-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VzcqJ/ZACVTcIykixBuFPawEh6FXHLHSwvLdzdmMv+pCWmAOUqKLg5JyGVlqnM2O k62vL2PdBoloJQKpEXo1tA== 0001016843-99-000902.txt : 19990830 0001016843-99-000902.hdr.sgml : 19990830 ACCESSION NUMBER: 0001016843-99-000902 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990823 ITEM INFORMATION: FILED AS OF DATE: 19990827 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMRGLOBAL CORP CENTRAL INDEX KEY: 0001021772 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 592911475 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-28840 FILM NUMBER: 99701293 BUSINESS ADDRESS: STREET 1: 26750 U.S. HGWY 19 N, STE 500 CITY: CLEARWATER STATE: FL ZIP: 3462133761 BUSINESS PHONE: 7277977080 MAIL ADDRESS: STREET 1: 26750 U S HIGHWAY STREET 2: 19 NORTH SUITE 500 CITY: CLEARWATER STATE: FL ZIP: 33761 FORMER COMPANY: FORMER CONFORMED NAME: INFORMATION MANAGEMENT RESOURCES INC DATE OF NAME CHANGE: 19960828 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT: AUGUST 26, 1999 COMMISSION FILE NUMBER 0-28840 IMRGLOBAL CORP. ----------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) FLORIDA 59-2911475 - -------------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 100 SOUTH MISSOURI AVENUE CLEARWATER, FLORIDA 33756 ----------------------------------------------------- (Address of Principal Executive Offices and Zip Code) (727) 467-8000 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) N/A ------------------------------- (Former Name or Former Address, if Changed Since Last Report) ITEM 5. OTHER EVENTS During 1999, IMRglobal Corp. acquired Atechsys S.A., Fusion Systems Japan Co. Ltd. and Orion Consulting, Inc. in transactions that have been accounted for as pooling of interests in accordance with APB Opinion 16, "Business Combinations". These transactions have been described in our previous filings on Forms 10-Q and/or Form 8-K. In accordance with pooling of interests rules the following consolidated financial statements for all prior periods have been restated to include the accounts of Atechsys S.A., Fusion Systems Japan Co. Ltd. and Orion Consulting, Inc. Restated financial statements for the years ended December 31, 1996, 1997, and 1998 and for the six months ended June 30, 1998 and 1999 are attached to this Form 8-K. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMRGLOBAL CORP. Date August 26, 1999 /s/ SATISH K. SANAN --------------------------- ---------------------------- Satish K. Sanan Chief Executive Officer Date August 26, 1999 /s/ ROBERT M. MOLSICK --------------------------- ------------------------------ Robert M. Molsick Chief Financial Officer 3 IMRGLOBAL CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Report of Independent Auditors.......................................... 2 Report of Independent Certified Public Accountants...................... 3 Report of Independent Public Accountants................................ 4 Consolidated Balance Sheets as of December 31, 1997 and 1998, and June 30, 1999 (Unaudited)........................................ 5 Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998 and for the Six Months ended June 30, 1998 and 1999 (Unaudited)................................... 6 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996, 1997 and 1998 and for the Six Months Ended June 30, 1999 (Unaudited) .......................... 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and for the Six Months ended June 30, 1998 and 1999 (Unaudited)................................... 8 Notes to Consolidated Financial Statements.............................. 9 1 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders IMRglobal Corp. We have audited the accompanying consolidated balance sheets of IMRglobal Corp. as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998, as restated for the 1999 poolings of interests described in Note 2. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of IMRglobal Corp. as of December 31, 1997 and for the two years then ended, prior to their restatements for the 1999 poolings of interests described in Note 2, which statements reflect total assets of $135.4 million as of December 31, 1997 and total revenues of $83.6 million and $27.9 million for the years ended December 31, 1997 and 1996, respectively. We also did not audit the financial statements of Orion Consulting, Inc. as of December 31, 1998 and 1997, and for the three years ended December 31, 1998, which statements reflect total assets of $11.7 million and $6.8 million as of December 31, 1998 and 1997, respectively, and total revenues of $22.6 million, $17.2 million and $17.4 million for the years ended December 31, 1998, 1997 and 1996, respectively. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for IMRglobal Corp. as of December 31, 1997 and for the two years then ended prior to the restatement for the 1998 poolings of interests described in Note 2, and Orion Consulting, Inc. is based solely on the reports of other auditors. We conducted out audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of IMRglobal Corp. at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Ernst & Young LLP Tampa, Florida August 20, 1999 2 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of IMRglobal Corp. We have audited the consolidated balance sheet of IMRglobal Corp. and subsidiaries (the Company) (formerly Information Management Resources, Inc.) as of December 31, 1997, and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years ended December 31, 1997 and 1996 prior to restatement for the pooling of interests transactions discussed in Note 2 to the consolidated financial statements. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (not presented herein) referred to above present fairly, in all material respects, the consolidated financial position of IMRglobal, Inc. and subsidiaries as of December 31, 1997, and the consolidated results of their operations and their cash flows for the years ended December 31, 1997 and 1996, in conformity with generally accepted accounting principles. PricewaterhouseCoopers LLP Tampa, Florida February 13, 1998, except for certain information in Note 13, for which the date is March 9, 1998. 3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Orion Consulting, Inc.: We have audited the accompanying balance sheets of Orion Consulting, Inc. (an Ohio corporation) as of December 31, 1998 and 1997, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Orion Consulting, Inc. as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Arthur Andersen LLP Cleveland, Ohio January 22, 1999. 4 IMRGLOBAL CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30, ---------------------- --------- 1997 1998 1999 --------- --------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ................................ $ 87,324 $ 84,139 $ 58,012 Marketable securities .................................... 4,453 31,609 27,340 Accounts receivable ...................................... 21,331 40,243 46,292 Unbilled work in process ................................. 8,484 7,943 11,100 Deferred income taxes .................................... 2,133 15,148 10,462 Prepaid expenses and other current assets ................ 5,481 5,694 4,436 --------- --------- --------- Total current assets ............................... 129,206 184,776 157,642 Property and equipment, net of accumulated depreciation ..... 11,324 23,091 36,058 Deposits and other assets ................................... 2,777 5,269 7,271 Intangible assets, net of accumulated amortization .......... 10,157 36,829 60,996 --------- --------- --------- Total assets ....................................... $ 153,464 $ 249,965 $ 261,967 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ......................................... $ 4,009 $ 8,497 $ 11,511 Accrued compensation ..................................... 12,713 20,104 24,115 Deferred revenue ......................................... 6,189 5,819 1,715 Other current liabilities ................................ 10,793 27,598 23,880 --------- --------- --------- Total current liabilities .......................... 33,704 62,018 61,221 Long-term debt .............................................. 2,596 1,791 1,598 Deferred income taxes ....................................... 546 1,041 791 Accrued compensation ........................................ 2,322 8,046 3,110 --------- --------- --------- Total liabilities .................................. 39,168 72,896 66,720 --------- --------- --------- Minority interest ........................................... 4 79 8 --------- --------- --------- Shareholders' equity: Preferred stock, $.10 par value, 10,000,000 shares authorized, no shares issued and outstanding ......... -- -- -- Common stock, $.10 par value per share, 100,000,000 shares authorized, 33,133,420 and 37,155,159 and 38,446,696 shares issued and outstanding......................... 3,313 3,715 3,845 Additional paid-in capital ............................... 101,600 142,778 150,168 Retained earnings ........................................ 11,947 31,770 44,486 Notes receivable from share sales ........................ -- (366) (366) Deferred compensation .................................... (1,524) -- -- Accumulated other comprehensive expense .................. (1,044) (907) (2,894) --------- --------- --------- Total shareholders' equity ......................... 114,292 176,990 195,239 --------- --------- --------- Total liabilities and shareholders' equity ......... $ 153,464 $ 249,965 $ 261,967 ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 5 IMRGLOBAL CORP. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ----------------------------------- ---------------------- 1996 1997 1998 1998 1999 --------- --------- --------- --------- --------- (Unaudited) (Unaudited) Revenue ............................................ $ 55,596 $ 115,310 $ 208,211 $ 92,244 $ 129,920 Cost of revenue .................................... 32,290 67,352 110,460 50,230 68,269 --------- --------- --------- --------- --------- Gross profit .............................. 23,306 47,958 97,751 42,014 61,651 Selling, general and administrative ................ 13,894 32,027 49,811 23,657 28,850 Research and development ........................... -- 1,113 6,437 2,245 2,893 Goodwill and intangible amortization ............... 100 1,123 2,076 653 2,049 Acquired in-process research and development ....... -- -- 8,200 8,200 -- Acquisition costs .................................. -- -- 145 145 6,613 Acceleration of stock appreciation rights upon acquisition ......................... -- -- -- -- 1,804 --------- --------- --------- --------- --------- Income from operations .................... 9,312 13,695 31,082 7,114 19,442 --------- --------- --------- --------- --------- Other income (expense): Interest expense ................................ (312) (208) (258) (192) (70) Other income .................................... 487 2,050 4,579 2,363 2,523 --------- --------- --------- --------- --------- Total other income ........................ 175 1,842 4,321 2,171 2,453 --------- --------- --------- --------- --------- Income before provision for income taxes and minority interest .......... 9,487 15,537 35,403 9,285 21,895 Provision for income taxes ......................... 2,357 6,475 15,610 6,267 9,166 --------- --------- --------- --------- --------- Income before minority interest ........... 7,130 9,062 19,793 3,018 12,729 Minority interest in net income .................... (730) (48) (33) (3) (13) --------- --------- --------- --------- --------- Net income ................................ $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716 ========= ========= ========= ========= ========= Basic earnings per share ........................... $ 0.28 $ 0.29 $ 0.56 $ 0.09 $ 0.34 ========= ========= ========= ========= ========= Diluted earnings per share ......................... $ 0.19 $ 0.21 $ 0.44 $ 0.07 $ 0.28 ========= ========= ========= ========= ========= Shares outstanding: Basic ........................................... 22,941 31,612 35,516 34,107 37,623 ========= ========= ========= ========= ========= Diluted ......................................... 33,854 41,950 45,056 44,983 45,303 ========= ========= ========= ========= ========= PRO FORMA (NOTE 1): Net income as reported ............................. $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716 Pro forma incremental income tax (provision) benefit (1,546) 1,076 591 591 (240) --------- --------- --------- --------- --------- Pro forma net income ............................... $ 4,854 $ 10,090 $ 20,351 $ 3,606 $ 12,476 ========= ========= ========= ========= ========= Pro forma basic earnings per share ................. $ 0.21 $ 0.32 $ 0.57 $ 0.11 $ 0.33 ========= ========= ========= ========= ========= Pro forma diluted earnings per share ............... $ 0.14 $ 0.24 $ 0.45 $ 0.08 $ 0.28 ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 6 IMRGLOBAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMPRE- ADDITIONAL HENSIVE COMMON STOCK PAID-IN RETAINED INCOME SHARES AMOUNT CAPITAL EARNINGS --------- --------- --------- --------- --------- Restated balance, January 1, 1996 ......... -- 27,860 $ 2,785 $ -- $ 3,977 Common stock issued for options exercised ............................... -- 306 31 (18) -- Repurchase of common stock ................ -- -- -- -- -- Retirement of treasury stock .............. -- (6,200) (620) (822) (56) Dividend paid ............................. -- -- -- -- (4,016) Termination of S Corporation tax status ... -- -- -- 946 (946) Common stock issued in connection with initial public offering .................. -- 7,228 723 39,994 -- Acquisition of majority shareholder's interest in subsidiary .................... -- -- -- (2,500) -- Contribution of capital ................... -- -- -- 678 -- Net income ................................ $ 6,400 -- -- -- 6,400 Foreign currency translation adjustment ... (217) -- -- -- -- -------- -------- --------- --------- -------- Comprehensive income ............. $ 6,183 ======== Balance, December 31, 1996 ................ -- 29,194 2,919 38,278 5,359 Common stock issued in connection with public offering ......... -- 2,587 259 52,289 -- Common stock issued in connection with business combinations ... -- 173 17 1,854 -- Acquisition of majority shareholder's interest in subsidiary .................. -- -- -- (552) -- Common stock issued in connection with employee stock purchase plan ....... -- 108 11 658 -- Common stock issued for options exercised . -- 1,072 107 152 -- Tax benefit of stock options exercised .... -- -- -- 6,769 -- Contribution of capital ................... -- -- -- 2,152 -- Dividend paid ............................. -- -- -- -- (2,426) Compensation expense ...................... -- -- -- -- -- Net income ................................ $ 9,014 -- -- -- 9,014 Foreign currency translation adjustment ... (715) -- -- -- -- -------- -------- --------- --------- -------- Comprehensive income ............. $ 8,299 ======== Balance, December 31, 1997 ................ -- 33,134 3,313 101,600 11,947 Common stock issued in connection with business combinations .............. -- 1,184 118 19,068 (69) Acquisition of minority shareholder's interest in subsidiary .................... -- -- -- (135) -- Common stock issued in connection with employee stock purchase plan ....... -- 31 3 602 -- Common stock issued for options exercised . -- 2,806 281 676 -- Tax benefit of stock options exercised .... -- -- -- 20,889 -- Contribution of capital ................... -- -- -- 78 -- Dividend paid ............................. -- -- -- -- (163) Adjustment to conform fiscal year of Fusion Systems Japan Co., Ltd. ............ -- -- -- -- 295 Notes receivable from stock sale .......... -- -- -- -- -- Compensation expense ...................... -- -- -- -- -- Net income ................................ $ 19,760 -- -- -- 19,760 Foreign currency translation adjustment ... 196 -- -- -- -- -------- -------- --------- --------- -------- Comprehensive income ...................... $ 19,956 ======== Balance, December 31, 1998 ................ 37,155 3,715 142,778 31,770 Common stock issued in connection with business combinations ................... -- 163 16 3,500 -- Common stock issued in connection with employee stock purchase plan ............ -- 25 3 436 -- Common stock issued for options exercised . -- 1,104 111 905 -- Tax benefit of stock options exercised .... -- -- -- 2,549 -- Net income ................................ $ 12,716 -- -- -- 12,716 Foreign currency translation adjustment ... (1,987) -- -- -- -- -------- -------- --------- --------- -------- Comprehensive income ...................... $ 10,729 ======== Balance, June 30, 1999 (Unaudited) ........ 38,447 $ 3,845 $ 150,168 $ 44,486 ======== ========= ========= ========= RESTUBBED FROM TABLE ABOVE ACCUMULATED OTHER COMPRE- HENSIVE TREASURY OTHER EXPENSE STOCK TOTAL --------- --------- --------- --------- Restated balance, January 1, 1996 ......... $ -- $ (112) $ (9) $ 6,641 Common stock issued for options exercised ............................... -- -- -- 13 Repurchase of common stock ................ -- -- (1,489) (1,489) Retirement of treasury stock .............. -- -- 1,498 -- Dividend paid ............................. -- -- -- (4,016) Termination of S Corporation tax status ... -- -- -- -- Common stock issued in connection with initial public offering ................. -- -- -- 40,717 Acquisition of majority shareholder's interest in subsidiary .................. -- -- -- (2,500) Contribution of capital ................... -- -- -- 678 Net income ................................ -- -- -- 6,400 Foreign currency translation adjustment ... -- (217) -- (217) ------- ------- ------- --------- Comprehensive income.............. Balance, December 31, 1996 ................ -- (329) -- 46,227 Common stock issued in connection with public offering ......... -- -- -- 52,548 Common stock issued in connection with business combinations ... -- -- -- 1,871 Acquisition of majority shareholder's interest in subsidiary .................. -- -- -- (552) Common stock issued in connection with employee stock purchase plan ....... -- -- -- 669 Common stock issued for options exercised . -- -- -- 259 Tax benefit of stock options exercised .... -- -- -- 6,769 Contribution of capital ................... -- -- -- 2,152 Dividend paid ............................. -- -- -- (2,426) Compensation expense ...................... (1,524) -- -- (1,524) Net income ................................ -- -- -- 9,014 Foreign currency translation adjustment ... -- (715) -- (715) ------- ------- ------- --------- Comprehensive income.............. Balance, December 31, 1997 ................ (1,524) (1,044) -- 114,292 Common stock issued in connection with business combinations .............. -- (59) -- 19,058 Acquisition of minority shareholder's interest in subsidiary .................... -- -- -- (135) Common stock issued in connection with employee stock purchase plan ....... -- -- -- 605 Common stock issued for options exercised . -- -- -- 957 Tax benefit of stock options exercised .... -- -- -- 20,889 Contribution of capital ................... -- -- -- 78 Dividend paid ............................. -- -- -- (163) Adjustment to conform fiscal year of Fusion Systems Japan Co., Ltd. ............ -- -- -- 295 Notes receivable from stock sale .......... (366) -- -- (366) Compensation expense ...................... 1,524 -- -- 1,524 Net income ................................ -- -- -- 19,760 Foreign currency translation adjustment ... -- 196 -- 196 ------- ------- ------- --------- Comprehensive income.............. Balance, December 31, 1998 ................ (366) (907) -- 176,990 Common stock issued in connection with business combinations ................... -- -- -- 3,516 Common stock issued in connection with employee stock purchase plan ............ -- -- -- 439 Common stock issued for options exercised . -- -- -- 1,016 Tax benefit of stock options exercised .... -- -- -- 2,549 Net income ................................ -- -- -- 12,716 Foreign currency translation adjustment ... -- (1,987) -- (1,987) ------- ------- ------- --------- Comprehensive income.............. Balance, June 30, 1999 (Unaudited) ........ $ (366) $(2,894) $ -- $ 195,239 ======= ======= ======= =========
The accompanying notes are an integral part of these consolidated financial statements. 7 IMRGLOBAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, --------------------------------- ----------------------------- 1996 1997 1998 1998 1999 -------- -------- -------- -------- -------- (Unaudited) (Unaudited) Cash flows from operating activities: Net income ......................................... $ 6,400 $ 9,014 $ 19,760 $ 3,015 $ 12,716 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization ................... 1,097 4,778 5,867 2,114 4,261 Deferred income taxes ........................... 1,318 (2,164) (12,175) (11,227) 6,572 Tax benefit of stock options .................... -- 6,769 20,889 14,219 2,549 Other ........................................... (75) 80 319 -- -- Minority interest in net income ................. 730 48 33 3 13 Noncash compensation ............................ -- -- 1,524 -- -- Adjustment to conform fiscal year of Fusion Systems Japan Co., Ltd. ............... -- -- 295 295 -- Changes in operating assets and liabilities: Accounts receivable and unbilled work-in-process ............................ (6,992) (11,283) (11,831) (9,611) (5,457) Other current assets ......................... (1,327) (2,391) (35) 1,419 1,651 Deposits and other assets .................... (1,131) (1,176) (2,710) (604) (675) Accounts payable and other liabilities ....... 3,505 (69) 7,262 6,375 (1,484) Accrued compensation ......................... 846 12,473 13,232 8,889 (3,074) Income tax ................................... 195 (717) 4,541 (53) (2,959) Deferred revenue ............................. 2,065 3,479 (623) (1,204) (4,286) -------- -------- -------- -------- -------- Total adjustments ............................ 231 9,827 26,588 10,615 (2,889) -------- -------- -------- -------- -------- Net cash provided by operating activities .... 6,631 18,841 46,348 13,630 9,827 -------- -------- -------- -------- -------- Cash flows from investing activities: Acquisition of interest in consolidated subsidiary, net of cash received ............................ (9,968) (3,315) (8,941) (7,944) (20,065) Investment in marketable securities, net ........... (5,511) 1,191 (26,192) (16,856) 4,269 Additions to capitalized software costs ............ (302) (1,258) -- -- (1,271) Additions to property and equipment ................ (3,746) (7,777) (14,335) (6,433) (14,535) Increase in equity investment and loans to affiliate ..................................... (693) -- -- -- -- Related party loans ................................ -- 1,608 1,478 -- -- -------- -------- -------- -------- -------- Net cash used in investing activities ........ (20,220) (9,551) (47,990) (31,233) (31,602) -------- -------- -------- -------- -------- Cash flows from financing activities: Net repayments from revolving credit line .......... (244) (955) 443 202 117 Proceeds from long-term debt and notes ............. 2,346 3,935 384 -- -- Payments on notes and capital leases ............... (2,258) (1,637) (4,320) (2,339) (4,328) Proceeds from issuance of common stock ............. 42,518 54,704 1,640 343 1,455 Payment of costs in connection with issuance of common stock ........................ (1,110) (600) -- -- -- Purchase of treasury stock, at cost ................ (1,489) -- -- -- -- Advance to shareholder ............................. -- (250) -- -- -- Payment of dividends ............................... (3,215) (2,426) (163) -- -- -------- -------- -------- -------- -------- Net cash provided by (used in) financing activities ................................. 36,548 52,771 (2,016) (1,794) (2,756) -------- -------- -------- -------- -------- Effect of exchange rate changes ....................... (27) (393) 473 (999) (1,596) -------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents .. 22,932 61,668 (3,185) (20,396) (26,127) Cash and cash equivalents at beginning of year ........ 2,724 25,656 87,324 87,324 84,139 -------- -------- -------- -------- -------- Cash and cash equivalents at end of year .............. $ 25,656 $ 87,324 $ 84,139 $ 66,928 $ 58,012 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 8 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NAME CHANGE - On November 17, 1998, the Company changed its name from Information Management Resources, Inc. to IMRglobal Corp. BASIS OF REPORTING--IMRglobal Corp. and subsidiaries ("IMRglobal" or the "Company") provide consulting and technology services to a variety of industries and customers located primarily in North America, Europe and Asia. The consolidated financial statements include the accounts of IMRglobal Corp., its wholly owned subsidiaries and its controlled foreign subsidiary. All significant intercompany balances and transactions have been eliminated. The consolidated financial statements for all periods have been restated to include the financial statements of Atechsys, S.A., Fusion System Japan Co., Ltd., and Orion Consulting, Inc. These companies were combined during 1999 in transactions accounted for as pooling of interests. CASH AND CASH EQUIVALENTS--IMRglobal considers all highly liquid investments with original maturity dates of three months or less to be cash equivalents. IMRglobal maintains its investments at high quality financial institutions. MARKETABLE SECURITIES--All marketable securities are classified as available-for-sale and are available to support current operations or to take advantage of other investment opportunities. These securities are stated at estimated fair value based upon market quotations. REVENUE RECOGNITION--Fixed-price contract revenue is recognized using the percentage of completion method of accounting, under which the sales value of performance, including earnings thereon, is recognized on the basis of the percentage that each contract's cost to date bears to the total estimated cost. Any anticipated losses upon contract completion are accrued currently. Service revenue from time-and-materials services is recognized as the services are provided. Unbilled work-in-progress represents revenue on contracts to be billed in subsequent periods in accordance with the terms of the contract. Deferred revenue represents amounts billed in excess of revenue earned in accordance with the terms of the contracts. GOODWILL--Goodwill originated from the acquisition of certain subsidiaries, and is being amortized on a straight-line basis over a 10 to 20 year period. IMRglobal periodically reviews the value of its goodwill to determine if an impairment has occurred. IMRglobal measures the potential impairment of recorded goodwill by the undiscounted value of expected future operating cash flow in relation to the assets to which this goodwill applies. PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less accumulated depreciation. Depreciation is primarily computed using the straight-line method and is charged to income over the estimated useful lives of the respective assets. 9 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): CAPITALIZED SOFTWARE COSTS--Capitalized software costs are recorded at cost less accumulated amortization. Production costs for computer software that is to be utilized as an integral part of a product or process is capitalized when both (a) technological feasibility is established for the software and (b) all research and development activities for the other components of the product or process have been completed. Amortization is included in cost of revenue and is charged to income based upon a revenue formula over the shorter of the remaining estimated economic life of the product or estimated lifetime revenue of the product. Amortization of capitalized software costs was approximately $131,000, $1.9 million and $47,000 for the years ended December 31, 1996, 1997 and 1998, respectively. INCOME TAXES--Prior to November 1996, IMRglobal elected to be taxed as an S Corporation under the provisions of the Internal Revenue Code whereby taxable income is generally reported by the shareholders on their individual income tax returns. In connection with the initial public offering, the S Corporation election was terminated on November 11, 1996. In addition, IMRglobal's wholly owned subsidiary, IMRglobal - Orion Consulting, Inc. ("Orion") was taxed as an S Corporation since its inception. In connection with Orion's merger with IMRglobal, the S Corporation election was terminated on June 15, 1999. Subsequent to the termination of the S Corporation election, IMRglobal and Orion became subject to U.S. federal and state income taxes as C Corporations. IMRglobal uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is provided against the future benefit of deferred tax assets if it is determined that it is more likely than not that the future tax benefits associated with the deferred tax asset will not be realized. (See Note 11.) PRO FORMA NET INCOME--To properly reflect IMRglobal's and its subsidiary Orion pro forma net income, the provision for income taxes has been adjusted as if IMRglobal had been a taxable entity subject to federal and state income taxes at the marginal rates applicable to such periods. In addition, the pro forma adjustment to income tax expense for the year ended December 31, 1996 excludes the $1,075,000 one-time income tax expense resulting from the termination of the S Corporation status. FOREIGN CURRENCY TRANSLATION--The financial statements of IMRglobal's foreign subsidiaries use a functional currency which is other than the U.S. dollar and are translated into U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Assets and liabilities are translated at exchange rates in effect on the reporting date. Income and expense items are translated at the average exchange rates in effect during 10 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): the year. The resulting translation adjustments are not included in determining net income but are included in accumulated other comprehensive income. Foreign currency transaction gains and losses are reported in net income but are not material to any period presented. COMPUTATION OF EARNINGS PER SHARE--Basic earnings per share is computed using the weighted average of common stock outstanding. Diluted earnings per share is computed using the treasury stock method which is summarized as follows (in thousands):
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, ----------------------------- ------------------------- 1996 1997 1998 1998 1999 ------- ------- ------ ------ ------ Weighted average common stock outstanding .......... 22,941 31,612 35,516 34,107 37,623 Stock Option Plans Shares under option at end of period ............... 11,438 10,756 10,073 12,355 9,514 Treasury Shares which could be purchased ................... (525) (418) (533) (1,479) (1,834) ------- ------ ------ ------ ------ Weighted average common stock equivalents .......... 10,913 10,338 9,540 10,876 7,680 ------- ------ ------ ------ ------ Shares used in diluted earnings per share calculation ............. 33,854 41,950 45,056 44,983 45,303 ======= ====== ====== ====== ======
STOCK BASED COMPENSATION--IMRglobal follows the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB Opinion No. 25), for stock issued under its stock option plans (See Note 13). USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 11 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): COMPREHENSIVE INCOME--During 1998, IMRglobal adopted Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income." Comprehensive income is comprised solely of foreign currency translation adjustments. Foreign currency translation adjustments have not been tax effected as IMRglobal considers foreign earnings to be indefinitely reinvested. NEW ACCOUNTING PRONOUNCEMENTS--During June, 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective for IMRglobal on January 1, 2001. This statement establishes measurement and disclosure criteria for certain derivative and hedging instruments including foreign exchange forward contracts. Management is currently assessing the future impact of SFAS No. 133 on IMRglobal's financial statements. 2. BUSINESS COMBINATIONS: For all business combinations accounted for as purchases pursuant to APB Opinion No. 16, "Business Combinations", IMRglobal's financial statements include the results of operations for the acquired businesses from the date of acquisition. For all material business combinations accounted for as poolings of interests pursuant to APB Opinion No. 16, IMRglobal's financial statements have been restated to include the results of operations for all periods presented. IMRGLOBAL LTD. ("IMRGLOBAL-INDIA")--At December 31, 1995, IMRglobal owned 34.2% of IMRglobal-India, an Indian Limited Liability Company. During 1996, 1997 and 1998, IMRglobal purchased an additional 46.9% of IMRglobal-India's outstanding common shares for approximately $7.6 million in cash in several transactions. These acquisitions are accounted for as purchases pursuant to the provisions of APB Opinion No. 16 and resulting goodwill is being amortized over a 10-year period. In addition, during November 1996, IMRglobal acquired an additional 18.4% of IMRglobal-India from IMRglobal's majority shareholder for approximately $3.1 million in cash. The acquisition from IMRglobal's majority shareholder is accounted for as a reduction of equity. As a result of the acquisitions noted above, IMRglobal owns 99.5% of the outstanding common shares of IMR-India at December 31, 1998. IMRglobal accounts for its investment in IMRglobal-India utilizing the consolidation method for all periods presented, because effective control had been maintained through the continued direct financial interests in IMRglobal-India held by IMRglobal's majority shareholder. 12 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED): LINK GROUP HOLDINGS LIMITED AND INFORMATION MANAGEMENT RESOURCES (U.K.) LIMITED ("IMRglobal-U.K.")