-----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, LxwEAaigpJP+n8lNLOLhGuK5rcOmxC3Gpz4XFZTrIou1dgkp4OevnzrD0vxKyjhh UPcavBVEiNiHh+GUBeyRmg== 0001016843-99-001173.txt : 19991122 0001016843-99-001173.hdr.sgml : 19991122 ACCESSION NUMBER: 0001016843-99-001173 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19991119 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: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-28840 FILM NUMBER: 99761246 BUSINESS ADDRESS: STREET 1: 100 SOUTH MISSOURI AVENUE CITY: CLEARWATER STATE: FL ZIP: 33756 BUSINESS PHONE: 7274678000 MAIL ADDRESS: STREET 1: 100 SOUTH MISSOURI AVENUE CITY: CLEARWATER STATE: FL ZIP: 33756 FORMER COMPANY: FORMER CONFORMED NAME: INFORMATION MANAGEMENT RESOURCES INC DATE OF NAME CHANGE: 19960828 10-Q/A 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-Q/A QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 Identification No.) Incorporation or Organization) 100 SOUTH MISSOURI AVENUE, CLEARWATER, FLORIDA 33756 ---------------------------------------------------- (Address of principal executive offices and zip code) 727-467-8000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of November 12, 1999, there were 38,556,883 outanding shares of the Registrant's Common Stock, par value $.10 per share. IMRGLOBAL CORP. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1. Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998................... 3 Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 1998..................................................... 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998..................................................... 5 Notes to Consolidated Financial Statements................... 6 ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition........................... 17 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 21 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings ......................................... 22 ITEM 5. Other Information ......................................... 22 ITEM 6. Exhibits and Reports on Form 8-K........................... 22 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IMRGLOBAL CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, MARCH 31, 1998 1999 --------- --------- (RESTATED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ............................................ $ 78,807 $ 79,600 Marketable Securities ................................................ 31,609 34,565 Accounts receivable .................................................. 28,538 33,818 Unbilled work in process ............................................. 5,145 7,704 Deferred income taxes ................................................ 14,141 12,412 Prepaid expenses and other current assets ............................ 3,592 4,056 --------- --------- Total current assets ........................................... 161,832 172,155 Property and equipment, net of accumulated depreciation ................. 21,416 27,914 Capitalized software costs, net of accumulated amortization ............. -- 704 Deposits and other assets ............................................... 3,622 5,862 Intangible assets, net of accumulated amortization ...................... 36,829 77,993 --------- --------- Total assets ................................................... $ 223,699 $ 284,628 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ..................................................... $ 7,750 $ 14,211 Accrued compensation ................................................. 8,733 21,651 Deferred revenue ..................................................... 3,446 3,276 Other current liabilities ............................................ 19,120 18,667 --------- --------- Total current liabilities ...................................... 39,049 57,805 Long-term debt .......................................................... 671 1,894 Deferred tax liability .................................................. 1,040 646 Accrued compensation .................................................... 8,125 2,720 --------- --------- Total liabilities .............................................. 48,885 63,065 --------- --------- Shareholders' equity: Preferred stock ...................................................... -- -- Common stock ......................................................... 3,039 3,436 Additional paid-in capital ........................................... 139,800 183,449 Retained earnings .................................................... 33,433 37,100 Notes receivable from stock sale ..................................... (366) (366) Accumulated other comprehensive expense .............................. (1,092) (2,056) --------- --------- Total shareholders' equity ..................................... 174,814 221,563 --------- --------- Total liabilities and shareholders' equity ..................... $ 223,699 $ 284,628 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 3 IMRGLOBAL CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED AND IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1999 ------------ ------------- (Restated) Revenue .............................................. $ 34,616 $ 51,888 Cost of revenue ...................................... 18,777 27,739 -------- -------- Gross profit ................................ 15,839 24,149 Selling, general and administrative expenses ......... 7,399 11,338 Research and development expenses .................... 989 1,232 Goodwill and intangible amortization ................. 290 821 Acquired in-process research and development ......... -- 3,410 Acquisition costs .................................... -- 1,936 -------- -------- Income from operations ...................... 7,161 5,412 Other income (expense): Interest expense ............................ (76) (4) Interest income and other ................... 1,121 1,599 -------- -------- Total other income .......................... 1,045 1,595 -------- -------- Income before provisions for income taxes ............ 8,206 7,007 Provision for income taxes ........................... 2,459 3,340 -------- -------- Net income .................................. $ 5,747 $ 3,667 ======== ======== Earnings per share: Basic ....................................... $ 0.21 $ 0.12 ======== ======== Diluted ..................................... $ 0.17 $ 0.10 ======== ======== Shares outstanding: Basic ....................................... 26,802 30,565 ======== ======== Diluted ..................................... 