SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 0-28840
IMRGLOBAL CORP.
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(Exact name of Registrant as specified in its charter)
FLORIDA 59-2911475
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
100 SOUTH MISSOURI AVENUE, CLEARWATER, FLORIDA 33756
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(Address of principal executive offices and zip code)
727-467-8000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS NAME OF EXCHANGE
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Common Stock, par value $0.10 per share The Nasdaq Stock Market
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the Company's common stock, par value
$.10 per share (the "Common Stock") held by non-affiliates of the registrant as
of March 10, 2000, was approximately $315.3 million based upon the closing price
of $15.75 per share as reported on the Nasdaq National Market for that date. The
shares of Common Stock held by each current executive officer and director and
by each person who is known to the Company to own 5% or more of the outstanding
Common Stock have been excluded from this computation on the basis that such
persons may be deemed to be affiliates. This determination of affiliate status
is not a conclusive determination for other purposes.
As of March 10, 2000, there were 38,460,782 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual
Meeting of Shareholders to be held on or about May 26, 2000 are incorporated by
reference into Part III hereof.
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IMRGLOBAL CORP.
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PAGE
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PART I
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Item 1. Business....................................................... 1
Item 2. Properties..................................................... 9
Item 3. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters.......................................... 11
Item 6. Selected Consolidated Financial Data........................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
Item 7A. Quantitative and Qualitative Disclosure
About Market Risks........................................... 37
Item 8. Financial Statements and Supplementary Data. .................. 37
Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure.......................... 74
PART III
Item 10. Directors and Executive Officers of the Registrant............. 74
Item 11. Executive Compensation......................................... 74
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 74
Item 13. Certain Relationships and Related Transactions................. 74
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.......................................... 75
Signatures............................................................... 78
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PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
SOME OF THE INFORMATION IN THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE SECURITIES EXCHANGE ACT. THESE STATEMENTS EXPRESS OR ARE BASED ON
EXPECTATIONS ABOUT FUTURE EVENTS. FORWARD-LOOKING STATEMENTS INCLUDE
o OUR ANTICIPATION THAT FOR FISCAL 2000, WE WILL EXPERIENCE REVENUE
GROWTH IN OUR NON-YEAR 2000 SERVICE OFFERINGS, PARTICULARLY
E-BUSINESS, WHICH WE EXPECT TO OFFSET THE LOSS OF YEAR 2000
REVENUE;
o OUR ANTICIPATION OF CONTINUED STRONG DEMAND FOR E-BUSINESS
SERVICES;
o OUR ABILITY TO SELL E-BUSINESS AND OUR OTHER SERVICES TO CUSTOMERS
TO WHOM WE HAVE PREVIOUSLY PROVIDED YEAR 2000 SERVICES;
o OUR BELIEF THAT COMPONENT-BASED ARCHITECTURE WILL BE THE DOMINANT
DEVELOPMENT TECHNOLOGY OVER THE NEXT SEVERAL YEARS;
o OUR INTENTION TO ACQUIRE COMPANIES WITH SPECIFIC INDUSTRY
EXPERIENCE;
o OUR INTENTION TO ADD LOCATIONS IN EUROPE AND ASIA, PRIMARILY
THROUGH ACQUISITIONS;
o OUR EXPECTATION THAT RESEARCH AND DEVELOPMENT COSTS WILL DECREASE
IN FISCAL 2000;
o OUR ESTIMATION THAT OUR FUTURE TAX RATES MAY INCREASE FOR OUR
INDIA OPERATIONS.
OTHER FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING LANGUAGE SUCH AS "WILL LIKELY RESULT," "MAY," "ARE EXPECTED TO,"
"IS ANTICIPATED," "BELIEVES," "ESTIMATED," "PROJECTED," "INTENDS TO" OR OTHER
SIMILAR WORDS. OUR ACTUAL RESULTS ARE LIKELY TO DIFFER, AND COULD DIFFER
MATERIALLY, FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING
STATEMENTS. THERE ARE MANY FACTORS THAT COULD CAUSE THESE FORWARD-LOOKING
STATEMENTS TO BE INCORRECT, INCLUDING BUT NOT LIMITED TO THE RISKS DESCRIBED
BELOW UNDER "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS"s. WHEN CONSIDERING
THESE FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THESE RISK FACTORS AND
THE OTHER CAUTIONARY STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K, AND SHOULD
RECOGNIZE THAT THOSE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE MADE.
WE DO NOT UNDERTAKE ANY OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT
INCLUDED IN THIS ANNUAL REPORT.
ITEM 1. BUSINESS
GENERAL
We are an international provider of innovative e-business and
information technology solutions to Fortune 500 and Global 2000 sized companies.
Our information technology, or IT, solutions, address problems related to the
use of computers or computing power. Our e-business solutions identify and
address technology problems associated with conducting business on the Internet
and electronic commerce. We focus on providing our comprehensive range of
services to companies in the following vertical industries:
o Insurance
o Financial services
o Healthcare
o Utilities
o Retail
o Manufacturing and distribution
o Media and communications
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We believe companies in these specific industries are facing changes
and competition that are altering the way they conduct business. Due to the
scope and the pace of these changes, we believe that the IT solutions needed for
these industries rarely lend themselves to packaged "off the shelf" programs or
services. Instead, a customized Internet and technology-based approach, provided
in a short time frame, is needed. However, the development of customized
applications is expensive and time consuming. In 1999 and 2000, we made several
acquisitions specializing in e-business solutions in an effort to develop this
customized Internet and technology-based approach. This service offering focuses
on providing our customers with solutions in the Internet and
business-to-business electronic commerce arenas. Our e-business services are
currently our fastest growing service offering and represented 35% of our
revenue for the quarter ended December 31, 1999. We will continue to focus our
resources on e-business to take advantage of the current strong demand for these
services. We believe our e-business service offering is particularly relevant to
the selected vertical industries described above.
Since early 1998, we have been developing an approach where we utilize
reusable, industry-specific software components to quickly build industry
specific applications for our clients. We call this approach a "component-based"
solution. In addition, we have acquired companies with complementary business
knowledge or technology to assist in this development effort. Our
component-based vertical industry solutions combine the functionality of
customized software with the speed of implementation of a packaged solution.
These solutions usually require a relatively low level of customization and
lower maintenance costs and are easily modified to meet changing business
requirements.
Examples of some of our specific market solutions include:
o Our insurance solution includes a suite of component-based
applications that support definition of new products, acquisition
of new businesses, and the administration, billing, processing and
paying of claims and commissions. We customize these applications
for clients in property and casualty, life and reinsurance sectors
of the insurance business.
o Our financial services solution includes a number of asset
management and order execution component-based applications that
we market to capital market clients under the name of FOX(TM). The
FOX solution enables securities firms to manage portfolios of
securities, monitor changing market conditions and send orders to
purchase or sell securities electronically.
o Our healthcare solution allows health insurance companies to
analyze data and identify trends and anomalies in claims, which
can then be targeted for further investigation. This allows our
clients to screen their incoming claims and to identify erroneous
reimbursement claims more efficiently.
While our component-based solutions do not represent a material part of
our business at this time, we intend to continue to focus on developing
component solutions because we believe that they provide significant benefits to
our clients including a faster deployment time and generally lower total cost
than fully customized solutions. In addition, we believe that our
component-based solutions are more reliable and better tailored to the specific
needs of our clients than pre-packaged products.
We offer our customers the following services, separately or in
combination:
o IT strategy formulation and business consulting - plan and develop
IT strategies to address issues related to the use of computers or
software and provide industry business expertise and consulting
tailored to a specific industry
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o e-business services and solutions - design and implement Internet
and electronic commerce solutions
o Application development - build new applications using component
based and other technology solutions
o Application management and support - manage and support existing
computer applications
We provide all of our services on an outsourcing basis. Outsourcing is
the use by a client of third party providers to perform activities traditionally
handled by that company's internal staff. We believe that outsourcing has proven
effective in helping in-house IT departments manage costs while reducing the
time needed to complete projects. We augment the benefits of outsourcing by
providing our clients with a global network of centers with highly trained and
qualified technology professionals. We utilize the time differences between our
development centers in our global network to create a 24-hour "virtual workday"
during which our technology professionals can work on projects for our clients.
An important part of our strategy is to offer our services on a
fixed-price, fixed-time basis. We believe that a high percentage of projects
started by internal IT departments are not completed on time or on budget, with
many not completed at all. By offering fixed pricing, we enable our clients to
reduce their exposure to increased costs and by using our "on-site, off-site"
delivery model, which utilizes one or more of our worldwide delivery centers, we
can maintain consistent quality and reduce the project delivery time. Typically,
we split the project team into an "on-site" team and one or more "off-site"
teams. For a typical application management and support engagement,
approximately 20% to 30% of the team members are located at the client's site
and the balance at one of our delivery centers. For large-scale development
projects we can deliver projects faster by using multiple delivery centers. Over
the past two years, we have successfully delivered over 100 fixed-price
projects.
In addition to fixed-price, fixed-time projects, we provide programming
and IT consulting services at clients' sites as needed, usually on a time and
materials basis. We also help our clients with tactical issues such as Year 2000
conversion services and the transition to the Euro currency. Our Year 2000
service offering was our largest source of revenue in each of 1997 and 1998 as
our clients committed significant financial resources in addressing this issue.
As Year 2000 engagements were completed in 1999, our revenue from this service
offering decreased and will not generate significant revenue in 2000.
Currently, we maintain a staff of approximately 2,500 software
development professionals to serve our clients. We maintain dedicated software
development centers in Mumbai and Bangalore and operate four software
development centers, in our corporate and international headquarters in
Clearwater, Paris, Sydney and Tokyo. During December 1999, we made the decision
to close down our software development facilities in Belfast and London, which
were primarily focused on older technologies, in order to focus on our
e-business service offering. We also have 30 domestic branch/sales offices. We
intend to further broaden our geographical reach and are considering additional
locations in Europe, Asia and Eastern Europe. We expect this expansion to be
accomplished primarily through acquisitions.
We have made acquisitions to broaden our geographical reach, expand our
specific industry expertise in one of our targeted markets and/or provide
significant expertise in new technologies . For example, in March 1999, we
acquired Fusion Systems Japan Co., Ltd., headquartered in Tokyo, Japan, which
provides asset management and order execution solutions for companies in the
capital markets industry. In 1999, we acquired Professional Partners, Inc. and
Lakewood Software Technology Center, collectively referred to as "PLP," and
Neverdahl-Loft and Associations, Inc. ("Neverdahl"). PLP provides solutions for
companies in the property and casualty insurance market and Neverdahl provides
solutions in the life insurance market. In June 1999 we acquired Orion
Consulting, Inc., which is headquartered in Cleveland, Ohio and provides
solutions to facilitate transactions with payers and providers in the healthcare
industry.
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INDUSTRY OVERVIEW
We believe that the industries for which we are developing solutions
are faced with dramatic business, technological and economic changes that are
forcing them to alter their traditional business methods. These changes include
demutualization and merger and acquisition activities in the insurance business,
deregulation of the utility industry, merger and acquisition activity in the
financial services industry and privatization in the healthcare industry.
Intense competition and globalization in turn are driving the development of new
products and services which must be made available on a cost and time efficient
basis. In addition, the utilization of the Internet is forcing the majority of
industries to change the way they conduct business. First to market for Internet
solutions is a key competitive advantage for many companies. Accordingly, the
integration of e-commerce into companies has become an integral part of the
competitive environment.
These changes require the support of IT and e-business solutions. We
believe companies in our targeted industries are faced with competitive
pressures to reduce the time needed to develop and market new products. As a
consequence, many companies can no longer develop new applications relying
solely on their internal IT staff. Moreover, the complexities of the industries
in which our clients operate often preclude the use of packaged solutions. We
believe these industries require customized solutions with the speed of packaged
solutions, and the flexibility to constantly integrate these solutions with
updated technologies and pre-existing systems.
In addition, technology is enabling companies to increase productivity,
shorten product cycles, enhance client services and create new lines of
business. We believe that the rapid pace of these changes has overwhelmed many
internal IT departments and has created a skills gap that IT service providers
help to bridge. By outsourcing IT services, companies can focus on their core
business, access specialized technical skills and implement IT solutions more
rapidly while significantly reducing the costs of recruiting, training and
retaining IT professionals.
The IT services industry has evolved into a highly fragmented
environment with several large, national service providers, a small number of
international providers and a large number of regional service providers. We
believe that, in light of recent globalization trends, IT service providers with
an increasing global presence will be better able to address the IT needs of the
large Fortune 500 and Global 2000 sized companies.
OUR DELIVERY PROCESS
Our proprietary Total Software Quality Management ("TSQM") process is
based in part on software standards published by the Institute of Electrical &
Electronic Engineers and the Software Engineering Institute ("SEI") software
engineering process models and ISO 9001 quality processes. To position itself
for future business from companies in the European Community, as well as from
international affiliates of its North American customers, IMRglobal's facilities
in India and the U.K. have achieved ISO 9001/9002/9003 certification. IMRglobal
is pursuing company-wide ISO 9001/9002/9003 and SEI certification.
During each stage of a project, we utilize TSQM to monitor progress and
quality, including deviations from project plans that could adversely affect
on-time delivery, compliance with project specifications and project financial
performance. The project team collects, analyzes and reports on key quality
metrics to verify compliance with quality standards used in project execution,
and the project team serves as a custodian of information regarding the methods,
techniques and tools that have been utilized to perform specified tasks. Through
this process of constant re-evaluation of our performance on each project, we
continuously refine and enhance the TSQM software engineering process as a means
to leverage the benefit of our cumulative project experience.
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The responsibilities for completion of each TSQM phase are allocated
among an on-site and off-site team to optimize cost savings and accelerate
project delivery. The actual tasks allocated to each team member are determined
principally by the amount of client interaction required at the client site to
complete the project successfully. The front-end phase, which may include
business area analysis, development of a technical strategy, requirements
definition, requirements analysis, high level design and technical architecture,
is completed by the on-site project manager and the project team through
interaction with the client. The implementation phase, which may include
programming, unit testing and system testing, is largely performed off-site via
satellite link. The off-site teams at our U.S., Canadian, European and
Australian offices coordinate the efforts of the on-site and off-site teams and
monitor and manage the quality of the overall project. Working regular business
hours, the on-site and off-site teams together use most hours of the clock to
deliver projects in fewer elapsed calendar days. Due to the time differences
between India, Asia, Europe and North America, we create a virtual "second
shift" for our clients allowing for more rapid completion of projects.
Our off-site software development centers provide significant
opportunities to reduce costs and manage the risks of a project. The software
development center is often able to use the excess capacity of a client's
existing computing facilities during off-peak hours. This allows additional
projects to be undertaken without substantial client investment in new hardware
and software. The costs of satellite communications and infrastructure acquired
by us at an off-site center will be spread among multiple-clients and projects.
If the scope of a project is unexpectedly expanded, we generally are able to
draw upon its development centers' resources to increase project personnel. In
addition, for larger projects with critically short time frames, the resource
availability of an off-site facility allows us to overlap various development
phases to accelerate delivery time.
SERVICES
We provide a broad range of IT services, including: (a) business
consulting; (b) IT strategy formulation; (c) e-business services and solutions;
(d) application development; (e) application management and support; and (f)
professional services. We deliver each of these services independently or as a
comprehensive package.
o BUSINESS CONSULTING. We provide industry business experience such as
helping our healthcare clients by simplifying complex business issues in the
healthcare industry, evaluating their financial and operational performance and
supplying advice in the ever-changing healthcare industry. Our healthcare
consultants have a national reputation as experts in healthcare payment
methodologies and help our clients to improve the quality of their services,
increase productivity and reduce costs. We have been significantly increasing
our industry business expertise in each of our targeted markets by hiring people
with extensive experience in particular industries and by acquiring companies
that focus exclusively on a particular vertical industry.
o IT STRATEGY FORMULATION. By combining industry business expertise
with our technological experience, we are able to assist our clients in
formulating effective IT strategies that best match the business objectives of
our clients. For example, we assisted Baylor College of Medicine in a strategic
software selection and subsequently established a project management office that
supported the on-time implementation of that selection.
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o E-BUSINESS SERVICES AND SOLUTIONS. We help clients design and
implement solutions involving the Internet and electronic commerce. This service
includes the development of Internet strategies, management of web content and
training. Our senior e-commerce consultants assist clients in understanding the
opportunities, procedures and technologic challenges associated with conducting
electronic commerce. Our technical staff concurrently design, develop and
implement the underlying technologies supporting the e-business initiative,
using state-of-the-market development technologies. The scope of e-business
projects includes: web retailing, client Extranets, online service centers,
supply chain optimization, electronic data interface, corporate intranets, back
office integration, sales force Extranets and knowledge base management.
o APPLICATION DEVELOPMENT. Using an approach similar to the popular
Lego(R)-building block approach, we utilize reusable, industry-specific software
components to quickly build vertical industry specific applications for our
clients. These pre-built, pre-tested software components, along with components
customized for company specific purposes, are assembled in significantly less
time than building an application from scratch and provide clients a solution
that fits their business better than a packaged solution. This approach can be
used to deliver projects on an accelerated basis for selected platforms,
avoiding the functional shortcomings of traditional standardized, pre-packaged
software solutions or the time and cost of developing completely new custom
solutions.
o APPLICATION MANAGEMENT AND SUPPORT. We have four distinct processes
for our application management and support services:
1) Corrective maintenance requires software failures to be diagnosed
and fixed as they occur. These failures can directly affect
business operations and require the highest level of support.
Quick fixes and poor documentation often result in increased code
complexity and increased future maintenance costs.
2) Adaptive maintenance requires software modification to support
changing business requirements or changing technical environments.
This includes user enhancements, operating system upgrades and
other outside improvements. Enhancement backlogs are generally the
biggest source of concern for IT management.
3) Perfective maintenance involves modifications to application
systems to improve performance, without changing the basic system.
4) Preventive maintenance identifies and eliminates the maintenance
problems that create the need for corrective maintenance. Year
2000 compliance services are forms of preventive maintenance.
o PROFESSIONAL SERVICES. We also provide professional services on a
time and materials basis. In addition to staffing our client's short-term needs,
our objective is to leverage professional staffing engagements to learn more
about the client's business and IT system needs and position ourselves to
provide additional services.
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CLIENTS AND REPRESENTATIVE PROJECTS
The Company provides services to large businesses, primarily Fortune
500 and comparably sized companies with intensive information processing needs.
To date, the Company's marketing efforts have been directed to clients on the
basis of IT needs rather than industry group. Beginning in 1998, the Company
began to redirect its marketing efforts to key vertical markets including
insurance, utilities, financial services, healthcare, retail and manufacturing.
Companies and clients in these industries have historically provided the greater
source of business opportunities for the Company.
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INSURANCE FINANCIAL SERVICES HEALTHCARE UTILITIES
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AMPlus Merrill Lynch Health Plan Services Ameritech
CGU Insurance Morgan Stanley Blue Cross/Blue Shield SAUR
John Hancock Mutual Life Schroders International Foundation Health System Southern California Edison
Reliastar Banquet National de Paris American Medical Houston Industries
Association
RETAIL MANUFACTURING/DISTRIBUTION MEDIA AND COMMUNICATIONS OTHER
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Blockbuster Dow Corning EBSCO Industries Amtrak
Dayton Hudson Michelin Thompson EC Resources TWA
Fingerhut Renault Mitsui
Winn Dixie CGM
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During the year ended December 31, 1999, the Company's top five clients
accounted for approximately 20.4% of total revenue. Michelin North America, Inc.
represented approximately 5.9% of total revenue. During the year ended December
31, 1998, the Company's top five clients accounted for approximately 28.4% of
total revenue. Michelin North America, Inc. represented approximately 9.6% of
total revenues. The volume of work performed for specific clients is likely to
vary from year to year, and a significant client in one year may not use the
Company's services in a subsequent year.
SALES AND MARKETING
We market and sell our services directly through our professional staff
and senior management operating at our United States and International regional
offices and sales branch offices. We focus our marketing efforts on large
corporations within our six targeted industries that have significant IT budgets
and recurring staffing or software development needs. Marketing personnel
identify prospects and enter the information into a database which is
consistently maintained. Direct sales representatives utilize those records to
initiate the sales cycle from prospect qualification to closing. As a result, we
can prequalify sales opportunities and minimize the time that direct sales
representatives spend on prospect qualification.
Our marketing programs include direct mail campaigns, advertising,
seminars, conferences and other activities. The sales executive and technical
support teams define the scope, deliverables, assumptions and execution
strategies for a proposed project. They also develop project estimates, prepare
pricing margin, and cash flow analyses, and finalize sales proposals. Management
reviews and approves the proposal, then the sales staff presents the proposal to
the prospective client. Sales personnel are actively involved throughout the
execution phase.
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As we expand in Europe and Asia, we will consider establishing branch
sales offices to pursue business opportunities in these regions.
INTELLECTUAL PROPERTY
Our business consists of software applications development and other
deliverables including written specifications and documentation in connection
with specific client engagements. Ownership of these products is generally
retained by or assigned to the client. We also develop reusable software
components and vertical industry component libraries for application
development, as well as software toolsets and proprietary methodologies. Many
are developed in one country and subsequently used in another country.
Furthermore, we maintain trademarks and service marks in our various service
offerings. To protect our intellectual properties, we rely on copyright and
trade secret laws, nondisclosure and other contractual arrangements, and
technical measures.
COMPETITION
The IT services market is highly competitive and is served by numerous
national, regional and local firms. Our clients generally consist of large
corporations principally in the insurance, capital markets, utilities,
healthcare, retail, manufacturing and distribution, and media and communications
industries. Many of our competitors are aggressively pursuing business from
these entities. In addition to in-house IT departments, market participants
include e-business, systems consulting and integration firms, professional
service companies, applications software firms, temporary employment agencies,
professional services division of large integrated manufacturing and other
companies, facilities management and outsourcing companies, accounting and
business consulting firms such as the "Big 5" and related entities.
We believe that many of our competitors have significantly greater
financial, technical and market resources and generate greater revenue than we
do. We compete by offering e-business solutions, component-based software
products, a successful services delivery model, excellent referral base,
continued focus on client needs, quality of services, competitive prices and
strong project management capabilities and technical expertise.
HUMAN RESOURCES
As of March 10, 2000, we had approximately 3,000 employees, including
approximately 2,200 people in our United States, U.K., France, Japan, Canada and
Australian headquarters and branch offices and approximately 800 in our software
development centers in India and Northern Ireland. Additionally, we had
approximately 200 independent contractors performing various services. None of
our employees are subject to a collective bargaining arrangement, except for
approximately 200 employees in France. During December 1999, we announced a
restructuring plan that resulted in the termination of approximately 150
employees in our United States and Northern Ireland locations.
As of March 10, 2000, approximately 300 of our United States employees
were working under the H-1B non-immigration work permitted visa classification,
which we process for those employees through the United States Immigration and
Naturalization Service. The H-1B visa classification enables United States
employers to hire qualified foreign workers in positions which require education
at least equal to a United States baccalaureate degree in specialty occupations
such as software systems engineering and systems analysis.
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We believe that there is a shortage of, and significant competition
for, certain IT professionals particularly those with e-business skills. Our
future success will depend in large part upon our ability to attract, train,
motivate and retain highly skilled employees with the advanced technical skills
necessary to perform the services we offer. We have active recruiting programs
in North America, Europe, and Asia and have developed a recruiting system and
database that facilitates the rapid identification of skilled candidates. We
also have adopted a career and education management program working with
employees to define their objectives and career plans. Through an intensive
orientation and training program, we introduce new employees to our TSQM
software engineering process and our products and services.
ITEM 2. PROPERTIES
The following table sets forth a description of our principal
facilities:
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SQUARE FEET OWNED/
LOCATION (APPROX.) LEASE EXPIRATION DATE FUNCTION
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Clearwater, Florida 131,000 Owned Corporate headquarters and
software development facility
London (Chesham) England 12,500 March 2013 U.K. headquarters and
development facility
Howell, New Jersey 22,700 September 1999 - Insurance industry facility
July 2003
Bangalore, India 66,000 June 2000 Software development facility
Belfast, Northern Ireland 21,500 September 2002 Software development facility
Cleveland, Ohio 30,900 September 2007 Healthcare industry facility
Mumbai, India 28,000 Owned Software development facility
New Delhi, India 28,000 Owned Future facility
Paris, France 18,900 May 2005 France headquarters and
software development facility
Paris, France 5,600 October 2000 - European Capital Market
November 2001 Industry facility
Sidney, Australia 6,800 May 2002 Australian headquarters and
software development facility
Toronto, Canada 6,300 October 2002 Canada headquarters
Tokyo, Japan 16,200 January 2001 Japan headquarters and
software development facility
Tampa, Florida 20,000 January 2004 e-business development facility
Lincoln, Nebraska 7,000 December 2002 - Insurance industry facility
June 2004
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The leases for our headquarters in Bangalore, Belfast and Paris and our
facilities in Toronto contain options to extend the term for an additional five
years.
We own the building at our software development facility in Mumbai,
India and we lease the land through March 2096. We own land and a building in
New Delhi, India which may be renovated to house a future facility.
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We are in the process of restructuring our U.K. operations and will
abandon the 66,000 square foot facility in Belfast, Northern Ireland and 12,500
square foot facility in Chesham, England. We are in the process of settling
these leases or subleasing these properties to outside parties.
We are in the process of subleasing our Tampa, Florida office
facilities as most of the workforce has been consolidated into our corporate
headquarters.
In addition, we lease branch offices, which are used primarily for
sales and marketing purposes, in Atlanta, Boston, Chicago, Dallas, Detroit, Los
Angeles, Minneapolis, New York, Seattle, Austin, Denver, Greenville,
Jacksonville, Ashburn, Cincinnati, Clifton Park, Deerfield Beach, Harrisburg,
Kansas City, Midlethian, New Iberia, Pittsburgh, San Francisco, Santoga Springs,
St. Louis and Tempe in the United States, Montreal, Quebec City, Winnipeg,
Calgary and Vancouver in Canada, Frankfurt, Germany and Luxembourg.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any pending material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders
during the fourth quarter of the year ended December 31, 1999.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is traded on the Nasdaq Stock Market(SM) under the
symbol "IMRS." The common stock commenced trading on Nasdaq on November 8, 1996
in connection with the underwritten initial public offering of shares of common
stock at an initial price to the public of $6.22 per share.
Set forth below are the high and low sales prices for shares of the
common stock for the periods indicated. Share prices have been adjusted to
reflect a three-for-two stock split in the form of a stock dividend in April
1998.
FISCAL PERIOD ENDED HIGH LOW
------------------- ---- ---
1998:
March 31, 1998 $39.50 $19.08
June 30, 1998 $42.17 $20.00
September 30, 1998 $35.38 $18.63
December 31, 1998 $30.38 $16.63
1999:
March 31, 1999 $32.63 $12.94
June 30, 1999 $23.25 $13.75
September 30, 1999 $20.13 $ 8.00
December 31, 1999 $14.50 $ 7.00
The number of shareholders of record of the common stock as of March
10, 2000, was 210 based on transfer agent reports.
We did not declare any cash dividends in 1998 or 1999 and do not intend
to declare or pay cash dividends in the foreseeable future. We anticipate that
all earnings and other cash resources, if any, will be retained for future
investment in our business.
11
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the years 1995 through 1999
should be read along with the audited financial statements contained in this
document. Such financial information other than for fiscal years 1995 and 1996
was taken from these financial statements. The financial statements for 1997
through 1999 were audited. The information below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue ........................................ $ 24,115 $ 30,988 $ 89,645 $ 170,318 $ 222,028
Gross profit.................................... 9,734 13,346 39,934 80,243 92,857
Income (loss) from operations .................. 3,696 5,016 16,908 28,823 (10,110)
Net income (loss) .............................. 2,702 2,890 12,469 19,880 (11,839)
Pro forma net income ........................... 1,797 -- -- -- --
Diluted earnings (loss) per share .............. 0.09 0.13 0.40 0.57 (0.34)
Pro forma diluted earnings per share ........... 0.06 -- -- -- --
Cash dividends ................................. -- 1,623 -- 163 --
Cash dividends per share ....................... -- 0.07 -- -- --
Weighted average common stock and
common stock equivalents
outstanding ................................. 31,550 23,026 31,238 35,064 34,786
CONSOLIDATED BALANCE SHEET DATA
(AT PERIOD END):
Cash, cash equivalents and marketable securities $ 1,832 $ 30,307 $ 91,452 $ 110,416 $ 37,432
Working Capital ................................ 2,729 31,371 96,977 122,783 47,091
Total assets ................................... 9,484 50,563 138,656 223,699 303,798
Long-term debt, net of current portion ......... 1,184 39 918 671 985
Shareholders' equity ........................... 3,091 41,045 114,358 174,814 234,923
Shares outstanding at period end,
net of treasury stock ....................... 21,096 22,430 26,370 30,392 37,028
</TABLE>
o Revenue for the year ended December 31, 1997 attributable to the 1997
acquisition was $18.0 million.
o Revenue for the year ended December 31, 1998 attributable to 1998
acquisitions was $18.4 million.
o Revenue for the year ended December 31, 1999 attributable to 1999
acquisitions was $52.3 million.
o Pro forma net income and pro forma diluted earnings per share give affect to
our conversion from an S corporation to a C corporation for U.S. income tax
purposes. The pro forma data above presents net income and net income per
share as if we had been subject to corporation taxes for the year ended
December 31, 1995.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our business has grown significantly during the past two years both
through acquisitions and through internal growth. Before we discuss our results
of operations in detail, we set forth relevant information about recent
developments and the significant acquisitions we have made, clarify income tax
matters and explain conventions we use throughout this section.
