .......................... 33,704 62,018 61,221
Long-term debt .............................................. 2,596 1,791 1,598
Deferred income taxes ....................................... 546 1,041 791
Accrued compensation ........................................ 2,322 8,046 3,110
--------- --------- ---------
Total liabilities .................................. 39,168 72,896 66,720
--------- --------- ---------
Minority interest ........................................... 4 79 8
--------- --------- ---------
Shareholders' equity:
Preferred stock, $.10 par value, 10,000,000 shares
authorized, no shares issued and outstanding ......... -- -- --
Common stock, $.10 par value per share, 100,000,000 shares
authorized, 33,133,420 and 37,155,159 and 38,446,696
shares issued and outstanding......................... 3,313 3,715 3,845
Additional paid-in capital ............................... 101,600 142,778 150,168
Retained earnings ........................................ 11,947 31,770 44,486
Notes receivable from share sales ........................ -- (366) (366)
Deferred compensation .................................... (1,524) -- --
Accumulated other comprehensive expense .................. (1,044) (907) (2,894)
--------- --------- ---------
Total shareholders' equity ......................... 114,292 176,990 195,239
--------- --------- ---------
Total liabilities and shareholders' equity ......... $ 153,464 $ 249,965 $ 261,967
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue ............................................ $ 55,596 $ 115,310 $ 208,211 $ 92,244 $ 129,920
Cost of revenue .................................... 32,290 67,352 110,460 50,230 68,269
--------- --------- --------- --------- ---------
Gross profit .............................. 23,306 47,958 97,751 42,014 61,651
Selling, general and administrative ................ 13,894 32,027 49,811 23,657 28,850
Research and development ........................... -- 1,113 6,437 2,245 2,893
Goodwill and intangible amortization ............... 100 1,123 2,076 653 2,049
Acquired in-process research and development ....... -- -- 8,200 8,200 --
Acquisition costs .................................. -- -- 145 145 6,613
Acceleration of stock appreciation
rights upon acquisition ......................... -- -- -- -- 1,804
--------- --------- --------- --------- ---------
Income from operations .................... 9,312 13,695 31,082 7,114 19,442
--------- --------- --------- --------- ---------
Other income (expense):
Interest expense ................................ (312) (208) (258) (192) (70)
Other income .................................... 487 2,050 4,579 2,363 2,523
--------- --------- --------- --------- ---------
Total other income ........................ 175 1,842 4,321 2,171 2,453
--------- --------- --------- --------- ---------
Income before provision
for income taxes and minority interest .......... 9,487 15,537 35,403 9,285 21,895
Provision for income taxes ......................... 2,357 6,475 15,610 6,267 9,166
--------- --------- --------- --------- ---------
Income before minority interest ........... 7,130 9,062 19,793 3,018 12,729
Minority interest in net income .................... (730) (48) (33) (3) (13)
--------- --------- --------- --------- ---------
Net income ................................ $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716
========= ========= ========= ========= =========
Basic earnings per share ........................... $ 0.28 $ 0.29 $ 0.56 $ 0.09 $ 0.34
========= ========= ========= ========= =========
Diluted earnings per share ......................... $ 0.19 $ 0.21 $ 0.44 $ 0.07 $ 0.28
========= ========= ========= ========= =========
Shares outstanding:
Basic ........................................... 22,941 31,612 35,516 34,107 37,623
========= ========= ========= ========= =========
Diluted ......................................... 33,854 41,950 45,056 44,983 45,303
========= ========= ========= ========= =========
PRO FORMA (NOTE 1):
Net income as reported ............................. $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716
Pro forma incremental income tax (provision) benefit (1,546) 1,076 591 591 (240)
--------- --------- --------- --------- ---------
Pro forma net income ............................... $ 4,854 $ 10,090 $ 20,351 $ 3,606 $ 12,476
========= ========= ========= ========= =========
Pro forma basic earnings per share ................. $ 0.21 $ 0.32 $ 0.57 $ 0.11 $ 0.33
========= ========= ========= ========= =========
Pro forma diluted earnings per share ............... $ 0.14 $ 0.24 $ 0.45 $ 0.08 $ 0.28
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPRE- ADDITIONAL
HENSIVE COMMON STOCK PAID-IN RETAINED
INCOME SHARES AMOUNT CAPITAL EARNINGS
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Restated balance, January 1, 1996 ......... -- 27,860 $ 2,785 $ -- $ 3,977
Common stock issued for options
exercised ............................... -- 306 31 (18) --
Repurchase of common stock ................ -- -- -- -- --
Retirement of treasury stock .............. -- (6,200) (620) (822) (56)
Dividend paid ............................. -- -- -- -- (4,016)
Termination of S Corporation tax status ... -- -- -- 946 (946)
Common stock issued in connection with
initial public offering .................. -- 7,228 723 39,994 --
Acquisition of majority shareholder's
interest in subsidiary .................... -- -- -- (2,500) --
Contribution of capital ................... -- -- -- 678 --
Net income ................................ $ 6,400 -- -- -- 6,400
Foreign currency translation adjustment ... (217) -- -- -- --
-------- -------- --------- --------- --------
Comprehensive income ............. $ 6,183
========
Balance, December 31, 1996 ................ -- 29,194 2,919 38,278 5,359
Common stock issued in
connection with public offering ......... -- 2,587 259 52,289 --
Common stock issued in
connection with business combinations ... -- 173 17 1,854 --
Acquisition of majority shareholder's
interest in subsidiary .................. -- -- -- (552) --
Common stock issued in connection
with employee stock purchase plan ....... -- 108 11 658 --
Common stock issued for options exercised . -- 1,072 107 152 --
Tax benefit of stock options exercised .... -- -- -- 6,769 --
Contribution of capital ................... -- -- -- 2,152 --
Dividend paid ............................. -- -- -- -- (2,426)
Compensation expense ...................... -- -- -- -- --
Net income ................................ $ 9,014 -- -- -- 9,014
Foreign currency translation adjustment ... (715) -- -- -- --
-------- -------- --------- --------- --------
Comprehensive income ............. $ 8,299
========
Balance, December 31, 1997 ................ -- 33,134 3,313 101,600 11,947
Common stock issued in connection
with business combinations .............. -- 1,184 118 19,068 (69)
Acquisition of minority shareholder's
interest in subsidiary .................... -- -- -- (135) --
Common stock issued in connection
with employee stock purchase plan ....... -- 31 3 602 --
Common stock issued for options exercised . -- 2,806 281 676 --
Tax benefit of stock options exercised .... -- -- -- 20,889 --
Contribution of capital ................... -- -- -- 78 --
Dividend paid ............................. -- -- -- -- (163)
Adjustment to conform fiscal year of
Fusion Systems Japan Co., Ltd. ............ -- -- -- -- 295
Notes receivable from stock sale .......... -- -- -- -- --
Compensation expense ...................... -- -- -- -- --
Net income ................................ $ 19,760 -- -- -- 19,760
Foreign currency translation adjustment ... 196 -- -- -- --
-------- -------- --------- --------- --------
Comprehensive income ...................... $ 19,956
========
Balance, December 31, 1998 ................ 37,155 3,715 142,778 31,770
Common stock issued in connection with
business combinations ................... -- 163 16 3,500 --
Common stock issued in connection with
employee stock purchase plan ............ -- 25 3 436 --
Common stock issued for options exercised . -- 1,104 111 905 --
Tax benefit of stock options exercised .... -- -- -- 2,549 --
Net income ................................ $ 12,716 -- -- -- 12,716
Foreign currency translation adjustment ... (1,987) -- -- -- --
-------- -------- --------- --------- --------
Comprehensive income ...................... $ 10,729
========
Balance, June 30, 1999 (Unaudited) ........ 38,447 $ 3,845 $ 150,168 $ 44,486
======== ========= ========= =========
RESTUBBED FROM TABLE ABOVE
ACCUMULATED
OTHER
COMPRE-
HENSIVE TREASURY
OTHER EXPENSE STOCK TOTAL
--------- --------- --------- ---------
Restated balance, January 1, 1996 ......... $ -- $ (112) $ (9) $ 6,641
Common stock issued for options
exercised ............................... -- -- -- 13
Repurchase of common stock ................ -- -- (1,489) (1,489)
Retirement of treasury stock .............. -- -- 1,498 --
Dividend paid ............................. -- -- -- (4,016)
Termination of S Corporation tax status ... -- -- -- --
Common stock issued in connection with
initial public offering ................. -- -- -- 40,717
Acquisition of majority shareholder's
interest in subsidiary .................. -- -- -- (2,500)
Contribution of capital ................... -- -- -- 678
Net income ................................ -- -- -- 6,400
Foreign currency translation adjustment ... -- (217) -- (217)
------- ------- ------- ---------
Comprehensive income..............