--On February 10, 1997 (effective January 8, 1997), IMRglobal acquired 100% of the outstanding stock of Link Group Holdings Limited ("Link"), a United Kingdom Limited Liability Company. Link provided transitional software outsourcing solutions to the information technology departments of large businesses located in the U.K. Prior to the acquisition, Link was owned by a Board member of IMRglobal and his spouse. In exchange for Link's common stock, Link's shareholders received $2.1 million in cash and 161,343 shares (valued at $1.6 million) of IMRglobal's common stock. In addition, a $1.6 million deferred cash payment was made to Link's former shareholders during February, 1998. The Link acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 10-year period. Coincident with the above acquisition, IMRglobal also acquired 10.5% of Information Management Resources (U.K.) Limited ("IMRglobal-Ltd."), a United Kingdom Limited Liability Company, from IMRglobal's majority shareholder and his spouse for $520,000 in cash. The purchase price was determined through negotiations between IMRglobal and the shareholder and his spouse. The acquisition from IMRglobal's majority shareholder is accounted for as a reduction of equity. Prior to the above acquisitions, IMRglobal owned 39.5% of IMRglobal-Ltd. and Link owned 50% of IMRglobal-Ltd. After the above acquisitions IMRglobal effectively owns 100% of both Link and IMR-Ltd. The operations of Link and IMRglobal-Ltd. have been merged and the operating company was renamed IMRglobal, plc ("IMRglobal-U.K."). IMRGLOBAL (NORTHERN IRELAND) LIMITED--During June 1997, IMRglobal began operations in Belfast, Northern Ireland and acquired certain assets in exchange for $270,000 cash and 11,250 shares of IMRglobal's stock. The acquisition was accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 10-year period. LYON CONSULTANTS, S.A.--During May, 1998, IMRglobal acquired 100% of the outstanding stock of Lyon Consultants, S.A. ("Lyon"), a privately held software engineering company headquartered in Paris, France. Lyon specializes in rapid software application development, utilizing reusable business and technical software objects, and information technology consulting. In exchange for Lyon's common stock, Lyon's shareholders received $16.7 million in cash and 531,353 shares (valued at $13.0 million) of IMRglobal's unregistered common stock. Of the above purchase price, $700,000 of cash and 32,000 shares of IMRglobal's common stock were remitted one year after the acquisition date. In addition, IMRglobal may have to make an additional payment to the former stockholders of Lyon (see Note 17). These amounts are included in the determination of the purchase price. The Lyon acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 20-year period. 13 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED): IMRglobal allocated the purchase price of Lyon based on the fair value of the assets acquired and liabilities assumed. Significant portions of the purchase price were identified as intangible assets in independent appraisals, using proven valuation procedures and techniques. These intangible assets include approximately $8.2 million for acquired in-process research and development ("IPRD") for projects that did not have future alternative uses and $2.7 million for developed technology. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the acquired in-process research and development projects that give explicit consideration to the SEC Staff's views on in-process research and development as set forth in the September 15, 1998 letter to the American Institute of Certified Public Accountants. At the date of the acquisition the development of the IPRD projects had not yet reached technological feasibility and the IPRD in progress had no alternative future use. Accordingly, these costs were expensed as of the acquisition date. The acquired developed technology is being amortized over a 5-year period. Concurrent with the acquisition of Lyon, IMRglobal entered into a noncancellable 3 year licensing agreement with a seven year renewal option, with Wyde S.A. ("Wyde"), an unrelated French company. Wyde provides the base technology upon which the Lyon components have been developed. The licensing agreement provides for the transfer of Wyde's computer code and technology to IMRglobal if Wyde should terminate its business. The amount of the licensing fees is dependent on the value of company work sold and the countries where the technology is utilized. Future minimum licensing fees payable to Wyde are $400,000 in 1999 and 2000. RHO TRANSFORMATIONAL TECHNOLOGIES PTY LIMITED--During June, 1998, IMRglobal acquired 100% of the outstanding shares of RHO Transformational Technologies Pty Limited ("RHO"), a privately held software services and engineering company headquartered in Sydney, Australia. RHO specializes in software application conversion and maintenance services, utilizing proprietary tools and provides these services to large global companies with Australian and Asia Pacific operations. In exchange for RHO's common stock, RHO stockholders received 285,000 shares of IMRglobal's common stock. The RHO acquisition is being accounted for as a pooling of interests in accordance with the provisions of APB Opinion No. 16. Costs of approximately $145,000 related to the acquisition have been charged to acquisition costs and included in the statement of income. The financial statements for 1996 and 1997 have not been restated for the RHO acquisition due to the immateriality of this transaction. The impact was a reduction to the 1998 opening retained earnings and comprehensive income of $69,000 and $59,000, respectively. These amounts are included in common stock issued in connection with business combinations. 14 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED): VISUAL SYSTEMS DEVELOPMENT CORPORATION--On October 2, 1998, IMRglobal acquired 100% of the outstanding shares of Visual Systems Development Corporation ("Visual"). In exchange for Visual's common stock, Visual's shareholders received $5.5 million in cash and 400,000 shares (valued at approximately $7 million) of IMRglobal's common stock. In addition, $3.5 million of IMRglobal's unregistered common stock are payable if certain specified business and financial objectives are achieved. Any contingent payment would result in an increase in the purchase price and the resulting goodwill. The Visual acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 20-year period. ATECHSYS S.A. ("ATECHSYS") - On January 8, 1999, IMRglobal acquired 100% of the outstanding stock of Atechsys S.A., a privately held information technology company based in Paris, France, specializing in business and technology consulting specific to capital markets businesses. In exchange for Atechsys' common stock, Atechsys' shareholders received 718,859 shares of IMRglobal common stock. The Atechsys acquisition is accounted for as a pooling of interests combination pursuant to the provisions of APB Opinion No. 16. Financial statements for all periods have been restated to give effect to the business combination. Costs of approximately $1.7 million related to the acquisition have been charged to acquisition costs and included in the statement of income for the six months ended June 30, 1999. ECWERKS, INC. ("ECWERKS") - On January 15, 1999, IMRglobal acquired 100% of the outstanding stock of ECWerks, Inc., a privately held electronic commerce business and technology consulting company based in Tampa, Florida. In exchange for ECWerks' common stock, ECWerks' shareholders received $520,000 in cash and 163,054 shares (valued at $3.6 million) of IMRglobal's unregistered common stock. In addition, a contingent payment of up to $28.0 million of common stock is payable if certain specified financial goals are achieved during 1999. Any contingent payment would result in an increase in the purchase price and the resulting goodwill. The ECWerks acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 20-year period. FUSION SYSTEM JAPAN CO., LTD. ("FUSION") - On March 26, 1999, IMRglobal acquired 100% of the outstanding stock of Fusion System Japan Co., Ltd., a privately held business and technology consulting company based in Tokyo, Japan. Fusion is comprised of three divisions, one focused on the capital markets businesses in Japan and Asia-Pacific, a Commercial Services division, which provides information technology ("IT") consulting services to large companies in Japan and a Client Services division which provides voice/data infrastructure solutions in Japan. Fusion also has a subsidiary in Boston that provides IT services to clients in the financial and commercial services industries. In exchange for Fusion's common stock, Fusion's shareholders received 3,735,536 shares of IMRglobal common stock. The Fusion acquisition is accounted for as a pooling of interests combination pursuant to the provisions of APB Opinion No. 16. Current year and prior year financial statements have been restated to give effect to the business combination. Costs of approximately $2.1 million related to the acquisition have been charged to acquisition costs and included in the statement of income for the six months ended June 30, 1999. 15 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED): During October 1996, Fusion initiated a Stock Appreciation Rights (SAR) plan for the majority of its employees. The terms of this plan provided a deferred benefit to employees based on the change in book value of Fusion. The plan also provided the payment of an amount equal to approximately 3% of Fusion's fair market value upon a merger or acquisition. Fair market value of Fusion was based on the consideration received by Fusion's shareholders upon consummation of the merger. In accordance with the SAR plan, IMRglobal's acquisition of Fusion resulted in a one-time charge of approximately $1.8 million as a full and final settlement of this plan. Fusion had a March 31 fiscal year-end and, accordingly, the Fusion statements of income for the years ended March 31, 1997 and March 31, 1998 have been combined with the IMRglobal's statements of income for the years ended December 31, 1996 and December 31, 1997, respectively. In order to conform Fusion's fiscal year-end to IMRglobal's calendar year-end, the consolidated statement of income for the year ended December 31, 1998 include three months (January, February and March 1998) for Fusion, which are also included in the consolidated statement of income for the year ended December 31, 1997. Accordingly, 1998 retained earnings were adjusted for the duplication of net loss of approximately $295,000. PROFESSIONAL PARTNERS, INC. AND LAKEWOOD SOFTWARE TECHNOLOGY CENTER, INC. ("PLP")--On April 28, 1999, IMRglobal acquired 100% of the outstanding stock of PLP, a privately held provider of information technology services to the Property and Casualty insurance industry. In exchange for PLP's common stock, PLP's shareholders received $12.0 million in cash. The PLP acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16 and the resulting goodwill is being amortized over a 20-year period. ORION CONSULTING, INC. ("ORION")--On June 15, 1999, IMRglobal acquired 100% of the outstanding stock of Orion Consulting, Inc., headquartered in Cleveland, Ohio. Orion was a privately held management consulting firm primarily serving the Health Care industry. In exchange for Orion's common stock, Orion's shareholders received 3,028,414 shares of IMRglobal's common stock. The Orion merger has been accounted for as a pooling of interests pursuant to the provisions of APB Opinion No. 16. Costs of approximately $2.8 million related to the acquisition have been charged to acquisition costs and included in the statement of income for the six months ended June 30, 1999. IMRglobal has also purchased certain assets in the expansion of its technology expertise and the expansion of its sales office infrastructure. 16 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 2. BUSINESS COMBINATIONS (CONTINUED): The Atechsys, Fusion and Orion transactions have been accounted for as poolings of interests and accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of Atechsys, Fusion and Orion. Results of operations for the periods prior to the merger with Atechsys, Fusion and Orion are summarized below (in thousands):