CURRENT DEVELOPMENTS
RESULTS OF OPERATIONS -- After our 1996 initial public offering, we
experienced sequential revenue and earnings per share growth (excluding one-time
charges) for each of the eleven quarters ended June 30, 1999. This trend did not
continue for the three months ended September 30, 1999 and December 31, 1999.
Both revenue and earnings per share decreased from the amounts reported for the
previous quarter.
The primary reasons for the decrease in revenue are as follows:
o delays in the start up of several engagements as clients
maintained budgetary reserves for possible Year 2000 problems in
the fourth quarter of 1999 and the first quarter of 2000;
o slower than anticipated conversion of proof of concept and
advisory engagements to full back-end projects for our IT
consulting and component-based development services and our
component-based solutions;
o a longer sales cycle, mostly driven by the current market
conditions; and
o our attempt to aggressively grow our core business and, at the
same time, position the company to sell and support vertical
industry based solutions.
The decrease in earnings per share was directly attributable to the
decrease in revenue as cost of revenue and selling, general and administrative
expenses did not increase for the quarters ended September 30, 1999 and December
31, 1999.
ACQUISITIONS
ATECHSYS S.A -- On January 8, 1999, we acquired 100% of the outstanding
stock of Atechsys, a privately held information technology company based in
Paris, France. Atechsys specializes in business and technology consulting
services to the capital markets industry. Atechsys' shareholders received
718,859 shares of our common stock in exchange for their Atechsys common stock.
We have accounted for the Atechsys acquisition as a pooling of interests
combination. We have restated prior year financial statements to give effect to
the business combination. As a result of this acquisition, we have incurred
costs of approximately $1.7 million and have charged these costs in our 1999
statement of operations.
13
<PAGE>
ECWERKS, INC.-- On January 15, 1999, we acquired 100% of the
outstanding stock of ECWerks, a privately held electronic commerce business and
technology consulting company based in Tampa, Florida. ECWerks' shareholders
received 163,054 shares of our common stock in exchange for their ECWerks common
stock. In addition, we are required to make a contingent payment of
approximately $7.0 million in cash and shares of our common stock as certain
financial goals specified in the purchase agreement were achieved during 1999.
We have accounted for the ECWerks acquisition as a purchase.
FUSION SYSTEMS JAPAN CO., LTD.-- On March 26, 1999, we acquired 100% of
the outstanding stock of Fusion, a privately held business and technology
consulting company based in Tokyo, Japan. Fusion specializes in capital markets
consulting and technology solutions and provides technology consulting services
from its offices in Tokyo and Boston. Fusion's shareholders originally received
3,735,536 shares of our common stock in exchange for their Fusion common stock.
On October 25, 1999, we amended this agreement to provide the former Fusion
stockholders $22.4 million cash in exchange for 1,456,860 shares of our common
stock. We have accounted for the Fusion acquisition as a purchase and as a
result, the operating results of Fusion are to be reflected in the consolidated
financial statements from the date of acquisition.
The purchased assets and assumed liabilities in connection with the
acquisition of Fusion were recorded at their estimated fair value at the
acquisition date. In connection with the Fusion acquisition, we retained an
independent appraiser to complete a valuation of the assets of Fusion, including
valuation of certain in-process research and development. We identified 27
project categories for which technological feasibility had not been achieved as
of the acquisition date and for which there was no alternative future use. The
project categories include eight modules for the Japan market, nine modules for
the worldwide market and ten modules for specific countries outside of Japan.
The value associated with these projects was determined using a
discounted cash flow model with a risk adjusted discount rate of 25%. The model
reflects revenue to be generated beginning in 1999 and continuing through 2006
for all projects. The valuation also incorporated a stage of completion
methodology where the value was adjusted based on the technology's percentage of
completion.
Fusion's main product is Fox, an electronic order manager system for
the capital markets industry. As of the acquisition date, the general design of
the core modules was completed. This design identified the primary core modules
required for multiple modules in the capital markets industry. As of the
acquisition date over 50% of the Japan modules and under 50% of the worldwide
component modules had been coded. Testing has not been completed for these
modules.
14
<PAGE>
The schedule below details the status of each project as of the
acquisition date and its appraised in-process research and development value
(dollar amounts in thousands).
<TABLE>
<CAPTION>
PERCENT
DATE PERCENT COMPLETE PERCENT AMOUNT
FOX PRODUCT/ R&D PROTOTYPE COMPLETE CALENDAR COMPLETE IN
COMPONENT START DATE COMPLETE MAN MONTHS TIME VALUE BASIS CONCLUDED THOUSANDS
- ----------------------- ---------- -------- ---------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Japan:
BTA 01-Aug-97 01-Jun-99 90% 90% 90% 90% $ 120
STA/BTA/OBA merge 31-Dec-98 31-Mar-00 19% 19% 19% 19% 40
Extended Limit Type 01-Nov-98 01-May-99 80% 80% 80% 80% 50
AA 01-Aug-97 01-Jul-99 86% 86% 86% 86% 110
XA 01-Feb-99 01-Jan-00 16% 16% 16% 16% 20
OES-Upgrades 01-Jan-98 01-Jul-99 82% 82% 82% 82% 170
LH JASDAQ 01-Nov-97 01-Aug-99 80% 80% 90% 90% 330
LH TIFFE 01-Mar-99 01-Sep-99 14% 14% 57% 57% 160
World:
STA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 110
BTA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 140
OBA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 110
STA/BTA/OBA merge 31-Dec-98 30-Jun-00 21% 16% 61% 61% 50
TT 01-Jan-98 30-Jun-00 21% 49% 60% 60% 30
DBA 01-Jan-98 30-Jun-00 21% 49% 60% 60% 50
FOX Router 01-Dec-96 01-Dec-99 32% 77% 83% 83% 20
MGS 30-Jun-97 01-Dec-00 51% 51% 63% 63% 90
OES 01-Jan-98 01-Dec-00 42% 42% 57% 57% 130
LH HK 01-Oct-98 01-Oct-99 28% 48% 64% 64% 220
LH TAIWAN 01-Oct-98 01-Oct-99 28% 48% 64% 64% 290
LH KOREA 01-Oct-98 01-Mar-00 31% 34% 65% 65% 210
LH SING 01-Oct-98 01-Mar-00 31% 34% 65% 65% 100
LH AUS 01-Oct-98 01-Sep-99 32% 53% 66% 66% 250
LH SH 01-Oct-98 01-Mar-00 31% 34% 65% 65% 90
LH LON 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130
LH EUREX 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130
LH PARIS 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130
LH FRANK 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130
------
$3,410
======
</TABLE>
Based on the results of the appraisal, $3.4 million was attributed to
the in-process research and development for the Fusion acquisition and expensed
in 1999.
15
<PAGE>
PROFESSIONAL PARTNERS, INC. AND LAKEWOOD SOFTWARE TECHNOLOGY CENTER,
INC.--On April 28, 1999, we purchased 100% of the outstanding stock of
Professional Partners and Lakewood Software, which we refer to as PLP, a
privately held provider of information technology services to the property and
casualty insurance industry. PLP's shareholders received $12.0 million in cash
in exchange for their PLP common stock. We have accounted for the PLP
acquisition as a purchase, and as a result, the operating results of PLP are
reflected in the consolidated financial statements from the date of acquisition.
ORION CONSULTING, INC.-- On June 15, 1999, we acquired 100% of the
outstanding stock of Orion. Orion was a privately held management-consulting
firm, headquartered in Cleveland, Ohio, that primarily served the healthcare
industry. Orion's shareholders received 3,028,414 shares of our common stock in
exchange for their Orion common stock. We have accounted for the Orion
acquisition as a purchase, and as a result, the operating results of Orion are
reflected in the consolidated financial statements from the date of acquisition.
NEVERDAHL-LOFT & ASSOCIATES, INC.-- On December 7, 1999, IMRglobal
acquired 100% of the outstanding stock of Neverdahl, a privately held
full-service information technology consulting firm focused on the life
insurance industry headquartered in Lincoln, Nebraska. In exchange for
Neverdahl's common stock, Neverdahl's shareholders received approximately $10.0
million in cash. In addition, $2.5 million in cash is payable to the Neverdahl
shareholders if certain financial objectives are attained for the six months
ending June 30, 2000. Any contingent payment will result in an increase in the
purchase price and the resulting goodwill. We have accounted for the Neverdahl
acquisition as a purchase, and as a result, the operating results of Neverdahl
are reflected in the consolidated financial results from the date of
acquisition.
INTANGIBLE ASSETS -- Due to the extensive acquisition activity
described above, our intangible assets increased significantly during 1999 and
represented 47.1% of assets and 61.0% of shareholders' equity at December 31,
1999 compared to 16.5% of assets and 21.1% of shareholders' equity at December
31, 1998. Prior to concluding the above acquisitions, we estimated the future
profitability and cash flows for each entity in order to determine the expected
benefit period for the intangible assets. This analysis included a review of
past performance, industry trends and anticipated integration with our other
business units. We also reviewed acquisitions concluded in years prior to 1999
to identify any impairment of intangible assets associated with these earlier
acquisitions.
RESTRUCTURING CHARGE
During the fourth quarter of fiscal 1999, our Board of Directors
approved a restructuring plan to take advantage of the increased demand for our
e-business services. From 1996 through 1998, most of our revenue was generated
from older technologies ("legacy technologies"). The demand for legacy
technology services decreased in 1999 as many Year 2000 projects performed on
these technologies were completed. In addition, the companies we acquired in
1998 and 1999 were focused on newer technologies and/or selected industries. As
a result, our restructuring plan required that we redirect our resources from
our legacy technology to newer technologies such as e-business and component
development.
We are attempting to sell our Northern Ireland operation. If we fail to
sell this operation, we may realize an additional $750,000 of restructuring
costs.
16
<PAGE>
We anticipate that we will realize approximately $10.0 million in cost
savings before tax, annually once our restructuring plan is complete. However,
the hiring of additional employees for our e-business services will offset
approximately 50% of these cost savings. We estimate that the net affect of our
restructuring plan and the expansion of our e-business practice will result in
future annual cost savings, before tax, as follows (in thousands):
Cost of revenue ...................... $ 125
Selling, general and administrative... 3,852
Research & development ............... 787
Intangible asset amortization ........ 44
------
Total ....................... $4,808
======
Annual cash cost savings are estimated to be $3.7 million.
Approximately $5.1 million of the restructuring charge relates to
write-down of existing assets and will require no additional cash outlay. The
liquidity requirements for the remaining restructuring charge are as follows:
Cash outlays in 2000.................. $4.9 million
Cash outlays after 2000............... $2.2 million
CONVENTIONS
We use the following conventions throughout the discussion of our
results of operations.
REVENUE RECOGNITION. Revenue from services provided on a fixed-price
basis is recognized using the percentage of completion method. We bear the risk
of cost over-runs and inflation with respect to our fixed-price projects. In
order to mitigate these risks, we subdivide projects into smaller phases, and we
generally reserve the right to renegotiate fixed-price and fixed-time frame
commitments in the event of any change in scope. Under the percentage of
completion method, we must estimate the percentage of completion of each
project at the end of each financial reporting period. Estimates are subject to
adjustment as projects progress to reflect changes in projected completion costs
or dates.
Revenue from services provided on a time and material basis is
recognized in the period that the services are provided. Certain services in our
healthcare practice are provided on a contingency basis based on the recovery of
expenses for clients or based on providing litigation support to clients.
Revenue for recovery projects and litigation work is recognized when the
outcomes are known.
COST OF REVENUE. Cost of revenue consists primarily of salaries and
employee benefits for personnel dedicated to client projects, as well as
facility costs at the India and Northern Ireland software development
facilities.
17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Salaries and related
taxes and benefits for employees not dedicated to specific client projects make
up the majority of our selling, general and administrative expenses. Other
significant selling, general and administrative expenses are as follows:
o occupancy costs;
o telecommunications;
o marketing and promotion; and
o travel expenses.
INCOME TAX MATTERS
INDIA OPERATIONS--Our subsidiary, IMRglobal-India, is eligible for
certain favorable tax provisions provided under the Indian Income-Tax Act,
including the following:
o an exemption from corporate income taxes for a period of five
consecutive years in the first eight years of operation;
o an exemption from income taxes on the profits derived from
exporting computer software or transmitting software from India.
The export exemption remains available after expiration of the tax
holiday described above.
The effective tax rate for our India operations has been less than 5%
for 1997, 1998 and 1999 as a result of these exemptions. Recent legislation in
India indicates that the above tax exemptions may be phased out over a five year
period beginning in June 2000. Accordingly, the effective tax rate for our India
operations may increase to approximately 35% over this five year period.
18
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes for the years indicated, certain items
from the Company's statements of operations expressed as a percentage of revenue
and percentage change in the dollar amount of such items compared to the prior
year.
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF REVENUE INCREASE (DECREASE)
YEAR ENDED DECEMBER 31, YEAR TO YEAR
-------------------------- -------------------
1997- 1998-
1997 1998 1999 1998 1999
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Revenue ........................ 100.0% 100.0% 100.0% 90.0% 30.4%
Cost of revenue ................ 55.5 52.9 58.2 81.2 43.4
----- ----- -----
Gross profit ................... 44.5 47.1 41.8 100.9 15.7
Selling, general and
administrative expenses ..... 23.4 20.4 26.3 65.6 68.2
Research and development ....... 1.0 3.7 3.0 579.8 6.2
Costs related to acquisitions... 0.0 4.9 14.1 100.0 273.5
Goodwill and
intangible amortization ..... 1.3 1.2 3.0 84.7 223.3
----- ----- -----
Income (loss) from operations... 18.8 16.9 (4.6) 70.5 (135.1)
Other income, net .............. 2.0 2.6 2.3 151.9 19.2
----- ----- -----
Income before provision for
income taxes ................ 20.8 19.5 (2.3) 78.0 (114.9)
Provision for income tax ....... 6.9 7.8 3.0 115.5 (48.1)
----- ----- -----
Net income (loss) .............. 13.9% 11.7% (5.3)% 59.4% (159.6)%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE. Revenue increased to $222.0 million in the year ended December
31, 1999, representing a 30.4% increase over revenue of $170.3 million in the
year ended December 31, 1998. Of this increase, approximately $52.3 million was
attributable to our acquisition of ECWerks, Fusion, PLP, Orion and Neverdahl.
Revenue for the year ended December 31, 1999 from services not related to our
Year 2000 service offering, increased to $187.5 million (including purchase
acquisitions), representing a 101.3% increase over revenue of $93.1 million for
the year ended December 31, 1998. Year 2000 revenue decreased to $34.6 million
or 15.6% of total revenue for the year ended December 31, 1999 compared to $77.2
million or 45.3% of total revenue for the year ended December 31, 1998. Year
2000 revenue will be less than 1% of our revenue in the future. Revenue from our
e-business services increased to $43.0 million or 19.3% of revenue for the year
ended December 31, 1999. For the year ended December 31, 1998, our e-business
revenue was $3.9 million or less than 2.5% of total revenue. We anticipate that
for fiscal 2000, we will experience revenue growth in our non-Year 2000 service
offerings, in particular, e-business, which we expect to offset the loss of Year
2000 revenue.
19
<PAGE>
COST OF REVENUE. Cost of revenue was $129.2 million, or 58.2% of
revenue for the year ended December 31, 1999, compared to $90.1 million, or
52.9% of revenue for the year ended December 31, 1998. The increase in cost of
revenue as a percentage of revenue reflects underutilized resources. As we
completed several large Year 2000 engagements, we were unable to allocate the
available staff to new engagements due to delays in initiating new contracts.
Wage costs continue to increase at a greater rate than general
inflation in each of the countries in which we have operations. Historically, we
have been able to pass these wage increases on to our clients in the form of
increased prices for our service offerings. However, we cannot assure you that
we will be able to continue to increase our prices to our clients to offset
future wage increases.
GROSS PROFIT. Gross profit increased to $92.9 million in the year ended
December 31, 1999, compared to $80.2 million in the year ended December 31,
1998. Our gross profit margin, as a percentage of revenue, decreased to 41.8% in
the year ended December 31, 1999 compared to 47.1% in the year ended December
31, 1998. Our future gross profit, as a percentage of revenue, may vary
depending on our utilization of our workforce and software development
facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A"). SG&A expenses
increased to $58.5 million in the year ended December 31, 1999, compared to
$34.8 million in the year ended December 31, 1998. The increase in SG&A expenses
is attributable to the following:
o the ECWerks, Fusion, PLP, Orion and Neverdahl acquisitions;
o addition of sales offices;
o expansion of sales personnel;
o expansion of our delivery capacity; and
o converting our operations to a vertical industry focus.
In addition to the above, we incurred $1.9 million of non-recurring
compensation costs related to certain officers in acquired companies. These
payments will not be continued after December 31, 1999.
As a percentage of revenue, excluding the $1.9 million non-recurring
compensation cost, SG&A expenses increased to 25.5% for the year ended December
31, 1999 compared to 20.4% for the year ended December 31, 1998. The increase
reflects the aggressive expansion of our sales force and marketing efforts
without an immediate corresponding increase in our revenue. We also increased
our administrative infrastructure as we integrated several new acquisitions.
During late 1999, we initiated a restructuring plan which was in part designed
to reduce administrative expenses as we refocused our efforts on e-business
opportunities. For fiscal 2000, the reduction in our SG&A due to our
restructuring plan will be offset by an aggressive expansion of our sales force,
particularly in the area of e-commerce.
RESEARCH AND DEVELOPMENT. R&D costs increased to $6.6 million in the
year ended December 31, 1999, compared to $6.2 million in the year ended
December 31, 1998. The increase is attributable to the May 1999 acquisition of
Lyon and the related component-ware R&D. We incurred 12 months of R&D expenses
for this initiative in 1999 compared to 8 months in 1998. During the fiscal
fourth quarter, as part of our 1999 restructuring plan, we terminated several
R&D projects unrelated to component-ware. Accordingly, we expect our research
and development costs to decrease in fiscal 2000 compared to fiscal 1999.
20
<PAGE>
GOODWILL AND INTANGIBLE AMORTIZATION. Goodwill and intangible
amortization increased to approximately $6.7 million for the year ended December
31, 1999, from approximately $2.1 million for the year ended December 31, 1998.
This increase reflects full year amortization of goodwill attributed to our 1998
purchases of Lyon and Visual and the 1999 purchase acquisitions of ECWerks,
Fusion, PLP and Orion. In 2000, intangible asset amortization will be at least
$9.0 million and may increase if we acquire additional companies during fiscal
2000.
RESTRUCTURING CHARGE. In the fourth quarter of fiscal 1999, we
implemented a restructuring plan to redeploy resources to exploit our expanding
e-business practice. This plan resulted in a $12.4 million restructuring cost in
1999. Key components of the restructuring plan included the following:
o the closure of two U.K. offices, which were primarily committed to
legacy IT systems,
o the reduction of our legacy IT workforce in the U.S.
o the write-down of specific legacy software and hardware, and
o the reduction of our administrative workforce and infrastructure
in order to increase our responsiveness to the new e-business
opportunities.
IMPAIRMENT OF LONG-LIVED ASSETS. During 1999, we recorded a $4.4
million charge for impairment of long-lived assets. It is our policy to
periodically, but at least annually, review the value of certain long-lived
assets such as goodwill and property and equipment. During 1999, we determined
that the value of certain assets were impaired. These included goodwill for our
IMRglobal-UK operation, our investment in real property in New Delhi, India and
other property and equipment.
PURCHASE ACQUISITIONS ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT. The
purchased assets and assumed liabilities in connection with the acquisition of
Fusion were recorded at their estimated fair value at the acquisition date. We
received an appraisal of the intangible assets which indicated that
approximately $3.4 million of the acquired intangible assets were acquired
in-process research and development that had not yet reached technological
feasibility and had no alternative future use. To determine the value of the
in-process research and development, our appraisal considered several factors
including the following:
o state of development of each project;
o time and cost needed to complete each project;
o expected income for each project;
o expected discounted cash flow for each project;
o associated risks which included the inherent difficulties and
uncertainties in completing each project and thereby achieving
technological feasibility; and
o risks related to the viability of and potential changes to future
target markets.
During the year ended December 31, 1998, we recorded $8.2 million of
in-process research and development related to the Lyon acquisition.
ACQUISITION COST. During 1999, we completed the acquisition of Atechsys
that was accounted for as a pooling-of-interests. Acquisition costs attributable
to that merger were $2.2 million. Acquisition costs for 1998 of $145,000 were
attributable to our acquisition of RHO Transformational Technologies Pty
Limited, an Australian company.
21
<PAGE>
CHARGE ASSOCIATED WITH TREASURY STOCK PURCHASE. During October 1999, we
incurred a $8.8 million charge in connection with the restructuring of the
Fusion acquisition. This acquisition was converted from an all stock transaction
to a combination of stock and cash.
INCOME (LOSS) FROM OPERATIONS. Loss from operations for the year ended
December 31, 1999 was $10.1 million compared to income from operations of $28.8
million for the year ended December 31, 1998. The 1999 loss was primarily
attributable to the following non-recurring charges:
Restructuring charge............................. $12.4 million
Impairment of long-lived assets.................. 4.4 million
Acquired in-process research and development..... 3.4 million
Acquisition costs................................ 2.2 million
Charge associated with treasury stock purchase... 8.8 million
Non-recurring compensation for former owners.....
of acquired companies (included in SG&A)....... 1.9 million
-------------
Total $33.1 million
=============
Excluding non-recurring charges, income from operations was 10.4% of
revenue for the year ended December 31, 1999 compared to 21.8% for the year
ended December 31, 1998.
OTHER INCOME. We realized net other income of approximately $5.2
million for the year ended December 31, 1999, compared to net other income of
approximately $4.3 million in the year ended December 31, 1998. In 1999, we
recognized approximately $4.2 million in investment income primarily from the
investment of our excess cash, and we incurred approximately $108,000 of
interest expense related to credit facilities in the U.S., France and Japan.
During 1998, we recognized approximately $4.6 million in investment income
primarily from the investment of our excess cash, and we incurred approximately
$234,000 of interest expense primarily for credit facilities in India and
Australia. For the first two quarters of 2000, we anticipate that our investment
income will decrease while our interest expense will increase as we utilize our
excess cash.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
$6.9 million in the year ended December 31, 1999, from $13.3 million in the year
ended December 31, 1998. The effective tax rate based on the provision for
income taxes and excluding one-time charges for in-process research and
development and acquisition costs was 42.3% for 1999 and 32.0% for 1998. We
calculate the effective tax rate by dividing the provision for income taxes by
income before provision for income taxes.
The higher effective tax rate for the year ended December 31, 1999 is
partially attributable to only 34% of goodwill and intangible amortization
expense being deductible for income tax purposes. Goodwill and intangible asset
amortization has increased 223% from fiscal 1998 to fiscal 1999. In addition, we
have historically enjoyed a low effective tax rate for our India operations.
Accordingly, the effective tax rate has increased as a result of recent
acquisitions in France, Canada, Japan and the United States, which have higher
income tax rates than India. We anticipate that our effective tax rate for
fiscal 2000 will be between 38% to 40%.
We have not recorded deferred income taxes applicable to undistributed
earnings of IMRglobal-India. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal and state
income tax has been provided thereon.
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<PAGE>
NET INCOME (LOSS). We incurred a net loss of $11.8 million for the year
ended December 31, 1999 compared to net income of $19.9 million for the year
ended December 31, 1998. When we exclude non-recurring charges (net of income
taxes), fiscal 1999 net income as a percentage of revenue was 7.3% compared to
16.6% for fiscal 1998.
NET INCOME (LOSS) PER SHARE. Our diluted loss per share for the year
ended December 31, 1999 was $0.34 compared to net income per share of $0.57 for
the year ended December 31, 1998. When we exclude non-recurring charges (net of
income taxes), fiscal 1999 net income per share was $0.41 compared to $0.80 for
fiscal 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE. Revenue increased to $170.3 million in the year ended December
31, 1998, representing a 90.0% increase over revenue of $89.6 million in the
year ended December 31, 1997. Of this increase, approximately $18.4 million was
attributable to our acquisition of Lyon, RHO and Visual. Revenue for the year
ended December 31, 1998 from services not related to our Year 2000 service
offering, increased to $93.1 million (including purchase acquisitions),
representing a 106.1% increase over revenue of $45.2 million for the year ended
December 31, 1997. Year 2000 revenue increased to $77.2 million or 45.3% of
total revenue for the year ended December 31, 1998 compared to $44.5 million or
49.6% of total revenue for the year ended December 31, 1997.
COST OF REVENUE. Cost of revenue was $90.1 million or 52.9% of revenue
for the year ended December 31, 1998, compared to $49.7 million, or 55.5% of
revenue, for the year ended December 31, 1997. The decrease in cost of revenue
as a percentage of revenue reflects the following:
o productivity gains from Year 2000 service offerings and other
toolsets;
o a 17.8% devaluation of the Indian Rupee since September 1997,
which resulted in reduced costs at our Indian software development
centers; and
o improved utilization of software development personnel in India
and Northern Ireland.
Wage costs continue to increase at a greater rate than general
inflation in each of the countries in which we have operations. Historically, we
have been able to pass these wage increases on to our clients in the form of
increased prices for our service offerings. However, we cannot assure you that
we will be able to continue to increase prices to our clients to offset future
wage increases.
GROSS PROFIT. Gross profit increased to $80.2 million in the year ended
December 31, 1998, compared to $39.9 million in the year ended December 31,
1997. Our gross profit margin, as a percentage of revenue, increased to 47.1% in
the year ended December 31, 1998, compared to 44.5% in the year ended December
31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased
to $34.8 million in the year ended December 31, 1998, compared to $21.0 million
in the year ended December 31, 1997. The increase in SG&A expenses is
attributable to the following:
o the Lyon, RHO and Visual acquisitions;
o addition of sales offices;
o expansion of sales personnel;
23
<PAGE>
o expansion of our delivery capacity; and
o regionalization of operations.
As a percentage of revenue, SG&A expenses decreased to 20.4% in the
year ended December 31, 1998, compared to 23.4% for the year ended December 31,
1997. We are aggressively expanding our sales force and marketing efforts, which
will generate higher SG&A in the near term.
RESEARCH AND DEVELOPMENT. R&D costs increased to $6.2 million in the
year ended December 31, 1998, compared to $919,000 in the year ended December
31, 1997. The increase is attributable to the following:
o the acquisition of Lyon and the continued development of Lyon's
component technology;
o modification of component technology for certain targeted
industries; and
o expansion of efforts to develop and enhance our transformation
toolsets.
GOODWILL AND INTANGIBLE AMORTIZATION. Goodwill and intangible
amortization increased to approximately $2.1 million for the year ended December
31, 1998, from approximately $1.1 million for the year ended December 31, 1997.
This increase primarily reflects goodwill attributed to our purchases of Lyon
and Visual.
IN-PROCESS RESEARCH AND DEVELOPMENT. The purchased assets and assumed
liabilities in connection with the acquisition of Lyon were recorded at their
estimated fair values at the acquisition date. We received an appraisal of the
intangible assets which indicated that approximately $8.2 million of the
acquired intangible assets were acquired in-process research and development
that had not yet reached technological feasibility and had no alternative future
use. To determine the value of the in-process research and development, our
appraisal considered several factors including the following:
o state of development of each project;
o time and cost needed to complete each project;
o expected income for each project;
o expected discounted cash flow for each project;
o associated risks which included the inherent difficulties and
uncertainties in completing each project and thereby achieving
technological feasibility; and
o risks related to the viability of and potential changes to future
target markets.