Balance, December 31, 1996 ................ -- (329) -- 46,227
Common stock issued in
connection with public offering ......... -- -- -- 52,548
Common stock issued in
connection with business combinations ... -- -- -- 1,871
Acquisition of majority shareholder's
interest in subsidiary .................. -- -- -- (552)
Common stock issued in connection
with employee stock purchase plan ....... -- -- -- 669
Common stock issued for options exercised . -- -- -- 259
Tax benefit of stock options exercised .... -- -- -- 6,769
Contribution of capital ................... -- -- -- 2,152
Dividend paid ............................. -- -- -- (2,426)
Compensation expense ...................... (1,524) -- -- (1,524)
Net income ................................ -- -- -- 9,014
Foreign currency translation adjustment ... -- (715) -- (715)
------- ------- ------- ---------
Comprehensive income..............
Balance, December 31, 1997 ................ (1,524) (1,044) -- 114,292
Common stock issued in connection
with business combinations .............. -- (59) -- 19,058
Acquisition of minority shareholder's
interest in subsidiary .................... -- -- -- (135)
Common stock issued in connection
with employee stock purchase plan ....... -- -- -- 605
Common stock issued for options exercised . -- -- -- 957
Tax benefit of stock options exercised .... -- -- -- 20,889
Contribution of capital ................... -- -- -- 78
Dividend paid ............................. -- -- -- (163)
Adjustment to conform fiscal year of
Fusion Systems Japan Co., Ltd. ............ -- -- -- 295
Notes receivable from stock sale .......... (366) -- -- (366)
Compensation expense ...................... 1,524 -- -- 1,524
Net income ................................ -- -- -- 19,760
Foreign currency translation adjustment ... -- 196 -- 196
------- ------- ------- ---------
Comprehensive income..............
Balance, December 31, 1998 ................ (366) (907) -- 176,990
Common stock issued in connection with
business combinations ................... -- -- -- 3,516
Common stock issued in connection with
employee stock purchase plan ............ -- -- -- 439
Common stock issued for options exercised . -- -- -- 1,016
Tax benefit of stock options exercised .... -- -- -- 2,549
Net income ................................ -- -- -- 12,716
Foreign currency translation adjustment ... -- (1,987) -- (1,987)
------- ------- ------- ---------
Comprehensive income..............
Balance, June 30, 1999 (Unaudited) ........ $ (366) $(2,894) $ -- $ 195,239
======= ======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -----------------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization ................... 1,097 4,778 5,867 2,114 4,261
Deferred income taxes ........................... 1,318 (2,164) (12,175) (11,227) 6,572
Tax benefit of stock options .................... -- 6,769 20,889 14,219 2,549
Other ........................................... (75) 80 319 -- --
Minority interest in net income ................. 730 48 33 3 13
Noncash compensation ............................ -- -- 1,524 -- --
Adjustment to conform fiscal year of
Fusion Systems Japan Co., Ltd. ............... -- -- 295 295 --
Changes in operating assets and liabilities:
Accounts receivable and unbilled
work-in-process ............................ (6,992) (11,283) (11,831) (9,611) (5,457)
Other current assets ......................... (1,327) (2,391) (35) 1,419 1,651
Deposits and other assets .................... (1,131) (1,176) (2,710) (604) (675)
Accounts payable and other liabilities ....... 3,505 (69) 7,262 6,375 (1,484)
Accrued compensation ......................... 846 12,473 13,232 8,889 (3,074)
Income tax ................................... 195 (717) 4,541 (53) (2,959)
Deferred revenue ............................. 2,065 3,479 (623) (1,204) (4,286)
-------- -------- -------- -------- --------
Total adjustments ............................ 231 9,827 26,588 10,615 (2,889)
-------- -------- -------- -------- --------
Net cash provided by operating activities .... 6,631 18,841 46,348 13,630 9,827
-------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisition of interest in consolidated subsidiary,
net of cash received ............................ (9,968) (3,315) (8,941) (7,944) (20,065)
Investment in marketable securities, net ........... (5,511) 1,191 (26,192) (16,856) 4,269
Additions to capitalized software costs ............ (302) (1,258) -- -- (1,271)
Additions to property and equipment ................ (3,746) (7,777) (14,335) (6,433) (14,535)
Increase in equity investment and loans
to affiliate ..................................... (693) -- -- -- --
Related party loans ................................ -- 1,608 1,478 -- --
-------- -------- -------- -------- --------
Net cash used in investing activities ........ (20,220) (9,551) (47,990) (31,233) (31,602)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net repayments from revolving credit line .......... (244) (955) 443 202 117
Proceeds from long-term debt and notes ............. 2,346 3,935 384 -- --
Payments on notes and capital leases ............... (2,258) (1,637) (4,320) (2,339) (4,328)
Proceeds from issuance of common stock ............. 42,518 54,704 1,640 343 1,455
Payment of costs in connection with
issuance of common stock ........................ (1,110) (600) -- -- --
Purchase of treasury stock, at cost ................ (1,489) -- -- -- --
Advance to shareholder ............................. -- (250) -- -- --
Payment of dividends ............................... (3,215) (2,426) (163) -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities ................................. 36,548 52,771 (2,016) (1,794) (2,756)
-------- -------- -------- -------- --------
Effect of exchange rate changes ....................... (27) (393) 473 (999) (1,596)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .. 22,932 61,668 (3,185) (20,396) (26,127)
Cash and cash equivalents at beginning of year ........ 2,724 25,656 87,324 87,324 84,139
-------- -------- -------- -------- --------
Cash and cash equivalents at end of year .............. $ 25,656 $ 87,324 $ 84,139 $ 66,928 $ 58,012
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NAME CHANGE - On November 17, 1998, the Company changed its name from
Information Management Resources, Inc. to IMRglobal Corp.
BASIS OF REPORTING--IMRglobal Corp. and subsidiaries ("IMRglobal" or the
"Company") provide consulting and technology services to a variety of industries
and customers located primarily in North America, Europe and Asia. The
consolidated financial statements include the accounts of IMRglobal Corp., its
wholly owned subsidiaries and its controlled foreign subsidiary. All significant
intercompany balances and transactions have been eliminated.
The consolidated financial statements for all periods have been restated
to include the financial statements of Atechsys, S.A., Fusion System Japan Co.,
Ltd., and Orion Consulting, Inc. These companies were combined during 1999 in
transactions accounted for as pooling of interests.
CASH AND CASH EQUIVALENTS--IMRglobal considers all highly liquid
investments with original maturity dates of three months or less to be cash
equivalents. IMRglobal maintains its investments at high quality financial
institutions.
MARKETABLE SECURITIES--All marketable securities are classified as
available-for-sale and are available to support current operations or to take
advantage of other investment opportunities. These securities are stated at
estimated fair value based upon market quotations.
REVENUE RECOGNITION--Fixed-price contract revenue is recognized using the
percentage of completion method of accounting, under which the sales value of
performance, including earnings thereon, is recognized on the basis of the
percentage that each contract's cost to date bears to the total estimated cost.
Any anticipated losses upon contract completion are accrued currently. Service
revenue from time-and-materials services is recognized as the services are
provided.
Unbilled work-in-progress represents revenue on contracts to be billed in
subsequent periods in accordance with the terms of the contract. Deferred
revenue represents amounts billed in excess of revenue earned in accordance with
the terms of the contracts.
GOODWILL--Goodwill originated from the acquisition of certain
subsidiaries, and is being amortized on a straight-line basis over a 10 to 20
year period. IMRglobal periodically reviews the value of its goodwill to
determine if an impairment has occurred. IMRglobal measures the potential
impairment of recorded goodwill by the undiscounted value of expected future
operating cash flow in relation to the assets to which this goodwill applies.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less
accumulated depreciation. Depreciation is primarily computed using the
straight-line method and is charged to income over the estimated useful lives of
the respective assets.
9
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 for the other components of the product
or process have been completed.
Amortization is included in cost of revenue and 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.