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------- --------- 1996 1997 1998 1998 --------- --------- --------- --------- Revenue: IMRglobal .............................. $27,948 $83,550 $158,252 $69,584 Adjustment for pooling of interests..... 27,648 31,760 49,959 22,660 ------- ------- -------- ------- Combined ........................ $55,596 $15,310 $208,211 $92,244 ======= ======= ======== ======= Pro forma net income: IMRglobal .............................. $ 2,588 $11,895 $ 18,909 $ 3,621 Adjustment for pooling of interests..... 2,266 (1,805) 1,442 (15) ------- ------- -------- ------- Combined ........................ $ 4,854 $10,090 $ 20,351 $ 3,606 ======= ======= ======== ======= Other changes in shareholders' equity: IMRglobal .............................. $35,060 $60,956 $ 40,616 $23,742 Adjustment for pooling of interests..... (1,874) (1,905) 2,322 2,113 ------- ------- -------- ------- Combined ........................ $33,186 $59,051 $ 42,938 $25,855 ======= ======= ======== =======
17 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 3. MARKETABLE SECURITIES: IMRglobal currently invests only in high quality, short-term investments which it classifies as available-for-sale. As such there were no significant differences between amortized cost and estimated fair value at December 31, 1997 and 1998. Additionally, because investments are short-term and are generally allowed to mature, realized gains and losses have been minimal for the years ended December 31, 1996, 1997 and 1998. The following table presents the estimated fair value of marketable securities by category (in thousands): 1997 1998 ------- ------- Bankers' acceptance ......................... $ -- $10,157 Commercial paper ............................ -- 21,452 Municipal debt securities.................... 4,453 -- ------- ------- $ 4,453 $31,609 ======= ======= The estimated fair value of marketable securities at December 31, 1998 was $22,992 due in one year or less and $8,617 due in one to three years. 4. ACCOUNTS RECEIVABLE (IN THOUSANDS): 1997 1998 -------- -------- Accounts receivable, trade ................. $ 21,157 $38,007 Unbilled accounts receivable- Time-and-materials contracts............. 207 4,386 Reserve for doubtful accounts .............. (33) (2,150) -------- ------- $ 21,331 $40,243 ======== ======= During 1998, IMRglobal established a reserve for doubtful accounts in the amount of $2.1 million with a corresponding charge to income. 18 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 5. COSTS AND ESTIMATED EARNINGS ON COMPLETED AND UNCOMPLETED CONTRACTS (IN THOUSANDS): 1997 1998 -------- -------- Costs incurred on completed and uncompleted contracts................ $ 33,473 $ 34,956 Estimated earnings ......................... 18,388 38,949 -------- -------- 51,861 73,905 Less billings to date ...................... (49,566) (71,781) -------- -------- $ 2,295 $ 2,124 ======== ======== The following is included in the accompanying balance sheets: 1997 1998 -------- -------- Unbilled work in process ................... $ 8,484 $ 7,943 Deferred revenue ........................... (6,189) (5,819) -------- -------- $ 2,295 $ 2,124 ======== ======== 19 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 6. PROPERTY AND EQUIPMENT: The major classifications of property and equipment at December 31, 1997 and 1998 are summarized as follows (in thousands): ESTIMATED USEFUL LIFE (YEARS) 1997 1998 -------- -------- -------- Land ......................... -- $ -- $ 1,355 Buildings and improvements ... 10-40 2,729 3,604 Computer equipment ........... 3-6 5,560 8,595 Computer software ............ 3-10 2,331 5,756 Office furniture and equipment 3-12 3,403 5,792 Vehicles ..................... 3-20 124 2,088 Construction in progress ..... 1,652 4,224 -------- -------- 15,799 31,414 Less accumulated depreciation and amortization .......... (4,475) (8,323) -------- -------- $ 11,324 $ 23,091 ======== ======== Depreciation of property and equipment was approximately $866,000, $1.8 million and $3.7 million for the years ended December 31, 1996, 1997 and 1998, respectively. 7. INTANGIBLE ASSETS (IN THOUSANDS): 1997 1998 -------- -------- Goodwill ....................................... $ 11,517 $ 37,863 Acquired technology ............................ -- 2,400 Accumulated amortization........................ (1,360) (3,434) -------- -------- $ 10,157 $ 36,829 ======== ======== 20 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 8. OTHER CURRENT LIABILITIES (IN THOUSANDS): 1997 1998 -------- -------- Accrued costs on Year 2000 contracts............ $ -- $ 5,116 Payroll taxes and value added taxes............. 2,177 4,642 Income taxes ................................... 1,099 6,555 Deferred income taxes .......................... 296 968 Deferred payments-acquisitions ................. 1,608 1,478 Note payable - employee ........................ 199 213 Employee savings plans ......................... 1,789 3,308 Funds held in escrow (See Note 17) ............. -- 335 Revolving credit loan .......................... -- 443 Current portion of long-term debt .............. 1,941 607 Other .......................................... 1,684 3,933 ------- ------- $10,793 $27,598 ======= ======= During 1998, IMRglobal accrued $5.1 million related to completed Year 2000 projects. IMRglobal is liable to remediate selected issues which arise in completed projects. Management has committed to clients that personnel will be available to remediate Year 2000 issues that arise in late 1999 and early 2000. To accomplish this goal, IMRglobal has committed specific personnel to work on completed Year 2000 projects. As of December 31, 1998, no claims have been asserted. IMRglobal has accrued the amount of costs it has committed to incur based on the complexity of the Year 2000 projects completed and experience level of personnel required. 9. RELATED PARTIES: During 1998, IMRglobal advanced $366,000 to three officers. These officers utilized the proceeds to acquire common stock of IMRglobal. These loans are secured by the IMRglobal common stock investment, and are repayable in 2003 or upon the officer's termination of employment with IMRglobal. These loans bear interest at 9.5% which is added to the principal portion of the note. At December 31, 1998, the loan receivable balance was $385,000, including $19,000 of accrued interest. At December 31, 1997, other current liabilities include $1.6 million due to a member of IMRglobal's Board of Directors and his spouse in connection with the acquisition of Link (See Note 2). This amount was noninterest bearing and was paid in full during February 1998. 21 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 9. RELATED PARTIES (CONTINUED): At December 31, 1996, IMRglobal had outstanding notes payable to shareholders of $814,000 in connection with the S Corporation termination (See Note 13). These notes were unsecured with interest at 8% and were paid in full during February 1997. Interest expense on notes payable-shareholder for the year ended December 31, 1996 and 1997 was $19,000 and $12,000, respectively. Prior to the IMRglobal-U.K. acquisition, IMRglobal-India provided software development services to IMRglobal-Ltd. at market rates. During the year ended December 31, 1996, IMRglobal recognized revenues from IMRglobal-Ltd. of approximately $877,000. At December 31, 1996, IMRglobal had two notes receivable from IMRglobal-Ltd. totaling $692,500, which resulted from cash advances. During 1996, IMRglobal recognized approximately $35,000 of interest income on these notes. As a result of the 1997 IMRglobal-U.K. acquisition, these intercompany notes are eliminated in the consolidated financial statements. Cash flows from financing activities included payments on notes payable-shareholders of approximately $350,000 and $814,000 for the years ended December 31, 1996 and 1997. 10. CREDIT FACILITIES: REVOLVING CREDIT FACILITIES IMRglobal maintains an uncollateralized $10.0 million revolving credit facility which allows IMRglobal to borrow up to 80% of the book value of U.S. accounts receivable. Interest is at LIBOR plus 1% (currently 6.3%). No borrowings have been made under this facility. Certain subsidiaries of IMRglobal maintain additional revolving credit line arrangements. Interest rates are based on the lending institution's prime rate (ranging from 6.5% to 9.0% at December 31, 1998). At December 31, 1997 and 1998, the amount outstanding on these credit facilities was $0 and $443,000, respectively. The maximum amount available under these facilities at December 31, 1998 was approximately $6.9 million. The respective subsidiary's accounts receivable and certain property and equipment collateralize these facilities. On June 15, 1999, in connection with the Orion merger (See Note 2), Orion's $3.0 million credit line was canceled due to change in ownership provisions incorporated into the credit facility. 22 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 10. CREDIT FACILITIES (CONTINUED): LONG-TERM DEBT Long-term debt at December 31, 1997 and 1998 is summarized as follows (in thousands):
1997 1998 ------ ------ Japan: 2.125% uncollateralized notes payable due February 1999 and March 2004 ...................................... $ 467 $ 245 Four notes payable with interest at 7%, collateralized by property and equipment due November 2001 through September 2002 .............................. 2,857 1,375 France: Loans from French government agencies at 0% interest payable in annual installments commencing March 1999 through March 2002; collateralized by property and equipment .......................... 33 778 India: Loan payable with interest at LIBOR plus 3.0% (8.9% at December 31, 1997), principal repayable in eight equal semiannual installments of $148 commencing February 1998, collateralized by property and equipment (balance prepaid during 1998) ....................... 1,180 -- ------ ------ 4,537 2,398 Less current portion ................................................. 1,941 607 ------ ------ Long-term debt, net of current portion ............................... $2,596 $1,791 ====== ====== Maturities of long-term debt at December 31, 1998 are as follows (in thousands): 2000.............................................................. $ 665 2001.............................................................. 645 2002.............................................................. 431 2003.............................................................. 38 2004.............................................................. 12 ------ $1,791 ======
At December 31, 1998, IMRglobal was in compliance with financial covenants of the credit and debt facilities described above. 23 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 11. INCOME TAXES: The provision (benefit) for income taxes is as follows (in thousands):