In-process research and development was charged to expense in the
quarter ended June 30, 1998. In addition, we recorded a one-time charge of
approximately $145,000 for costs related to the RHO acquisition. We did not
incur in-process research and development or acquisition costs in 1997.
24
<PAGE>
INCOME FROM OPERATIONS. Income from operations for the year ended
December 31, 1998 was $28.8 million compared to $16.9 million in the year ended
December 31, 1997, representing a 70.5% increase. As a percentage of revenue,
income from operations was 16.9% in the year ended December 31, 1998, compared
to 18.8% in the year ended December 31, 1997. The decrease reflects one-time
charges totaling approximately $8.3 million related to acquired in-process
research and development and acquisition costs. Excluding one-time charges,
income from operations was 21.8% as a percentage of revenue for the year ended
December 31,1998.
OTHER INCOME. We realized net other income of approximately $4.3
million in the year ended December 31, 1998, compared to net other income of
approximately $1.7 million in the year ended December 31, 1997. In 1998, we
recognized approximately $4.6million in investment income primarily from the
investment of the remaining net proceeds from our public offering of common
stock in August 1997, and we incurred approximately $234,000 of interest expense
related to credit facilities in India and Australia. During 1997, we recognized
approximately $2.0 million in investment income primarily from the investment of
remaining net proceeds from our public offerings of common stock in November
1996 and August 1997, and we incurred approximately $175,000 of interest expense
primarily for credit facilities in India and the U.K.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$13.3 million in the year ended December 31, 1998, from $6.2 million in the year
ended December 31, 1997. The effective tax rate based on the provision for
income taxes and excluding one-time charges for in-process research and
development and acquisition costs was 32.0% for 1998 and 33.0% for 1997. We
calculate the effective tax rate by dividing the provision for income taxes by
income before provision for income taxes and minority interest.
We have not recorded deferred income taxes applicable to undistributed
earnings of IMRglobal-India. Those earnings are considered to be indefinitely
reinvested and, accordingly, no provision for United States federal and state
income tax has been provided thereon.
NET INCOME. Net income increased 59.4% to $19.9 million in the year
ended December 31, 1998, from $12.5 million in the year ended December 31, 1997.
As a percentage of revenue, net income was 11.7% for 1998, compared to 13.9% for
1997. When we exclude one-time charges for in-process research and development
and acquisition costs, 1998 net income as a percentage of revenue was 16.6%
DILUTED EARNINGS PER SHARE. Diluted earnings per share increased to
$0.57 for the year ended December 31, 1998, from $0.40 for the year ended
December 31, 1997. Excluding one-time charges for in-process research and
development and acquisition costs, pro forma diluted earnings per share was
$0.80 for the year ended December 31, 1998, compared to $0.40 for the year ended
December 31, 1997.
QUARTERLY RESULTS OF OPERATIONS
The following table contains portions of our unaudited quarterly
statements of operations data for each of the eight quarters beginning January
1, 1998 and ending December 31, 1999. This information is derived from, and
should be read along with, our financial statements and the related notes
appearing elsewhere in this document. We believe that this table is a fair
presentation of that information but the results of operations for any quarter
are not necessarily indicative of the results to be expected for any future
period.
25
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------------------
1998 1999
------------------------------------------------- --------------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue .......... $ 34,616 $ 39,907 $ 45,309 $ 50,486 $ 51,888 $ 62,953 $ 62,159 $ 45,028
Gross profit ..... 15,839 18,173 21,929 24,302 24,149 28,578 27,100 13,030
Income (loss) from
operations ..... 7,161 339 10,256 11,067 5,412 12,768 6,819 (35,109)
Diluted earnings
(loss) per share $ 0.17 $ (0.06) $ 0.21 $ 0.24 $ 0.10 $ 0.21 $ 0.12 $ (0.78)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------------
1998 1999
------------------------------------------------- -------------------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue ......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit ..... 45.8 45.5 48.4 48.1 46.5 45.4 43.6 28.9
Income (loss) from
operations .... 20.7 0.8 22.6 21.9 10.4 20.3 11.0 (78.0)
</TABLE>
Our income from operations has historically fluctuated from
quarter to quarter and these fluctuations may continue. Due to the high level of
acquisition activity in 1998 and 1999 our income from operations has been
reduced by one-time charges for certain quarters. In addition, during the fourth
quarter of 1999, we incurred restructuring charges and impairment of long-lived
assets in connection with our re-deployment of resources to our e-business
practice. The impact one-time charges on income (loss) from operations is
summarized as follows:
<TABLE>
<CAPTION>
1998 1999
----------------------------------------- -----------------------------------------
MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31
-------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from operations ..... $ 7,161 $ 339 $ 10,256 $ 11,067 $ 5,412 $ 12,768 $ 6,819 $(35,109)
One-time charges:
Restructuring charges ............. -- -- -- -- -- -- -- 12,377
Impairment of long-lived assets.... -- -- -- -- -- -- -- 4,437
Acquired in-process research and
development .................... -- 8,200 -- -- 3,410 -- -- --
Acquisition costs ................. -- 145 -- -- 1,936 -- -- 232
Charge associated with
treasury stock purchase ........ -- -- -- -- -- -- -- 8,778
Nonrecurring compensation for
former owners of acquired
companies (included in SG&A).... -- -- -- -- -- -- 110 1,811
-------- -------- -------- -------- -------- -------- -------- --------
Total one-time charges ............ -- 8,345 -- -- 5,346 -- 110 27,635
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations
excluding one-time charges ...... $ 7,161 $ 8,684 $ 10,256 $ 11,067 $ 10,758 $ 12,768 $ 6,929 $ (7,474)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, we had liquid assets including cash, cash
equivalents and marketable securities of $37.4 million compared to $110.4
million at December 31, 1998. The decrease in liquid assets was primarily due to
the following:
o Net cash used for acquisitions $25.1 million
o Construction of global headquarters $20.0 million
o Treasury stock transactions $14.8 million
Net cash provided by (used in) operations in 1997, 1998 and 1999 was
$18.7 million, $39.5 million and $(7.0) million, respectively. This decrease in
cash provided by operations reflects primarily the 1999 net loss, the reduced
tax benefit of stock options and the payment of long-term service awards during
1999.
Net cash used in investing activities in 1997, 1998 and 1999 was $8.7
million, $47.3 million and $26.9 million, respectively. In 1999, we expended
$25.1 million on acquisitions and $25.6 million for capital expenditures. In
1998, we acquired certain subsidiaries for $8.9 million in cash and purchased
property and equipment for $13.6 million. In 1997, we acquired certain
subsidiaries for $3.3 million and purchased property and equipment for $7.0
million.
Net cash provided by (used in) financing activities in 1997, 1998 and
1999 was $52.8 million, ($390,000) and $(8.7) million, respectively. In 1999, we
expended $14.8 million on treasury stock transactions including $13.7 million
related to the restructuring of the Fusion acquisition. This utilization of cash
was partially offset by net borrowings under our credit agreements of $4.9
million. In 1997, we received $53.5 million for the July 1997 public offering of
our common stock.
Of the $37.4 million of liquid assets at December 31, 1999, $31.0
million was held outside of the U.S. and was primarily utilized for the January
2000 acquisition of U.K. based Intuitive Group Limited. The remainder will be
used for the settlement of foreign acquisition contingencies and foreign
operating cash requirements. Liquid assets in India were $9.0 million and
require governmental approval for repatriation outside of India. Although we
anticipate receiving India government approval to repatriate these funds to
other foreign jurisdictions.
During 1998, we entered into a contract to purchase land and construct
new facilities for our global corporate headquarters. The total investment in
this project (including furniture, fixtures and equipment) is expected to be
approximately $28.0 million of which approximately $24 million had been expended
at December 31, 1999. Completion of this project is scheduled for April 2000.
We may be obligated to pay certain cash contingent payments in
connection with our 1998 acquisition of Lyon, our 1999 acquisition of Neverdahl
and our 2000 acquisition of Intuitive. The Lyon contingency is based on the
difference between the average of our stock price as listed on NASDAQ for the
seven trading days prior to May 15, 2000 and $34.05 per share multiplied by
499,353 shares. The maximum amount of the Neverdahl and Intuitive acquisition
contingencies is $7.5 million.
We maintain a $30.0 million credit facility expiring in February 2003.
This facility bears interest at LIBOR plus 0.6% (currently 6.2%) and is
collateralized by virtually all of our assets. The interest rate may be
increased by up to an additional 1.15% based on certain financial ratios. At
December 31, 1999, we had $20.8 million available under this facility. During
the first quarter of fiscal 2000, we have drawn the remaining balance on this
facility for non-operating cash purposes including the January acquisition of
Intuitive Group Limited, the completion of our global headquarters and the
repurchase of treasury stock.
27
<PAGE>
Certain of our subsidiaries maintain additional revolving credit line
facilities totaling $3.3 million. At December 31, 1999, the amount available
under these facilities was $2.2 million. The respective subsidiary's accounts
receivable and property and equipment collateralize these facilities.
We anticipate leveraging our global corporate headquarters to obtain
$17.0 million to $24.0 million of financing in fiscal 2000. The proceeds from
this financing may be required to fund certain acquisition contingent payments
described above.
We continuously review our future cash requirements, together with our
available bank lines of credit, anticipated leveraging of our global corporate
headquarters, and internally generated funds. We believe we have adequate
capital resources to meet all working capital obligations and fund the
development of our current business operations, including the following business
objectives:
o Payment of contingent acquisition obligations;
o Continued expansion of existing business;
o Anticipated levels of capital expenditures including the
completion of our corporate headquarters; and
o Strategic mergers and acquisitions.
If we are unable to leverage our global corporate headquarters we will
need to obtain alternative funding which may include expansion of our existing
credit facilities, deferral of non-operating one-time payments or sales of
equity securities.
COSTS ASSOCIATED WITH THE YEAR 2000
Many existing computer systems run software programs permitting
only two-digit entries to reference the year in the date field. For example,
1999 is read as 99. Software programs that use the two-digit year date field to
perform computations or decision-making functions may fail due to an inability
to correctly interpret dates in the 21st century. For example, many software
systems will misinterpret "00" to mean the year 1900 rather than 2000.
During 1999, we completed the assessment of the impact that Year
2000 would have on our information technology and non-information technology
systems. We implemented corrective actions for those systems that were not Year
2000 compliant. We experienced no material Year 2000 issues as we moved into
fiscal 2000. Cumulative total costs for Year 2000 compliance was approximately
$50,000.
ASSET MANAGEMENT
Our accounts receivable balance was $46.0 million at December 31, 1999,
an increase of $17.5 million from December 31, 1998. The increase was primarily
due to new acquisitions and revenue growth of 30.4%. A common financial measure
is the calculation of days sales outstanding in accounts receivable ("DSO"). At
December 31, 1999, our DSO was 76 days. The Orion acquisition added
approximately 14 days to our DSO due to it being acquired in mid 1999 and due to
the traditionally longer payment cycles prevalent in the health care industry.
In addition, accounts receivable in Canada, France, Japan and the U.K. include
value added taxes that are not included in revenue. Without value added taxes,
DSO would be approximately 3 days less than the above levels.
28
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED BELOW WHICH MAY
AFFECT OUR FUTURE RESULTS. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT
THE ONLY ONES FACING US. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR OPERATIONS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED. IN
SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF YOUR INVESTMENT.
IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, WE MAY NOT BE ABLE TO PROVIDE
QUALITY SERVICES AND MAINTAIN PROFITABILITY.
If we do not manage our growth effectively, the quality of our services
we offer could decline and result in a loss of future revenue from dissatisfied
customers. In order to continue to provide quality service to our customers we
must attract and retain key personnel. We expect that the number of our
employees, particularly skilled technical, marketing and management employees
will increase. Our growth places, and will continue to place, significant
demands on our employee base especially on members of senior management who have
to manage more people, and face a large number of, and increasingly complex,
issues as our company grows. For example, we must continue to develop and
improve our operational, financial, communications and other internal systems,
both in the United States and offshore to meet the demands of a larger company.
OUR REVENUE GROWTH AND OPERATING PROFIT COULD BE ADVERSELY AFFECTED IF WE ARE
UNABLE TO INTEGRATE SEVEN RECENTLY ACQUIRED BUSINESSES.
We may be unable to successfully integrate newly acquired businesses,
which may result in lower than expected revenue growth and profitability. Over
the past 2 years, we have expanded our operations through the acquisition of
additional companies that complement our business. We may not be able to
continue to identify and acquire companies that have the potential to increase
our overall value at prices that are attractive to us, or at all.
We may not be able to achieve the anticipated benefits from our recent
acquisitions unless the operations of the acquired businesses are successfully
combined with our business in a timely manner. The integration of acquisitions
requires substantial attention from management. The diversion of the attention
of management and any difficulties encountered in the transition process could
have an adverse impact on this integration and, as a result, on our business
results. In addition, the process of integrating various businesses could cause
the interruption of, or a loss of momentum in, the activities of some or all of
these businesses, which would also have an adverse affect on our business
results.
WE FACE SIGNIFICANT COMPETITION IN THE INFORMATION TECHNOLOGY, INTERNET-RELATED
AND SOFTWARE MARKETS THAT ARE NEW, INTENSELY COMPETITIVE AND RAPIDLY CHANGING.
We will lose clients and our business will suffer if we are unable to
successfully compete with information technology (known as "IT") consulting
firms, Internet and e-business professional service providers, software
integration firms, application software vendors and internal IT departments.
Many of the companies
29
<PAGE>
that provide these services have significantly greater financial, technical and
marketing resources, generate greater revenue and have greater name recognition
than we do. In addition, there are relatively few barriers to entry into our
markets. We have faced, and expect to continue to face, additional competition
from new entrants into our markets. We believe that the principal competitive
factors in our markets include:
o quality of service, price and speed of delivery;
o ability to integrate strategy, technology and creative design
services;
o targeted industry knowledge;
o Internet expertise and talent; and
o project management capability.
We believe that our ability to compete also depends in part on
competitive factors outside our control, including:
o the ability of our competitors to hire, retain and motivate their
personnel;
o the development by others of software that is competitive with our
products and services; and
o our competitors' responsiveness to client needs.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT NEW BUSINESS TO REPLACE OUR
DIMINISHING REVENUE FROM YEAR 2000 CONVERSION PROJECTS.
If we are not successful in obtaining additional business from the
clients to whom we have provided Year 2000 compliance solutions or if the
additional business is less profitable, our profitability may decline
substantially. For the years ended December 31, 1997, 1998 and 1999, Year 2000
revenue represented 49.6%, 45.3% and 15.6%, respectively, of our total revenue.
Year 2000 conversion services will represent less than 1% of our revenue in
fiscal year 2000.
IF WE CANNOT MONITOR OUR INTERNATIONAL BUSINESS EXPOSURE IN INDIA, FRANCE, JAPAN
AND OTHER COUNTRIES WHERE WE HAVE SIGNIFICANT OPERATIONS, OUR RESULTS OF
OPERATIONS MAY DECLINE.
Our international operations and business activities are subject to the
following risks:
o difficulty in managing international operations in seven different
countries due to time differences;
o potential foreign tax consequences, including taxes payable on the
repatriation of earnings from our India operations;
o compliance with, and unexpected changes in, a growing variety of
foreign laws and regulations in any of the seven major countries
where we have significant operations;
o compliance with employment laws in France and Japan, which are
more stringent than employment laws in the U.S.; and
o unexpected changes in the local and regional political climate in
India and the possible reactions to those changes by the
international community, including economic sanctions.
30
<PAGE>
SIGNIFICANT FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES MAY ADVERSELY AFFECT
OUR REVENUE AND RESULTS OF OPERATION.
We are subject to risks that, as a result of currency fluctuations, the
translation of foreign currencies into United States dollars for accounting
purposes will adversely affect our results of operations. For these countries
where we have significant sales, a stronger dollar will result in reduced
revenue and operating profit. Countries where we have significant sales include
U.K., France, Japan, Australia and Canada. In addition, we presently incur a
significant amount of our costs in local currency in India and may establish
additional offshore centers in other countries. In contrast, we presently
generate over one-half of our revenue in United States dollars. The remaining
revenue consists of British Pounds, French Francs, Japanese Yen, Australian
dollars and Canadian dollars. A significant strengthening in the Indian Rupee
against the United States Dollar or the other foreign currencies noted above,
will result in a reduction in our results of operation.
Historically, we have not hedged any material portion of our foreign
exchange transactions.
THE LOSS OF ANY LARGE CLIENTS WOULD REDUCE OUR REVENUE AND PROFITABILITY.
If we are unable to service and meet the expectations of any of our
large clients, our clients could purchase services that we provide from a
competitor and the loss of a major client could, in turn, reduce our revenue and
profitability. Because many of our contractual engagements involve projects that
are critical to our clients' businesses, our failure to meet a client's
expectations could result in a cancellation or nonrenewal of the contract and
could damage our reputation and adversely affect our ability to attract new
business. Furthermore, we generally are not the exclusive outside source of IT
products and services to our clients. Accordingly, a client's dissatisfaction
with our performance could lead the client to purchase these services from a
competitor, thereby reducing our revenue and profitability.
We derive and believe that we will continue to derive a significant
portion of our revenue from a limited number of large corporate clients. In the
year ended December 31, 1999, our five largest clients accounted for 20.4% of
our total revenue. During that period, Michelin North American, Inc. accounted
for 5.9% of revenues and John Hancock Mutual Life Insurance company accounted
for 5.3%. The volume of work performed for specific clients is likely to vary
from year to year.
IF WE CANNOT RECRUIT AND RETAIN HIGHLY SKILLED SOFTWARE DEVELOPMENT
PROFESSIONALS, WE MAY NOT BE ABLE TO KEEP PACE WITH THE CONTINUING CHANGES IN
INFORMATION PROCESSING TECHNOLOGY, INDUSTRY STANDARDS AND CLIENT PREFERENCES AND
AS A RESULT WE MAY NOT BE ABLE TO MANAGE AND COMPLETE EXISTING PROJECTS OR
OBTAIN NEW PROJECTS.
If we are not successful in attracting, training, motivating and
retaining highly skilled software development professionals, particularly
project managers, software engineers and other senior technical personnel, we
may not be able to effect our growth strategy, manage and complete our existing
projects, and bid for or obtain new projects. In particular, we believe that
there is a shortage of, and significant competition for, internet software
development professionals with the advanced technological skills necessary to
perform the
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<PAGE>
services offered by us. Our ability to maintain and renew existing engagements
and obtain new business depends, in large part, on our ability to hire, train
and retain technical personnel with the IT skills to keep pace with the
continuing changes in information processing technology, evolving industry
standards and changing client preferences.
COMPLIANCE WITH EXISTING UNITED STATES IMMIGRATION LAWS, OR CHANGES IN THESE
TYPES OF LAWS COULD MAKE IT DIFFICULT TO HIRE FOREIGN NATIONALS OR LIMIT OUR
ABILITY TO RETAIN H-1B EMPLOYEES IN THE UNITED STATES, AND COULD REQUIRE US TO
INCUR UNEXPECTED LABOR COSTS.
We may not be able to bring to the United States foreign employees who
are critical to our business and who work for us pursuant to the non-immigrant
work permitted visa ("H-1B") classification in years in which the limit on the
number of new H-1B petitions that the United States Immigration and
Naturalization Services may approve in any government fiscal year has been
reached. As of December 31, 1999, approximately 300 of our United States
employees were working for us pursuant to the H-1B classification. If we are not
successful in bringing these employees in the H-1B classification to the United
States, our labor costs may increase, as we may have to subcontract our work to
outside contractors at higher rates than our current labor costs.
THE LOSS OF SATELLITE COMMUNICATIONS WITH OUR OFFSITE SOFTWARE DEVELOPMENT
CENTERS COULD PREVENT US FROM LEVERAGING THESE OFFSITE CENTERS AND FROM
PROVIDING 24-HOUR SERVICE TO OUR CLIENTS, AND ANY ALTERNATIVE TO THIS TYPE OF
COMMUNICATION WOULD NOT PROVIDE US WITH COST ADVANTAGES OR AN EFFECTIVE MEANS OF
TRANSMISSION FOR OUR CLIENTS.
Any loss of our ability to transmit voice and data through satellite
communication, at commercially reasonable prices, could have a material adverse
effect on our financial condition because a significant element of our business
strategy is to continue to leverage our offsite software development centers in
Bangalore and Mumbai, India. Furthermore, there are no cost-effective
alternatives to satellite transmission. For example, if we were to depend on
telephone lines which are an alternative means to satellite communications, we
would incur significant costs and the transmissions would be slower than those
by satellite, particularly in India where there is minimal infrastructure for
telephone lines by comparison to the U.S. or Europe.
WE ARE EXPOSED TO GREATER BUSINESS RISKS RELATING TO THE ECONOMIC ENVIRONMENT OF
OUR OPERATIONS IN OTHER COUNTRIES, ESPECIALLY INDIA, THAN WE ARE FOR OUR
OPERATIONS IN THE UNITED STATES.
Our business may be harmed by future changes in inflation and interest
rates in countries in which we establish operations. For example, in the past,
India has experienced significant inflation, low growth in gross domestic
product and shortages of foreign exchange. Accordingly, the India government
tightly regulates the flow of capital out of India. At December 31, 1999, we had
approximately $9.0 million of our cash held in India. While we anticipate that
we will have access to this cash to finance our ongoing operations and
expansion, there is no guarantee that the India government will allow us access
to these funds for investment outside of India.
WE ARE EXPOSED TO GREATER BUSINESS RISKS RELATING TO THE SOCIAL ENVIRONMENT OF
OUR OPERATIONS IN OTHER COUNTRIES, ESPECIALLY INDIA, THAN WE ARE FOR OUR
OPERATIONS IN THE UNITED STATES.
We may be adversely affected by political or social changes in
countries in which we establish software development facilities. For example,
India has recently experienced civil unrest and terrorism and, from time to
time, was involved in regional conflicts with Pakistan. If these instances of
civil unrest, terrorism and Pakistani conflicts continue, our India operations
could be disrupted.
32
<PAGE>
THE ELIMINATION OF BENEFITS GRANTED BY THE GOVERNMENT OF INDIA COULD ADVERSELY
AFFECT OUR FINANCIAL RESULTS.
The elimination of benefits granted by the government of India could
have a material adverse effect on our financial results. The Indian government
has exercised and continues to exercise significant influence over many aspects
of the Indian economy, and its actions concerning the economy would adversely
affect private sector entities, including us. During the past five years,
India's government has provided significant tax incentives and relaxed some
regulatory restrictions in order to encourage foreign investment in specified
sectors of the economy, including the software development industry. We have
directly benefitted from tax holidays, liberalized import and export duties and
preferential rules concerning foreign investment and repatriation.
Notwithstanding these benefits, however, India's central and state governments
remain significantly involved in the Indian economy as regulators.
IF BUSINESSES AND CONSUMERS DO NOT ADOPT THE INTERNET AS A MEANS FOR COMMERCE,
OUR E-BUSINESS CONSULTING SERVICE BUSINESS WILL FAIL AND OUR GROWTH WILL
DECLINE.
If commerce on the Internet does not grow, or grows more slowly than
expected, our growth would decline and our business would be seriously harmed.
The future success of our e-business consulting services depends heavily on the
acceptance and use of the Internet as a means for commerce. The widespread
acceptance and adoption of the Internet for conducting business is likely only
in the event that the Internet provides businesses with greater efficiencies and
improvements. Businesses and consumers may reject the Internet as a viable
commercial medium for a number of reasons, including:
o potentially inadequate network infrastructure;
o delays in the development of Internet enabling technologies and
performance improvements;
o delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet
activity;
o delays in the development of security and authentication
o insufficient technology necessary to ensure secure transmission of
confidential information;
o changes in, or insufficient availability of, telecommunications
services to support the Internet; and
o failure of companies to meet their clients' expectations in
delivering goods and services over the Internet.
IF WE DO NOT KEEP PACE WITH THE LATEST TECHNOLOGICAL CHANGES, PARTICULARLY
RELATING TO E-BUSINESS AND OTHER INTERNET-RELATED SERVICES, AND OUR CLIENTS
CHOOSE TO INVEST IN LEADING TECHNOLOGY, WE MAY LOSE OUR CLIENT BASE AND OUR
REVENUES MAY DECLINE.
Failure to respond successfully to technological developments, evolving
industry standards and changing client preferences or failure to respond in a
timely or cost-effective way, will seriously harm our business and operating
results. In addition, we must hire, train and retain technologically
knowledgeable professionals so that they can fulfill the increasingly
sophisticated needs of our clients. We expect to derive a substantial portion of
our revenue from creating e-business systems that are based upon today's leading
technologies and that are capable of adapting to future technologies. We cannot
assure you that we will be successful in addressing these developments on a
timely basis or that even if we address them, we will be successful in the
marketplace.
33
<PAGE>
INCREASING GOVERNMENT REGULATION, PARTICULARLY THAT RELATING TO ELECTRONIC
COMMERCE, COULD HARM THE DEVELOPMENT OF THE INTERNET AND AS A RESULT THE DEMAND
FOR OUR SERVICES TO CREATE ELECTRONIC BUSINESS CHANNELS WOULD DECREASE.
Any state, federal or foreign government legislation or regulation
applicable to electronic commerce could dampen the growth of the Internet and
decrease its acceptance as a communications and commercial medium. If this type
of decline occurs, companies may decide in the future not to use our services to
create electronic business channels. This decrease in the demand for our
services would seriously harm our business and operating results. Although there
are currently few of these laws and regulations, both state, federal and foreign
governments may adopt a number of these laws and regulations. New laws and
regulations may affect the following:
o user privacy;
o the pricing and taxation of goods and services offered over the
Internet;
o the content of websites;
o consumer protection; and
o the characteristics and quality of products and services offered
over the Internet.
For example, the Telecommunications Act of 1996 prohibits the
transmission of some types of information and content over the Internet. The
scope of the Act's prohibition is currently unsettled. In addition, although
courts recently held that substantial portions of the Communication Decency Act
are unconstitutional, federal or state governments may enact, and courts may
uphold, similar legislation in the future. Future legislation could expose
companies involved in Internet commerce to liability.
IF OUR CONTRACTS LIMITING LIABILITY ARE NOT ENFORCEABLE OR IF WE ARE NOT
SUFFICIENTLY COVERED BY INSURANCE, WE MAY BE LIABLE TO OUR CLIENTS FOR DAMAGES
TO THEIR COMPUTER SYSTEMS AND THESE CLAIMS BY OUR CLIENTS AGAINST US COULD
RESULT IN A SUBSTANTIAL COST TO US AND HARM OUR FINANCIAL CONDITION.
Any failure in a client's system could result in a claim for
substantial damages against us, regardless of our responsibility for this type
of failure. We attempt to limit contractually our liability for damages arising
from negligent acts, errors, mistakes, or omissions in rendering our IT products
and services, but the limitations of liability set forth in our service
contracts may not be enforceable in all instances or may not otherwise protect
us from liability for damages. In addition, our general liability insurance
coverage, including coverage for errors or omissions, may not continue to be
available on reasonable terms or may not be available in sufficient amounts to
cover one or more large claims, or the insurer may disclaim coverage as to any
future claim. The successful assertion of one or more large claims against us
that exceed available insurance coverage or changes in our insurance policies,
including premium increases or the imposition of large deductible or
co-insurance requirements, could materially adversely affect our result of
operations and financial condition.
WE RISK HAVING COST OVERRUNS IN FIXED-PRICE, FIXED-TIME FRAME CONTRACTS WHICH
MAY REDUCE OUR PROFITABILITY.
Our failure to estimate accurately the resources and time required for
a project, future rates of inflation and currency translations, or our failure
to complete our contractual obligations within the time frame committed could
reduce our profitability. As a core element of our business philosophy, our
strategy is to offer many of
34
<PAGE>
our IT services on fixed-price, fixed-time frame contracts, rather than
contracts in which payment to us is determined solely on a time and materials
basis. Although we use our total software quality management software
engineering process and our past project experience to reduce the risks
associated with estimating, planning and performing fixed-price, fixed-time
frame projects, we bear the risk of cost over-runs and inflation in connection
with these projects.
INCREASING WAGE COSTS IN INDIA COULD RESULT IN FLUCTUATIONS IN OUR REVENUE AND
EARNINGS.
If wage costs in India, where approximately 25% of our employees
reside, continue to increase, our revenue and earnings may fluctuate. Wage costs
in India are presently increasing at a faster rate than in the United States.