Amortization of capitalized software costs was approximately $131,000, $1.9
million and $47,000 for the years ended December 31, 1996, 1997 and 1998,
respectively.
INCOME TAXES--Prior to November 1996, IMRglobal elected to be taxed as an
S Corporation under the provisions of the Internal Revenue Code whereby taxable
income is generally reported by the shareholders on their individual income tax
returns. In connection with the initial public offering, the S Corporation
election was terminated on November 11, 1996. In addition, IMRglobal's wholly
owned subsidiary, IMRglobal - Orion Consulting, Inc. ("Orion") was taxed as an S
Corporation since its inception. 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, IMRglobal and Orion
became subject to U.S. federal and state income taxes as C Corporations.
IMRglobal uses the asset and liability method of accounting for income
taxes. Under this method, deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. A valuation allowance is
provided against the future benefit of deferred tax assets if it is determined
that it is more likely than not that the future tax benefits associated with the
deferred tax asset will not be realized. (See Note 11.)
PRO FORMA NET INCOME--To properly reflect IMRglobal's and its subsidiary
Orion pro forma net income, the provision for income taxes has been adjusted as
if IMRglobal 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
adjustment to income tax expense for the year ended December 31, 1996 excludes
the $1,075,000 one-time income tax expense resulting from the termination of the
S Corporation status.
FOREIGN CURRENCY TRANSLATION--The financial statements of IMRglobal's
foreign subsidiaries use a functional currency which is other than the U.S.
dollar and are translated into U.S. dollars in accordance with SFAS No. 52,
"Foreign Currency Translation." Assets and liabilities are translated at
exchange rates in effect on the reporting date. Income and expense items are
translated at the average exchange rates in effect during
10
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
the year. The resulting translation adjustments are not included in determining
net income but are included in accumulated other comprehensive income. Foreign
currency transaction gains and losses are reported in net income but are not
material to any period presented.
COMPUTATION OF EARNINGS PER SHARE--Basic earnings per share is computed
using the weighted average of common stock outstanding. Diluted earnings per
share is computed using the treasury stock method which is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Weighted average
common stock outstanding .......... 22,941 31,612 35,516 34,107 37,623
Stock Option Plans
Shares under option
at end of period ............... 11,438 10,756 10,073 12,355 9,514
Treasury Shares which could
be purchased ................... (525) (418) (533) (1,479) (1,834)
------- ------ ------ ------ ------
Weighted average
common stock equivalents .......... 10,913 10,338 9,540 10,876 7,680
------- ------ ------ ------ ------
Shares used in diluted earnings
per share calculation ............. 33,854 41,950 45,056 44,983 45,303
======= ====== ====== ====== ======
</TABLE>
STOCK BASED COMPENSATION--IMRglobal follows the provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
Opinion No. 25), for stock issued under its stock option plans (See Note 13).
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.
11
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
COMPREHENSIVE INCOME--During 1998, IMRglobal adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income."
Comprehensive income is comprised solely of foreign currency translation
adjustments. Foreign currency translation adjustments have not been tax effected
as IMRglobal considers foreign earnings to be indefinitely reinvested.
NEW ACCOUNTING PRONOUNCEMENTS--During June, 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which is effective for IMRglobal
on January 1, 2001. This statement establishes measurement and disclosure
criteria for certain derivative and hedging instruments including foreign
exchange forward contracts. Management is currently assessing the future impact
of SFAS No. 133 on IMRglobal's financial statements.
2. BUSINESS COMBINATIONS:
For all business combinations accounted for as purchases pursuant to APB
Opinion No. 16, "Business Combinations", IMRglobal's financial statements
include the results of operations for the acquired businesses from the date of
acquisition. For all material business combinations accounted for as poolings of
interests pursuant to APB Opinion No. 16, IMRglobal's financial statements have
been restated to include the results of operations for all periods presented.
IMRGLOBAL LTD. ("IMRGLOBAL-INDIA")--At December 31, 1995, IMRglobal owned
34.2% of IMRglobal-India, an Indian Limited Liability Company. During 1996, 1997
and 1998, IMRglobal purchased an additional 46.9% of IMRglobal-India's
outstanding common shares for approximately $7.6 million in cash in several
transactions. These acquisitions are accounted for as purchases pursuant to the
provisions of APB Opinion No. 16 and resulting goodwill is being amortized over
a 10-year period. In addition, during November 1996, IMRglobal acquired an
additional 18.4% of IMRglobal-India from IMRglobal's majority shareholder for
approximately $3.1 million in cash. The acquisition from IMRglobal's majority
shareholder is accounted for as a reduction of equity. As a result of the
acquisitions noted above, IMRglobal owns 99.5% of the outstanding common shares
of IMR-India at December 31, 1998.
IMRglobal accounts for its investment in IMRglobal-India utilizing the
consolidation method for all periods presented, because effective control had
been maintained through the continued direct financial interests in
IMRglobal-India held by IMRglobal's majority shareholder.
12
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED):
LINK GROUP HOLDINGS LIMITED AND INFORMATION MANAGEMENT RESOURCES (U.K.)
LIMITED ("IMRglobal-U.K.")--On February 10, 1997 (effective January 8, 1997),
IMRglobal acquired 100% of the outstanding stock of Link Group Holdings Limited
("Link"), a United Kingdom Limited Liability Company. Link provided transitional
software outsourcing solutions to the information technology departments of
large businesses located in the U.K. Prior to the acquisition, Link was owned by
a Board member of IMRglobal and his spouse. In exchange for Link's common stock,
Link's shareholders received $2.1 million in cash and 161,343 shares (valued at
$1.6 million) of IMRglobal's common stock. In addition, a $1.6 million deferred
cash payment was made to Link's former shareholders during February, 1998. The
Link 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 10-year
period.
Coincident with the above acquisition, IMRglobal also acquired 10.5% of
Information Management Resources (U.K.) Limited ("IMRglobal-Ltd."), a United
Kingdom Limited Liability Company, from IMRglobal's majority shareholder and his
spouse for $520,000 in cash. The purchase price was determined through
negotiations between IMRglobal and the shareholder and his spouse. The
acquisition from IMRglobal's majority shareholder is accounted for as a
reduction of equity.
Prior to the above acquisitions, IMRglobal owned 39.5% of IMRglobal-Ltd.
and Link owned 50% of IMRglobal-Ltd. After the above acquisitions IMRglobal
effectively owns 100% of both Link and IMR-Ltd. The operations of Link and
IMRglobal-Ltd. have been merged and the operating company was renamed IMRglobal,
plc ("IMRglobal-U.K.").
IMRGLOBAL (NORTHERN IRELAND) LIMITED--During June 1997, IMRglobal began
operations in Belfast, Northern Ireland and acquired certain assets in exchange
for $270,000 cash and 11,250 shares of IMRglobal's stock. The acquisition was
accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and
the resulting goodwill is being amortized over a 10-year period.
LYON CONSULTANTS, S.A.--During May, 1998, IMRglobal acquired 100% of the
outstanding stock of Lyon Consultants, S.A. ("Lyon"), a privately held software
engineering company headquartered in Paris, France. Lyon specializes in rapid
software application development, utilizing reusable business and technical
software objects, and information technology consulting. In exchange for Lyon's
common stock, Lyon's shareholders received $16.7 million in cash and 531,353
shares (valued at $13.0 million) of IMRglobal's unregistered common stock. Of
the above purchase price, $700,000 of cash and 32,000 shares of IMRglobal's
common stock were remitted one year after the acquisition date. In addition,
IMRglobal may have to make an additional payment to the former stockholders of
Lyon (see Note 17). These amounts are included in the determination of the
purchase price. The Lyon 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.
13
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED):
IMRglobal allocated the purchase price of Lyon based on the fair value of
the assets acquired and liabilities assumed. Significant portions of the
purchase price were identified as intangible assets in independent appraisals,
using proven valuation procedures and techniques. These intangible assets
include approximately $8.2 million for acquired in-process research and
development ("IPRD") for projects that did not have future alternative uses and
$2.7 million for developed technology. This allocation represents the estimated
fair value based on risk-adjusted cash flows related to the acquired in-process
research and development projects that give explicit consideration to the SEC
Staff's views on in-process research and development as set forth in the
September 15, 1998 letter to the American Institute of Certified Public
Accountants. At the date of the acquisition the development of the IPRD projects
had not yet reached technological feasibility and the IPRD in progress had no
alternative future use. Accordingly, these costs were expensed as of the
acquisition date. The acquired developed technology is being amortized over a
5-year period.