1996 1997 1998 -------- -------- -------- Current: Federal ........................................ $ 412 $ 6,378 $ 16,073 State (net of federal tax benefit) ............. 66 1,015 1,442 Foreign ........................................ 1,087 1,311 5,854 -------- -------- -------- Total current provision for income taxes..... 1,565 8,704 23,369 Deferred: Federal ........................................ 735 (1,906) (5,388) State (net of federal tax benefit) ............. 118 (268) (441) Foreign ........................................ (61) (55) (1,930) -------- -------- -------- Total deferred provisions (benefit) for income taxes ......................... 792 (2,229) (7,759) -------- -------- -------- Total provision for income taxes ............ $ 2,357 $ 6,475 $ 15,610 ======== ======== ========
Upon termination of the S Corporation election, as described in Note 1, current and deferred income taxes reflecting the tax effects of temporary differences between IMRglobal's financial statement and the tax bases of certain assets and liabilities became liabilities of IMRglobal. Accordingly, the above provision for 1996 income taxes included a $1.1 million nonrecurring expense resulting from the termination of the S Corporation election. In accordance with applicable sections of the Internal Revenue Code, IMRglobal elected to pay this nonrecurring expense over a four year period beginning in 1996. The components of the net deferred tax asset (liability) are as follows (in thousands):
1997 1998 ------- ------- Deferred tax assets: Accrued compensation ........................... $ 2,215 $ 6,600 Accrued costs on Year 2000 contracts............ -- 2,102 Net operating loss ............................. 625 5,375 Research and development tax credit............. -- 1,759 Long-term contracts ............................ 566 672 Other .......................................... 15 505 ------- ------- Total deferred tax assets ................... 3,421 17,013
24 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 11. INCOME TAXES (CONTINUED): 1997 1998 -------- -------- Deferred tax liabilities: Cash to accrual conversion ......... (522) (319) Intangibles ........................ -- (750) Foreign ............................ (40) (460) Equity investments ................. (234) (428) Other .............................. (46) (52) -------- -------- Total deferred tax liabilities (842) (2,009) -------- -------- Net deferred tax asset before valuation allowance ................ 2,579 15,004 Valuation allowance - foreign ......... (1,288) (1,865) -------- -------- Deferred tax asset net of valuation allowance ......... $ 1,291 $ 13,139 ======== ======== The balance sheet classification of the net deferred tax asset is summarized as follows (in thousands): 1997 1998 -------- -------- Deferred tax asset - current ......... $ 2,133 $ 15,148 Deferred tax liability - current ...... (296) (968) Deferred tax liability - noncurrent.... (546) (1,041) -------- -------- $ 1,291 $ 13,139 ======== ======== As reflected above, as of December 31, 1997 and 1998, IMRglobal has recorded a valuation allowance of approximately $1.3 million and $1.9 million, respectively, against the deferred tax asset related to net operating losses and non deductible accruals and reserves of a foreign subsidiary. 25 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 11. INCOME TAXES (CONTINUED): As of December 31, 1998, IMRglobal had approximately $13 million of net operating loss carryforwards for regular income tax purposes which will expire between 2012 and 2013. The net operating loss primarily resulted from the benefits realized upon stock option exercises. During the years ended December 31, 1997 and 1998, various non-statutory stock options were exercised resulting in tax benefits of approximately $6.8 million and $20.9 million, respectively, which were directly credited to shareholders' equity. Under the Indian Income Tax Act of 1961 (the "Act"), a substantial portion of IMRglobal-India's income is exempt from Indian Income Tax as profits attributable to export operations or a tax holiday expiring in 2007. Under the Act, there are certain alternative minimum tax provisions which impose tax on net profits at a rate of 10.5%. Management has determined that these provisions are not currently applicable due to the tax holiday. Accordingly, the effective tax rate imposed on IMRglobal-India's income is substantially less than the current statutory rate of 35%. Undistributed earnings of IMRglobal's foreign subsidiaries amounted to approximately $25 million at December 31, 1998. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for United States federal and state income taxes has been provided thereon. On remittance, certain countries impose withholding taxes that, subject to certain limitations, are then available for use as tax credits against a U.S. tax liability, if any. Determination of the amount of unrecognized deferred United States income tax liability or foreign tax withholding is not practicable because of the complexities associated with its hypothetical calculation. The following table accounts for the differences between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rates of 34% in 1996 and 35% in 1997 and 1998 to the income before income taxes and minority interest (in thousands).
1996 1997 1998 ------- ------- ------- Statutory tax provision ........................... $ 3,225 $ 5,438 $12,381 State taxes, net of federal benefit................ 193 637 843 U.S. S Corporation income not subject to federal income taxes ........................ (2,495) 1,076 591 Foreign and U.S. tax effects attributable to foreign operations.............. (236) (1,704) 1,051 Termination of S Corporation status................ 1,075 -- -- Increase in valuation allowance.................... 463 825 577 Other net ......................................... 132 203 167 ------- ------- ------- Total provision for income taxes............. $ 2,357 $ 6,475 $15,610 ======= ======= =======
26 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 12. LEASES: IMRglobal leases office facilities and certain residential premises for employees under noncancellable operating lease agreements. Rental expense under these leases was approximately $820,000, $2.2 million, and $3.5 million during 1996, 1997 and 1998, respectively. Future minimum lease payments as of December 31, 1998 for leases with noncancellable terms in excess of one year are approximately as follows (in thousands): 1999.......................... $ 3,939 2000.......................... 3,037 2001.......................... 2,344 2002.......................... 2,164 2003.......................... 1,548 Thereafter.................... 6,412 ------- Total minimum payments...... $19,444 ======= 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS: On September 12, 1996, IMRglobal filed Amended and Restated Articles of Incorporation which (i) effected a reclassification of each share of its voting and nonvoting common stock into 10 shares of common stock, par value $.10 per share, (ii) increased IMRglobal's authorization of common stock to 40,000,000 shares; and (iii) created and authorized 10,000,000 shares of preferred stock, par value $.10 per share, under terms that allow the Board of Directors to designate one or more classes of preferred stock and to designate the rights, privileges, preferences and limitations of each such class. On November 11, 1996, in connection with the termination of IMRglobal's S corporation election (see Note 1), IMRglobal's remaining retained earnings were transferred to additional paid-in capital. Also, a cash dividend of $1.6 million was paid to the shareholders of the S Corporation as a final distribution of Subchapter S earnings. During November 1996, IMRglobal completed an initial public offering and received $40.7 million in cash (net of offering expenses of $1.1 million) in exchange for the issuance of 7,228,125 shares of common stock. IMRglobal's common stock commenced trading on the Nasdaq National Market on November 8, 1996. 27 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): On March 9, 1998 and June 17, 1997, IMRglobal declared 3-for-2 stock splits in the form of stock dividends payable on April 3, 1998 and July 10, 1997, respectively, to shareholders of record on March 20, 1998 and June 26, 1997, respectively. All applicable share and per share amounts in the accompanying financial statements have been retroactively adjusted. During July 1997, IMRglobal completed a public offering and received $52.5 million in cash (net of offering expenses of $600,000) in exchange for the issuance of 2,587,500 shares of common stock. On May 4, 1998, the shareholders approved (i) an amendment of IMRglobal's Amended and Restated Articles of Incorporation to increase the number of shares of IMRglobal's Common Stock authorized for issuance from 40,000,000 to 100,000,000 shares and (ii) an increase in the number of shares of Common Stock available for grant under IMRglobal's Stock Incentive Plan from 12,253,455 to 16,003,455 shares. EMPLOYEE STOCK OPTION PLAN--IMRglobal has granted certain employees non-qualified stock options with vesting periods of up to five years. The number of shares of common stock authorized for issuance under this plan is 16,003,455. These options give the employees the right to purchase common stock at an exercise price at least equal to the fair market value of the stock at the date of the option's grant. On July 15, 1996 management reset the term for all options granted through that date to 10 years starting July 15, 1996. All options granted subsequent to July 15, 1996 expire 7 to 10 years from their grant date. NONEMPLOYEE DIRECTORS STOCK OPTION PLAN--During September 1996, IMRglobal established the Nonemployee Directors Stock Option Plan, whereby nonemployee directors may be granted non-qualified options to purchase common stock. The number of shares of common stock authorized for issuance under this plan is 337,500. The exercise price of the stock option may not be less than the fair market value of the common stock on the date of the grant. Each nonemployee director is granted an option of 22,500 shares for each two year period they serve on the Board. The options expire 10 years from the grant date. Beginning with the grant date, these options vest 50% at the end of the first year and 100% at the end of the second year. As of December 31, 1998, 225,000 options are available for future grants and 112,500 options are outstanding, of which 67,500 are exercisable. 28 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): STOCK OPTION DISCLOSURES--IMRglobal applies APB Opinion No. 25 and related interpretations in accounting for stock options. Accordingly, no compensation cost has been recognized in connection with the issuance of these options. Had compensation cost for IMRglobal's stock option plan been determined based on the fair value at the grant dates for the awards under the plan consistent with the method of SFAS Statement No. 123, IMRglobal's net income and earnings per share for the year ended December 31, 1998, 1997 and 1996 would have been reduced to the adjusted amounts indicated below: 1996 1997 1998 -------- ------- ------- Pro forma net income: As reported ...................... $4,854 $10,090 $20,351 As adjusted (unaudited) .......... $4,351 $ 8,763 $14,623 Pro forma diluted earnings per share: As reported ...................... $ 0.14 $ 0.24 $ 0.45 As adjusted (unaudited) .......... $ 0.13 $ 0.21 $ 0.32 The pro forma disclosures are not likely to be representative of the effects on reported net income for future years. The estimated per share fair value of options granted during 1996, 1997 and 1998 was $0.31, $12.46 and $17.12, respectively. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 1996, 1997 and 1998, respectively: no dividend yield for each year presented; risk-free interest rates of 5.9%, 6.0% and 5.3%; expected lives of the options prior to exercise of 10.4, 6.5 and 5.0 years. For options granted prior to IMRglobal's initial public offering in November, 1996, volatility of the stock price was omitted from the pricing model as permitted by SFAS No. 123. For 1997 and 1998 option grants, a volatility measure of 85% and 80%, respectively, was employed. 29 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): A summary of the status of IMRglobal's stock option plan as of December 31, 1996, 1997 and 1998, and changes during the years ending on those dates is presented below:
1996 1997 1998 ------------------------------ ------------------------------ ---------------------------- WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISE EXERCISE EXERCISE FIXED OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE - -------------------------------- ---------- ---------------- ----------- ---------------- ---------- ---------------- Outstanding at beginning of year 4,962,262 $0.05 11,632,657 $ 0.46 12,545,095 $ 1.31 Granted 7,265,250 $0.66 2,015,700 $16.12 1,279,450 $25.28 Exercised (306,382) $0.05 (1,071,748) $ 0.25 (2,804,291) $ 0.34 Cancelled (288,473) $0.05 (31,514) $ 2.25 (215,440) $16.50 ---------- ----------- ---------- Outstanding at end of year 11,632,657 12,545,095 10,804,814 ========== ========== ========== Options exercisable at year-end 10,240,673 9,541,970 7,375,447 ========== ========== ==========
30 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): The following table summarizes certain information about stock options at December 31, 1998: OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ----------------------------------------------- ------------------------------ NUMBER WEIGHTED-AVERAGE NUMBER OUTSTANDING REMAINING EXERCISABLE AT 12/31/98 CONTRACTUAL LIFE EXERCISE PRICES AT 12/31/98 EXERCISE PRICES - ------------ ---------------- ------------- ----------- -------------- 7,445,929 7.5 years $ 0.05-2.25 6,881,640 $ 0.05-2.25 310,500 7.8 years $ 4.45-6.22 162,000 $ 4.45-6.22 108,000 8.2 years $ 5.05 21,600 $ 5.05 7,875 8.1 years $ 8.45 1,350 $ 8.45 775,310 8 years $ 11.85-15.08 141,627 $ 11.85-15.08 1,129,700 8.8 years $ 18.25-18.75 164,980 $ 18.25-18.75 285,000 9.2 years $ 20.06-22.93 2,250 $ 20.06-22.93 555,000 9.5 years $ 24.06-31.75 -- $ 24.06-31.75 187,500 9.8 years $ 34.38-37.17 -- $ 34.38-37.17 - ---------- --------- 10,804,814 7,375,447 ========== ========= As of December 31, 1998, options to purchase 1,587,718 shares of Common Stock were available for future grants. EMPLOYEE STOCK PURCHASE PLAN--IMRglobal's Employee Stock Purchase Plan (the "Stock Purchase Plan") became effective on October 1, 1996. A total of 450,000 shares of IMRglobal's Common Stock have been reserved for issuance under the Stock Purchase Plan. An employee electing to participate in the Stock Purchase Plan must authorize a stated dollar amount or percentage of the employee's regular pay to be deducted by IMRglobal from the employee's pay for the purpose of purchasing shares of Common Stock on a quarterly basis. The price at which employees may purchase Common Stock is 85% of the closing price of the Common Stock on the Nasdaq National Market on the first day of the quarter or the last day of the quarter, whichever is lower. 31 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): IMRGLOBAL-INDIA STOCK OPTION PLAN--IMRglobal-India has adopted a separate Employee Share Option Policy which provides for grants of options to employees to purchase common shares of IMR-India. The maximum number of options that may be granted under the policy is 51,900 common shares. Under the policy, options granted to an employee vest upon completion of five years of continuous employment with IMRglobal-India or its affiliates. Vested options are valid for exercise during the employees' employment with IMRglobal-India or its affiliates and for a period of six months thereafter. Options that are not exercised within six months of cessation of employment expire. A summary of the status of IMRglobal-India's stock option plan is as follows: WEIGHTED AVERAGE SHARES EXERCISE PRICE ----------- ------------- Balance, December 31, 1996................... 20,500 $0.00 - $0.28 Granted ..................................... 4,000 $22.82 Canceled .................................... (4,500) $(0.00) ------ Balance, December 31, 1997................... 20,000 $ 4.66 Exercised ................................... (8,220) $ 0.23 Canceled .................................... (9,325) $(0.23) ------ Balance, December 31, 1998................... 2,455 $0.23-$22.82 ====== ============ At December 31, 1997 and 1998, exercisable options were 6,400 and 0, respectively. Compensation expense has been recognized on the difference between fair value at the date of the grant and the exercise price pursuant to APB Opinion No. 25. Compensation expense is recognized over the life of the options. Compensation expense under this plan for the years ended December 31, 1996, 1997 and 1998 was less than $3,000 annually. Under IMRglobal-India's policy, options granted subsequent to September 6, 1996 are granted at an exercise price equal to the fair market value of the common shares of IMRglobal-India at the time of the grant. During 1998, management decided not to issue any additional shares under this plan. 32 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 13. SHAREHOLDERS' EQUITY, STOCK OPTION AND STOCK PURCHASE PLANS (CONTINUED): ORION RESTRICTED STOCK PLANS--During 1997, Orion adopted its Restricted Stock Bonus Plan ("Stock Bonus Plan"). Pursuant to the Stock Bonus Plan, Orion distributed a portion of its common shares to certain key employees. Compensation expense related to this distribution for the years ended December 31, 1997 and 1998 was $209,000 and $1.5 million, respectively. 14. EMPLOYEE BENEFIT PLANS: Defined contribution plans cover employees in the United States and certain other countries, including Australia, France and India. Employees may contribute to these plans and IMRglobal matches these contributions in varying amounts. Defined contribution pension expense for the years ended December 31, 1996, 1997 and 1998 was $450,000, $673,000 and $1.7 million, respectively. During 1998, IMRglobal established a deferred compensation plan which allows certain U.S. employees to defer portions of their annual compensation. These assets are placed in a "rabbi trust" and are presented as assets of IMRglobal as they are available to the general creditors of IMRglobal in the event of the IMRglobal's insolvency. The value of the assets at December 31, 1998 was $2.8 million and is included in other assets. The related liability is included in accrued compensation. The assets are invested in variable life insurance products. At December 31, 1998 book value approximated fair value. 15. CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject IMRglobal to concentration of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables. IMRglobal maintains its cash with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. IMRglobal places its cash equivalents and marketable securities in investment grade short-term debt instruments and limits the amount of credit exposure to any one commercial issuer. Concentrations of credit risk with respect to accounts receivable is limited due to the dispersion of IMRglobal's customer base across different industries and geographies. IMRglobal's two largest customers accounted for approximately 28%, 12% and 12% of revenue for the years ended December 31, 1996, 1997 and 1998, respectively, and 7% and 4% of accounts receivable as of December 31, 1997 and 1998, respectively. No other customer accounted for 10% of revenue or accounts receivable for the above periods. 33 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 16. OTHER INCOME (IN THOUSANDS): 1996 1997 1998 ------- ------- ------- Investment income ............................. $ 263 $ 2,097 $ 4,649 Income (loss) in equity investment............. 34 44 (54) Other income (expense) ........................ 190 (91) (16) ------- ------- ------- $ 487 $ 2,050 $ 4,579 ======= ======= ======= 17. COMMITMENTS AND CONTINGENCIES: During June 1998, IMRglobal purchased land for the construction of new facilities for its corporate headquarters. The land and commitments for the construction of the first two buildings on the site are expected to cost approximately $28 million, of which approximately $14.4 million has been expended at June 30, 1999. IMRglobal from time to time is involved in legal actions arising in the ordinary course of business. With respect to these matters, management believes that it has adequate legal defenses and/or provided adequate accruals for related costs such that the ultimate outcome will not have a material adverse effect on IMRglobal's future financial position. During May 1998, IMRglobal acquired 100% of Lyon Consultants S.A. ("Lyon") for approximately $16.7 million in cash and 531,353 shares in IMRglobal (See Note 2). In addition, the acquisition agreement provides that if the average price of the IMRglobal shares on NASDAQ is less than $27.24 per share for the seven trading days prior to May 15, 1999, then IMRglobal will pay the former Lyon shareholders the difference between the average price on NASDAQ and $27.24 multiplied by 499,353 shares. On May 15, 1999 the average price of IMRglobal's shares for the seven trading days prior to May 10, 1999 was $18.768 per share. Accordingly, the liability to the former shareholders of Lyon is approximately $4.2 million unless this provision is renegotiated as discussed below. IMRglobal has been in continuing negotiations with the former shareholders of Lyon regarding the above contingency. IMRglobal's current proposal is that if the average price of the IMRglobal shares on NASDAQ is less than $34.05 per share for the seven trading days prior to May 15, 2000, then IMRglobal will pay the former Lyon shareholders the difference between the average price on NASDAQ and $34.05 for only the shares continuing to be held by the former Lyon shareholders. In addition, if the IMRglobal shares on NASDAQ is $34.05 per share or higher for any consecutive trading days between May 15, 1999 and May 15, 2000, then the above contingency is released without any further obligation to IMRglobal. The above proposal has not yet been accepted by the former shareholders of Lyon. 34 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 17. COMMITMENTS AND CONTINGENCIES (CONTINUED): IMRglobal's French subsidiary has claimed a special tax exemption for the 1993 through 1995 fiscal years. The French taxing authorities have challenged this exemption. Ongoing discussions are being held between IMRglobal's French management and the French taxing authorities regarding this issue. The probable liability is estimated to be $500,000 and is included as a liability in the accompanying financial statements. As of December 31, 1998, IMRglobal's healthcare consulting practice (Orion) acted as a trustee for certain clients. IMRglobal has received cash from these clients to pay various client obligations. Accordingly, as of December 31, 1998, IMRglobal has restricted cash of $335,000, which is included in cash on the balance sheet. This amount is offset by the related liability (See Note 8). 18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS): 1996 1997 1998 ----- ------- ------- Cash paid during the year for interest ......... $ 317 $ 168 $ 247 ===== ======= ======= Cash paid during the year for income taxes..... $ 702 $ 2,530 $ 2,159 ===== ======= ======= Noncash investing and financing activities: Notes payable-shareholders issued in lieu of dividend ......................... $ 801 $ -- $ -- ===== ======= ======= Common stock issued in connection with acquisition of subsidiaries ......... $ -- $ 1,801 $19,186 ===== ======= ======= Deferred payments for acquisition of subsidiaries .......................... $ -- $ 1,608 $ 1,478 ===== ======= ======= Compensation expense paid as a capital contribution ..................... $ -- $ 1,524 $ -- ===== ======= ======= 35 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 19. SEGMENT INFORMATION (IN THOUSANDS):