Historically, our wage costs in India have been significantly lower than our
wage costs in the United States for comparably skilled employees. However, in
light of the current wage increases in India, we cannot assure you that this
will remain the same.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM INFRINGEMENT
OR MISUSE, WE MAY LOSE REVENUE TO THE UNAUTHORIZED USERS OF THESE PROPERTY
RIGHTS.
We cannot assure you that the steps we have taken to protect our
proprietary rights will be adequate to prevent misappropriation of our
proprietary rights or any of our other intellectual property. We also cannot
assure you that we will be able to detect unauthorized use and take appropriate
steps to enforce our rights. For example, we currently license the use of our
FOX products in Asia. However, we presently hold no patents or registered
copyrights for these products. The unauthorized use of our FOX technology by
potential customers or one of our competitors may result in our inability to
receive revenue from these unauthorized users. We anticipate that we will
continue to license some types of technologies to our clients. We cannot assure
you that we will be able to successfully license these technologies or protect
them from infringement or misuse.
Moreover, we cannot assure you that the combination of copyright and
trade secret laws, nondisclosure and other contractual arrangements, and
technical measures on which we rely will not change in ways that may prevent or
restrict the transfer of software components, libraries and toolsets among the
United States, India, the U.K., France, Canada, Japan and Australia. Under the
Berne Convention, an international treaty, the governments of these countries
have agreed to extend copyright protection under their domestic laws to foreign
works, including works created or produced in the United States.
WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS AND
ANY INFRINGEMENT CLAIM COULD RESULT IN SUBSTANTIAL COST TO US AND DIVERT
MANAGEMENT'S ATTENTION FROM OUR OPERATIONS.
Claims that we have infringed on the intellectual property rights of
others may be asserted against us in the future. These claims may result in
litigation and we may not prevail in this type of litigation, or we may be
unable to obtain a license for the use of any infringed intellectual property
from a third party on commercially reasonable terms. Additionally, we anticipate
that in the future, we will license some types of technologies to our clients.
We cannot assure you that we will be able to prevent infringement claims against
us in connection with our licensing efforts. We expect that the risk of
infringement claims against us will increase if more of our competitors are able
to successfully obtain patents for software products and processes. These types
of claims, regardless of their outcome, could result in substantial costs to us
and divert management's attention from our operations. Any infringement claim or
litigation against us could, therefore, have a material adverse effect on our
financial results.
35
<PAGE>
In addition, we cannot assure you that the combination of contractual
arrangements and copyright and trade secret laws on which we rely will not
change in ways that may result in our infringing upon the intellectual property
rights of others.
OUR CHIEF EXECUTIVE OFFICER'S STOCK OWNERSHIP PROVIDES SUBSTANTIAL CONTROL OVER
OUR COMPANY AND THIS CONCENTRATION OF OWNERSHIP COULD DELAY OR PREVENT A CHANGE
OF CONTROL.
The concentration of ownership of Satish K. Sanan, our Chairman of the
Board and Chief Executive Officer, may delay or prevent a change in control and
may impede or preclude transactions in which shareholders might otherwise
receive a premium for their shares over the then current market prices. Mr.
Sanan owns approximately 19% of our outstanding shares of common stock. As a
result, Mr. Sanan retains the voting power to exercise significant control over
the election of directors and other matters requiring a vote of shareholders.
IF WE LOSE OUR KEY PERSONNEL, PARTICULARLY MR. SATISH SANAN, OUR BUSINESS MAY
SUFFER.
Our continued success depends in large part upon the continued
availability of key management personnel, particularly the services of Mr.
Sanan. The loss of the services of Mr. Sanan would have a material adverse
effect on us. We do not currently maintain nor do we intend to acquire key man
insurance on the life of Mr. Sanan.
OUR CHARTER DOCUMENTS AND FLORIDA LAWS COULD DISCOURAGE ACQUISITION PROPOSALS
AND DELAY OR PREVENT A CHANGE OF CONTROL.
The protective provisions in our charter documents, which are designed
to provide our board of directors with time to consider whether a hostile
takeover offer is in our shareholders' best interests, could discourage
potential acquisition proposals and could delay or prevent a change of control
of our corporation. These provisions could also diminish the opportunities for
our shareholders to participate in tender offers, including tender offers at a
price above the then current market price for our common stock. These provisions
may also inhibit fluctuations in our stock price that could result from takeover
attempts.
In addition, Florida law also contains provisions that may delay, defer
or prevent a non-negotiated merger or other business combination. These
provisions are intended to encourage any person interested in acquiring us to
negotiate with and obtain the approval from our board of directors. Some of
these provisions may, however, discourage a future acquisition not approved by
the board of directors in which shareholders might receive an attractive value
for their shares or that a substantial number or even the majority of our
shareholders might believe to be in their best interest. As a result,
shareholders who desire to participate in this type of transaction may not have
the opportunity to do so.
THERE ARE SUBSTANTIAL SHARES ELIGIBLE FOR FUTURE SALE. SALES OF THESE SHARES MAY
RESULT IN LOWER MARKET PRICES FOR OUR COMMON STOCK.
Sales of a substantial number of our shares into the public market or
the perception that these sales could occur, could materially and adversely
affect the price of our shares and could impair our ability to obtain capital
through future offerings of equity securities.
36
<PAGE>
Satish K. Sanan, our Chairman, beneficially owns approximately 12.5
million shares, which number includes shares underlying options which are
exercisable by Mr. Sanan. A significant number of these shares have been pledged
by Mr. Sanan. In the past, large numbers of shares owned by Mr. Sanan have been
sold, either by him or by the pledgee of the shares. The same may occur in the
future and those sales may have a negative effect on the price of our shares.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
IMRglobal is exposed to market risk from changes in interest rates and
exchange rates between the U.S. dollar and the currencies of various countries
in which we operate. IMRglobal does not engage in hedging transactions and is
not a party to any leveraged derivatives.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Report of Independent Certified Public Accountants
Report of Independent Certified Public Accountant
Consolidated Balance Sheets - December 31, 1998 and 1999
Consolidated Statements of Operations - Years Ended December 31,
1997, 1998 and 1999
Consolidated Statements of Changes in Shareholders' Equity - Years
Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows - Years Ended December 31,
1997, 1998 and 1999
Notes to Consolidated Financial Statements
Selected quarterly financial data is included in Item 7 under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Quarterly Results of Operations".
37
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
IMRglobal Corp.
We have audited the accompanying consolidated balance sheets of IMRglobal Corp.
as of December 31, 1998 and 1999, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999, as restated for the 1999 pooling 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. for the year ended December 31, 1997, prior to
their restatements for the 1999 pooling of interests described in Note 2, which
statements reflect total revenue of $83.6 million for the year ended December
31, 1997. Those financial statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to data
included for IMRglobal Corp. and for the year ended December 31, 1997 prior to
the restatement for the 1999 pooling of interests described in Note 2, is based
solely on the report of other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report 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 1999, and the consolidated results of its operations and
its cash flows for the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Tampa, Florida
February 7, 2000
38
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of IMRglobal Corp.
We have audited the consolidated statements of operations, changes
in shareholders' equity and cash flows of IMRglobal Corp. and subsidiaries (the
Company) (formerly Information Management Resources, Inc.) for the year ended
December 31, 1997 prior to restatement for the pooling of interests transaction
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 audit 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 audit provides 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 results of operations and cash flows of IMRglobal Corp. and
subsidiaries for the year ended December 31, 1997, in conformity with generally
accepted accounting principles. We have not audited the consolidated financial
statements of IMRglobal Corp. and subsidiaries for any period subsequent to
December 31, 1997.
PricewaterhouseCoopers LLP
Tampa, Florida
February 13, 1998, except for certain information
in Note 13, for which the date is March 9, 1998.
39
<PAGE>
<TABLE>
<CAPTION>
IMRGLOBAL CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-----------------------
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 78,807 $ 35,021
Marketable securities ................................................ 31,609 2,411
Accounts receivable .................................................. 28,538 46,031
Unbilled work in process ............................................. 5,145 7,756
Deferred income taxes ................................................ 14,141 10,606
Prepaid expenses and other current assets ............................ 3,592 6,340
--------- ---------
Total current assets ........................................... 161,832 108,165
Property and equipment, net of accumulated depreciation ................. 21,416 36,973
Capitalized software costs, net of accumulated amortization.............. -- 3,839
Deferred income taxes ................................................... -- 2,309
Deposits and other assets ............................................... 3,622 9,317
Intangible assets, net of accumulated amortization ...................... 36,829 143,195
--------- ---------
Total assets ................................................... $ 223,699 $ 303,798
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit loans ............................................... $ 443 $ 10,258
Accounts payable ..................................................... 7,750 10,349
Accrued compensation ................................................. 8,733 11,341
Deferred revenue ..................................................... 3,446 3,286
Other current liabilities ............................................ 18,677 25,840
--------- ---------
Total current liabilities ...................................... 39,049 61,074
Long-term debt .......................................................... 671 985
Deferred income taxes ................................................... 1,040 1,594
Accrued compensation .................................................... 8,125 5,222
--------- ---------
Total liabilities .............................................. 48,885 68,875
--------- ---------
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,
30,391,786 and 37,126,795 shares issued .......................... 3,039 3,713
Additional paid-in capital ........................................... 139,800 213,748
Retained earnings .................................................... 33,433 21,594
Notes receivable from share sales .................................... (366) (703)
Treasury stock, 99,000 shares at cost ................................ -- (1,118)
Accumulated other comprehensive loss ................................. (1,092) (2,311)
--------- ---------
Total shareholders' equity ..................................... 174,814 234,923
--------- ---------
Total liabilities and shareholders' equity ..................... $ 223,699 $ 303,798
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
40
<PAGE>
<TABLE>
<CAPTION>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Revenue .......................................... $ 89,645 $ 170,318 $ 222,028
Cost of revenue .................................. 49,711 90,075 129,171
--------- --------- ---------
Gross profit ............................... 39,934 80,243 92,857
Selling, general and administrative .............. 20,984 34,754 58,457
Research and development ......................... 919 6,247 6,635
Goodwill and intangible amortization ............. 1,123 2,074 6,705
Restructuring charge ............................. -- -- 12,377
Impairment of long-lived assets .................. -- -- 4,437
Acquired in-process research and development ..... -- 8,200 3,410
Acquisition costs ................................ -- 145 2,168
Charge associated with treasury stock purchase ... -- -- 8,778
--------- --------- ---------
Income (loss) from operations ........... 16,908 28,823 (10,110)
--------- --------- ---------
Other income (expense):
Interest expense .............................. (175) (234) (108)
Other income .................................. 1,893 4,561 5,264
--------- --------- ---------
Total other income ...................... 1,718 4,327 5,156
--------- --------- ---------
Income (loss) before provision for income taxes .. 18,626 33,150 (4,954)
Provision for income taxes ....................... 6,157 13,270 6,885
--------- --------- ---------
Net income (loss) ....................... $ 12,469 $ 19,880 $ (11,839)
========= ========= =========
Basic earnings (loss) per share .................. $ 0.50 $ 0.69 $ (0.34)
========= ========= =========
Diluted earnings (loss) per share ................ $ 0.40 $ 0.57 $ (0.34)
========= ========= =========
Shares outstanding:
Basic ......................................... 24,848 28,752 34,786
========= ========= =========
Diluted ....................................... 31,238 35,064 34,786
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
41
<PAGE>
<TABLE>
<CAPTION>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
NOTES
COMPRE- ADDITIONAL RECEIVABLE
HENSIVE COMMON STOCK PAID-IN RETAINED FROM
INCOME SHARES AMOUNT CAPITAL EARNINGS SHARE SALES
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 ............. -- 22,430 $ 2,243 $ 37,600 $ 1,316 $ --
Proceeds from public offering ........ -- 2,587 259 52,289 -- --
Common stock issued in connection
with business combinations ........ -- 173 17 1,784 -- --
Acquisition of majority shareholder's
interest in subsidiary ............ -- -- -- (552) -- --
Employee stock purchase plan ......... -- 108 11 658 -- --
Stock options exercised .............. -- 1,072 107 152 -- --
Tax benefit of stock options exercised -- -- -- 6,769 -- --
Net income ........................... $ 12,469 -- -- -- 12,469 --
Foreign currency translation
adjustment ........................ (650) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Comprehensive income.............. $ 11,819
=========
Balance, December 31, 1997 ........... -- 26,370 2,637 98,700 13,785 --
Common stock issued in connection
with business combinations ........ -- 1,184 118 18,933 (69) --
Employee stock purchase plan ......... -- 31 3 602 -- --
Stock options exercised .............. -- 2,807 281 676 -- --
Tax benefit of stock options exercised -- -- -- 20,889 -- --
Dividends paid (Atechsys) ............ -- -- -- -- (163) --
Notes receivable from stock sale ..... -- -- -- -- -- (366)
Net income ........................... $ 19,880 -- -- -- 19,880 --
Foreign currency translation
adjustment ........................ (269) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Comprehensive income.............. $ 19,611
=========
Balance, December 31, 1998 ........... 30,392 3,039 139,800 33,433 (366)
Common stock issued in connection
with business combinations ........ -- 6,958 695 84,372 -- --
Employee stock purchase plan ......... -- 59 6 798 -- --
Stock options exercised .............. -- 1,175 118 630 -- --
Tax benefit of stock options exercised -- -- -- 1,661 -- --
Notes receivable from stock sale ..... -- -- -- -- -- (337)
Purchase and retirement of
common stock ...................... -- (1,457) (145) (13,513) -- --
Net loss ............................. $ (11,839) -- -- -- (11,839) --
Foreign currency translation
adjustment ........................ (1,219) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Comprehensive loss ................ $ (13,058)
=========
Balance, December 31, 1999 .......... 37,127 $ 3,713 $ 213,748 $ 21,594 $ (703)
========= ========= ========= ========= =========
ACCUMULATED
OTHER
COMPRE-
HENSIVE TREASURY
LOSS STOCK TOTAL
------------ --------- ---------
<S> <C> <C> <C>
Balance, January 1, 1997 ............. $ (114) $ -- $ 41,045
Proceeds from public offering ........ -- -- 52,548
Common stock issued in connection
with business combinations ........ -- -- 1,801
Acquisition of majority shareholder's
interest in subsidiary ............ -- -- (552)
Employee stock purchase plan ......... -- -- 669
Stock options exercised .............. -- -- 259
Tax benefit of stock options exercised -- -- 6,769
Net income ........................... -- -- 12,469
Foreign currency translation
adjustment ........................ (650) -- (650)
--------- --------- ---------
Comprehensive income .............
Balance, December 31, 1997 ........... (764) -- 114,358
Common stock issued in connection
with business combinations ........ (59) -- 18,923
Employee stock purchase plan ......... -- -- 605
Stock options exercised .............. -- -- 957
Tax benefit of stock options exercised -- -- 20,889
Dividends paid (Atechsys) ............ -- -- (163)
Notes receivable from stock sale ..... -- -- (366)
Net income ........................... -- -- 19,880
Foreign currency translation
adjustment ........................ (269) (269)
--------- --------- ---------
Comprehensive income .............
Balance, December 31, 1998 ........... (1,092) -- 174,814
Common stock issued in connection
with business combinations ........ -- -- 85,067
Employee stock purchase plan ......... -- -- 804
Stock options exercised .............. -- -- 748
Tax benefit of stock options exercised -- -- 1,661
Notes receivable from stock sale ..... -- -- (337)
Purchase and retirement of
common stock ...................... -- (1,118) (14,776)
Net loss ............................. -- -- (11,839)
Foreign currency translation
adjustment ........................ (1,219) (1,219)
--------- --------- ---------
Comprehensive loss ..............
Balance, December 31, 1999 .......... $ (2,311) $ (1,118) $ 234,923
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
42
<PAGE>
<TABLE>
<CAPTION>
IMRGLOBAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................... $ 12,469 $ 19,880 $(11,839)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 4,305 5,452 11,994
Deferred income taxes .................................... (2,205) (7,035) 3,838
Tax benefit of stock options ............................. 6,769 20,889 1,661
Loss on disposal of equipment ............................ -- -- 1,767
Restructuring charges and impairment of long-lived assets -- -- 16,647
Other .................................................... 128 18 13
Changes in operating assets and liabilities,
net of affect of acquisitions:
Accounts receivable and unbilled work-in-process ... (8,438) (7,719) (776)
Other current assets ............................... (2,292) 1,292 659
Deposits and other assets .......................... (551) (2,789) (3,906)
Accounts payable and other liabilities ............. (88) 5,468 (3,708)
Accrued compensation ............................... 7,398 8,134 (18,416)
Income tax ......................................... (916) (2,907) (3,026)
Deferred revenue ................................... 2,082 (1,232) (1,874)
-------- -------- --------
Total adjustments ..................................... 6,192 19,571 4,873
-------- -------- --------
Net cash provided by (used in) operating activities ... 18,661 39,451 (6,966)
-------- -------- --------
Cash flows from investing activities:
Acquisition of interest in consolidated subsidiaries,
net of cash received ..................................... (3,315) (8,941) (25,109)
Investment in marketable securities, net .................... 1,191 (26,192) 29,198
Additions to capitalized software costs ..................... (1,258) -- (3,839)
Additions to property and equipment ......................... (7,012) (13,606) (25,622)
Related party loans ......................................... 1,608 1,478 (1,478)
-------- -------- --------
Net cash used in investing activities ................. (8,786) (47,261) (26,850)
-------- -------- --------
Cash flows from financing activities:
Net advances (repayments) from revolving credit line ........ (954) 443 8,840
Proceeds from long-term debt ................................ 1,181 384 --
Payments on long-term debt .................................. (914) (2,616) (3,962)
Proceeds from issuance of common stock ...................... 53,476 1,562 1,215
Purchase of treasury shares ................................. -- -- (14,776)
Payment of dividends ........................................ -- (163) --
-------- -------- --------
Net cash provided by (used in) financing activities ... 52,789 (390) (8,683)
-------- -------- --------
Effect of exchange rate changes ................................ (328) 8 (1,287)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ........... 62,336 (8,192) (43,786)
Cash and cash equivalents at beginning of year ................. 24,663 86,999 78,807
-------- -------- --------
Cash and cash equivalents at end of year ....................... $ 86,999 $ 78,807 $ 35,021
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
43
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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., and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The Company's consolidated financial statements for 1998 and prior years
have been restated to include the financial statements of Atechsys, S.A. This
company was combined during 1999 in a transaction accounted for as a pooling of
interests (Note 2).
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 and revenue from the
sale of software that requires significant modification 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.
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.
GOODWILL--Goodwill arising from purchase business combinations 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 determines if the potential impairment of recorded goodwill
exists by the undiscounted value of expected future operating cash flow in
relation to the assets to which this goodwill applies. If impairment of recorded
goodwill does exist, IMRglobal adjusts the recorded goodwill to fair market
value.
44
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $1.9 million,
$47,000 and $0 for the years ended December 31, 1997, 1998 and 1999,
respectively. At December 31, 1998 and 1999 accumulated amortization for
capitalized software costs was $-0-.
INCOME TAXES--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.
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 Statement of
Financial Accounting Standard 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 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 other
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. For the year ended
December 31, 1999 the effect of incremental shares from common stock equivalents
is not included in the calculation of net loss per share as the inclusion of
such equivalents would be anti-dilutive. For 1997 and 1998 diluted earnings per
share reflects the dilutive effect of stock options computed using the treasury
stock method as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Weighted average common stock outstanding ........... 24,848 28,752 34,786
Stock option plans
Shares under option at end of period ............. 10,756 10,073
Treasury stock which could be purchased .......... (4,366) (3,761)
------ ------
Weighted average common stock equivalents ........... 6,390 6,312
------ ------
Shares used in diluted earnings per share calculation 31,238 35,064 34,786
====== ====== ======
</TABLE>
45
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 (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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates for IMRglobal for 1997, 1998 and 1999 include the
estimated useful life of goodwill for purchase acquisitions, estimation of
valuation allowances for income taxes and estimation of costs to complete for
fixed-price projects.
COMPREHENSIVE INCOME--During 1998, IMRglobal adopted Statement of
Financial Accounting Standard No. 130, "Reporting Comprehensive Income."
Comprehensive income is comprised primarily of foreign currency translation
adjustments. Foreign currency translation adjustments have not been tax effected
because IMRglobal considers foreign earnings to be indefinitely reinvested.
NEW ACCOUNTING PRONOUNCEMENTS--During June, 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS No. 133), 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.
RECLASSIFICATIONS--Certain amounts in the 1997 and 1998 financial
statements have been reclassified to conform with the 1999 presentation.
2. BUSINESS COMBINATIONS:
For all business combinations accounted for as purchases pursuant to
Accounting Principles Board Opinion No. 16, "Business Combinations" (APB Opinion
No. 16), 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, 1996, IMRglobal
owned 98.2% of IMRglobal-India, an Indian Limited Liability Company. During
1997, 1998 and 1999, IMRglobal purchased an additional 1.7% of IMRglobal-India's
outstanding common shares for approximately $1.0 million in cash in several
transactions. These acquisitions are accounted for as purchases pursuant to the
provisions of APB Opinion No. 16. As a result of the acquisitions noted above,
IMRglobal owned 99.97% of the outstanding common shares of IMRglobal-India at
December 31, 1999.
46
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 owns
100% of both Link and IMRglobal-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.
During 1999, IMRglobal decided to close this facility as part of a restructuring
plan (Note 16).
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 (Note 19) under a contingency provision based upon future market price of
IMRglobal's common stock. Any additional consideration ultimately payable under
this provision will be accounted for at fair value when the contingency is
resolved (as an adjustment to the value of the shares originally issued to
Lyon's shareholders). 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.
47
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 are included in the
statement of operations.
The financial statements for 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.
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, during
January 2000, approximately $2.5 million of
48
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS (CONTINUED):
IMRglobal's unregistered common stock was issued to the Visual shareholders
based on the accomplishment of specified 1999 business and financial objectives.
The contingent payment resulted 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.
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 $2.2 million related to the
acquisition have been charged to acquisition costs and included in the statement
of operations for the year ended December 31, 1999.
The Atechsys transaction has been accounted for as a pooling of
interests and accordingly, the consolidated financial statements for the periods
presented have been restated to include the accounts of Atechsys. Results of
operations for the periods prior to the merger with Atechsys are summarized
below (in thousands):
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998
--------- ---------
Revenue:
IMRglobal .............................. $ 83,550 $ 158,252
Adjustment for pooling of interests .... 6,095 12,066
--------- ---------
Combined ........................ $ 89,645 $ 170,318
========= =========
Net income:
IMRglobal .............................. $ 11,895 $ 18,909
Adjustment for pooling of interests .... 574 971
--------- ---------
Combined ........................ $ 12,469 $ 19,880
========= =========
Other changes in shareholders' equity:
IMRglobal .............................. $ 60,956 $ 40,616
Adjustment for pooling of interests .... (112) (40)
--------- ---------
Combined ........................ $ 60,844 $ 40,576
========= =========
49
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS (CONTINUED):
ECWERKS, INC. ("ECWERKS") -- On January 15, 1999, IMRglobal acquired
100% of the outstanding stock of ECWerks, Inc., a privately held electronic
commerce business ("e-business") and technology consulting company based in
Tampa, Florida. In exchange for ECWerks' common stock, ECWerks' shareholders
received 163,054 shares (valued at $3.6 million) of IMRglobal's unregistered
common stock. In addition, a contingent payment of up to approximately $9.0
million of common stock and cash is payable during April 2000 based on the
achievement of certain specified financial goals 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.
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 focused on the capital markets businesses in Japan and Asia-Pacific.
Fusion also had 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 (valued at
approximately $39.3 million) of IMRglobal common stock. The Fusion acquisition
is accounted for as a purchase pursuant to the provisions of APB Opinion No.16.
On October 25, 1999, IMRglobal reacquired approximately 1.5 million shares of
common stock issued to the Fusion stockholders in exchange for $22.4 million.
This transaction was accounted for as a treasury stock purchase where the
repurchased shares of treasury stock were immediately retired. The excess of the
$22.4 million paid to the Fusion stockholders over the fair market value of the
common stock reacquired by IMRglobal on October 25, 1999 was included in the
statement of operations for the year ended December 31, 1999 as an $8.8 million
charge associated with treasury stock purchase.
The Company allocated the purchase price of Fusion 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 $3.4 million for acquired in-process research and
development ("IPRD") for projects that did not have future alternative uses and
$3.3 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 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 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.
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.
50
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BUSINESS COMBINATIONS (CONTINUED):
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 (valued at
approximately $41.4 million). The Orion acquisition has been accounted for as a
purchase pursuant to the provisions of APB Opinion No. 16.
NEVERDAHL-LOFT & ASSOCIATES, INC. ("NEVERDAHL")-- On December 7, 1999,
IMRglobal acquired 100% of the outstanding stock of Neverdahl, a privately held
full-service information technology consulting firm focused on the life
insurance industry headquartered in Lincoln, Nebraska. In exchange for
Neverdahl's common stock, Neverdahl's shareholders received approximately $10.0
million in cash. In addition, $2.5 million in cash is payable to the Neverdahl
shareholders if certain financial objectives are attained for the six months
ending June 30, 2000. Any contingent payment will result in an increase in the
purchase price and the resulting goodwill. The Neverdahl acquisition is being
accounted for as a purchase pursuant to the provisions of APB Opinion No. 16.
During 1999, IMRglobal completed several acquisitions using the
purchase method of accounting (Note 2). The following unaudited table compares
IMRglobal's reported operating results to pro forma information prepared on the
basis that the above 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,
---------------------------
1998 1999
----------- -----------
<S> <C> <C>
As reported:
Revenue ................................... $ 170,318 $ 222,028
Net income (loss) ......................... $ 19,880 $ (11,839)
Basic earnings (loss) per share ........... $ 0.69 $ (0.34)
Diluted earnings (loss) per share ......... $ 0.57 $ (0.34)
Pro forma (unaudited):
Revenue ................................... $ 265,405 $ 253,161
Pro forma net income (loss) ............... $ 21,734 $ (12,180)
Pro forma basic earnings (loss)
per share ............................... $ 0.63 $ (0.33)
Pro forma diluted earnings (loss)
per share ............................... $ 0.53 $ (0.33)
</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 1998 or 1999 or of future
operations of the combined companies under the ownership and management of
IMRglobal.
51
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1998
and 1999. 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, 1997, 1998 and 1999.
The following tables present the estimated fair value of marketable
securities by category (in thousands):
DECEMBER 31,
--------------------
1998 1999
------- -------
Bankers' acceptance .................... $10,157 $ --
Commercial paper ....................... 21,452 2,411
------- -------
$31,609 $ 2,411
======= =======
Due in one year or less ................ $ 8,609 $ 2,411
Due in one to three years .............. 23,000 --
------- -------
$31,609 $ 2,411
======= =======
4. ACCOUNTS RECEIVABLE (IN THOUSANDS):
DECEMBER 31,
--------------------
1998 1999
------- -------
Accounts receivable, trade ............. $24,545 $45,300
Unbilled accounts receivable-
Time-and-materials contracts ........ 4,281 3,055
Allowance for doubtful accounts ........ (288) (2,324)
------- -------
$28,538 $46,031
======= =======
Allowance for doubtful accounts:
DECEMBER 31,
--------------------
1998 1999
------- -------
Beginning balance ...................... $ -- $ (288)
Purchase acquisitions .................. -- (2,062)
Charged to costs & expense ............. (288) (321)
Deductions ............................. -- 347
------- -------
Ending balance ......................... $ (288) $(2,324)
======= =======
52
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. COSTS AND ESTIMATED EARNINGS ON COMPLETED AND UNCOMPLETED CONTRACTS
(IN THOUSANDS):
DECEMBER 31,
--------------------
1998 1999
------- --------
Costs incurred on completed
and uncompleted contracts .......... $ 31,965 $ 53,915
Estimated earnings .................... 28,514 42,897
-------- --------
60,479 96,812
Less billings to date ................. (58,780) (92,342)
-------- --------
$ 1,699 $ 4,470
======== ========
The following is included in the accompanying balance sheets:
Unbilled work in process .............. $ 5,145 $ 7,756
Deferred revenue ...................... (3,446) (3,286)
-------- --------
$ 1,699 $ 4,470
======== ========
6. PROPERTY AND EQUIPMENT (IN THOUSANDS):
ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------
(YEARS) 1998 1999
----------- -------- --------
Land .......................... -- $ 1,355 $ 2,596
Buildings and improvements .... 10-40 3,596 15,001
Computer equipment ............ 3-6 7,353 10,205
Computer software ............. 3-10 5,141 2,514
Office furniture and equipment 3-12 4,774 7,553
Vehicles ...................... 3-20 2,088 461
Construction in progress ...... 4,224 8,114
-------- --------
28,531 46,444
Less accumulated depreciation
and amortization .......... (7,115) (9,471)
-------- --------
$ 21,416 $ 36,973
======== ========
Depreciation of property and equipment was approximately $1.2 million,
$3.3 million and $5.3 million for the years ended December 31, 1997, 1998 and
1999, respectively.