Concurrent with the acquisition of Lyon, IMRglobal entered into a
noncancellable 3 year licensing agreement with a seven year renewal option, with
Wyde S.A. ("Wyde"), an unrelated French company. Wyde provides the base
technology upon which the Lyon components have been developed. The licensing
agreement provides for the transfer of Wyde's computer code and technology to
IMRglobal if Wyde should terminate its business. The amount of the licensing
fees is dependent on the value of company work sold and the countries where the
technology is utilized. Future minimum licensing fees payable to Wyde are
$400,000 in 1999 and 2000.
RHO TRANSFORMATIONAL TECHNOLOGIES PTY LIMITED--During June, 1998,
IMRglobal acquired 100% of the outstanding shares of RHO Transformational
Technologies Pty Limited ("RHO"), a privately held software services and
engineering company headquartered in Sydney, Australia. RHO specializes in
software application conversion and maintenance services, utilizing proprietary
tools and provides these services to large global companies with Australian and
Asia Pacific operations. In exchange for RHO's common stock, RHO stockholders
received 285,000 shares of IMRglobal's common stock. The RHO acquisition is
being accounted for as a pooling of interests in accordance with the provisions
of APB Opinion No. 16. Costs of approximately $145,000 related to the
acquisition have been charged to acquisition costs and included in the statement
of income.
The financial statements for 1996 and 1997 have not been restated for the
RHO acquisition due to the immateriality of this transaction. The impact was a
reduction to the 1998 opening retained earnings and comprehensive income of
$69,000 and $59,000, respectively. These amounts are included in common stock
issued in connection with business combinations.
14
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED):
VISUAL SYSTEMS DEVELOPMENT CORPORATION--On October 2, 1998, IMRglobal
acquired 100% of the outstanding shares of Visual Systems Development
Corporation ("Visual"). In exchange for Visual's common stock, Visual's
shareholders received $5.5 million in cash and 400,000 shares (valued at
approximately $7 million) of IMRglobal's common stock. In addition, $3.5 million
of IMRglobal's unregistered common stock are payable if certain specified
business and financial objectives are achieved. Any contingent payment would
result in an increase in the purchase price and the resulting goodwill. The
Visual 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.
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 $520,000 in cash and
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.
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. Current year and prior year financial statements 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.
15
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED):
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.
Fusion had a March 31 fiscal year-end and, accordingly, the Fusion
statements of income for the years ended March 31, 1997 and March 31, 1998 have
been combined with the IMRglobal's statements of income for the years ended
December 31, 1996 and December 31, 1997, respectively. In order to conform
Fusion's fiscal year-end to IMRglobal's calendar year-end, the consolidated
statement of income for the year ended December 31, 1998 include three months
(January, February and March 1998) for Fusion, which are also included in the
consolidated statement of income for the year ended December 31, 1997.
Accordingly, 1998 retained earnings were adjusted for the duplication of net
loss of approximately $295,000.
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 Consulting, Inc., headquartered in
Cleveland, Ohio. Orion was a privately held management consulting firm 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. 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 six months ended June 30, 1999.
IMRglobal has also purchased certain assets in the expansion of its
technology expertise and the expansion of its sales office infrastructure.
16
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
2. BUSINESS COMBINATIONS (CONTINUED):
The Atechsys, Fusion and Orion transactions have been accounted for as
poolings of interests and accordingly, the consolidated financial statements for
the periods presented have been restated to include the accounts of Atechsys,
Fusion and Orion. Results of operations for the periods prior to the merger with
Atechsys, Fusion and Orion are summarized below (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------------- ---------
1996 1997 1998 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
IMRglobal .............................. $27,948 $83,550 $158,252 $69,584
Adjustment for pooling of interests..... 27,648 31,760 49,959 22,660
------- ------- -------- -------
Combined ........................ $55,596 $15,310 $208,211 $92,244
======= ======= ======== =======
Pro forma net income:
IMRglobal .............................. $ 2,588 $11,895 $ 18,909 $ 3,621
Adjustment for pooling of interests..... 2,266 (1,805) 1,442 (15)
------- ------- -------- -------
Combined ........................ $ 4,854 $10,090 $ 20,351 $ 3,606
======= ======= ======== =======
Other changes in shareholders' equity:
IMRglobal .............................. $35,060 $60,956 $ 40,616 $23,742
Adjustment for pooling of interests..... (1,874) (1,905) 2,322 2,113
------- ------- -------- -------
Combined ........................ $33,186 $59,051 $ 42,938 $25,855
======= ======= ======== =======
</TABLE>
17
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
3. MARKETABLE SECURITIES:
IMRglobal currently invests only in high quality, short-term investments
which it classifies as available-for-sale. As such there were no significant
differences between amortized cost and estimated fair value at December 31, 1997
and 1998. Additionally, because investments are short-term and are generally
allowed to mature, realized gains and losses have been minimal for the years
ended December 31, 1996, 1997 and 1998.
The following table presents the estimated fair value of marketable
securities by category (in thousands):
1997 1998
------- -------
Bankers' acceptance ......................... $ -- $10,157
Commercial paper ............................ -- 21,452
Municipal debt securities.................... 4,453 --
------- -------
$ 4,453 $31,609
======= =======
The estimated fair value of marketable securities at December 31, 1998
was $22,992 due in one year or less and $8,617 due in one to three years.
4. ACCOUNTS RECEIVABLE (IN THOUSANDS):
1997 1998
-------- --------
Accounts receivable, trade ................. $ 21,157 $38,007
Unbilled accounts receivable-
Time-and-materials contracts............. 207 4,386
Reserve for doubtful accounts .............. (33) (2,150)
-------- -------
$ 21,331 $40,243
======== =======
During 1998, IMRglobal established a reserve for doubtful accounts in the
amount of $2.1 million with a corresponding charge to income.
18
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
5. COSTS AND ESTIMATED EARNINGS ON COMPLETED AND UNCOMPLETED CONTRACTS (IN
THOUSANDS):
1997 1998
-------- --------
Costs incurred on completed
and uncompleted contracts................ $ 33,473 $ 34,956
Estimated earnings ......................... 18,388 38,949
-------- --------
51,861 73,905
Less billings to date ...................... (49,566) (71,781)
-------- --------
$ 2,295 $ 2,124
======== ========
The following is included in the accompanying balance sheets:
1997 1998
-------- --------
Unbilled work in process ................... $ 8,484 $ 7,943
Deferred revenue ........................... (6,189) (5,819)
-------- --------
$ 2,295 $ 2,124
======== ========
19
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
6. PROPERTY AND EQUIPMENT:
The major classifications of property and equipment at December 31, 1997
and 1998 are summarized as follows (in thousands):
ESTIMATED
USEFUL LIFE
(YEARS) 1997 1998
-------- -------- --------
Land ......................... -- $ -- $ 1,355
Buildings and improvements ... 10-40 2,729 3,604
Computer equipment ........... 3-6 5,560 8,595
Computer software ............ 3-10 2,331 5,756
Office furniture and equipment 3-12 3,403 5,792
Vehicles ..................... 3-20 124 2,088
Construction in progress ..... 1,652 4,224
-------- --------
15,799 31,414
Less accumulated depreciation
and amortization .......... (4,475) (8,323)
-------- --------
$ 11,324 $ 23,091
======== ========
Depreciation of property and equipment was approximately $866,000, $1.8
million and $3.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
7. INTANGIBLE ASSETS (IN THOUSANDS):
1997 1998
-------- --------
Goodwill ....................................... $ 11,517 $ 37,863
Acquired technology ............................ -- 2,400
Accumulated amortization........................ (1,360) (3,434)
-------- --------
$ 10,157 $ 36,829
======== ========
20
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
8. OTHER CURRENT LIABILITIES (IN THOUSANDS):
1997 1998
-------- --------
Accrued costs on Year 2000 contracts............ $ -- $ 5,116
Payroll taxes and value added taxes............. 2,177 4,642
Income taxes ................................... 1,099 6,555
Deferred income taxes .......................... 296 968
Deferred payments-acquisitions ................. 1,608 1,478
Note payable - employee ........................ 199 213
Employee savings plans ......................... 1,789 3,308
Funds held in escrow (See Note 17) ............. -- 335
Revolving credit loan .......................... -- 443
Current portion of long-term debt .............. 1,941 607
Other .......................................... 1,684 3,933
------- -------
$10,793 $27,598
======= =======
During 1998, IMRglobal accrued $5.1 million related to completed Year
2000 projects. IMRglobal is liable to remediate selected issues which arise in
completed projects. Management has committed to clients that personnel will be
available to remediate Year 2000 issues that arise in late 1999 and early 2000.