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30, -------------------------------- ------------------------- 1996 1997 1998 1998 1999 --------- -------- -------- --------- --------- Revenue by service offering: Core service offerings ......... $44,033 $ 61,208 $116,889 $48,115 $ 94,807 Year 2000 ...................... 7,487 44,479 77,217 38,083 27,719 Professional services .......... 4,076 9,623 14,105 6,046 7,394 ------- -------- -------- ------- -------- Total revenue .............. $55,596 $115,310 $208,211 $92,244 $129,920 ======= ======== ======== ======= ======== Revenue by geography: North America .................. $44,585 $ 80,675 $141,871 $64,826 $ 88,543 Europe ......................... 3,040 24,273 44,585 17,070 25,280 Asia Pacific ................... 7,971 10,362 21,755 10,348 16,097 ------- -------- -------- ------- -------- Total revenue .............. $55,596 $115,310 $208,211 $92,244 $129,920 ======= ======== ======== ======= ======== Income from operations: Sales organizations: North America .................. $ 7,370 $ 9,815 $ 27,778 $ 9,993 $ 17,499 Europe ......................... 333 1,429 6,561 1,881 4,626 Asia Pacific ................... 394 (365) 5,472 2,526 6,864 Software Development Centers ..... 1,315 5,052 8,129 3,957 3,812 ------- -------- ------- ------- -------- Income from operations - sales and development centers ...................... 9,412 15,931 47,940 18,357 32,801 Research and development ......... -- (1,113) (6,437) (2,245) (2,893) Goodwill amortization ............ (100) (1,123) (2,076) (653) (2,049) Other costs ...................... -- -- (8,345) (8,345) (8,417) ------- -------- -------- ------- -------- Income from operations ...... $ 9,312 $ 13,695 $ 31,082 $ 7,114 $ 19,442 ======= ======== ======== ======= ========
36 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 19. SEGMENT INFORMATION (IN THOUSANDS) (CONTINUED): AS OF AS OF DECEMBER 31, JUNE 30, -------------------------- --------- 1997 1998 1999 --------- --------- --------- Identifiable assets: Sales organizations: North America ............... $ 135,439 $ 217,953 $ 248,438 Europe ...................... 10,556 30,334 26,869 Asia Pacific ................ 8,350 17,755 17,565 Software Development Centers: India ....................... 13,519 22,247 23,504 Northern Ireland ............ 2,663 2,565 2,359 Eliminations .................. (17,063) (40,889) (56,768) --------- --------- --------- Total assets ................ $ 153,464 $ 249,965 $ 261,967 ========= ========= ========= IMRglobal is engaged in one business segment. The sales organizations provide consulting and technology services to large companies in North America, Europe and Asia. Software Development Centers consist of two Indian facilities and one Northern Ireland facility that provide software development services to the sales organizations. Intercompany sales between geographical areas are accounted for at prices representative of unaffiliated party transactions and are eliminated in consolidation. The chief operating decision makers of IMRglobal review revenue by geography and service offering. Operating results and other financial measures are reviewed on a consolidated basis, as regional managers have discretion in allocating resources among service offerings and due to the significant amount of intercompany transactions across all geographic regions. Operating results by geography include charges for sales, general and administrative expenses. 37 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 20. ACQUISITIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS): During 1997, 1998 and 1999, IMRglobal completed several acquisitions using the purchase method of accounting (See Note 2). The following unaudited table compares IMRglobal's reported operating results to pro forma information prepared on the basis that the acquisitions had taken place at the beginning of the fiscal year for each of the periods presented (in thousands except per share amounts):
DECEMBER 31, JUNE 30, ------------------------------------ -------------------- 1996 1997 1998 1998 1999 -------- --------- -------- -------- -------- As reported: Revenue ...................... $55,596 $115,310 $208,211 $ 92,244 $129,920 Pro forma net income ......... $ 4,854 $ 10,090 $ 20,351 $ 3,606 $ 12,476 Pro forma basic earnings per share ................. $ 0.21 $ 0.32 $ 0.57 $ 0.11 $ 0.33 Pro forma diluted earnings per share ................. $ 0.14 $ 0.24 $ 0.45 $ 0.08 $ 0.28 Pro forma (unaudited): Revenue ...................... $90,823 $167,301 $256,778 $121,010 $136,474 Pro forma net income ......... $ 5,834 $ 13,475 $ 18,804 $ 3,168 $ 11,466 Pro forma basic earnings per share ................. $ 0.24 $ 0.41 $ 0.52 $ 0.09 $ 0.30 Pro forma diluted earnings per share ................. $ 0.16 $ 0.31 $ 0.41 $ 0.07 $ 0.25
In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of 1996, 1997 or 1998 or of future operations of the combined companies under the ownership and management of IMRglobal. 38 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 21. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED): The following quarterly information is unaudited and has been restated to give effect to the acquisition of Atechsys, Fusion and Orion, which were accounted for using the pooling of interests method.
QUARTER ENDED ------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- -------- -------- 1997 - ---- Revenue ...................................... $ 22,430 $ 26,625 $ 31,015 $ 35,240 Gross profit ................................. 9,279 11,040 12,864 14,775 Income from operations ....................... 2,228 3,737 4,844 2,886 Pro forma diluted earnings per share.......... $ 0.03 $ 0.06 $ 0.08 $ 0.07 QUARTER ENDED ------------------------------------------------------ MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- -------- -------- 1998 - ---- Revenue ...................................... $ 41,938 $ 50,306 $ 55,211 $ 60,756 Gross profit ................................. 18,863 23,151 27,061 28,676 Income from operations ....................... 6,615 499 11,794 12,174 Proforma diluted earnings (loss) per share ... $ 0.13 ($ 0.05) $ 0.18 $ 0.19
39 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 21. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED) (CONTINUED): The reconciliation of the quarterly information as presented compared to the quarterly information as previously reported is summarized as follows:
QUARTER ENDED --------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 -------- -------- -------- -------- 1997 - ---- Revenue as previously reported ........ $ 14,347 $ 18,767 $ 23,044 $ 27,392 Adjustment for pooling of interests ... 8,083 7,858 7,971 7,848 -------- -------- -------- -------- Revenue ........................... $ 22,430 $ 26,625 $ 31,015 $ 35,240 ======== ======== ======== ======== Gross profit as previously reported ... $ 6,305 $ 8,396 $ 10,431 $ 12,459 Adjustment for pooling of interests ... 2,974 2,644 2,433 2,316 -------- -------- -------- -------- Gross profit ...................... $ 9,279 $ 11,040 $ 12,864 $ 14,775 ======== ======== ======== ======== Income from operations as previously reported ............. $ 2,113 $ 3,369 $ 4,480 $ 5,641 Adjustment for pooling of interests ... 115 368 364 (2,755) -------- -------- -------- -------- Income from operations .......... $ 2,228 $ 3,737 $ 4,844 $ 2,886 ======== ======== ======== ======== Diluted earnings per share as previously reported.............. $ 0.04 $ 0.08 $ 0.10 $ 0.13 Adjustment for pooling of interests ... (0.01) (0.02) (0.02) (0.06) -------- -------- -------- -------- Pro forma diluted earnings per share $ 0.03 $ 0.06 $ 0.08 $ 0.07 ======== ======== ======== ========
40 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR PERIODS ENDED JUNE 30 IS UNAUDITED) 22. SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED) (CONTINUED):
QUARTER ENDED ------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------- ------- ------------ ----------- 1998 - ---- Revenue as previously reported ........ $ 32,327 $ 37,257 $ 42,013 $ 46,655 Adjustment for pooling of interests.... 9,611 13,049 13,198 14,101 -------- -------- -------- -------- Revenue ......................... $ 41,938 $ 50,306 $ 55,211 $ 60,756 ======== ======== ======== ======== Gross profit as previously reported.... $ 14,907 $ 17,269 $ 20,768 $ 22,970 Adjustment for pooling of interests.... 3,956 5,882 6,293 5,706 -------- -------- -------- -------- Gross profit .................... $ 18,863 $ 23,151 $ 27,061 $ 28,676 ======== ======== ======== ======== Income (loss) from operations as previously reported ............. $ 6,732 $ (65) $ 9,821 $ 10,470 Adjustment for pooling of interests.... (117) 564 1,973 1,704 -------- -------- -------- -------- Income from operations .......... $ 6,615 $ 499 $ 11,794 $ 12,174 ======== ======== ======== ======== Diluted earnings (loss) per share as previously reported ............. $ 0.15 ($ 0.07) $ 0.19 $ 0.21 Adjustment for pooling of interests ... (0.02) 0.02 (0.01) (0.02) -------- -------- -------- -------- Pro forma diluted earnings (loss) per share ....................... $ 0.13 ($ 0.05) $ 0.18 $ 0.19 ======== ======== ======== ========
41 EX-23.1 2 EXHIBIT NUMBER 23.1 Consent of Independent Certified Public Accountants We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-24027) of Information Management Resources, Inc. Employee Stock Purchase Plan of our report dated February 13, 1998 relating to the financial statements of IMRglobal Corp. (formerly Information Management Resources) ("IMRglobal"), which appears in the Current Report on Form 8-K of IMRglobal dated August 26, 1999. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Tampa, Florida August 20, 1999 EX-23.2 3 EXHIBIT NUMBER 23.2 Consent of Independent Certified Public Accountants We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-24027) pertaining to the Information Management Resources, Inc. Employee Stock Purchase Plan of our report dated August 20, 1999, with respect to the consolidated financial statements of IMRglobal Corp. included in this Current Report (Form 8K), for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP ERNST & YOUNG LLP Tampa, Florida August 20, 1999 EX-23.3 4 EXHIBIT NUMBER 23.3 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation by reference in this registration statement of our report dated January 22, 1999, (relating to the financial statements of Orion Consulting, Inc. as of December 31, 1998 and 1997 and for the three years ended December 31, 1998, included in this Current Report on Form 8-K) included in IMRglobal Corp.'s (former Information Management Resources,) Form S-8 (No. 333-24027) and to all reference to our Firm included in this registration statement. /s/ Arthur Andersen LLP Arthur Andersen LLP Cleveland, Ohio August 23, 1999 -----END PRIVACY-ENHANCED MESSAGE-----