53
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INTANGIBLE ASSETS (IN THOUSANDS):
ESTIMATED DECEMBER 31,
USEFUL LIFE -------------------
(YEARS) 1998 1999
----------- -------- --------
Goodwill........................... 10-20 $37,863 $145,804
Acquired technology................ 5 2,400 6,000
------- --------
40,263 151,804
Less accumulated amortization...... (3,434) (8,609)
------- --------
$36,829 $143,195
======= ========
8. OTHER CURRENT LIABILITIES (IN THOUSANDS):
DECEMBER 31,
--------------------
1998 1999
------- -------
Accrued costs on Year 2000 contracts ..... $ 5,116 $ 450
Restructuring charges .................... -- 7,082
Payroll taxes and value added taxes ...... 3,937 8,351
Income taxes ............................. 3,524 3,152
Deferred income taxes .................... 464 483
Deferred payments-acquisitions ........... 1,478 --
Employee savings plans ................... 724 1,373
Current portion of long-term debt ........ 107 633
Other .................................... 3,327 4,316
------- -------
$18,677 $25,840
======= =======
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. In 1998 management had committed to clients that personnel
would be available to remediate Year 2000 issues, if any, that arose in late
1999 and early 2000. To accomplish this goal, IMRglobal had committed specific
personnel to work on completed Year
54
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OTHER CURRENT LIABILITIES (IN THOUSANDS)(CONTINUED) :
2000 projects. IMRglobal had accrued the amount of costs it committed to incur
based on the complexity of the Year 2000 projects completed and experience level
of personnel required. Changes in accrued costs of Year 2000 contracts are
summarized as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999
------- -------
Beginning balance ...................... $ -- $ 5,116
Charged to costs and expenses .......... 5,116 --
Payment of accrued costs ............... -- (4,066)
Change in estimate ..................... -- (600)
------- -------
Ending balance ......................... $ 5,116 $ 450
======= =======
9. RELATED PARTIES:
IMRglobal has granted a credit facility to IMRglobal's Chief Executive
Officer ("CEO") in accordance with his employment agreement. This facility is a
revolving credit arrangement for up to $5.0 million with interest at prime plus
1% (currently 9.3%) and is repayable at the earlier of May, 2004 or 180 days
after the CEO terminates employment with IMRglobal. At December 31, 1999 the
amount drawn on this facility was $-0-. During the first quarter of 2000,
IMRglobal's CEO has drawn approximately $4.9 million on this facility.
During October 1999, an additional $15.0 million in cash was advanced
to IMRglobal's CEO in a separate note agreement collateralized by the personal
assets of IMRglobal's CEO. Interest was charged at prime plus 1% . This
additional advance was repaid in full with interest on November 12, 1999.
Interest income earned by IMRglobal on the above loans for the year
ended December 31, 1999 was $223,000.
During 1998 and 1999, IMRglobal advanced $703,000 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, 1999, the loan receivable balance was $769,000, including $66,000
of accrued interest.
Cash flows from financing activities included payments on notes
payable-shareholders of approximately $814,000 for the year ended December 31,
1997.
55
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. CREDIT FACILITIES:
REVOLVING CREDIT FACILITIES
During December 1999 and as subsequently amended IMRglobal entered into
a $30 million revolving credit facility expiring in February 2003. This credit
facility bears interest at LIBOR plus 0.6% (currently 6.2%) and is
collateralized by virtually all of the assets of IMRglobal. The interest rate
may be increased by up to an additional 1.15% based on certain financial ratios
of IMRglobal. This credit facility, as amended, contains covenants requiring
IMRglobal to achieve specific levels of earnings and to maintain specific
balance sheet ratios. At December 31, 1999, IMRglobal was in compliance with
these loan covenants. At December 31, 1999, the amount outstanding on this
credit facility was $9.2 million.
Certain subsidiaries of IMRglobal maintain additional revolving credit
line arrangements. Interest rates are based on the lending institution's prime
rate (ranging from 8.5% to 10.0% at December 31, 1999). At December 31, 1998 and
1999, the amount outstanding on these credit facilities was $443,000 and $1.1
million, respectively. The maximum amount available under these facilities at
December 31, 1999 was approximately $3.3 million. The respective subsidiaries
accounts receivable and certain property and equipment collateralize these
facilities.
The weighted average interest rate of the above credit facilities as of
December 31, 1999 was 6.4%.
LONG-TERM DEBT (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------ ------
<S> <C> <C>
France:
Loans from French government agencies
at 0% interest payable in annual installments
commencing March 1999 through March 2002;
collateralized by property and equipment ............ $ 778 $ 553
Japan:
Loans from financial institutions at various interest
rates payable in monthly installments through
September 2002 collateralized by property
and equipment ....................................... -- 1,065
------ ------
778 1,618
Less current portion ................................... 107 633
------ ------
Long-term debt, net of current portion ................. $ 671 $ 985
====== ======
</TABLE>
56
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. CREDIT FACILITIES (CONTINUED):
Maturities of long-term debt at December 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C> <C>
2001.............................................................. $ 616
2002.............................................................. 369
--------
$ 985
========
</TABLE>
11. INCOME TAXES:
The provision (benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal ...................................... $ 6,378 $ 16,073 $ 1,193
State (net of federal tax benefit) ........... 911 1,379 142
Foreign ...................................... 1,073 2,853 1,712
-------- -------- --------
Total current provision for income taxes .. 8,362 20,305 3,047
Deferred:
Federal ...................................... (1,920) (5,445) 4,145
State (net of federal tax benefit) ........... (275) (467) 502
Foreign ...................................... (10) (1,123) (809)
-------- -------- --------
Total deferred provision (benefit)
for income taxes ....................... (2,205) (7,035) 3,838
-------- -------- --------
Total provision for income taxes .......... $ 6,157 $ 13,270 $ 6,885
======== ======== ========
</TABLE>
57
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (CONTINUED):
The components of the net deferred tax asset (liability) are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts ........ $ 98 $ 794
Intangibles ............................ -- 1,964
Accrued compensation ................... 5,087 5,320
Accrued costs on Year 2000 contracts ... 2,102 175
Property, equipment and accrued expenses
associated with restructuring charge -- 3,248
Research and development tax credit .... 1,759 --
Net operating loss ..................... 5,375 15,446
Other .................................. 361 595
-------- --------
Total deferred tax assets ........... 14,782 27,542
Deferred tax liabilities:
Cash to accrual conversion ............. (238) (3,530)
Intangibles ............................ (750) (4,333)
Foreign ................................ (460) --
Other .................................. (247) (554)
-------- --------
Total deferred tax liabilities ... (1,695) (8,417)
-------- --------
Net deferred tax asset before
valuation allowance .................... 13,087 19,125
Valuation allowance ....................... (450) (8,287)
-------- --------
Deferred tax asset
net of valuation allowance ............. $ 12,637 $ 10,838
======== ========
</TABLE>
The balance sheet classification of the net deferred tax asset is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax asset - current .............. $ 14,141 $ 10,606
Deferred tax asset - noncurrent............. -- 2,309
Deferred tax liability - current............ (464) (483)
Deferred tax liability - noncurrent ........ (1,040) (1,594)
-------- --------
$ 12,637 $ 10,838
======== ========
</TABLE>
58
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (CONTINUED):
As reflected above IMRglobal has recorded a valuation allowance of
$450,000 and $8.3 million, respectively, against the deferred tax asset which is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------ ------
<S> <C> <C>
United States:
Net operating loss attributable to
stock option exercises (allocated to
shareholders' equity) ................... $ -- $5,000
Foreign:
Net operating loss for UK subsidiaries 450 1,905
Accrued compensation costs for
Japan subsidiary ........................ -- 1,382
------ ------
$ 450 $8,287
====== ======
</TABLE>
As of December 31, 1999, IMRglobal had approximately $37.9 million of
U.S. net operating loss carryforwards for regular income tax purposes which will
expire between 2013 and 2015. The net operating loss primarily resulted from the
deductible expense recognized for income tax purposes upon stock option
exercises.
During the years ended December 31, 1997, 1998 and 1999, various
non-statutory stock options were exercised resulting in tax benefits (net of any
valuation allowance) of approximately $6.8 million, $20.9 million and $1.7
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 $38 million at December 31, 1999. 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.
59
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (CONTINUED):
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 1997 and 1998 and 35% in 1999 to the income before income
taxes (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory tax provision ......................... $ 6,536 $ 11,604 $ (1,734)
State taxes, net of federal benefit ............. 737 897 584
Foreign and U.S. tax effects
attributable to foreign operations ........... (2,034) (273) (515)
Acquisition costs and compensation expense
associated with treasury stock repurchase .... -- -- 3,920
Intangible asset amortization and impairment .... 427 788 3,233
Increase in valuation allowance ................. 315 135 1,377
Other net ....................................... 176 119 20
-------- -------- --------
Total provision for income taxes .......... $ 6,157 $ 13,270 $ 6,885
======== ======== ========
</TABLE>
12. LEASES:
IMRglobal leases office facilities and certain residential premises for
employees under noncancellable operating lease agreements. Rental expense under
these leases was approximately $1.2 million, $2.3 million, and $4.2 million in
1997, 1998 and 1999, respectively. Future minimum lease payments as of December
31, 1999 for leases with noncancellable terms in excess of one year are
approximately as follows (in thousands):
<TABLE>
<S> <C> <C>
2000....................................................... $ 4,146
2001....................................................... 3,701
2002....................................................... 3,213
2003....................................................... 1,984
2004....................................................... 1,691
Thereafter................................................. 5,034
--------
Total minimum payments............................ $ 19,769
========
</TABLE>
60
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS:
On June 17, 1997 and March 9, 1998, IMRglobal declared 3-for-2 stock
splits in the form of stock dividends payable on July 10, 1997 and April 3,
1998, respectively, to shareholders of record on June 26, 1997 and March 20,
1998, 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 29, 1998, the shareholders approved 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.
EMPLOYEE STOCK OPTION PLAN--IMRglobal has granted certain employees
non-qualified stock options with vesting periods of up to five years. On May 29,
1998, the shareholders approved an increase in the number of shares of Common
Stock available for grant under this plan from 12.3 million to 16.0 million.
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. All options granted 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, 1999, 225,000 options are
available for future grants and 90,000 options are outstanding, of which 67,500
are exercisable.
During August, 1999, the Board of Directors authorized the creation of
a second Stock Option Plan. This plan was primarily created to provide
non-qualified stock options to employees of newly acquired companies. This plan
excludes executive officers and directors of IMRglobal. The number of shares of
common stock authorized for issuance under this plan is 2,000,000 shares.
61
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997, 1998 and 1999 would
have been reduced to the adjusted amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Net income (loss) (in thousands):
As reported ........................... $ 12,469 $ 19,880 $ (11,839)
As adjusted ........................... $ 11,142 $ 14,152 $ (20,889)
Diluted earnings (loss) per share:
As reported ........................... $ 0.40 $ 0.57 $ (0.34)
As adjusted ........................... $ 0.36 $ 0.40 $ (0.60)
</TABLE>
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 1997, 1998
and 1999 was $12.46, $17.12 and $10.56, 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 1997, 1998 and 1999, respectively: no dividend yield for each year presented;
risk-free interest rates of 6.0%, 5.3% and 5.7%; expected lives of the options
prior to exercise of 6.5, 5.5 and 5.5 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,
1998 and 1999 option grants, a volatility measure of 85%, 92% and 88%,
respectively, was employed.
62
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997, 1998 and 1999, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
---------------------------- ---------------------------- ----------------------------
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 11,632,642 $ 0.43 12,544,793 $ 2.96 10,807,388 $ 6.01
Granted 2,015,400 $ 16.12 1,279,450 $ 25.28 2,564,510 $ 14.23
Exercised (1,071,736) $ 0.25 (2,807,291) $ 0.34 (1,174,733) $ 0.93
Cancelled (31,513) $ 2.25 (209,564) $ 16.80 (385,072) $ 16.30
---------- ---------- ----------
Outstanding at
end of year 12,544,793 $ 2.96 10,807,388 $ 6.01 11,812,093 $ 7.97
========== ========== ==========
Options exercisable
at year-end 9,541,970 7,375,447 7,013,117
========== ========== ==========
</TABLE>
63
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
The following table summarizes certain information about stock options
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
WEIGHTED-
AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.04 - $ 0.04 101,250 6.3 $ 0.04 78,750 $ 0.04
$ 0.22 - $ 0.22 5,884,737 6.5 $ 0.22 5,740,737 $ 0.22
$ 2.25 - $ 2.25 334,474 6.5 $ 2.25 120,130 $ 2.25
$ 4.44 - $ 6.22 378,000 6.9 $ 5.88 339,750 $ 5.98
$ 7.19 - $10.69 1,426,325 9.7 $ 9.97 41,500 $ 8.06
$12.38 - $18.42 2,408,057 8.4 $16.94 525,000 $17.26
$18.75 - $24.19 727,750 8.4 $23.27 67,800 $23.01
$28.75 - $37.17 551,500 8.6 $32.31 99,450 $34.55
---------- --- ------ --------- ------
$0.04 - $37.17 11,812,093 7.5 $ 7.96 7,013,117 $ 2.56
========== =========
</TABLE>
As of December 31, 1999, options to purchase 1,404,820 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.
64
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED):
IMRGLOBAL-INDIA STOCK OPTION PLAN--IMRglobal-India had a separate
Employee Share Option Policy which provided for grants of options to employees
to purchase common shares of IMRglobal-India. 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. This plan was terminated during 1998.
A summary of the status of IMRglobal-India's stock option plan is as
follows:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Balance, December 31, 1997 .... 20,000 $ 4.66
Exercised ..................... (8,220) $ 0.23
Canceled ...................... (9,325) $ 0.23
------
Balance, December 31, 1998 .... 2,455 $ 7.38
Exercised ..................... (800) $ 0.23
Canceled ...................... (880) $22.82
------
Balance, December 31, 1999 .... 775 $ 0.23
======
At December 31, 1998 and 1999 there were no exercisable options.
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,
1997, 1998 and 1999 was $327,000, $1.3 million and $2.5 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 IMRglobal's insolvency. The value of the assets at December 31, 1998
and 1999 was $2.8 million and $6.4 million, respectively, and is included in
other assets. The related liability at December 31, 1998 and 1999 was $1.8
million and $2.8 million, respectively, and is included in accrued compensation.
The assets are invested in variable life insurance products. At December 31,
1999 book value approximated fair value.
65
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 16%, 15% and 11% of revenue in 1997, 1998 and 1999, respectively,
and 4% and 5.5% of accounts receivable as of December 31, 1998 and 1999,
respectively. No other customer accounted for 10% of revenue or accounts
receivable for the above periods.
16. RESTRUCTURING CHARGE:
In the fourth quarter of 1999, IMRglobal implemented a restructuring
plan to redeploy resources to exploit its expanding e-business service offering
and better align its organization with its corporate strategy. The restructuring
plan included the closure of two UK offices, the write-down of specific
mainframe software and hardware and the reduction of its global workforce. The
restructuring charge is summarized as follows (in thousands):
<TABLE>
<CAPTION>
CASH ACCRUED
PAID THROUGH CHARGE
RESTRUCTURING WRITE-DOWN DECEMBER 31, DECEMBER 31,
CHARGE OF ASSETS 1999 1999
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Closure of U.K. facilities:
Severance payments
(80 employees) ........ $ 664 $ -- $ -- $ 664
Long-term commitments .... 4,626 -- (124) 4,502
Goodwill ................. 348 (348) -- --
Property and equipment ... 1,089 (1,089) -- --
Other severance payments
(70 employees) ........... 1,809 -- (43) 1,766
Property and equipment ...... 3,691 (3,691) -- --
Other restructuring costs ... 150 -- -- 150
-------- -------- -------- --------
$ 12,377 $ (5,128) $ (167) $ 7,082
======== ======== ======== ========
</TABLE>
Long-term commitments relating to real estate leases are expected to be
paid over the life of the underlying lease agreements which expire through 2013.
The remaining accrued charge is expected to be paid by December 31, 2000.
66
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. IMPAIRMENT OF LONG-LIVED ASSETS:
IMRglobal measures the potential impairment of recorded goodwill and
significant property and equipment on an annual basis. During 1999, IMRglobal
determined that certain assets were impaired and recognized impairment charges
as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT OF METHOD USED TO DETERMINE
ASSETS IMPAIRED IMPAIRMENT FAIR MARKET VALUE
--------------------------------------- ---------- ----------------------------------------
<S> <C> <C>
- Goodwill related to U.K. subsidiaries $ 3,783 Discounted cash flow
- Real estate in New Delhi, India 279 Independent appraisal
- Other property and equipment 375 Value offered by independent third party
----------
$ 4,437
==========
</TABLE>
After recording the above impairment, the carrying value of our idle
facility held for future use was $1.2 million.
18. OTHER INCOME (IN THOUSANDS):
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1998 1999
------- ------- -------
Investment income $ 2,014 $ 4,585 $ 4,234
Foreign exchange ..... -- -- 901
Other income (expense) (121) (24) 129
------- ------- -------
$ 1,893 $ 4,561 $ 5,264
======= ======= =======
19. 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 $24.2 million has been
expended at December 31, 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.
67
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. COMMITMENTS AND CONTINGENCIES (CONTINUED):
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 would
have been approximately $4.2 million at that date.
Subsequent to May 10, 1999, IMRglobal renegotiated this contingency.
IMRglobal's current agreement 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. Conversely, if the price
of 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.
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 and have made an assessment of approximately $500,000.
Ongoing discussions are being held between IMRglobal's French management and the
French taxing authorities regarding this issue. The amount of assessment,
$500,000, is included as a liability in the accompanying financial statements.
20. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for interest ......... $ 135 $ 223 $ 108
======= ======= =======
Cash paid during the year for income taxes ..... $ 1,664 $ 1,726 $ 5,381
======= ======= =======
Noncash investing and financing activities:
Common stock issued in connection
with acquisition of subsidiaries ......... $ 1,801 $19,186 $85,067
======= ======= =======
Deferred payments for acquisition
of subsidiaries .......................... $ 1,608 $ 1,478 $ --
======= ======= =======
</TABLE>
68
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SEGMENT INFORMATION (IN THOUSANDS):
IMRglobal operates several business units located in North America,
Europe and Asia for which financial information is maintained and reported to
the chief operating decision makers of the Company. In determining the reporting
segments of the Company, management has aggregated the business units that have
similar economic characteristics, products and services and types of customers.
IMRglobal has three reporting segments. The Information Technology
("IT") segment provides consulting and technology services to large companies in
North America, Europe and Asia. The Health Care Solutions segment provides
business and consulting services to clients in the health care industry.
Software Development Centers consist of two Indian facilities and one Northern
Ireland facility that provide software development services to the IT segment
organizations.
The chief operating decision makers evaluate performance and allocate
resources based on revenue and net margin. Net margin is gross profit less
selling, general and administrative expenses. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. IMRglobal does not allocate income taxes, other income or
expense, research and development, intangible amortization and non-recurring
charges to its reporting segments. In addition, IMRglobal accounts for services
provided by the Software Development Centers to the IT segment at current market
prices.
Information regarding the reporting segments is as follows:
<TABLE>
<CAPTION>
HEALTH SOFTWARE
INFORMATION CARE DELIVERY
TECHNOLOGY SOLUTIONS CENTERS TOTAL
----------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
Revenue from external customers ... $203,963 $ 16,086 $ 1,979 $222,028
======== ======== ======== ========
Intersegment revenue .............. $ -- $ -- $ 30,115 $ 30,115
======== ======== ======== ========
Depreciation expense .............. $ 3,605 $ 122 $ 1,563 $ 5,290
======== ======== ======== ========
Segment net margin ................ $ 26,843 $ 3,902 $ 3,655 $ 34,400
======== ======== ======== ========
Segment assets .................... $124,710 $ 14,967 $ 22,314 $161,991
======== ======== ======== ========
1998
Revenue from external customers ... $169,005 $ -- $ 1,313 $170,318
======== ======== ======== ========
Intersegment revenue .............. $ -- $ -- $ 34,535 $ 34,535
======== ======== ======== ========
Depreciation expense .............. $ 1,983 $ -- $ 1,348 $ 3,331
======== ======== ======== ========
Segment net margin ................ $ 38,073 $ -- $ 7,416 $ 45,489
======== ======== ======== ========
Segment assets .................... $161,822 $ -- $ 22,884 $184,706
======== ======== ======== ========
</TABLE>
69
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SEGMENT INFORMATION (IN THOUSANDS) (CONTINUED):
<TABLE>
<CAPTION>
HEALTH SOFTWARE
INFORMATION CARE DELIVERY
TECHNOLOGY SOLUTIONS CENTERS TOTAL
----------- --------- -------- --------
<S> <C> <C> <C> <C>
1997
Revenue from external customers.... $ 88,143 $ -- $ 1,502 $ 89,645
========= ========= ======== ========
Intersegment revenue............... $ -- $ -- $ 21,654 $ 21,654
========= ========= ======== ========
Depreciation expense............... $ 656 $ -- $ 595 $ 1,251
========= ========= ======== ========
Segment net margin................. $ 14,277 $ -- $ 4,673 $ 18,950
========= ========= ======== ========
Segment assets..................... $ 118,873 $ -- $ 15,840 $134,713
========= ========= ======== ========
</TABLE>
Following are reconciliations of reporting segment net margin and
assets to the amounts included in the consolidated financial statements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Total net margin for reportable segments............. $ 18,950 $ 45,489 $ 34,400
Research and development............................. (919) (6,247) (6,635)
Goodwill and intangible amortization................. (1,123) (2,074) (6,705)
Restructuring charge................................. -- -- (12,377)
Impairment of long-lived assets...................... -- -- (4,437)
Acquired in-process research and development......... -- (8,200) (3,410)
Acquisition costs.................................... -- (145) (2,168)
Charge associated with treasury stock purchase....... -- -- (8,778)
Other income......................................... 1,718 4,327 5,156
--------- -------- --------
Consolidated income (loss)
before provision for income taxes................. $ 18,626 $ 33,150 $ (4,954)
========= ======== ========
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Total assets for reportable segments................. $ 134,713 $184,706 $161,991
Elimination of intersegment receivables.............. (8,113) (11,977) (14,303)
Deferred income taxes................................ 1,899 14,141 12,915
Intangible assets.................................... 10,157 36,829 143,195
--------- -------- --------
Consolidated total assets............................ $ 138,656 $223,699 $303,798
========= ======== ========
</TABLE>
70
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SEGMENT INFORMATION (IN THOUSANDS) (CONTINUED):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- -------- --------
<S> <C> <C> <C>
Geographic financial information is summarized as follows:
Revenue by geography:
North America..................................... $ 63,059 $117,718 $149,435
Europe............................................ 24,273 44,585 46,925
Asia Pacific...................................... 2,313 8,015 25,668
--------- -------- --------
Total revenue............................... $ 89,645 $170,318 $222,028
========= ======== ========
<CAPTION>
AS OF DECEMBER 31,
-----------------------
1998 1999
-------- --------
<S> <C> <C>
Long-lived assets:
Sales organizations:
North America............................................. $ 23,015 $119,472
Europe.................................................... 20,441 14,240
Asia Pacific.............................................. 322 35,459
Software Development Centers:
India..................................................... 13,170 10,939
Northern Ireland.......................................... 1,297 58
-------- --------
Total long-lived assets................................... $ 58,245 $180,168
======== ========
</TABLE>
71
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED):
The following quarterly information is unaudited and has been restated
to give effect to the acquisition of Atechsys which was 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>
1998
- ----
Revenue .............................. $ 34,616 $ 39,907 $ 45,309 $ 50,486
Gross profit ......................... 15,839 18,173 21,929 24,302
Income from operations ............... 7,161 339 10,256 11,067
Diluted earnings (loss) per share .... $ 0.17 $ (0.06) $ 0.21 $ 0.24
1999
- ----
Revenue .............................. $ 51,888 $ 62,953 $ 62,159 $ 45,028
Gross profit ......................... 24,149 28,578 27,100 13,030
Income (loss) from operations ........ 5,412 12,768 6,819 (35,109)
Diluted earnings (loss) per share .... $ 0.10 $ 0.21 $ 0.12 $ (0.78)
</TABLE>
During the quarter ended December 31, 1999, IMRglobal incurred charges
of $25.6 million for restructuring charge (Note 16), impairment of assets (Note
17) and charge associated with treasury stock purchase (Note 2).
72
<PAGE>
IMRGLOBAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23. SUBSEQUENT EVENTS:
INTUITIVE GROUP LIMITED ("INTUITIVE")-- On January 28, 2000, IMRglobal
acquired 100% of the outstanding stock of Intuitive Group Limited, headquartered
in London. Intuitive was a privately held provider of e-business and customer
relationship management ("eCRM") software solutions and services for the life
insurance and financial services markets. Intuitive has additional offices in
Boston and Sydney. In exchange for Intuitive's common stock , Intuitive's
shareholders received approximately $18.0 million in cash. In addition, $5.0
million cash is payable to the Intuitive shareholders during May 2000 if certain
financial objectives are attained for the period ending March 31, 2000. Any
contingent payment will result in an increase in the purchase price and the
resulting goodwilll. The Intuitive acquisition is accounted for as a purchase
pursuant to the provisions of APB Opinion No. 16.
On January 31, 2000, IMRglobal issued 275,908 shares of common stock to
the former shareholders of Visual (Note 2) based on the achievement of certain
1999 financial and business objectives.
During March 2000, IMRglobal agreed to issue approximately 580,000
shares of common stock and approximately $1.7 million cash to the former
shareholders of ECWerks (Note 2) based on the achievement of certain 1999
financial and business objectives. The additional consideration will be remitted
in April 2000.
73
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with any of IMRglobal's accountants on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. On January 14, 1999, IMRglobal
appointed Ernst & Young LLP as the independent accounting firm engaged as the
principal accounting firm to audit IMR's financial statements for the year ended
December 31, 1998. The decision to change the principal accounting firm was
approved by the Audit Committee of IMRglobal's Board of Directors on January 14,
1999. For further information relating to IMRglobal's change in certifying
accountants, please refer to IMRglobal's Current Report on Form 8-K dated
January 15, 1999 on file with the Commission.
PART III
The Company will file with the Securities and Exchange Commission a
definitive Proxy Statement, pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, not later than 120 days after the end of its
fiscal year. Accordingly, certain information required by Part III has been
omitted under Item G of the general Instructions for Form 10-K. Only these
sections of the definitive Proxy Statement which specifically address the items
set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the directors
and executive officers of the Company is incorporated herein by reference to the
material under the caption "Election of Directors" and "Executive Officers" in
the Company's Proxy Statement to be filed with the Securities and Exchange
Commission (the "Commission") within120 days after the close of the Company's
fiscal year ended December 31, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 with respect to management
remuneration and transactions is incorporated herein by reference to the
material under the caption "Executive Compensation" in the Company's Proxy
Statement to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 with respect to security
ownership of certain beneficial owners and management is incorporated herein by
reference to the material under the caption "Stock Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement to be filed
with the Commission within 120 days after the close of the Company's fiscal year
ended December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 with respect to certain
relationships and related transactions is incorporated herein by reference to
the material under the caption "Certain Relationships and Related Transactions"
in the Company's Proxy Statement to be filed with the Commission within 120 days
after the close of the Company's fiscal year ended December 31, 1999.
74
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
The financial statements of the Company and reports of
independent auditors as set forth under Item 8 of this Report
on Form 10-K are incorporated herein by reference.
(2) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because they
are not applicable or are not required or the information
required to be set forth therein is included in the
consolidated financial statements or notes thereto.
(b) FORM 8-K
(1) Reports on Form 8-K filed during the quarter ended December 31,
1999:
The Registrant filed a report on Form 8-K on October 29, 1999
under Item 5 disclosing the change from pooling to purchase for
2 prior 1999 mergers, Board authorization for stock buyback and
the restructuring of the Fusion transaction.
The Registrant filed a report on Form 8-K on November 4, 1999
under Item 5 disclosing the restructuring of the Fusion
acquisition agreement.
The Registrant filed a report on Form 8-K on November 15, 1999
under Item 5 disclosing the restated consolidated financial
statements for the period ended December 31, 1998.