To accomplish this goal, IMRglobal has committed specific personnel to work on
completed Year 2000 projects. As of December 31, 1998, no claims have been
asserted. IMRglobal has accrued the amount of costs it has committed to incur
based on the complexity of the Year 2000 projects completed and experience level
of personnel required.
9. RELATED PARTIES:
During 1998, IMRglobal advanced $366,000 to three officers. These
officers utilized the proceeds to acquire common stock of IMRglobal. These loans
are secured by the IMRglobal common stock investment, and are repayable in 2003
or upon the officer's termination of employment with IMRglobal. These loans bear
interest at 9.5% which is added to the principal portion of the note. At
December 31, 1998, the loan receivable balance was $385,000, including $19,000
of accrued interest.
At December 31, 1997, other current liabilities include $1.6 million due
to a member of IMRglobal's Board of Directors and his spouse in connection with
the acquisition of Link (See Note 2). This amount was noninterest bearing and
was paid in full during February 1998.
21
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
9. RELATED PARTIES (CONTINUED):
At December 31, 1996, IMRglobal had outstanding notes payable to
shareholders of $814,000 in connection with the S Corporation termination (See
Note 13). These notes were unsecured with interest at 8% and were paid in full
during February 1997. Interest expense on notes payable-shareholder for the year
ended December 31, 1996 and 1997 was $19,000 and $12,000, respectively.
Prior to the IMRglobal-U.K. acquisition, IMRglobal-India provided
software development services to IMRglobal-Ltd. at market rates. During the year
ended December 31, 1996, IMRglobal recognized revenues from IMRglobal-Ltd. of
approximately $877,000.
At December 31, 1996, IMRglobal had two notes receivable from
IMRglobal-Ltd. totaling $692,500, which resulted from cash advances. During
1996, IMRglobal recognized approximately $35,000 of interest income on these
notes. As a result of the 1997 IMRglobal-U.K. acquisition, these intercompany
notes are eliminated in the consolidated financial statements.
Cash flows from financing activities included payments on notes
payable-shareholders of approximately $350,000 and $814,000 for the years ended
December 31, 1996 and 1997.
10. CREDIT FACILITIES:
REVOLVING CREDIT FACILITIES
IMRglobal maintains an uncollateralized $10.0 million revolving credit
facility which allows IMRglobal to borrow up to 80% of the book value of U.S.
accounts receivable. Interest is at LIBOR plus 1% (currently 6.3%). No
borrowings have been made under this facility.
Certain subsidiaries of IMRglobal 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 December 31, 1998). At December 31, 1997 and
1998, the amount outstanding on these credit facilities was $0 and $443,000,
respectively. The maximum amount available under these facilities at December
31, 1998 was approximately $6.9 million. The respective subsidiary's accounts
receivable and certain property and equipment collateralize these facilities. On
June 15, 1999, in connection with the Orion merger (See Note 2), Orion's $3.0
million credit line was canceled due to change in ownership provisions
incorporated into the credit facility.
22
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
10. CREDIT FACILITIES (CONTINUED):
LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Japan:
2.125% uncollateralized notes payable due
February 1999 and March 2004 ...................................... $ 467 $ 245
Four notes payable with interest at 7%,
collateralized by property and equipment due
November 2001 through September 2002 .............................. 2,857 1,375
France:
Loans from French government agencies at 0% interest payable in
annual installments commencing March 1999 through March 2002;
collateralized by property and equipment .......................... 33 778
India:
Loan payable with interest at LIBOR plus 3.0% (8.9% at December 31,
1997), principal repayable in eight equal semiannual installments
of $148 commencing February 1998, collateralized by property
and equipment (balance prepaid during 1998) ....................... 1,180 --
------ ------
4,537 2,398
Less current portion ................................................. 1,941 607
------ ------
Long-term debt, net of current portion ............................... $2,596 $1,791
====== ======
Maturities of long-term debt at December 31, 1998 are as follows (in thousands):
2000.............................................................. $ 665
2001.............................................................. 645
2002.............................................................. 431
2003.............................................................. 38
2004.............................................................. 12
------
$1,791
======
</TABLE>
At December 31, 1998, IMRglobal was in compliance with financial
covenants of the credit and debt facilities described above.
23
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
11. INCOME TAXES:
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal ........................................ $ 412 $ 6,378 $ 16,073
State (net of federal tax benefit) ............. 66 1,015 1,442
Foreign ........................................ 1,087 1,311 5,854
-------- -------- --------
Total current provision for income taxes..... 1,565 8,704 23,369
Deferred:
Federal ........................................ 735 (1,906) (5,388)
State (net of federal tax benefit) ............. 118 (268) (441)
Foreign ........................................ (61) (55) (1,930)
-------- -------- --------
Total deferred provisions (benefit)
for income taxes ......................... 792 (2,229) (7,759)
-------- -------- --------
Total provision for income taxes ............ $ 2,357 $ 6,475 $ 15,610
======== ======== ========
</TABLE>
Upon termination of the S Corporation election, as described in Note 1,
current and deferred income taxes reflecting the tax effects of temporary
differences between IMRglobal's financial statement and the tax bases of certain
assets and liabilities became liabilities of IMRglobal. Accordingly, the above
provision for 1996 income taxes included a $1.1 million nonrecurring expense
resulting from the termination of the S Corporation election. In accordance with
applicable sections of the Internal Revenue Code, IMRglobal elected to pay this
nonrecurring expense over a four year period beginning in 1996.
The components of the net deferred tax asset (liability) are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Accrued compensation ........................... $ 2,215 $ 6,600
Accrued costs on Year 2000 contracts............ -- 2,102
Net operating loss ............................. 625 5,375
Research and development tax credit............. -- 1,759
Long-term contracts ............................ 566 672
Other .......................................... 15 505
------- -------
Total deferred tax assets ................... 3,421 17,013
</TABLE>
24
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
11. INCOME TAXES (CONTINUED):
1997 1998
-------- --------
Deferred tax liabilities:
Cash to accrual conversion ......... (522) (319)
Intangibles ........................ -- (750)
Foreign ............................ (40) (460)
Equity investments ................. (234) (428)
Other .............................. (46) (52)
-------- --------
Total deferred tax liabilities (842) (2,009)
-------- --------
Net deferred tax asset before
valuation allowance ................ 2,579 15,004
Valuation allowance - foreign ......... (1,288) (1,865)
-------- --------
Deferred tax asset
net of valuation allowance ......... $ 1,291 $ 13,139
======== ========
The balance sheet classification of the net deferred tax asset is
summarized as follows (in thousands):
1997 1998
-------- --------
Deferred tax asset - current ......... $ 2,133 $ 15,148
Deferred tax liability - current ...... (296) (968)
Deferred tax liability - noncurrent.... (546) (1,041)
-------- --------
$ 1,291 $ 13,139
======== ========
As reflected above, as of December 31, 1997 and 1998, IMRglobal has
recorded a valuation allowance of approximately $1.3 million and $1.9 million,
respectively, against the deferred tax asset related to net operating losses and
non deductible accruals and reserves of a foreign subsidiary.
25
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
11. INCOME TAXES (CONTINUED):
As of December 31, 1998, IMRglobal had approximately $13 million of net
operating loss carryforwards for regular income tax purposes which will expire
between 2012 and 2013. The net operating loss primarily resulted from the
benefits realized upon stock option exercises.
During the years ended December 31, 1997 and 1998, various non-statutory
stock options were exercised resulting in tax benefits of approximately $6.8
million and $20.9 million, respectively, which were directly credited to
shareholders' equity.
Under the Indian Income Tax Act of 1961 (the "Act"), a substantial
portion of IMRglobal-India's income is exempt from Indian Income Tax as profits
attributable to export operations or a tax holiday expiring in 2007. Under the
Act, there are certain alternative minimum tax provisions which impose tax on
net profits at a rate of 10.5%. Management has determined that these provisions
are not currently applicable due to the tax holiday. Accordingly, the effective
tax rate imposed on IMRglobal-India's income is substantially less than the
current statutory rate of 35%.