The Registrant filed a report on Form 8-K on November 18, 1999
under Item 7 disclosing the financial statements of Orion
Consulting, Inc., Fusion System Japan Co., Ltd. and additional
pro forma financial information.
The Registrant filed a report on Form 8-K on December 16, 1999
under Item 2 disclosing the acquisition of Neverdahl-Loft &
Associates, Inc.
(c) EXHIBITS
The following exhibits are filed as a part of, or are
incorporated by reference into, this Report on Form 10-K:
75
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 filed with IMR's Registration
Statement on Form S-1) (Registration No. 333-12037).
3.2 Restated Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.1 filed with IMR's Registration Statement on Form S-1)
(Registration No. 333-12037).
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Restated Bylaws of the Registrant
defining rights of the holders of Common Stock of the Registrant.
4.2 Specimen Stock Certificate. (Incorporated by reference to Exhibit 3.1
filed with IMR's Registration Statement on Form S-1) (Registration No.
333-12037).
10.1 Master Services Agreement dated April 1, 1996 between the Registrant
and IMR-India. (Incorporated by reference to Exhibit 10.4 filed with
IMR's Registration Statement on Form S-1) (Registration No. 333-12037).
10.2 Master Services Agreement dated April 1, 1996 between IMR-U.K. and
IMR-India. (Incorporated by reference to Exhibit 10.5 filed with IMR's
Registration Statement on Form S-1) (Registration No. 333-12037).
10.3 Master Services Agreement for Information Technology Professional and
related schedules between the Registrant and Dayton Hudson Corporation.
(Incorporated by reference to Exhibit 10.9 filed with IMR's
Registration Statement on Form S-1) (Registration No. 333-12037).
10.4 Master Services Agreement and related schedules between the Registrant
and Dean Witter Discover & Co., Inc. (Incorporated by reference to
Exhibit 10.10 filed with IMR's Registration Statement on Form S-1)
(Registration No. 333-12037).
10.5 Master Agreement for Computer Consulting and Programming Services and
related schedules between the Registrant and Target Stores.
(Incorporated by reference to Exhibit 10.12 filed with IMR's
Registration Statement on Form S-1) (Registration No. 333-12037).
10.8 Form of Employment Agreement between Registrant and Satish K. Sanan.
(Incorporated by reference to Exhibit 10.15 with IMR's Registration
Statement on Form S-1) (Registration No. 333-12037).
10.9 401(k) Profit Sharing Plan effective January 1, 1992 and Amendment
thereto effective January 1, 1994. (Incorporated by reference to
Exhibit 10.17 filed with IMR's Registration Statement on Form S-1)
(Registration No. 333-12037).
10.10 Stock Incentive Plan effective July 15, 1996. (Incorporated by
reference to Exhibit 10.18 filed with IMR's Registration Statement on
Form S-1) (Registration No. 333-12037).
10.11 Form of Directors Stock Option Plan. (Incorporated by reference to
Exhibit 10.19 filed with IMR's Registration Statement on Form S-1)
(Registration No. 333-12037).
10.12 Form of Employee Stock Purchase Plan. (Incorporated by reference to
Exhibit 10.20 filed with IMR's Registration Statement on Form S-1)
(Registration No. 333-12037).
10.14 Loan Agreement between IMR-India and Canara Bank and related documents.
(Incorporated by reference to Exhibit 10.27 filed with IMR's
Registration Statement on Form S-1) (Registration No. 333-12037).
10.15 Loan Agreement between IMR-India and Exim Bank of India and related
documents. (Incorporated by reference to Exhibit 10.28 filed with IMR's
Registration Statement on Form S-1) (Registration No. 333-12037).
10.16 Employee Stock Purchase Plan, as amended. (Incorporated herein by
reference to Exhibit 10.29 filed with Annual Report on Form 10-K)
(Commission File No. 0-28840).
76
<PAGE>
EXHIBIT INDEX
(CONTINUED)
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------------------------------------------------------------------
10.17 Acquisition Agreement dated January 13, 1997 between the Registrant and
Philip and Sheila Shipperlee relating to the acquisitions of Link Group
Holdings Limited. (Incorporated herein by reference to Exhibit 2.1
filed with Current Report on Form 8-K filed with the Commission on
January 13, 1997) (Commission File No. 0-28840).
10.18 Share Purchase Agreement dated January 13, 1998 between the Registrant
and Satish and Anne Sanan relating to the acquisition of IMR-U.K.
(Incorporated herein by reference to Exhibit 10.30 filed with the
Company's Registration Statement on Form S-1) (Registration No.
333-30741).
10.19 Share Purchase Agreement dated May 15, 1998 between the Registrant and
Jean Rene Lyon, Pierre Barberis, Marie-Amelie Barberis, Romain Barberis
and Didier Lamour (Sellers) relating to the acquisition of Lyon
Consultants, S.A. (Incorporated herein by reference to Exhibit 2.1
filed with the Company's Current Report on Form 8-K filed with the
Commission on May 28, 1998) (Commision File No. 0-28840).
10.20 Share Exchange Agreement dated March 26, 1999 between the Registrant
and Fusion Systems Japan Co., Ltd. (Seller) relating to the acquisition
of Fusion Systems Japan Co., Ltd. (Incorporated herein by reference to
Exhibit 2.1 filed with the Company's Current Report on Form 8-K filed
with the Commission on April 8, 1999) (Commission File No. 0-28840).
10.21 Agreement and Plan of Merger dated June 15, 1999 between the Registrant
and Orion Consulting, Inc. (Seller) relating to the acquisition of
Orion Consulting, Inc. (Incorporated herein by reference to Exhibit 2.1
filed with the Company's Current Report on Form 8-K filed with the
Commission on June 29, 1999) (Commission File No. 0-28840).
10.22 First Amendment to the Acquisition Agreement dated March 26, 1999
between the Registrant and Fusion Systems Japan Co., Ltd. (Seller)
relating to the acquisition of Fusion Systems Japan Co., Ltd.
(Incorporated herein by reference to Exhibit 2.1 filed with the
Company's
10.23 Current Report on Form 8-K filed with the Commission on November 4,
1999) (Commission File No. 0-28840).
10.24 Information Management Resources, Inc. First Amended and Restated Stock
Incentive Plan (Incorporated by reference with IMRglobal's Registration
Statement on Form S-8) (Registration No. 333-87095).
10.25 IMRglobal Corp. 1999 Employee Stock Incentive Plan (Incorporated by
reference with IMRglobal's Registration Statement on Form S-8)
(Registration No. 333-86753)
10.26 First Amendment to Executive Employment Agreement between Registrant
and Satish K. Sanan.
10.27 Restated Revolving Credit Agreement Between Registrant and First Union
National Bank dated January 19, 2000.
10.28 First Amendment To Restated Revolving Credit Agreement between
Registrant and First Union National Bank dated March 17, 2000.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young L.L.P.
23.2 Consent of PricewaterhouseCoopers L.L.P.
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
- ----------
+ Confidential treatment has been granted with respect to portions of these
documents. The omitted portions of these documents have been filed separately
with the Securities and Exchange Commission.
77
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on this 29th day of
March, 2000.
IMRGLOBAL CORP.
By: /s/ SATISH K. SANAN
------------------------------------
Satish K. Sanan
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Satish K. Sanan and Dilip Patel, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Report on Form 10-K,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SATISH K. SANAN Chief Executive Officer MARCH 29, 2000
- ------------------------------------ (Principal Executive Officer)
Satish K. Sanan and Director
/s/ ROBERT M. MOLSICK Chief Financial Officer MARCH 29, 2000
- ------------------------------------ (Principal Financial and Accounting Officer)
Robert M. Molsick
/s/ VINCENT ADDONISIO Senior Vice President MARCH 29, 2000
- ------------------------------------ Director
Vincent Addonisio
/s/ PHILIP SHIPPERLEE Senior Vice President-Global Sales and Marketing MARCH 29, 2000
- ------------------------------------ Director
Philip Shipperlee
/s/ CHARLES C. LUTHIN
- ------------------------------------ Director MARCH 29, 2000
Charles C. Luthin
/s/ JEFFERY S. SLOWGROVE Director MARCH 29, 2000
- ------------------------------------
Jeffery S. Slowgrove
</TABLE>
78
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.26 First Amendment to Executive Employment Agreement between Registrant
and Satish K. Sanan.
10.27 Restated Revolving Credit Agreement Between Registrant and First Union
National Bank dated January 19, 2000.
10.28 First Amendment To Restated Revolving Credit Agreement between
Registrant and First Union National Bank dated March 17, 2000.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young L.L.P.
23.2 Consent of PricewaterhouseCoopers L.L.P.
27.1 Financial Data Schedule.
EXHIBIT 10.26
- --------------------------------------------------------------------------------
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
IRMGLOBAL CORP.
AND
SATISH K. SANAN
- --------------------------------------------------------------------------------
<PAGE>
FIRST AMENDMENT
TO
EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment, effective as of January 1, 1999, is to the Executive
Employment Agreement dated the 31st day of October, 1996, by and among IMRGLOBAL
CORP. (formerly known as INFORMATION MANAGEMENT RESOURCES, INC.) (the "Company")
and SATISH K. SANAN ("Employee").
BACKGROUND.
The Company and Employee desire to amend the Executive Employment
Agreement ("Agreement") as described in this Amendment to cap the Financial
Performance Bonus payable to Employee at $1,000,000 and instead to provide for a
line of credit for Employee.
Except as modified by this Amendment, all terms of the Agreement shall
continue in full force and effect. All capitalized terms used in this Amendment
shall have the same meaning as in the Agreement.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, the parties hereby agree to
amend the Agreement as follows:
1. The Agreement, in paragraph 5.B.(i.), provides for Employee to receive an
annual Financial Performance Bonus in an amount equal to 2% of the Company's
consolidated pre-tax net income for the current year, to be determined without
consideration for any bonus amounts under the Agreement. It is hereby agreed
that the maximum amount of such Financial Performance Bonus shall be $1,000,000
and further clarified that the Financial Performance Bonus shall be determined
disregarding the impact of one time charges for items such as In Process
Purchased Technology and acquisition expenses.
2. The Agreement, in paragraph 5.B.(iii), provides that the Employee will be
allowed to draw quarterly up to fifty percent (50%) of the estimated Financial
Performance Bonus based on the budget for consolidated pre-tax net income
adopted as part of the Company's business plan approved by its Board of
Directors. It is hereby agreed that Employee can draw against the estimated
Financial Performance Bonus in full at any time of the year.
3. It is hereby agreed that the Company shall provide Employee an unsecured line
of credit of up to $5,000,000.00 at an interest rate of 1% above prime.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Amendment effective as of the date first above written.
IMRglobal CORP.:
BY: /s/ DILIP PATEL
--------------------------------------------------
Dilip Patel, Vice President and Co-General Counsel
DATE: AUGUST 17, 1999
---------------
EMPLOYEE:
/s/ SATISH K. SANAN (SEAL)
------------------------------------------------------
Satish K. Sanan, Individually
DATE: AUGUST 17, 1999
---------------
2
EXHIBIT 10.27
- --------------------------------------------------------------------------------
RESTATED REVOLVING CREDIT AGREEMENT
between
IMRGLOBAL CORP.
"Borrower"
and
FIRST UNION NATIONAL BANK
"Bank"
Dated: as of January 19, 2000
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Definitions...........................................................1
2. The Loan..............................................................1
2.1. Revolving Loan...............................................1
2.2. Revolving Note...............................................1
2.3. Cash Management Services.....................................1
2.4. Advances.....................................................1
2.5. Repayment of Loan............................................2
2.6. Overdue Amounts..............................................2
2.7. Calculation of Interest; Interest Rate.......................2
2.8. Letters of Credit............................................3
2.9. Fees.........................................................3
2.10. Statement of Account.........................................4
2.11. Termination..................................................4
2.12. Collateral...................................................4
3. Conditions Precedent to Borrowing.....................................5
3.1. Conditions Precedent to Initial Advance......................5
3.2. Conditions Precedent to Each Advance.........................6
4. Representations and Warranties........................................7
4.1. Valid Existence and Power....................................7
4.2. Authority....................................................7
4.3. Financial Condition..........................................7
4.4. Litigation...................................................7
4.5. Agreements, Etc..............................................7
4.6. Authorizations...............................................8
4.7. Title........................................................8
4.8. Collateral...................................................8
4.9. Location.....................................................8
4.10. Taxes........................................................8
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TABLE OF CONTENTS
(CONTINUED)
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4.11. Labor Law Matters............................................8
4.12. Judgment Liens...............................................8
4.13. Subsidiaries.................................................8
4.14. Environmental................................................9
4.15. ERISA........................................................9
4.16. Investment Company Act.......................................9
4.17. Names........................................................9
4.18. Insider......................................................9
4.19. Compliance with Covenants; No Default........................9
4.20. Full Disclosure.............................................10
4.21. Additional Representations..................................10
5. Affirmative Covenants of Borrower....................................10
5.1. Use of Loan Proceeds........................................10
5.2. Insurance...................................................10
5.3. Notice of Default...........................................10
5.4. Inspections.................................................10
5.5. Financial Information.......................................10
5.6. Maintenance of Existence and Rights.........................12
5.7. Payment of Taxes, Etc.......................................12
5.8. Subordination...............................................12
5.9. Compliance; Hazardous Materials.............................12
5.10. Compliance with Assignment Laws.............................12
5.11. Further Assurances..........................................12
5.12. Year 2000 Compatibility.....................................12
6. Negative Covenants of Borrower.......................................12
6.1. Debt........................................................12
6.2. Liens.......................................................12
6.3. Dividends...................................................13
6.4. Loans and Other Investments.................................13
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TABLE OF CONTENTS
(CONTINUED)
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6.5. Change in Business..........................................13
6.6. Transactions with Affiliates................................13
6.7. No Change in Offices........................................13
6.8. No Sale, Leaseback..........................................13
6.9. Margin Stock................................................13
6.10. Subsidiaries................................................13
6.11. Change of Ownership.........................................13
6.12. Change of Name..............................................14
6.13. Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets........................................14
6.14. Change of Fiscal Year or Accounting Methods.................14
6.15. Loan Advances, Transfers, Loans and Investments in Certain
Subsidiaries..............................................14
6.16. Prepayment of Other Debt....................................14
6.17. Default on Other Contracts or Obligations...................14
7. Other Covenants of Borrower..........................................14
8. Default..............................................................16
8.1. Events of Default...........................................16
8.2. Cure Period.................................................17
8.3. Remedies....................................................17
8.4. Receiver....................................................17
8.5. Deposits; Insurance.........................................17
9. Miscellaneous........................................................17
9.1. No Waiver, Remedies Cumulative..............................17
9.2. Survival of Representations.................................17
9.3. Indemnity By Borrower; Expenses.............................18
9.4. Notices.....................................................18
9.5. Governing Law...............................................19
9.6. Successors and Assigns......................................19
9.7. Counterparts................................................19
9.8. No Usury....................................................19
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9.9. Powers......................................................19
9.10. Approvals...................................................19
9.11. Binding Arbitration; Preservation of Remedies...............20
9.12. Participations..............................................20
9.13. Waiver of Certain Defenses..................................21
9.14. Other Provisions............................................21
LIST OF SCHEDULES AND EXHIBITS................................................22
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REVOLVING CREDIT AGREEMENT
THIS RESTATED REVOLVING CREDIT AGREEMENT (the "Agreement"), dated as of
January 19, 2000, between IMRGLOBAL CORP., a Florida corporation ("Borrower"),
and FIRST UNION NATIONAL BANK, a national banking association ("Bank") restates
in its entirety that certain Revolving Credit Agreement dated as of December 28,
1999, executed by and between Borrower and Bank.
W I T N E S S E T H :
In consideration of the premises and of the mutual covenants herein contained
and to induce Bank to extend credit to Borrower, the parties agree as follows:
1. DEFINITIONS. Capitalized terms that are not otherwise defined herein shall
have the meanings set forth in Exhibit 1 hereto.
2. THE LOAN.
2.1. REVOLVING LOAN. Bank agrees, on the terms and conditions set forth
in this Agreement, to make Advances and to issue letters of credit to Borrower
from time to time during the Revolving Credit Period in amounts such that the
aggregate principal amount of Advances and the face amount of any letters of
credit at any one time outstanding will not exceed the Maximum Loan Amount (the
"Loan"). Within the foregoing limit, Borrower may borrow, prepay and reborrow
Advances at any time during the Revolving Credit Period.
2.2. REVOLVING NOTE. The Loan shall be evidenced by a promissory note
in the face amount of the Maximum Loan Amount dated the date hereof (the "Note")
and shall be payable in accordance with the terms of the Note and this
Agreement.
2.3. CASH MANAGEMENT SERVICES. If Borrower subscribes to Bank's cash
management services and such services are applicable to the Loan, the terms of
such services, as set forth in the Services Agreement, shall control the manner
in which funds are transferred between the Demand Deposit Account and the Loan
for credit or debit to the Loan.
2.4. ADVANCES.
(a) Bank, in its discretion, may require from Borrower a
signed written request for an Advance in form satisfactory to Bank, which
request shall be delivered to Bank no later than 12:00 noon (local time in
Tampa, Florida) on the date of the requested Advance, and shall specify the date
(which shall be a Business Day) and the amount of the proposed Advance and
provide such other information as Bank may require. Bank's acceptance of such a
request shall be indicated by its making the Advance requested. Such an Advance
shall be made available to Borrower in immediately available funds at Bank's
address referred to in Section 10.4.
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(b) Notwithstanding the foregoing, Bank may, in its sole and
absolute discretion, make or permit to remain outstanding Advances under the
Loan in excess of the original principal amount of the Note, and all such
amounts shall (i) be part of the Indebtedness evidenced by the Note, (ii) bear
interest as provided herein, (iii) be payable upon demand by Bank, and (iv) be
entitled to all rights and security as provided under the Loan Documents.
2.5. REPAYMENT OF LOAN.
(a) The Loan shall mature, and the principal amount thereof
and all interest, fees, expenses and other amounts payable under the Loan
Documents shall be due and payable, on the Termination Date.
(b) At any time after the occurrence of an Event of Default,
Bank shall have the right to set off against the Demand Deposit Account and/or
any other account maintained by Borrower with Bank amounts which are due under
the Loan.
(c) Borrower shall make each payment of principal of and
interest on the Loan and fees hereunder not later than 12:00 noon (local time
Tampa, Florida) on the date when due, without set off, counterclaim or other
deduction, in immediately available funds to Bank at its address referred to in
Section 9. Whenever any payment of principal of, or interest on, the Loan or of
fees shall be due on a day which is not a Business Day, the date for payment
thereof shall be extended to the next succeeding Business Day. If the date for
any payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(d) To the extent that the aggregate amount of all Advances
and the face amount of all outstanding letters of credit exceeds the Maximum
Loan Amount, the amount of such excess will be paid immediately to Bank upon
Bank's demand.
2.6. OVERDUE AMOUNTS. Any payments not made as and when due shall bear
interest from the date due until paid at the Default Rate, in Bank's discretion.
2.7. CALCULATION OF INTEREST; INTEREST RATE. All interest under the
Note or hereunder shall be calculated on the basis of the Actual/360
Computation, as defined in the Note. Interest shall accrue on the unpaid
principal balance of each Advance from the date such Advance is made available
to Borrower at a rate equal to the LIBOR Market Index Rate, as defined in the
Note, plus the Applicable Margin, as such rates may change from day to day,
provided, however, that after the occurrence of a Default, and otherwise as
provided in the Note, at Bank's option, the unpaid principal balance hereunder
shall bear interest at the Default Rate. As used herein, the term "Applicable
Margin" shall mean the following rate, as determined on the day three Business
Days after each Compliance Date:
(a) if the Funded Debt to EBITDA Ratio for the most recent
fiscal quarter of Borrower, as shown in the quarterly financial report delivered
by Borrower to Bank pursuant to Section 5.5 (a) and (c) herein, is less than
0.75:1, the Applicable Margin shall be 0.60%;
(b) if the Funded Debt to EBITDA Ratio for the most recent
fiscal quarter of Borrower, as shown in the quarterly financial report delivered
by Borrower to Bank pursuant to Section 5.5 (a) and (c) herein, is greater than
or equal to 0.75:1 and less than 1.00:1, the Applicable Margin shall be 0.85%;
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(c) if the Funded Debt to EBITDA Ratio for the most recent
fiscal quarter of Borrower, as shown in the quarterly financial report delivered
by Borrower to Bank pursuant to Section 5.5 (a) and (c) herein, is greater than
or equal to 1.00:1 and less than 1.25:1, the Applicable Margin shall be 1.25%;
and
(d) if the Funded Debt to EBITDA Ratio for the most recent
fiscal quarter of Borrower, as shown in the quarterly financial report delivered
by Borrower to Bank pursuant to Section 5.5 (a) and (c) herein, is greater than
or equal to 1.25:1, or if Borrower has not, on or before the Compliance Date,
delivered a quarterly financial report to Bank as required by such Section, the
Applicable Margin shall be 1.75%.
At all times prior to the first determination of the Applicable Margin, as
provided above, the Applicable Margin shall be 0.60%.
2.8. LETTERS OF CREDIT.
(a) At its discretion Bank may from time to time issue, extend
or renew letters of credit for the account of Borrower or its Subsidiaries. The
availability of Advances under the Loan shall be reduced by outstanding
obligations of Bank under any letters of credit. All payments made by Bank under
any such letters of credit (whether or not Borrower is the account party or
drawer) and all fees, commissions, discounts and other amounts owed or to be
owed to Bank in connection therewith, shall be deemed to be Advances under the
Note, and shall be repaid on demand. Borrower shall complete and sign such
applications and supplemental agreements and provide such other documentation as
Bank may require. The form and substance of all letters of credit, including
expiration dates, shall be subject to Bank's approval. Bank may charge a fee or
commission for issuance, renewal or extension of a letter of credit. Borrower
unconditionally guarantees all obligations of any Subsidiary with respect to
letters of credit issued by Bank for the account of such Subsidiary. Upon a
Default, Borrower shall, on demand, deliver to Bank good funds equal to 105% of
Bank's maximum liability under all outstanding letters of credit, to be held as
cash collateral for Borrower's reimbursement obligations and other Indebtedness.
(b) Any letter of credit issued hereunder shall be governed by
the Uniform Customs of Practice for Documentary Credit (1993 Rev.),
International Chamber of Commerce Publication No. 500, as revised from time to
time, except to the extent that the terms of such publication would limit or
diminish rights granted to Bank hereunder or in any other Loan Document.
2.9. FEES.
(a) Borrower shall pay to Bank a non-refundable facility fee
in the amount of $45,000.00, equal to .15% of the Maximum Loan Amount, payable
on the date of this Agreement.
(b) On the third Business Day after each Compliance Date,
beginning on the Compliance Date following the first quarter of 2000, and on the
date when the Loan is terminated, Borrower shall pay to Bank an availability fee
in an amount calculated as follows:
i. if the Funded Debt to EBITDA Ratio, for the most
recent fiscal quarter of Borrower, as shown in the
quarterly financial report delivered by Borrower to
Bank pursuant to Section 5.5 (a) and (c) herein, is
less than 0.75:1, a fee in the amount
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of one-quarter of 0.15% of the average daily unused
available amount of the Loan for the quarter
described in such report;
ii. if the Funded Debt to EBITDA Ratio, for the most
recent fiscal quarter of Borrower, as shown in the
quarterly financial report delivered by Borrower to
Bank pursuant to Section 5.5 (a) and (c) herein, is
greater than or equal to 0.75:1 and less than 1.00:1,
a fee in the amount of one-quarter of 0.20% of the
average daily unused available amount of the Loan for
the quarter described in such report;
iii. if the Funded Debt to EBITDA Ratio, for the most
recent fiscal quarter of Borrower, as shown in the
quarterly financial report delivered by Borrower to
Bank pursuant to Section 5.5 (a) and (c) herein, is
greater than or equal to 1.00:1 and less than 1.25:1,
a fee in the amount of one-quarter of 0.25% of the
average daily unused available amount of the Loan for
the quarter described in such report; and
iv. if the Funded Debt to EBITDA Ratio, for the most
recent fiscal quarter of Borrower, as shown in the
quarterly financial report delivered by Borrower to
Bank pursuant to Section 5.5 (a) and (c) herein, is
greater than or equal to 1.25:1, or if Borrower has
not, on or before the Compliance Date, delivered a
quarterly financial report to Bank as required by
such Section, a fee in the amount of one-quarter of
0.35% of the average daily unused available amount of
the Loan for the quarter described in such report.
2.10. STATEMENT OF ACCOUNT. If Bank provides Borrower with a statement
of account on a periodic basis, such statement will be presumed complete and
accurate, except as to any manifest error by Bank in the computation of amounts
paid by Borrower, and will be definitive and binding on Borrower, unless
objected to with specificity by Borrower in writing within forty-five (45) days
after receipt.
2.11. TERMINATION. Upon at least thirty (30) days prior written notice
to Bank, Borrower may, at its option, terminate this Agreement and the Loan
facility. Bank may terminate the Loan facility hereunder at any time, without
notice, upon or after the occurrence of an Event of Default.
2.12. COLLATERAL. To secure the full and timely performance of all the
obligations of Borrower and the Subsidiaries pursuant to the Loan Documents,
Borrower shall, upon execution of this Agreement and hereafter upon the
acquisition by Borrower of any direct or indirect subsidiary, execute and
deliver to Bank, and cause each Subsidiary to execute and deliver to Bank, one
or more Stock Pledge Agreements and other agreements required by Bank, in form
and substance satisfactory to Bank, granting to Bank a first priority, perfected
security interest in all the equity interests of each direct or indirect United
States subsidiary of Borrower and at least 65% of the voting equity interests of
each direct or indirect non-United States subsidiary of Borrower (or such lesser
percentage of voting equity interests specified in Exhibit 2.12), and shall
concurrently deliver to Bank the original certificates evidencing such equity
interests, duly pledged to Bank (or, if any such stock is uncertificated, such
control agreements and other agreements as are required by Bank to ensure that
it has a first priority, perfected security interest in such stock), together
with stock powers and other agreements required by Bank, provided, however, that
Bank acknowledges that the equity interest of those Subsidiaries organized under
the laws of France, Mauritius and Japan may not be evidenced by certificates and
may not be susceptible to pledge under the applicable governing laws.
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3. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance, the following
conditions shall have been satisfied, in the sole opinion of Bank and its
counsel:
3.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE. In addition to any other
requirement set forth in this Agreement, Bank will not make the initial Advance
under the Loan unless and until the following conditions shall have been
satisfied:
(a) LOAN DOCUMENTS. Borrower and each other party to any Loan
Document, as applicable, shall have executed and delivered this Agreement, the
Note, and other required Loan Documents, all in form and substance satisfactory
to Bank.
(b) SUPPORTING DOCUMENTS. Borrower shall cause to be delivered
to Bank the following documents:
(i) A copy of the governing instruments of Borrower,
each Foreign Subsidiary and each Guarantor, and a good standing certificate of
Borrower, each Foreign Subsidiary and each such Guarantor, certified by the
appropriate official of its state of incorporation and the State of Florida, if
different;
(ii) A copy of the bylaws, partnership agreement or
operating agreement of Borrower, each Foreign Subsidiary and each Guarantor, as
applicable, certified as to completeness and accuracy by an appropriate office,
manager or partner of such Borrower, Foreign Subsidiary or Guarantor, as
applicable;
(iii) Incumbency certificate and certified
resolutions of the board of directors (or other appropriate Persons) of Borrower
and each other Person executing any Loan Documents, signed by the Secretary or
another authorized officer of Borrower or such other Person, authorizing the
execution, delivery and performance of the Loan Documents;
(iv) The legal opinion of Borrower's and any
Guarantor's or Foreign Subsidiary's legal counsel addressed to Bank regarding
such matters as Bank and its counsel may request; and
(v) Satisfactory evidence of payment of all fees due
and reimbursement of all costs incurred by Bank, and evidence of payment to
other parties of all fees or costs which Borrower is required under this
Agreement to pay by the date hereof.
(c) INSURANCE. Borrower shall have delivered to Bank
satisfactory evidence of insurance meeting the requirements of Section 5.2.
(d) SUBORDINATIONS. Bank shall have received subordinations
satisfactory to it from all Guarantors, Foreign Subsidiaries and Affiliates as
required by Section 5.8.
(e) ADDITIONAL DOCUMENTS. Borrower shall have delivered to
Bank all additional opinions, documents, certificates and other assurances that
Bank or its counsel may require.