Undistributed earnings of IMRglobal's foreign subsidiaries amounted to
approximately $25 million at December 31, 1998. These earnings are considered to
be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been provided thereon. On remittance, certain
countries impose withholding taxes that, subject to certain limitations, are
then available for use as tax credits against a U.S. tax liability, if any.
Determination of the amount of unrecognized deferred United States income tax
liability or foreign tax withholding is not practicable because of the
complexities associated with its hypothetical calculation.
The following table accounts for the differences between the actual tax
provision and the amounts obtained by applying the statutory U.S. federal income
tax rates of 34% in 1996 and 35% in 1997 and 1998 to the income before income
taxes and minority interest (in thousands).
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Statutory tax provision ........................... $ 3,225 $ 5,438 $12,381
State taxes, net of federal benefit................ 193 637 843
U.S. S Corporation income not subject
to federal income taxes ........................ (2,495) 1,076 591
Foreign and U.S. tax effects
attributable to foreign operations.............. (236) (1,704) 1,051
Termination of S Corporation status................ 1,075 -- --
Increase in valuation allowance.................... 463 825 577
Other net ......................................... 132 203 167
------- ------- -------
Total provision for income taxes............. $ 2,357 $ 6,475 $15,610
======= ======= =======
</TABLE>
26
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
12. LEASES:
IMRglobal leases office facilities and certain residential premises for
employees under noncancellable operating lease agreements. Rental expense under
these leases was approximately $820,000, $2.2 million, and $3.5 million during
1996, 1997 and 1998, respectively. Future minimum lease payments as of December
31, 1998 for leases with noncancellable terms in excess of one year are
approximately as follows (in thousands):
1999.......................... $ 3,939
2000.......................... 3,037
2001.......................... 2,344
2002.......................... 2,164
2003.......................... 1,548
Thereafter.................... 6,412
-------
Total minimum payments...... $19,444
=======
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS:
On September 12, 1996, IMRglobal filed Amended and Restated Articles of
Incorporation which (i) effected a reclassification of each share of its voting
and nonvoting common stock into 10 shares of common stock, par value $.10 per
share, (ii) increased IMRglobal's authorization of common stock to 40,000,000
shares; and (iii) created and authorized 10,000,000 shares of preferred stock,
par value $.10 per share, under terms that allow the Board of Directors to
designate one or more classes of preferred stock and to designate the rights,
privileges, preferences and limitations of each such class.
On November 11, 1996, in connection with the termination of IMRglobal's S
corporation election (see Note 1), IMRglobal's remaining retained earnings were
transferred to additional paid-in capital. Also, a cash dividend of $1.6 million
was paid to the shareholders of the S Corporation as a final distribution of
Subchapter S earnings.
During November 1996, IMRglobal completed an initial public offering and
received $40.7 million in cash (net of offering expenses of $1.1 million) in
exchange for the issuance of 7,228,125 shares of common stock. IMRglobal's
common stock commenced trading on the Nasdaq National Market on November 8,
1996.
27
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
On March 9, 1998 and June 17, 1997, IMRglobal declared 3-for-2 stock
splits in the form of stock dividends payable on April 3, 1998 and July 10,
1997, respectively, to shareholders of record on March 20, 1998 and June 26,
1997, respectively. All applicable share and per share amounts in the
accompanying financial statements have been retroactively adjusted.
During July 1997, IMRglobal completed a public offering and received
$52.5 million in cash (net of offering expenses of $600,000) in exchange for the
issuance of 2,587,500 shares of common stock.
On May 4, 1998, the shareholders approved (i) an amendment of IMRglobal's
Amended and Restated Articles of Incorporation to increase the number of shares
of IMRglobal's Common Stock authorized for issuance from 40,000,000 to
100,000,000 shares and (ii) an increase in the number of shares of Common Stock
available for grant under IMRglobal's Stock Incentive Plan from 12,253,455 to
16,003,455 shares.
EMPLOYEE STOCK OPTION PLAN--IMRglobal has granted certain employees
non-qualified stock options with vesting periods of up to five years. The number
of shares of common stock authorized for issuance under this plan is 16,003,455.
These options give the employees the right to purchase common stock at an
exercise price at least equal to the fair market value of the stock at the date
of the option's grant. On July 15, 1996 management reset the term for all
options granted through that date to 10 years starting July 15, 1996. All
options granted subsequent to July 15, 1996 expire 7 to 10 years from their
grant date.
NONEMPLOYEE DIRECTORS STOCK OPTION PLAN--During September 1996, IMRglobal
established the Nonemployee Directors Stock Option Plan, whereby nonemployee
directors may be granted non-qualified options to purchase common stock. The
number of shares of common stock authorized for issuance under this plan is
337,500. The exercise price of the stock option may not be less than the fair
market value of the common stock on the date of the grant. Each nonemployee
director is granted an option of 22,500 shares for each two year period they
serve on the Board. The options expire 10 years from the grant date. Beginning
with the grant date, these options vest 50% at the end of the first year and
100% at the end of the second year. As of December 31, 1998, 225,000 options are
available for future grants and 112,500 options are outstanding, of which 67,500
are exercisable.
28
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
STOCK OPTION DISCLOSURES--IMRglobal applies APB Opinion No. 25 and
related interpretations in accounting for stock options. Accordingly, no
compensation cost has been recognized in connection with the issuance of these
options. Had compensation cost for IMRglobal's stock option plan been determined
based on the fair value at the grant dates for the awards under the plan
consistent with the method of SFAS Statement No. 123, IMRglobal's net income and
earnings per share for the year ended December 31, 1998, 1997 and 1996 would
have been reduced to the adjusted amounts indicated below:
1996 1997 1998
-------- ------- -------
Pro forma net income:
As reported ...................... $4,854 $10,090 $20,351
As adjusted (unaudited) .......... $4,351 $ 8,763 $14,623
Pro forma diluted earnings per share:
As reported ...................... $ 0.14 $ 0.24 $ 0.45
As adjusted (unaudited) .......... $ 0.13 $ 0.21 $ 0.32
The pro forma disclosures are not likely to be representative of the
effects on reported net income for future years.
The estimated per share fair value of options granted during 1996, 1997
and 1998 was $0.31, $12.46 and $17.12, respectively. The fair value of each
option granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for grants
in 1996, 1997 and 1998, respectively: no dividend yield for each year presented;
risk-free interest rates of 5.9%, 6.0% and 5.3%; expected lives of the options
prior to exercise of 10.4, 6.5 and 5.0 years. For options granted prior to
IMRglobal's initial public offering in November, 1996, volatility of the stock
price was omitted from the pricing model as permitted by SFAS No. 123. For 1997
and 1998 option grants, a volatility measure of 85% and 80%, respectively, was
employed.
29
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
A summary of the status of IMRglobal's stock option plan as of December
31, 1996, 1997 and 1998, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------ ------------------------------ ----------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE EXERCISE EXERCISE
FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------- ---------- ---------------- ----------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,962,262 $0.05 11,632,657 $ 0.46 12,545,095 $ 1.31
Granted 7,265,250 $0.66 2,015,700 $16.12 1,279,450 $25.28
Exercised (306,382) $0.05 (1,071,748) $ 0.25 (2,804,291) $ 0.34
Cancelled (288,473) $0.05 (31,514) $ 2.25 (215,440) $16.50
---------- ----------- ----------
Outstanding at
end of year 11,632,657 12,545,095 10,804,814
========== ========== ==========
Options exercisable
at year-end 10,240,673 9,541,970 7,375,447
========== ========== ==========
</TABLE>
30
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
The following table summarizes certain information about stock options
at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICES AT 12/31/98 EXERCISE PRICES
- ------------ ---------------- ------------- ----------- --------------
7,445,929 7.5 years $ 0.05-2.25 6,881,640 $ 0.05-2.25
310,500 7.8 years $ 4.45-6.22 162,000 $ 4.45-6.22
108,000 8.2 years $ 5.05 21,600 $ 5.05
7,875 8.1 years $ 8.45 1,350 $ 8.45
775,310 8 years $ 11.85-15.08 141,627 $ 11.85-15.08
1,129,700 8.8 years $ 18.25-18.75 164,980 $ 18.25-18.75
285,000 9.2 years $ 20.06-22.93 2,250 $ 20.06-22.93
555,000 9.5 years $ 24.06-31.75 -- $ 24.06-31.75
187,500 9.8 years $ 34.38-37.17 -- $ 34.38-37.17
- ---------- ---------
10,804,814 7,375,447
========== =========
As of December 31, 1998, options to purchase 1,587,718 shares of Common
Stock were available for future grants.
EMPLOYEE STOCK PURCHASE PLAN--IMRglobal's Employee Stock Purchase Plan
(the "Stock Purchase Plan") became effective on October 1, 1996. A total of
450,000 shares of IMRglobal's Common Stock have been reserved for issuance under
the Stock Purchase Plan. An employee electing to participate in the Stock
Purchase Plan must authorize a stated dollar amount or percentage of the
employee's regular pay to be deducted by IMRglobal from the employee's pay for
the purpose of purchasing shares of Common Stock on a quarterly basis. The price
at which employees may purchase Common Stock is 85% of the closing price of the
Common Stock on the Nasdaq National Market on the first day of the quarter or
the last day of the quarter, whichever is lower.
31
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
IMRGLOBAL-INDIA STOCK OPTION PLAN--IMRglobal-India has adopted a separate
Employee Share Option Policy which provides for grants of options to employees
to purchase common shares of IMR-India. The maximum number of options that may
be granted under the policy is 51,900 common shares. Under the policy, options
granted to an employee vest upon completion of five years of continuous
employment with IMRglobal-India or its affiliates. Vested options are valid for
exercise during the employees' employment with IMRglobal-India or its affiliates
and for a period of six months thereafter. Options that are not exercised within
six months of cessation of employment expire.
A summary of the status of IMRglobal-India's stock option plan is as
follows:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
----------- -------------
Balance, December 31, 1996................... 20,500 $0.00 - $0.28
Granted ..................................... 4,000 $22.82
Canceled .................................... (4,500) $(0.00)
------
Balance, December 31, 1997................... 20,000 $ 4.66
Exercised ................................... (8,220) $ 0.23
Canceled .................................... (9,325) $(0.23)
------
Balance, December 31, 1998................... 2,455 $0.23-$22.82
====== ============
At December 31, 1997 and 1998, exercisable options were 6,400 and 0,
respectively.
Compensation expense has been recognized on the difference between fair
value at the date of the grant and the exercise price pursuant to APB Opinion
No. 25. Compensation expense is recognized over the life of the options.
Compensation expense under this plan for the years ended December 31, 1996, 1997
and 1998 was less than $3,000 annually. Under IMRglobal-India's policy, options
granted subsequent to September 6, 1996 are granted at an exercise price equal
to the fair market value of the common shares of IMRglobal-India at the time of
the grant. During 1998, management decided not to issue any additional shares
under this plan.
32
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
ORION RESTRICTED STOCK PLANS--During 1997, Orion adopted its Restricted
Stock Bonus Plan ("Stock Bonus Plan"). Pursuant to the Stock Bonus Plan, Orion
distributed a portion of its common shares to certain key employees.
Compensation expense related to this distribution for the years ended December
31, 1997 and 1998 was $209,000 and $1.5 million, respectively.
14. EMPLOYEE BENEFIT PLANS:
Defined contribution plans cover employees in the United States and
certain other countries, including Australia, France and India. Employees may
contribute to these plans and IMRglobal matches these contributions in varying
amounts. Defined contribution pension expense for the years ended December 31,
1996, 1997 and 1998 was $450,000, $673,000 and $1.7 million, respectively.
During 1998, IMRglobal established a deferred compensation plan which
allows certain U.S. employees to defer portions of their annual compensation.
These assets are placed in a "rabbi trust" and are presented as assets of
IMRglobal as they are available to the general creditors of IMRglobal in the
event of the IMRglobal's insolvency. The value of the assets at December 31,
1998 was $2.8 million and is included in other assets. The related liability is
included in accrued compensation. The assets are invested in variable life
insurance products. At December 31, 1998 book value approximated fair value.
15. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject IMRglobal to
concentration of credit risk consist principally of cash and cash equivalents,
marketable securities and trade receivables. IMRglobal maintains its cash with
high credit quality financial institutions and, by policy, limits the amount of
credit exposure to any one financial institution. IMRglobal places its cash
equivalents and marketable securities in investment grade short-term debt
instruments and limits the amount of credit exposure to any one commercial
issuer.
Concentrations of credit risk with respect to accounts receivable is
limited due to the dispersion of IMRglobal's customer base across different
industries and geographies. IMRglobal's two largest customers accounted for
approximately 28%, 12% and 12% of revenue for the years ended December 31, 1996,
1997 and 1998, respectively, and 7% and 4% of accounts receivable as of December
31, 1997 and 1998, respectively. No other customer accounted for 10% of revenue
or accounts receivable for the above periods.
33
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
16. OTHER INCOME (IN THOUSANDS):
1996 1997 1998
------- ------- -------
Investment income ............................. $ 263 $ 2,097 $ 4,649
Income (loss) in equity investment............. 34 44 (54)
Other income (expense) ........................ 190 (91) (16)
------- ------- -------
$ 487 $ 2,050 $ 4,579
======= ======= =======
17. COMMITMENTS AND CONTINGENCIES:
During June 1998, IMRglobal purchased land for the construction of new
facilities for its corporate headquarters. The land and commitments for the
construction of the first two buildings on the site are expected to cost
approximately $28 million, of which approximately $14.4 million has been
expended at June 30, 1999.
IMRglobal from time to time is involved in legal actions arising in the
ordinary course of business. With respect to these matters, management believes
that it has adequate legal defenses and/or provided adequate accruals for
related costs such that the ultimate outcome will not have a material adverse
effect on IMRglobal's future financial position.
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 2). 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.
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.
34
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED):
IMRglobal's French subsidiary has claimed a special tax exemption for
the 1993 through 1995 fiscal years. The French taxing authorities have
challenged this exemption. Ongoing discussions are being held between
IMRglobal's French management and the French taxing authorities regarding this
issue. The probable liability is estimated to be $500,000 and is included as a
liability in the accompanying financial statements.
As of December 31, 1998, IMRglobal's healthcare consulting practice
(Orion) acted as a trustee for certain clients. IMRglobal has received cash from
these clients to pay various client obligations. Accordingly, as of December 31,
1998, IMRglobal has restricted cash of $335,000, which is included in cash on
the balance sheet. This amount is offset by the related liability (See Note 8).
18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
1996 1997 1998
----- ------- -------
Cash paid during the year for interest ......... $ 317 $ 168 $ 247
===== ======= =======
Cash paid during the year for income taxes..... $ 702 $ 2,530 $ 2,159
===== ======= =======
Noncash investing and financing activities:
Notes payable-shareholders issued in
lieu of dividend ......................... $ 801 $ -- $ --
===== ======= =======
Common stock issued in connection
with acquisition of subsidiaries ......... $ -- $ 1,801 $19,186
===== ======= =======
Deferred payments for acquisition
of subsidiaries .......................... $ -- $ 1,608 $ 1,478
===== ======= =======
Compensation expense paid as a
capital contribution ..................... $ -- $ 1,524 $ --
===== ======= =======
35
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
19. SEGMENT INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue by service offering:
Core service offerings ......... $44,033 $ 61,208 $116,889 $48,115 $ 94,807
Year 2000 ...................... 7,487 44,479 77,217 38,083 27,719
Professional services .......... 4,076 9,623 14,105 6,046 7,394
------- -------- -------- ------- --------
Total revenue .............. $55,596 $115,310 $208,211 $92,244 $129,920
======= ======== ======== ======= ========
Revenue by geography:
North America .................. $44,585 $ 80,675 $141,871 $64,826 $ 88,543
Europe ......................... 3,040 24,273 44,585 17,070 25,280
Asia Pacific ................... 7,971 10,362 21,755 10,348 16,097
------- -------- -------- ------- --------
Total revenue .............. $55,596 $115,310 $208,211 $92,244 $129,920
======= ======== ======== ======= ========
Income from operations:
Sales organizations:
North America .................. $ 7,370 $ 9,815 $ 27,778 $ 9,993 $ 17,499
Europe ......................... 333 1,429 6,561 1,881 4,626
Asia Pacific ................... 394 (365) 5,472 2,526 6,864
Software Development Centers ..... 1,315 5,052 8,129 3,957 3,812
------- -------- ------- ------- --------
Income from operations -
sales and development
centers ...................... 9,412 15,931 47,940 18,357 32,801
Research and development ......... -- (1,113) (6,437) (2,245) (2,893)
Goodwill amortization ............ (100) (1,123) (2,076) (653) (2,049)
Other costs ...................... -- -- (8,345) (8,345) (8,417)
------- -------- -------- ------- --------
Income from operations ...... $ 9,312 $ 13,695 $ 31,082 $ 7,114 $ 19,442
======= ======== ======== ======= ========
</TABLE>
36
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
19. SEGMENT INFORMATION (IN THOUSANDS) (CONTINUED):
AS OF
AS OF DECEMBER 31, JUNE 30,
-------------------------- ---------
1997 1998 1999
--------- --------- ---------
Identifiable assets:
Sales organizations:
North America ............... $ 135,439 $ 217,953 $ 248,438
Europe ...................... 10,556 30,334 26,869
Asia Pacific ................ 8,350 17,755 17,565
Software Development Centers:
India ....................... 13,519 22,247 23,504
Northern Ireland ............ 2,663 2,565 2,359
Eliminations .................. (17,063) (40,889) (56,768)
--------- --------- ---------
Total assets ................ $ 153,464 $ 249,965 $ 261,967
========= ========= =========
IMRglobal is engaged in one business segment. The sales organizations
provide consulting and technology services to large companies in North America,
Europe and Asia. Software Development Centers consist of two Indian facilities
and one Northern Ireland facility that provide software development services to
the sales organizations. Intercompany sales between geographical areas are
accounted for at prices representative of unaffiliated party transactions and
are eliminated in consolidation.