(f) PAYMENT OF FEES. Borrower shall have paid all fees, costs
and expenses as required by the Loan Documents in connection with the Closing.
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3.2. CONDITIONS PRECEDENT TO EACH ADVANCE. The following conditions, in
addition to any other requirements set forth in this Agreement, shall have been
met or performed by the Advance Date with respect to any Advance Request and
each Advance Request (whether or not a written Advance Request is required)
shall be deemed to be a representation that all such conditions have been
satisfied:
(a) ADVANCE REQUEST. Borrower shall have delivered to Bank an
Advance Request and other information, as required under Section 2.4(a), unless
the procedures described in Section 2.3 are in effect.
(b) NO DEFAULT. No Default shall have occurred and be
continuing or would occur upon the making of the Advance in question and, if
Borrower is required to deliver a written Advance Request, Borrower shall have
delivered to Bank an officer's certificate to such effect, which may be
incorporated in the Advance Request.
(c) CORRECTNESS OF REPRESENTATIONS. All representations and
warranties made by Borrower and any Guarantor herein or otherwise in writing in
connection herewith shall be true and correct in all material respects with the
same effect as though the representations and warranties had been made on and as
of the proposed Advance Date, and, if Borrower is required to deliver a written
Advance Request, Borrower shall have delivered to Bank an officer's certificate
to such effect, which may be incorporated in the Advance Request.
(d) NO ADVERSE CHANGE. There shall have been no change which
could have a Material Adverse Effect on the condition, financial or otherwise,
of Borrower, any Subsidiary or any Guarantor from such condition as it existed
on the date of the most recent financial statements of such Person delivered
prior to date hereof.
(e) LIMITATIONS NOT EXCEEDED. The proposed Advance shall not
cause the outstanding principal balance of the Loan to exceed the Maximum Loan
Amount.
(f) NO TERMINATION. Bank shall (i) have timely received all
financial information from all Guarantors and Foreign Subsidiaries as required
under the Loan Documents, and (ii) not have received notice from any Guarantor
or any surety terminating or repudiating such Person's guaranty of the
Indebtedness incurred by Borrower.
(g) FURTHER ASSURANCES. Borrower shall have delivered such
further documentation or assurances as Bank may reasonably require.
(h) ADDITIONAL GUARANTIES. Borrower shall have obtained and
delivered to Bank an executed Guaranty Agreement, in form and substance
satisfactory to Bank, from any other direct or indirect Subsidiary or other
Affiliate of Borrower to whom Borrower has made or will make advances,
transfers, loans or investments in an aggregate amount in excess of
$1,000,000.00 (and, if any such Subsidiary or other Affiliate is owned, in part
or whole, by another direct or indirect Subsidiary or other Affiliate of
Borrower, from such other Subsidiary or Affiliate), provided that (i) Borrower
will have no obligation to obtain and deliver to Bank a Guaranty in connection
with an advance, transfer, loan or investment which is expressly permitted under
Section 6.4(a) or (b) hereof, and (ii) on Bank's approval, which shall not be
unreasonably withheld, Borrower shall have the right to make advances in excess
of $1,000,000.00 to a Foreign Subsidiary without the necessity of delivering to
Bank a Guaranty from such Foreign Subsidiary.
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4. REPRESENTATIONS AND WARRANTIES. In order to induce Bank to enter into this
Agreement and to make the Loan provided for herein, Borrower makes the following
representations and warranties, all of which shall survive the execution and
delivery of the Loan Documents. Unless otherwise specified, such representations
and warranties shall be deemed made as of the date hereof and as of the Advance
Date of any Advance by Bank to Borrower:
4.1. VALID EXISTENCE AND POWER. Each of Borrower and each Subsidiary is
an entity duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and is duly qualified or licensed to
transact business in all places where the failure to be so qualified would have
a Material Adverse Effect on it. Each of Borrower and each other Person which is
a party to any Loan Document (other than Bank) has the power to make and perform
the Loan Documents executed by it and all such instruments will constitute the
legal, valid and binding obligations of such Person, enforceable in accordance
with their respective terms, subject only to bankruptcy and similar laws
affecting creditors' rights generally.
4.2. AUTHORITY. The execution, delivery and performance thereof by
Borrower and each other Person (other than Bank) executing any Loan Document
have been duly authorized by all necessary action of such Person, and do not and
will not violate any provision of law or regulation, or any writ, order or
decree of any court or governmental or regulatory authority or agency or any
provision of the governing instruments of such Person, and do not and will not,
with the passage of time or the giving of notice, result in a breach of, or
constitute a default or require any consent under, or result in the creation of
any Lien upon any property or assets of such Person pursuant to, any law,
regulation, instrument or agreement to which any such Person is a party or by
which any such Person or its respective properties may be subject, bound or
affected.
4.3. FINANCIAL CONDITION. Other than as disclosed in financial
statements dated as of September 30, 1999, and delivered to Bank, neither
Borrower nor any Subsidiary has any direct or contingent obligations or
liabilities (including any guarantees or leases) or any material unrealized or
anticipated losses from any commitments of such Person except as described on
Exhibit 4.3 (if any). All such financial statements have been prepared in
accordance with GAAP and fairly present the financial condition of Borrower or
the Subsidiary, as the case may be, as of the date thereof. Borrower is not
aware of any material adverse fact (other than facts which are generally
available to the public and not particular to Borrower, such as general economic
or industry trends) concerning the conditions or future prospects of Borrower or
any Subsidiary which has not been fully disclosed to Bank, including any adverse
change in the operations or financial condition of such Person since the date of
the most recent financial statements delivered to Bank. Borrower and each
Subsidiary is Solvent, and after consummation of the transactions set forth in
this Agreement and the other Loan documents, Borrower and each Subsidiary will
be Solvent.
4.4. LITIGATION. Except as disclosed on Exhibit 4.4 (if any), there are
no suits or proceedings pending, or to the knowledge of Borrower threatened,
before any court or by or before any governmental or regulatory authority,
commission, bureau or agency or public regulatory body against or affecting
Borrower or any Subsidiary, or their assets, which if adversely determined would
have a Material Adverse Effect on the financial condition or business of
Borrower or such Subsidiary.
4.5. AGREEMENTS, ETC. Neither Borrower nor any Subsidiary is a party to
any agreement or instrument or subject to any court order, governmental decree
or any charter or other corporate restriction,
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adversely affecting its business, assets, operations or condition (financial or
otherwise), nor is any such Person in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in any
agreement or instrument to which it is a party, or any law, regulation, decree,
order or the like.
4.6. AUTHORIZATIONS. All authorizations, consents, approvals and
licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by Borrower or any Subsidiary or for
the conduct of any business in which it is engaged have been duly issued and are
in full force and effect, and it is not in default, nor has any event occurred
which with the passage of time or the giving of notice, or both, would
constitute a default, under any of the terms or provisions of any part thereof,
or under any order, decree, ruling, regulation, closing agreement or other
decision or instrument of any governmental commission, bureau or other
administrative agency or public regulatory body having jurisdiction over such
Person, which default would have a material adverse effect on such Person.
Except as noted herein, no approval, consent or authorization of, or filing or
registration with, any governmental commission, bureau or other regulatory
authority or agency is required with respect to the execution, delivery or
performance of any Loan Document.
4.7. TITLE. Each of Borrower and each Subsidiary has good title to all
of the assets shown in its financial statements free and clear of all Liens,
except Permitted Liens.
4.8. COLLATERAL. The security interests granted to Bank pursuant to any
Security Agreement (a) constitute and, as to subsequently acquired property
included in the collateral covered by the Security Agreement, will be fully
perfected, superior and prior to the rights of all third persons, now existing
or hereafter arising; and (b) are, and as to such subsequently acquired
collateral will be, fully perfected, superior and prior to the rights of all
third persons, now existing or hereafter arising.
4.9. LOCATION. The chief executive office of each of Borrower, the
Guarantors and the Foreign Subsidiaries, where its business records are located,
and all of the other places of business of Borrower, the Guarantors and the
Foreign Subsidiaries, are all located at the addresses indicated on Exhibit 4.9.
4.10. TAXES. Borrower and each Subsidiary have filed all federal and
state income and other tax returns which are required to be filed, and have paid
all taxes as shown on said returns and all taxes, including withholding, FICA
and AD VALOREM taxes, shown on all assessments received by it to the extent that
such taxes have become delinquent. Neither Borrower nor any Subsidiary is
subject to any federal, state or local tax Liens nor has such Person received
any notice of deficiency or other official notice to pay any taxes. Borrower and
each Subsidiary have paid all sales and excise taxes payable by it.
4.11. LABOR LAW MATTERS. No goods or services have been or will be
produced by Borrower or any Subsidiary in violation of any applicable labor laws
or regulations or any collective bargaining agreement or other labor agreements
or in violation of any minimum wage, wage-and-hour or other similar laws or
regulations.
4.12. JUDGMENT LIENS. Neither Borrower nor any Subsidiary, nor any of
their assets, are subject to any unpaid judgments (whether or not stayed) or any
judgment liens in any jurisdiction.
4.13. SUBSIDIARIES. Borrower's Subsidiaries are listed on Exhibit 4.13.
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4.14. ENVIRONMENTAL. Except as disclosed on Exhibit 4.14, and except
for ordinary and customary amounts of solvents, cleaners and similar materials
used in the ordinary course of Borrower's and the Guarantors' and Foreign
Subsidiaries' businesses and in strict compliance with all Environmental Laws,
no such Person, nor to Borrower's best knowledge any other previous owner or
operator of any real property currently owned or operated by Borrower or any
Guarantor or any Foreign Subsidiary, has generated, stored or disposed of any
Regulated Material on any portion of such property, or transferred any Regulated
Material from such property to any other location in violation of any applicable
Environmental Laws. Except as disclosed on Exhibit 4.14, no Regulated Material
has been generated, stored or disposed of on any portion of the real property
currently owned or operated by Borrower by any other Person, or is now located
on such property. Except as disclosed on Exhibit 4.14, each of Borrower, the
Guarantors, and the Foreign Subsidiaries is in full compliance with all
applicable Environmental Laws and none of them has been notified of any action,
suit, proceeding or investigation which calls into question compliance by
Borrower or any Guarantor or Foreign Subsidiary with any Environmental Laws or
which seeks to suspend, revoke or terminate any license, permit or approval
necessary for the generation, handling, storage, treatment or disposal of any
Regulated Material.
4.15. ERISA. Borrower has furnished to Bank true and complete copies of
the latest annual report required to be filed pursuant to Section 104 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), with
respect to each employee benefit plan or other plan maintained for employees of
Borrower or any Subsidiary or any Guarantor and covered by Title IV of ERISA (a
"Plan"), and no Termination Event (as hereinafter defined) with respect to any
Plan has occurred and is continuing. For the purposes of this Agreement, a
"Termination Event" shall mean a "reportable event" as defined in Section
4043(b) of ERISA, or the filing of a notice of intent to terminate under Section
4041 of ERISA. Neither Borrower nor any Subsidiary nor any Guarantor has any
unfunded liability with respect to any such Plan.
4.16. INVESTMENT COMPANY ACT. Neither Borrower nor any Subsidiary is an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
4.17. NAMES. Each of Borrower and the Subsidiaries currently conducts
all business only under its legal name as set forth above in the introductory
section of this Agreement or in SCHEDULE B. Except as disclosed on Exhibit 4.17,
during the preceding five (5) years, neither Borrower nor any Subsidiary has (i)
been known as or used any other corporate, fictitious or trade name, (ii) been
the surviving entity of a merger or consolidation or (iii) acquired all or
substantially all of the assets of any Person.
4.18. INSIDER. Borrower is not, and no Person having "control" (as that
term is defined in 12 U.S.C.ss. 375(b)(5) or in regulations promulgated pursuant
thereto) of Borrower is, an "executive officer," "director," or "principal
shareholder" (as those terms are defined in 12 U.S.C. ss. 375(b) or in
regulations promulgated pursuant thereto) of Bank, of a bank holding company of
which Bank is a subsidiary, or of any subsidiary of a bank holding company of
which Bank is a subsidiary.
4.19. COMPLIANCE WITH COVENANTS; NO DEFAULT. Borrower is, and upon
funding of the Loan will be, in compliance with all of the covenants hereof. No
Default has occurred, and the execution, delivery and performance of the Loan
Documents and the funding of the Loan will not cause a Default.
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4.20. FULL DISCLOSURE. There is no material fact which is known or
which should be known by Borrower that Borrower has not disclosed to Bank which
could have a Material Adverse Effect. No Loan Document, nor any agreement,
document, certificate or statement delivered by Borrower to Bank, contains any
untrue statement of a material fact or omits to state any material fact which is
known or which should be known by Borrower necessary to keep the other
statements from being misleading.
4.21. ADDITIONAL REPRESENTATIONS. Any additional representations or
warranties set forth on Exhibit 4.21 (if any) hereto are true and correct in all
material respects.
5. AFFIRMATIVE COVENANTS OF BORROWER. Unless otherwise approved in writing by
Bank, Borrower covenants and agrees that from the date hereof and until payment
in full of the Indebtedness and the formal termination of this Agreement,
Borrower and each Subsidiary:
5.1. USE OF LOAN PROCEEDS. Shall use the proceeds of the Loan only for
general corporate purposes, including acquisition of subsidiaries, and furnish
Bank all evidence that it may reasonably require with respect to such use.
5.2. INSURANCE. Shall maintain such liability insurance, workers'
compensation insurance, business interruption insurance and casualty insurance
as may be required by law, customary and usual for prudent businesses in its
industry or as may be reasonably required by Bank.
5.3. NOTICE OF DEFAULT. Shall provide to Bank immediate notice of (a)
the occurrence of a Default and what action (if any) Borrower is taking to
correct the same, (b) any material litigation or material changes in existing
litigation or any judgment against it or its assets, (c) any material damage or
loss to property, (d) any notice from taxing authorities as to claimed
deficiencies in an amount greater than $100,000.00 or any tax lien or any notice
relating to alleged ERISA violations, (e) any Reportable Event, as defined in
ERISA, (f) the cancellation or termination of, or any default under, any
material agreement to which Borrower is a party or by which any of its
properties are bound, or any acceleration of the maturity of any Debt of
Borrower; and (g) any loss or threatened loss of material licenses or permits.
5.4. INSPECTIONS. Shall permit inspections of the records of such
Person pertaining thereto at such times and in such manner as may be reasonably
required by Bank and shall further permit such inspections, reviews and field
examinations of its other records and its properties (with such reasonable
frequency and at such reasonable times as Bank may desire) by Bank as Bank may
deem necessary or desirable from time to time. The cost of such field
examinations, reviews, verifications and inspections shall be borne by Borrower
if an Event of Default has occurred.
5.5. FINANCIAL INFORMATION. Shall maintain books and records in
accordance with GAAP and shall furnish to Bank the following periodic financial
information:
(a) INTERIM STATEMENTS. Within forty-five (45) days after the
end of each quarter, an unaudited management prepared balance sheet of Borrower
and its Subsidiaries at the end of that period and an unaudited management
prepared income statement and statement of cash flows for that period (and for
the portion of the fiscal year ending with such period), together with all
supporting schedules, setting forth in comparative form the figures for the same
period of the preceding fiscal year, and certified by the chief financial
officer of Borrower as true and correct and fairly representing the financial
condition of
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Borrower and its Subsidiaries and that such statements are prepared in
accordance with GAAP, except without footnotes and subject to normal year-end
audit adjustments;
(b) ANNUAL STATEMENTS. Within ninety (90) days after the end
of each fiscal year, a detailed audited financial report of Borrower and its
Subsidiaries containing a consolidated and consolidating balance sheet at the
end of that period and a consolidated and consolidating income statement and
statement of cash flows for that period, setting forth in comparative form the
figures for the preceding fiscal year, together with all supporting schedules
and footnotes, and containing an audit/review opinion of independent certified
public accountants acceptable to Bank that the financial statements were
prepared in accordance with GAAP. Borrower shall obtain such written
acknowledgments from Borrower's independent certified public accountants as Bank
may require permitting Bank to rely on such annual financial statements. Any
management letter, supplemental letter, or other document accompanying the
report will also be provided to Bank. In addition, promptly upon receipt, one
copy of each written report submitted to Borrower by independent accountants for
any other annual, quarterly or special audit will be provided to Bank;
(c) NO DEFAULT CERTIFICATES. Together with each report
required by Subsection (a) and (b), a certificate of its president or chief
financial officer that no Default then exists or if a Default exists, the nature
and duration thereof and Borrower's intention with respect thereto, and in
addition, shall cause Borrower's independent auditors (if applicable) to submit
to Bank, together with its audit report, a statement that, in the course of such
audit, it discovered no circumstances which it believes would result in a
Default or if it discovered any such circumstances, the nature and duration
thereof;
(d) COVENANT COMPLIANCE CERTIFICATES. Together with each
report required by Subsection (a), (b) an (c), a certificate of its president or
chief financial officer detailing calculation of and compliance with the Other
Covenants of Borrower described in Section 7;
(e) AUDITOR'S MANAGEMENT LETTERS. Promptly upon receipt
thereof, copies of each report submitted to Borrower by independent public
accountants in connection with any annual, interim or special audit made by them
of the books of Borrower including, without limitation, each report submitted to
Borrower concerning its accounting practices and systems and any final comment
letter submitted by such accountants to management in connection with the annual
audit of Borrower;
(f) STATEMENTS OF GUARANTORS. Within ninety (90) days after
the end of each fiscal year, a detailed audited financial report of any
Guarantor or Foreign Subsidiary which is not included in the consolidated
financial reports of Borrower, containing a consolidated and consolidating
balance sheet at the end of that period and a consolidated and consolidating
income statement and statement of cash flows for that period for the Guarantor
or Foreign Subsidiary and its subsidiaries, setting forth in comparative form
the figures for the preceding fiscal year, together with all supporting
schedules and footnotes, and containing an audit opinion of independent
certified public accountants acceptable to Bank that the financial statements
were prepared in accordance with GAAP. Borrower shall obtain such written
acknowledgments from the Guarantors' or Foreign Subsidiaries' independent
certified public accountants as Bank may require permitting Bank to rely on such
annual financial statements; and
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<PAGE>
(g) OTHER INFORMATION. Such other information reasonably
requested by Bank from time to time concerning the business, properties or
financial condition of Borrower, Guarantor, the Foreign Subsidiaries and their
respective Subsidiaries; and
5.6. MAINTENANCE OF EXISTENCE AND RIGHTS. Borrower will preserve and
maintain its corporate existence, authorities to transact business, rights and
franchises, trade names, patents, trademarks and permits necessary to the
conduct of its business.
5.7. PAYMENT OF TAXES, ETC. Shall pay before delinquent all of its
debts and taxes, except that Bank shall not unreasonably withhold its consent to
nonpayment of taxes being actively contested in accordance with law (provided
that Bank may require bonding or other assurances).
5.8. SUBORDINATION. Shall cause all debt and other obligations now or
hereafter owed to any Guarantor or Affiliate to be subordinated in right of
payment (provided that such debt and other obligations may be paid according to
their terms so long as no Default or Event of Default has occurred) and security
to the Indebtedness in accordance with subordination agreements satisfactory to
Bank.
5.9. COMPLIANCE; HAZARDOUS MATERIALS. Shall strictly comply with all
laws, regulations, ordinances and other legal requirements, specifically
including, without limitation, ERISA, all securities laws and all laws relating
to hazardous materials and the environment. Unless approved in writing by Bank,
neither Borrower nor any Subsidiary shall engage in the storage, manufacture,
disposition, processing, handling, use or transportation of any hazardous or
toxic materials, whether or not in compliance with applicable laws and
regulations.
5.10. COMPLIANCE WITH ASSIGNMENT LAWS. Shall if required by Bank comply
with the Federal Assignment of Claims Act and any other applicable law relating
to assignment of government contracts.
5.11. FURTHER ASSURANCES. Shall take such further action and provide to
Bank such further assurances as may be reasonably requested to ensure compliance
with the intent of this Agreement and the other Loan Documents.
5.12. YEAR 2000 COMPATIBILITY. Shall take all action necessary to
assure that Borrower's computer based systems are able to operate and
effectively process data including dates on or after January 1, 2000, and shall
furnish to Bank a Year 2000 questionnaire and assessment provided by, and in
form and substance acceptable to, Bank.
6. NEGATIVE COVENANTS OF BORROWER. Unless otherwise approved in writing by Bank,
Borrower covenants and agrees that from the date hereof and until payment in
full of the Indebtedness and the formal termination of this Agreement, Borrower
and each Subsidiary:
6.1. DEBT. Shall not, directly or indirectly, create incur, assume or
become liable for any additional indebtedness, whether contingent or direct, if
giving effect to such additional indebtedness on a pro forma basis causes the
aggregate amount of Borrower's debt, excluding the Loan, to exceed
$5,000,000.00, except for the indebtedness, if any, described on SCHEDULE C
attached hereto.
6.2. LIENS. Shall not create or permit any Liens on any of its property
except Permitted Liens, and, in any event, Borrower shall not create or permit
Liens (including without limitation Permitted Liens) which secure in the
aggregate more than the amount of indebtedness permitted under Section 6.1
hereof.
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6.3. DIVIDENDS. Shall not pay or declare any dividends (other than
stock dividends) or other distribution or purchase, redeem or otherwise acquire
any stock or other equity interests, except for the acquisition of treasury
stock on the open market, or pay or acquire any debt subordinate to the
Indebtedness unless, after giving effect thereto, there shall be no Default
hereunder and such payment or acquisition is specifically permitted by Exhibit
6.3 hereto (if any); provided, however, that any Subsidiary may pay dividends to
Borrower or another Subsidiary wholly-owned by Borrower.
6.4. LOANS AND OTHER INVESTMENTS. Shall not make or permit to exist any
advances or loans to, or guarantee or become contingently liable, directly or
indirectly, in connection with the obligations, leases, stock or dividends of,
or own, purchase or make any commitment to purchase any stock, bonds, notes,
debentures or other securities of, or any interest in, or make any capital
contributions to (all of which are sometimes collectively referred to herein as
"Investments") any Person except for (a) investments of up to two years in
duration described in SCHEDULE D attached hereto; (b) an unsecured line of
credit from Borrower to Satish Sanan in an amount up to $5,000,000.00, bearing
interest at a rate no less than one percent (1%) above the Prime Rate, (c)
guaranties issued by IMRGlobal Corp. with respect to the performance by a
Subsidiary of agreements (excluding agreements relating to the repayment of
loans) entered into by the Subsidiary, to the extent such guaranties are
necessary in the ordinary course of such Subsidiary's business, and (d)
advances, transfers, loans or investments in Guarantors and advances, transfers,
loans and investments up to $1,000,000.00 in the aggregate to or in any
Subsidiary which is not a Guarantor, provided that, so long as no Event of
Default has occurred, Bank shall not unreasonably withhold its approval of
advances, transfers, loans or investments to or in any Foreign Subsidiary.
6.5. CHANGE IN BUSINESS. Shall not enter into any business which is
substantially different from the business in which it is presently engaged.
6.6. TRANSACTIONS WITH AFFILIATES. Shall not directly or indirectly
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, pay any management fees to or otherwise deal with, in the ordinary
course of business or otherwise, any Affiliate (other than a Subsidiary);
provided, however, that any acts or transactions prohibited by this Section (and
not otherwise prohibited under this Agreement) may be performed or engaged in
after written notice to Bank if upon terms not less favorable to Borrower or
such Subsidiary than if no such relationship existed.
6.7. NO CHANGE IN OFFICES. Shall not, unless it shall have given 60
days' advance written notice thereof to Bank, change the location of its chief
executive office or other office where books or records are kept.
6.8. NO SALE, LEASEBACK. Shall not enter into any sale-and-leaseback or
similar transaction.
6.9. MARGIN STOCK. Shall not use any proceeds of the Loan to purchase
or carry any margin stock (within the meaning of Regulation U of the Board of
Governors of Federal Reserve System) or extend credit to others for the purpose
of purchasing or carrying any margin stock.
6.10. SUBSIDIARIES. Shall not permit any Subsidiary to issue capital
stock except to its parent.
6.11. CHANGE OF OWNERSHIP. Shall not issue, sell or otherwise dispose
of any of its equity interests or other securities, or rights, warrants or
options to purchase or acquire any such equity interests
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<PAGE>
or securities or otherwise participate in any change in the ownership of
Borrower without the prior written consent of Bank, which consent shall not be
unreasonably withheld.
6.12. CHANGE OF NAME. Shall give Bank thirty (30) days prior written
notice of any change of name or any new trade or fictitious name. Borrower's and
any Subsidiary's use of any trade or fictitious name shall be in compliance with
all laws regarding the use of such names.
6.13. LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF
SUBSTANTIAL ASSETS. Shall not dissolve or liquidate, or become a party to any
merger or consolidation, or sell, transfer, lease or otherwise dispose of all or
a substantial part (more than 10% in the aggregate during the term hereof) of
its property or assets, except for the sale of Inventory in the ordinary course
of business, or, without the prior written consent of Bank (which shall not be
unreasonably withheld), sell or dispose of any equity ownership interests in any
Subsidiary.
6.14. CHANGE OF FISCAL YEAR OR ACCOUNTING METHODS. Shall not change its
fiscal year or its accounting methods without the prior written consent of Bank,
provided that Borrower or any Subsidiary may, after notice to Bank, change its
fiscal year end to December 31, and provided that Borrower or any Subsidiary may
change its accounting methods to the extent necessary to comply with GAAP, or
otherwise as necessary to fairly describe Borrower's financial condition, so
long as Borrower discloses all such changes to Bank in advance, no such change
will make any reports furnished to Bank misleading, and Borrower provides to
Bank immediately upon request supplemental financial information which would
allow Bank to fairly and completely compare current reports with prior reports
received by Bank.
6.15. LOAN ADVANCES, TRANSFERS, LOANS AND INVESTMENTS IN CERTAIN
SUBSIDIARIES. Shall not make any advances, transfers, loans or investments in an
aggregate amount in excess of $1,000,000.00 to or in any Subsidiary, or other
Affiliate, which is not a Guarantor, except as expressly permitted under Section
6.4(a) and (b) hereof, except that, so long as no Event of Default has occurred,
Bank shall not unreasonably withhold its approval of advances, transfers, loans
or investments to or in a Foreign Subsidiary.
6.16. PREPAYMENT OF OTHER DEBT.Shall not retire any long term debt at a
date in advance of its legal obligation to do so, provided that, so long as no
Event of Default has occurred, Borrower may retire up to $1,000,000.00 in long
term debt of any Subsidiary and may retire any part or all of the long-term debt
of any newly acquired Subsidiary which becomes a Guarantor.
6.17. DEFAULT ON OTHER CONTRACTS OR OBLIGATIONS. Shall not default on
any material contract with or obligation when due to a third party or default in
the performance of any obligation to a third party incurred for money borrowed.
7. OTHER COVENANTS OF BORROWER. Borrower covenants and agrees that from the date
hereof and until payment in full of the Indebtedness and the formal termination
of this Agreement, Borrower shall comply with the following additional
covenants:
FUNDED DEBT TO ADJUSTED EBITDA RATIO. Borrower shall, at all
times, maintain on a consolidated basis a Funded Debt to EBITDA Ratio of less
than 1.50 to 1.00. This covenant shall be calculated quarterly on a rolling four
quarters basis. "Funded Debt to EBITDA Ratio" shall mean the sum of all Funded
Debt divided by Adjusted EBITDA. "Funded Debt" shall mean, as applied to any
person or
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entity, the sum of all indebtedness for borrowed money (including, without
limitation, capital lease obligations, obligations under synthetic leases,
subordinated debt (including debt subordinated to Bank), and unreimbursed
drawings under letters of credit), or any other monetary obligation evidenced by
a note, bond, debenture or other agreement or similar instrument of that person
or entity. "Adjusted EBITDA" shall be defined as consolidated net income from
continuing operations plus consolidated depreciation and amortization plus
interest expense plus income taxes, provided that Adjusted EBITDA for any
four-quarter period which includes the last quarter of 1999 or the first quarter
of 2000 shall also be increased by the charges itemized on SCHEDULE E attached
hereto.
DEPOSIT RELATIONSHIP. Borrower shall maintain its primary
depository account and cash management account with Bank.