The chief operating decision makers of IMRglobal review revenue by
geography and service offering. Operating results and other financial measures
are reviewed on a consolidated basis, as regional managers have discretion in
allocating resources among service offerings and due to the significant amount
of intercompany transactions across all geographic regions. Operating results by
geography include charges for sales, general and administrative expenses.
37
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
20. ACQUISITIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):
During 1997, 1998 and 1999, IMRglobal completed several
acquisitions using the purchase method of accounting (See Note 2). The following
unaudited table compares IMRglobal's reported operating results to pro forma
information prepared on the basis that the acquisitions had taken place at the
beginning of the fiscal year for each of the periods presented (in thousands
except per share amounts):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------ --------------------
1996 1997 1998 1998 1999
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
As reported:
Revenue ...................... $55,596 $115,310 $208,211 $ 92,244 $129,920
Pro forma net income ......... $ 4,854 $ 10,090 $ 20,351 $ 3,606 $ 12,476
Pro forma basic earnings
per share ................. $ 0.21 $ 0.32 $ 0.57 $ 0.11 $ 0.33
Pro forma diluted earnings
per share ................. $ 0.14 $ 0.24 $ 0.45 $ 0.08 $ 0.28
Pro forma (unaudited):
Revenue ...................... $90,823 $167,301 $256,778 $121,010 $136,474
Pro forma net income ......... $ 5,834 $ 13,475 $ 18,804 $ 3,168 $ 11,466
Pro forma basic earnings
per share ................. $ 0.24 $ 0.41 $ 0.52 $ 0.09 $ 0.30
Pro forma diluted earnings
per share ................. $ 0.16 $ 0.31 $ 0.41 $ 0.07 $ 0.25
</TABLE>
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 1996, 1997 or 1998 or of
future operations of the combined companies under the ownership and management
of IMRglobal.
38
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
21. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED):
The following quarterly information is unaudited and has been restated
to give effect to the acquisition of Atechsys, Fusion and Orion, which were
accounted for using the pooling of interests method.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
- ----
Revenue ...................................... $ 22,430 $ 26,625 $ 31,015 $ 35,240
Gross profit ................................. 9,279 11,040 12,864 14,775
Income from operations ....................... 2,228 3,737 4,844 2,886
Pro forma diluted earnings per share.......... $ 0.03 $ 0.06 $ 0.08 $ 0.07
QUARTER ENDED
------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------- --------
1998
- ----
Revenue ...................................... $ 41,938 $ 50,306 $ 55,211 $ 60,756
Gross profit ................................. 18,863 23,151 27,061 28,676
Income from operations ....................... 6,615 499 11,794 12,174
Proforma diluted earnings (loss) per share ... $ 0.13 ($ 0.05) $ 0.18 $ 0.19
</TABLE>
39
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
21. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED) (CONTINUED):
The reconciliation of the quarterly information as presented
compared to the quarterly information as previously reported is summarized as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1997
- ----
Revenue as previously reported ........ $ 14,347 $ 18,767 $ 23,044 $ 27,392
Adjustment for pooling of interests ... 8,083 7,858 7,971 7,848
-------- -------- -------- --------
Revenue ........................... $ 22,430 $ 26,625 $ 31,015 $ 35,240
======== ======== ======== ========
Gross profit as previously reported ... $ 6,305 $ 8,396 $ 10,431 $ 12,459
Adjustment for pooling of interests ... 2,974 2,644 2,433 2,316
-------- -------- -------- --------
Gross profit ...................... $ 9,279 $ 11,040 $ 12,864 $ 14,775
======== ======== ======== ========
Income from operations
as previously reported ............. $ 2,113 $ 3,369 $ 4,480 $ 5,641
Adjustment for pooling of interests ... 115 368 364 (2,755)
-------- -------- -------- --------
Income from operations .......... $ 2,228 $ 3,737 $ 4,844 $ 2,886
======== ======== ======== ========
Diluted earnings per share
as previously reported.............. $ 0.04 $ 0.08 $ 0.10 $ 0.13
Adjustment for pooling of interests ... (0.01) (0.02) (0.02) (0.06)
-------- -------- -------- --------
Pro forma diluted earnings per share $ 0.03 $ 0.06 $ 0.08 $ 0.07
======== ======== ======== ========
</TABLE>
40
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED)
22. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED) (CONTINUED):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ------- ------------ -----------
<S> <C> <C> <C> <C>
1998
- ----
Revenue as previously reported ........ $ 32,327 $ 37,257 $ 42,013 $ 46,655
Adjustment for pooling of interests.... 9,611 13,049 13,198 14,101
-------- -------- -------- --------
Revenue ......................... $ 41,938 $ 50,306 $ 55,211 $ 60,756
======== ======== ======== ========
Gross profit as previously reported.... $ 14,907 $ 17,269 $ 20,768 $ 22,970
Adjustment for pooling of interests.... 3,956 5,882 6,293 5,706
-------- -------- -------- --------
Gross profit .................... $ 18,863 $ 23,151 $ 27,061 $ 28,676
======== ======== ======== ========
Income (loss) from operations
as previously reported ............. $ 6,732 $ (65) $ 9,821 $ 10,470
Adjustment for pooling of interests.... (117) 564 1,973 1,704
-------- -------- -------- --------
Income from operations .......... $ 6,615 $ 499 $ 11,794 $ 12,174
======== ======== ======== ========
Diluted earnings (loss) per share
as previously reported ............. $ 0.15 ($ 0.07) $ 0.19 $ 0.21
Adjustment for pooling of interests ... (0.02) 0.02 (0.01) (0.02)
-------- -------- -------- --------
Pro forma diluted earnings (loss)
per share ....................... $ 0.13 ($ 0.05) $ 0.18 $ 0.19
======== ======== ======== ========
</TABLE>
41
EXHIBIT NUMBER 23.1
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-24027) of Information Management Resources, Inc.
Employee Stock Purchase Plan of our report dated February 13, 1998 relating to
the financial statements of IMRglobal Corp. (formerly Information Management
Resources) ("IMRglobal"), which appears in the Current Report on Form 8-K of
IMRglobal dated August 26, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
August 20, 1999
EXHIBIT NUMBER 23.2
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-24027) pertaining to the Information Management Resources, Inc.
Employee Stock Purchase Plan of our report dated August 20, 1999, with respect
to the consolidated financial statements of IMRglobal Corp. included in this
Current Report (Form 8K), for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Tampa, Florida
August 20, 1999
EXHIBIT NUMBER 23.3
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated January 22, 1999,
(relating to the financial statements of Orion Consulting, Inc. as of December
31, 1998 and 1997 and for the three years ended December 31, 1998, included in
this Current Report on Form 8-K) included in IMRglobal Corp.'s (former
Information Management Resources,) Form S-8 (No. 333-24027) and to all reference
to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Cleveland, Ohio
August 23, 1999