TANGIBLE NET WORTH. Borrower shall, at all times, maintain on
a consolidated basis a Tangible Net Worth of at least the following:
<TABLE>
<CAPTION>
PERIOD TANGIBLE NET WORTH
------ ------------------
<S> <C>
As of December 31, 1999 $118,000,000.00
As of the end of the first, second and third fiscal quarters of $ 86,000,000.00
2000
As of the end of Fiscal Year 2000 and the end of the first, $110,000,000.00
second and third fiscal quarters of 2001
As of the end of Fiscal Year 2001 and thereafter $150,000,000.00
</TABLE>
"Tangible Net Worth" shall mean the total assets minus total liabilities. For
purposes of this computation, the aggregate amount of any intangible assets of
Borrower including, without limitation, goodwill, franchises, licenses, patents,
trademarks, trade names, copyrights, service marks, and brand names, shall be
subtracted from total assets, and total liabilities shall include debt fully
subordinated to Bank on terms and conditions acceptable to Bank.
TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. Borrower shall,
at all times, maintain on a consolidated basis a ratio of Total Liabilities,
divided by Tangible Net Worth of not more than the following:
PERIOD TANGIBLE NET WORTH
------ ------------------
Calendar Year 2000 1.5 to 1.0
Calendar Year 2001 1.25 to 1.0
Thereafter 1.0 to 1.0
For purposes of this computation, "Total Liabilities" shall mean all liabilities
of Borrower, excluding debt fully subordinated to Bank on terms and conditions
acceptable to Bank, and including capitalized leases, synthetic leases and all
reserves for deferred taxes and other deferred sums appearing on the liabilities
side of a balance sheet of Borrower, in accordance with generally accepted
accounting principles applied on a consistent basis.
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8. DEFAULT.
8.1. EVENTS OF DEFAULT. Each of the following shall constitute a
Default:
(a) There shall occur any default by Borrower in the payment,
when due, of any principal of or interest on the Note, any amounts due hereunder
or any other Loan Document, or any other Indebtedness; or
(b) There shall occur any default by Borrower or any other
party to any Loan Document (other than Bank) in the performance of any
agreement, covenant or obligation contained in this Agreement or such Loan
Document not provided for elsewhere in this Section 8; or
(c) Any representation or warranty made by Borrower or any
other party to any Loan Document (other than Bank) herein or therein or in any
certificate or report furnished in connection herewith or therewith shall prove
to have been untrue or incorrect in any material respect when made; or
(d) Any other obligation now or hereafter owed by Borrower, or
a majority shareholder of any Subsidiary, to Bank shall be in default and not
cured within the grace period, if any, provided therein, or any such Person
shall be in default under any obligation in excess of $1,000,000.00 owed to any
other obligee, which default entitles the obligee to accelerate any such
obligations or exercise other remedies with respect thereto; or
(e) Borrower or any Subsidiary or Guarantor shall (A)
voluntarily dissolve, liquidate or terminate operations or apply for or consent
to the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of such Person or of all or of a substantial part of its
assets, (B) admit in writing its inability, or be generally unable, to pay its
debts as the debts become due, (C) make a general assignment for the benefit of
its creditors, (D) commence a voluntary case under the federal Bankruptcy Code
(as now or hereafter in effect), (E) file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency, reorganization, winding-up,
or composition or adjustment of debts, (F) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under Bankruptcy Code, or (G) take any corporate action for
the purpose of effecting any of the foregoing; or
(f) An involuntary petition or complaint shall be filed
against Borrower or any Subsidiary or any Guarantor seeking bankruptcy relief or
reorganization or the appointment of a receiver, custodian, trustee, intervenor
or liquidator of Borrower or any Subsidiary or any Guarantor, of all or
substantially all of its assets, and such petition or complaint shall not have
been dismissed within sixty (60) days of the filing thereof; or an order, order
for relief, judgment or decree shall be entered by any court of competent
jurisdiction or other competent authority approving or ordering any of the
foregoing actions;
(g) A judgment in excess of $1,000,000.00 shall be rendered
against the Borrower or any Subsidiary or Guarantor and shall remain
undischarged, undismissed and unstayed for more than ten days (except judgments
validly covered by insurance with a deductible of not more than $1,000,000.00)
or there shall occur any levy upon, or attachment, garnishment or other seizure
of, assets of Borrower or a Subsidiary, where the amount of the underlying claim
exceeds $1,000,000.00; or
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<PAGE>
(h) Borrower, any Subsidiary or any Guarantor shall fail to
pay, on demand, any returned or dishonored draft, check, or other item which has
been deposited to the Demand Deposit Account or otherwise presented to Bank and
for which Borrower has received provisional credit; or
(i) Any Guarantor shall repudiate or revoke any Guaranty
Agreement; or
(j) There shall occur any change in the financial condition of
Borrower, on a consolidated basis, which, in the reasonable opinion of Bank,
could have a Material Adverse Effect.
8.2. CURE PERIOD. Borrower shall have five days after first receiving
notice of any Default under clauses 8.1 (a), (b), (d), (h), (i), or (j) above
("Cure Period") in order to cure such Default, provided that: (a) such Default
is subject to being cured with the Cure Period, (b) Borrower exercises due
diligence during the Cure Period to cure the Default, (c) a delay in exercising
its remedies would not, in Bank's discretion, impair the Bank's ability to
protect its interest in collateral securing the Indebtedness, and (d) there was
not, within one year prior to such Default, a Default under the same covenant or
provision in the Loan Documents. Borrower shall have no rights to cure any
Default under clauses 8.1(c), (e), (f) and (g) above.
8.3. REMEDIES. If any Default shall occur, Bank may, without notice to
Borrower, at its option, withhold further Advances to Borrower. If an Event of
Default shall have occurred and be continuing, Bank may at its option, declare
any or all Indebtedness to be immediately due and payable (if not earlier
demanded), terminate its obligation to make Advances to Borrower, bring suit
against Borrower to collect the Indebtedness, exercise any remedy available to
Bank hereunder or at law and take any action or exercise any remedy provided
herein or in any other Loan Document or under applicable law. No remedy shall be
exclusive of other remedies or impair the right of Bank to exercise any other
remedies.
8.4. RECEIVER. In addition to any other remedy available to it, Bank
shall have the absolute right, upon the occurrence of an Event of Default, to
seek and obtain the appointment of a receiver to take possession of and operate
and/or dispose of the business and assets of Borrower and any costs and expenses
incurred by Bank in connection with such receivership shall bear interest at the
Default Rate, at Bank's option.
8.5. DEPOSITS; INSURANCE. After the occurrence of an Event of Default,
Borrower authorizes Bank to collect and apply against the Indebtedness when due
any cash or deposit accounts in its possession, and irrevocably appoints Bank as
its attorney-in-fact to endorse any check or draft or take other action
necessary to obtain such funds.
9. MISCELLANEOUS.
9.1. NO WAIVER, REMEDIES CUMULATIVE. No failure on the part of Bank to
exercise, and no delay in exercising, any right hereunder or under any other
Loan Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and are in addition to any other remedies provided by law, any Loan Document or
otherwise.
9.2. SURVIVAL OF REPRESENTATIONS. All representations and warranties
made herein shall survive the making of the Loan hereunder and the delivery of
the Note, and shall continue in full force and effect so
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<PAGE>
long as any Indebtedness is outstanding, there exists any commitment by Bank to
Borrower, and until this Agreement is formally terminated in writing.
9.3. INDEMNITY BY BORROWER; EXPENSES. In addition to all other
Indebtedness, Borrower agrees to defend, protect, indemnify and hold harmless
Bank and its Affiliates and all of their respective officers, directors,
employees, attorneys, consultants and agents from and against any and all
losses, damages, liabilities, obligations, penalties, fees, costs and expenses
(including, without limitation, attorneys' and paralegals' fees, costs and
expenses) incurred by such indemnitees, whether prior to or from and after the
date hereof, as a result of or arising from or relating to (i) the due diligence
effort (including, without limitation, public record search, recording fees,
examinations and investigations of the properties of Borrower and Borrower's
operations), negotiation, preparation, execution and/or performance of any of
the Loan Documents or of any document executed in connection with the
transactions contemplated thereby, maintenance of the Loan by Bank, and any and
all amendments, modifications, and supplements of any of the Loan Documents or
restructuring of the Indebtedness, (ii) any suit, investigation, action or
proceeding by any Person (other than Borrower), whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Person under any
statute, regulation or common law principle, arising from or in connection with
Bank's furnishing of funds to Borrower under this Agreement, (iii) Bank's
preservation, administration and enforcement of its rights under the Loan
Documents and applicable law, including the reasonable fees and disbursements of
counsel for Bank in connection therewith, whether suit be brought or not and
whether incurred at trial or on appeal, (iv) periodic field exams, audits and
appraisals performed by Bank after the occurrence of an Event of Default; and/or
(v) any matter relating to the financing transactions contemplated by the Loan
Documents or by any document executed in connection with the transactions
contemplated thereby, other than for such loss, damage, liability, obligation,
penalty, fee, cost or expense arising from such indemnitee's gross negligence or
willful misconduct. If Borrower should fail to pay any tax or other amount
required by this Agreement to be paid, Bank may make such payment and the amount
thereof shall be payable on demand, shall bear interest at the Default Rate from
the date of demand until paid and shall be deemed to be Indebtedness entitled to
the benefit and security of the Loan Documents. In addition, Borrower agrees to
pay and save Bank harmless against any liability for payment of any state
documentary stamp taxes, intangible taxes or similar taxes (including interest
or penalties, if any) which may now or hereafter be determined to be payable in
respect to the execution, delivery or recording of any Loan Document or the
making of any Advance, whether originally thought to be due or not, and
regardless of any mistake of fact or law on the part of Bank or Borrower with
respect to the applicability of such tax. Borrower's obligation for
indemnification for all of the foregoing losses, damages, liabilities,
obligations, penalties, fees, costs and expenses of Bank shall be part of the
Indebtedness, chargeable against Borrower's loan account, and shall survive
termination of this Agreement.
9.4. NOTICES. Any notice or other communication hereunder under the
Note to any party hereto or thereto shall be by hand delivery, overnight
delivery, facsimile, telegram, telex or registered or certified mail and unless
otherwise provided herein shall be deemed to have been given or made when
delivered, telegraphed, telexed, faxed or three (3) Business Days after having
been deposited in the mails, postage prepaid, addressed to the party at its
address specified below (or at any other address that the party may hereafter
specify to the other parties in writing):
18
<PAGE>
Bank: First Union National Bank
800 North Magnolia Avenue, Suite 702
Orlando, Florida 32803
Attn: Senior Portfolio Manager
With a copy to:
First Union National Bank
100 South Ashley Drive
Tenth Floor
Tampa, Florida 33602
Attn: Mr. Bob Hastings
Borrower: IMRglobal Corp.
100 South Missouri Avenue
Clearwater, Florida 33756
Attn: Chief Financial Officer
9.5. GOVERNING LAW. This Agreement and the Loan Documents shall be
deemed contracts made under the laws of the State of Florida and shall be
governed by and construed in accordance with the laws of said state (excluding
its conflict of laws provisions if such provisions would require application of
the laws of another jurisdiction).
9.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of Borrower and Bank, and their respective successors
and assigns; provided, that Borrower may not assign any of its rights hereunder
without the prior written consent of Bank, and any such assignment made without
such consent will be void.
9.7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
9.8. NO USURY. Regardless of any other provision of this Agreement, the
Note or in any other Loan Document, if for any reason the effective interest
should exceed the maximum lawful interest, the effective interest shall be
deemed reduced to, and shall be, such maximum lawful interest, and (i) the
amount which would be excessive interest shall be deemed applied to the
reduction of the principal balance of the Note and not to the payment of
interest, and (ii) if the loan evidenced by the Note has been or is thereby paid
in full, the excess shall be returned to the party paying same, such application
to the principal balance of the Note or the refunding of excess to be a complete
settlement and acquittance thereof.
9.9. POWERS. All powers of attorney granted to Bank are coupled with an
interest and are irrevocable.
9.10. APPROVALS. If this Agreement calls for the approval or consent of
Bank, such approval or consent may be given or withheld in the discretion of
Bank unless otherwise specified herein.
19
<PAGE>
9.11. BINDING ARBITRATION; PRESERVATION OF REMEDIES.
(a) BINDING ARBITRATION. Upon demand of any party hereto,
whether made before or after institution of any judicial proceeding, any claim
or controversy arising out of, or relating to the Loan Documents ("Disputes")
between the parties hereto (a "Dispute") shall be resolved by binding
arbitration conducted under and governed by the Commercial Financial Disputes
Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association (the "AAA") and the Federal Arbitration Act. Disputes may include,
without limitation, tort claims, counterclaims, disputes as to whether a matter
is subject to arbitration, claims brought as class actions, or claims arising
from documents executed in the future. A judgment upon the award may be entered
in any court having jurisdiction. Notwithstanding the foregoing, this
arbitration provision does not apply to disputes under or related to swap
agreements.
(b) SPECIAL RULES. All arbitration hearings shall be conducted
in the city in which the office of Bank first stated above is located. A hearing
shall begin within 90 days of demand for arbitration and all hearings shall be
concluded within 120 days of demand for arbitration. These time limitations may
not be extended unless a party shows cause for extension and then for no more
than a total of 60 days. The expedited procedures set forth in Rule 51 et seq.
of the Arbitration Rules shall be applicable to claims of less than $1,000,000.
Arbitrators shall be licensed attorneys selected from the Commercial Financial
Dispute Arbitration Panel of the AAA. The parties do not waive applicable
Federal or state substantive law except as provided herein.
(c) PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding
the preceding binding arbitration provisions, the parties agree to preserve,
without diminution, certain remedies that any party may exercise before or after
an arbitration proceeding is brought. The parties shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or personal property or other security by exercising a power of
sale or under applicable law by judicial foreclosure including a proceeding to
confirm the sale; (ii) all rights of self-help including peaceful occupation of
real property and collection of rents, set-off, and peaceful possession of
personal property; (iii) obtaining provisional or ancillary remedies including
injunctive relief, sequestration, garnishment, attachment, appointment of
receiver and filing an involuntary bankruptcy proceeding; and (iv) when
applicable, a judgment by confession of judgment. Any claim or controversy with
regard to the parties' entitlement to such remedies is a Dispute.
(d) NO PUNITIVE DAMAGES. Each party agrees that it shall not
have a remedy of punitive or exemplary damages against the other in any Dispute
and hereby waives any right or claim to punitive or exemplary damages it may
have now or which may arise in the future in connection with any Dispute,
whether the Dispute is resolved by arbitration or judicially.
(e) WAIVER OF JURY TRIAL. The parties acknowledge that by
agreeing to binding arbitration they have irrevocably waived any right they may
have to a jury trial with regard to a Dispute.
9.12. PARTICIPATIONS. Bank shall have the right to enter into one or
more participation with other lenders with respect to the Indebtedness. Upon
prior notice to Borrower of such participation, Borrower shall thereafter
furnish to such participant any information furnished by Borrower to Bank
pursuant to the terms of the Loan Documents. Nothing in this Agreement or any
other Loan Document shall prohibit Bank from pledging or
20
<PAGE>
assigning this Agreement and Bank's rights under any of the other Loan
Documents, to any Federal Reserve Bank in accordance with applicable law.
9.13. WAIVER OF CERTAIN DEFENSES. To the fullest extent permitted by
applicable law, upon the occurrence of any Event of Default, neither Borrower
nor anyone claiming by or under Borrower will claim or seek to take advantage of
N.C.G.S. ss. 26-7, ET SEQ. or any other law requiring Bank to attempt to realize
upon any collateral or collateral of any surety or guarantor, or any
appraisement, evaluation, stay, extension, homestead, redemption or exemption
laws now or hereafter in force in order to prevent or hinder the enforcement of
this Agreement. Borrower, for itself and all who may at any time claim through
or under Borrower, hereby expressly waives to the fullest extent permitted by
law the benefit of all such laws. All rights of Bank and all obligations of
Borrower hereunder shall be absolute and unconditional irrespective of (i) any
change in the time, manner or place of payment of, or any other term of, all or
any of the Indebtedness, or any other amendment or waiver of or any consent to
any departure from any provision of the Loan Documents, (ii) any exchange,
release or non-perfection of any other collateral given as security for the
Indebtedness, or any release or amendment or waiver of or consent to departure
from any guaranty for all or any of the Indebtedness, or (iii) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, Borrower or any third party, other than payment and performance in
full of the Indebtedness.
9.14. OTHER PROVISIONS. Any other or additional terms and conditions
set forth in Exhibit 10.15 (if any) are hereby incorporated herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
FIRST UNION NATIONAL BANK
By: /s/ ROBERT E. HASTINGS, JR.
------------------------------
Robert E. Hastings, Jr.
Senior Vice President
IMRGLOBAL CORP., A FLORIDA CORPORATION
By: /s/ ROBERT M. MOLSICK
-----------------------------
Robert Molsick
Chief Financial Officer
Bank:____________
Borrower:____________
21
EXHIBIT 10.28
FIRST AMENDMENT TO
RESTATED REVOLVING CREDIT AGREEMENT
This First Amendment to Restated Revolving Credit Agreement, dated as
of March 17, 2000 ("AMENDMENT") is entered into by and between IMRGLOBAL CORP.,
a Florida corporation ("BORROWER"), and FIRST UNION NATIONAL BANK, a national
banking association ("BANK").
RECITALS
Borrower and Bank are parties to that certain Restated Revolving Credit
Agreement dated as of January 19, 2000, which restates that certain Revolving
Credit Agreement dated as of December 28, 1999 (as amended, supplemented or
otherwise modified, the "CREDIT AGREEMENT"). Capitalized terms used herein but
not otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement.
Borrower has requested that certain financial covenants in the Credit
Agreement be modified, and Bank has agreed to such modification pursuant to the
terms of this Amendment.
AGREEMENT
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be bound hereby, agree as follows:
1. AMENDMENTS TO THE CREDIT AGREEMENT. Section 7 of the Credit Agreement is
amended as follows:
(a) the covenant relating to "Tangible Net Worth" is replaced, in its
entirety, with the following:
"TANGIBLE NET WORTH. Borrower shall, at all times, maintain on a
consolidated basis a Tangible Net Worth of at least the following:
PERIOD TANGIBLE NET WORTH
------ ------------------
As of December 31, 1999 $ 89,000,000.00
As of the end of the first fiscal quarter of 2000 $ 69,000,000.00
As of the end of the second fiscal quarter of 2000 $ 75,000,000.00
<PAGE>
As of the end of the third fiscal quarter of 2000 $ 82,500,000.00
As of the end of Fiscal Year 2000 and the end of the
first, second and third fiscal quarters of 2001 $ 90,000,000.00
As of the end of Fiscal Year 2001 and the end of the $125,000,000.00
first, second and third fiscal quarters of 2002
As of the end of Fiscal Year 2002 and thereafter $150,000,000.00
"Tangible Net Worth" shall mean the total assets minus total liabilities.
For purposes of this computation, the aggregate amount of any intangible
assets of Borrower including, without limitation, goodwill, franchises,
licenses, patents, trademarks, trade names, copyrights, service marks, and
brand names, shall be subtracted from total assets, and total liabilities
shall include debt fully subordinated to Bank on terms and conditions
acceptable to Bank."
(b) the covenant relating to "Total Liabilities to Tangible Net Worth"
is replaced, in its entirety, with the following:
"TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. Borrower shall, at all
times, maintain on a consolidated basis a ratio of Total Liabilities,
divided by Tangible Net Worth of not more than the following:
PERIOD TANGIBLE NET WORTH
------ ------------------
Calendar Year 2000 1.35 to 1.0
Calendar Year 2001 1.25 to 1.0
Thereafter 1.0 to 1.0
For purposes of this computation, "Total Liabilities" shall mean all
liabilities of Borrower, excluding debt fully subordinated to Bank on terms
and conditions acceptable to Bank, and including capitalized leases,
synthetic leases and all reserves for deferred taxes and other deferred
sums appearing on the liabilities side of a balance sheet of Borrower, in
accordance with generally accepted accounting principles applied on a
consistent basis."
2. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank
that:
(a) all of Borrower's representations and warranties to Bank in the
Loan Documents are true and correct on this date, as if made on this date,
except to the extent any of them expressly relate to an earlier date;
(b) since the date of the most recent financial statements delivered
to Bank, there has not been any material adverse change in the financial
conditions of Borrower or any Guarantor;
2
<PAGE>
(c) Borrower has the full corporate power and authority to enter into
and perform its obligations hereunder and each transaction contemplated hereby;
and
(d) the execution and delivery by Borrower of this Amendment and each
other document contemplated hereby and its performance of its obligations
hereunder and thereunder have been duly authorized by all necessary corporate
proceedings on the part of Borrower.
3. COUNTERPARTS. The parties may execute this Amendment and any other
agreement executed pursuant to it in counterparts. Each executed counterpart
will be deemed to be an original, and all of them, together, will constitute the
same agreement. This Amendment will become effective as of its stated date of
execution, when each party has signed a counterpart and all the executed
counterparts have been delivered to Bank.
4. WAIVER OF CLAIMS. BORROWER HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY,
AND INTENTIONALLY WAIVES AND RELEASES BANK (AND ITS OFFICERS, DIRECTORS,
SHAREHOLDERS, REPRESENTATIVES, AND AGENTS) FROM: (a) ALL CLAIMS, DEMANDS, SUITS,
AND CAUSES OF ACTION, WHETHER AT LAW OR IN EQUITY, THAT BORROWER EVER HAD, HAS
NOW, OR MIGHT HAVE IN THE FUTURE, BY REASON OF ANY MATTER, CAUSE, OR THING
WHATSOEVER ARISING BEFORE THE DATE AND TIME OF EXECUTION OF THIS AMENDMENT, WITH
RESPECT TO: (i) ANY BREACH BY BANK (OR AN OFFICER, DIRECTOR, SHAREHOLDER,
REPRESENTATIVE, OR AGENT OF BANK) OF ITS OBLIGATIONS OR PROMISES UNDER THE LOAN
DOCUMENTS OR OTHERWISE; AND (ii) ANY ACTION OR INACTION BY BANK (OR AN OFFICER,
DIRECTOR, SHAREHOLDER, REPRESENTATIVE, OR AGENT OF BANK) THAT IS ALLEGED TO HAVE
HAD AN INJURIOUS EFFECT ON THE BUSINESS, OPERATION OR MANAGEMENT OF BORROWER;
AND (b) ANY DEFENSE, COUNTERCLAIM, SETOFF, RIGHT OF RECOUPMENT OR ABATEMENT, OR
OTHER CLAIM AGAINST BANK (OR AN OFFICER, DIRECTOR, SHAREHOLDER, REPRESENTATIVE,
OR AGENT OF BANK) RELATING TO ANY MATTER, CAUSE, OR THING WHATSOEVER ARISING
BEFORE THE DATE AND TIME OF EXECUTION OF THIS AMENDMENT.
5. RATIFICATION OF LOAN DOCUMENTS. The parties acknowledge that (except as
expressly amended in this Amendment) the Loan Documents are unaffected,
unchanged, and unimpaired and all such documents and agreements remain
enforceable in accordance with their respective terms. Further, the parties
ratify and confirm all their obligations under the Loan Documents, except as
modified in this Amendment. Neither this Amendment nor any earlier waiver or
amendment of any of the Loan Documents will constitute a novation or have the
effect of discharging any liability or obligation evidenced or secured by the
Loan Documents.
6. TRANSACTION EXPENSES; TAXES. Borrower shall pay all costs and expenses
of Bank (including filing fees, recording fees, document excise and intangible
tax, and attorney's fees and expenses) in connection with this Amendment and any
related documents.
7. MISCELLANEOUS. This Amendment contains the final, complete, and
exclusive expression of the understanding of Borrower and Bank with respect to
the obligations created under it and supersedes any prior or contemporaneous
agreement, understanding, or
3
<PAGE>
representation, oral or written, by either of them. Except as expressly provided
herein, this Amendment does not constitute a waiver of any rights of Bank or
obligations of Borrower under the Loan Documents, and no waiver herein will
constitute a continuing waiver or a waiver of any other or future rights or
obligations. A waiver or modification of any provision of this Amendment is
valid only if the waiver or modification is in writing and signed by each party.
The titles and headings preceding the text of the sections of this Amendment
have been inserted solely for convenience of reference and do not affect this
Amendment's meaning or effect. This Amendment is binding on each heir, assignee,
and personal representative of the Borrower, and inures to the benefit of each
assignee and successor of Bank. This Amendment is not assignable by Borrower,
and any attempted assignment by Borrower will not be valid or effective against
Bank. Bank may assign this Amendment, and its assignee will succeed to all the
rights of Bank under it. Words of the neuter gender in this Amendment are to be
construed to include words of the masculine and feminine genders. This Amendment
is a Florida contract, and the parties intend that it is to be construed
according to the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first written above.
FIRST UNION NATIONAL BANK, A NATIONAL
BANKING ASSOCIATION
By: /s/ ROBERT BRIDGES
-----------------------------
Name: Robert Bridges
Title: Senior Vice President
IMRGLOBAL CORP., A FLORIDA CORPORATION
By: /s/ SATISH K. SANAN
-------------------------------
Name: SATISH K. SANAN
Title: CHIEF EXECUTIVE OFFICER
EXHIBIT 21.1
IMRGLOBAL CORP.
List of Subsidiaries
The subsidiaries of the Registrant are as follows:
IMRglobal Corp. Organized in U.S.
IMRglobal Nevada Corp. Organized in U.S.
IMRglobal - Professional Partners, Inc. Organized in U.S.
IMRglobal - Orion Consulting, Inc. Organized in U.S.
IMRglobal - Neverdahl-Loft & Associates, Inc. Organized in U.S.
IMRglobal - Cinergi Consulting Partners, Inc. Organized in U.S.
ECWerks, Inc. Organized in U.S.
IMR Sub A Corp Organized in U.S.
IMR Sub B Corp Organized in U.S.
IMR Sub AB Corp. Organized in U.S.
IMRglobal, LLC Organized in U.S.
IMRglobal Ltd. Organized in Canada
Information Management Resources (U.K.)
Holding Company Organized in United Kingdom
IMRglobal plc Organized in United Kingdom
IMRglobal (NI) Limited Organized in United Kingdom
Lyon Consultants (UK) Ltd. Organized in United Kingdom
Atechsys International, Ltd. Organized in United Kingdom
IMRglobal, S.A. Organized in France
Atechsys S.A. Organized in France
IMRglobal France Holding SAS Organized in France
IMRglobal, Pty Ltd. Organized in Australia
IMRglobal Corp., Ltd. Organized in Japan
IMRglobal (India) Limited Organized in India
Annika Electronics PVT. LTD. Organized in India
Movitone, Ltd. Organized in India
Information Management Resources IOR, Ltd. Organized in Mauritius
A2 Partners BV Organized in the Netherlands
Atechsys Luxembourg S.A. Organized in Luxembourg
Atechsys GmbH Organized in Germany
Each company does business in the name listed above and/or as
"IMRglobal."
EXHIBIT 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statements
listed below, of our report dated February 7, 2000, with respect to the
consolidated financial statements of IMRglobal Corp. included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
o Form S-3 No. 333-86823
o Form S-3 No. 333-91983
o Form S-8 No. 333-24027, pertaining to the 1996 Stock Incentive Plan
o Form S-8 No. 333-87095, pertaining to the 1996 Stock Incentive Plan
o Form S-8 No. 333-86753, pertaining to the 1999 Stock Employees
Incentive Plan
Ernst & Young LLP
Tampa, Florida
March 28, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (Nos. 333-86823 and 333-91983) and on Forms S-8 (Nos.
333-24027; 333-86753 and 333-87095) of IMRglobal Corp. (formerly Information
Management Resources, Inc.) of our report dated February 13, 1998, except for
certain information in Note 13 for which the date is March 9, 1998, relating to
the consolidated financial statements for the year ended December 31, 1997,
which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Tampa, Florida
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 35,021
<SECURITIES> 2,411
<RECEIVABLES> 48,355
<ALLOWANCES> 2,324
<INVENTORY> 0
<CURRENT-ASSETS> 108,165
<PP&E> 46,444
<DEPRECIATION> 9,471
<TOTAL-ASSETS> 303,798
<CURRENT-LIABILITIES> 61,074
<BONDS> 985
0
0
<COMMON> 3,713
<OTHER-SE> 231,210
<TOTAL-LIABILITY-AND-EQUITY> 303,798
<SALES> 0
<TOTAL-REVENUES> 222,028
<CGS> 0
<TOTAL-COSTS> 129,171
<OTHER-EXPENSES> 102,646
<LOSS-PROVISION> 321
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> (4,954)
<INCOME-TAX> 6,885
<INCOME-CONTINUING> (11,839)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,839)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
<FN>
Amounts inapplicable or not disclosed as a separate line on the Statement of
Financial Position of Results of Operations are reported a 0 herein.
</FN>
</TABLE>