33,743 35,775 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 IMRGLOBAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED AND IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1999 ------------ ------------- (Restated) Cash flows from operating activities: Net income ............................................................ $ 5,747 $ 3,667 Adjustment to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization ...................................... 804 1,865 In-process research and development ................................ -- 3,410 Deferred taxes ..................................................... (26) 1,249 Tax benefit of stock options ....................................... 1,499 427 Changes in operating assets and liabilities: Accounts receivable and unbilled work-in-process ................ (6,704) (3,690) Other current assets ............................................ 2,106 (321) Deposits and other assets ....................................... (618) (446) Accounts payable and other liabilities .......................... 1,550 1,067 Accrued compensation ............................................ 1,213 959 Income tax ...................................................... 741 (262) Deferred revenue ................................................ (47) (1,205) -------- -------- Total adjustments ............................................... 518 3,053 -------- -------- Net cash provided by operating activities ....................... 6,265 6,720 -------- -------- Cash flows from investing activities: Acquisition of consolidated subsidiaries, net of cash acquired .............................................. 703 5,455 Investment in marketable securities, net .............................. (1,190) (2,955) Additions to capitalized software costs ............................... -- (703) Additions to property and equipment ................................... (3,543) (6,295) -------- -------- Net cash used in investing activities ........................... (4,030) (4,498) -------- -------- Cash flows from financing activities: Net repayments from revolving credit line ............................. 256 (223) Payments on long-term debt, notes and capital leases .................. (139) (1,262) Proceeds from issuance of common stock ................................ 138 759 -------- -------- Net cash provided by (used in) financing activities ............. 255 (726) -------- -------- Effect of exchange rate changes .......................................... (45) (703) -------- -------- Net increase (decrease) in cash and cash equivalents ..................... 2,445 793 Cash and cash equivalents at beginning of period ......................... 86,999 78,807 -------- -------- Cash and cash equivalents at end of period ............................... $ 89,444 $ 79,600 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of management, the accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles and include all adjustments necessary for a fair presentation. The results of operations for the three month period ended March 31, 1999 are not necessarily indicative of the results to be expected for the full year. In January 1999, IMRglobal acquired all of the outstanding capital stock of Atechsys S.A. ("Atechsys") in an acquisition accounted for as a pooling of interests. All prior period consolidated financial statements presented herein have been restated to include the financial position, results of operations and cash flows of Atechsys. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 1998, which are contained in IMRglobal's Annual Report on Form 10-K ("Form 10-K") as filed with the Securities and Exchange Commission (the "Commission"). Form 8-K filed during November 1999 restates the financial position, results of operations and cash flows for the Atechsys pooling of interest transaction for the three years ended December 31, 1998. 2. RESTATEMENT During March 1999, IMRglobal Corp. acquired Fusions Systems Japan Co., Ltd. ("Fusion") in a transaction that was originally accounted for as pooling of interests in accordance with APB Opinion 16, "Business Combinations". In accordance with pooling of interests rules the consolidated financial statements for all prior periods were restated to include the accounts of Fusion. Restated financial statements for the three months ended March 31, 1998 and 1999 were included in a previous filing on Form 10-Q dated May 14, 1999. On October 22, 1999, IMRglobal announced it will change its accounting treatment for the merger with Fusion from the pooling of interests method to the purchase method of accounting. The change in accounting will be retroactive to the merger date of March 26, 1999 for Fusion. The factors that led to the decision to change the accounting treatment included a determination that (i) certain affiliate transactions and (ii) IMRglobal's Board of Directors October 1999 authorization for a stock buyback preclude the use of the pooling of interests accounting method for the Fusion merger. In addition, IMRglobal agreed to restructure the Fusion merger from an all stock transaction to a combination of cash and stock. As a result of the above change in accounting treatment, IMRglobal Corp.'s consolidated financial statements for all prior periods have been restated to remove the accounts of Fusion and treat this acquisition as a purchase business combination. Restated financial statements for the three months ended March 31, 1998 and 1999 are attached to this Form 10-Q/A. 6 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 2. RESTATEMENT (CONTINUED) The effects of the restatement resulted in the following impact on IMRglobal's previously reported results of operations for the three month periods ended March 31, 1998 and 1999 (in thousands).
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1999 -------------- -------------- Income before provision for income taxes: As previously reported ........................ $ 7,629 $ 8,859 Adjustment related to converting the Fusion transaction from the pooling of interests method to the purchase method .............. 577 (1,852) ------------ --------- Restated ...................................... $ 8,206 $ 7,007 ============ ========= Net income: As previously reported ........................ $ 5,353 $ 5,406 Adjustment related to converting the Fusion transaction from the pooling of interests method to the purchase method .............. 394 (1,739) ------------ --------- Restated ...................................... $ 5,747 $ 3,667 ============ ========= Earnings per share - Basic: As previously reported ........................ $ 0.18 $ 0.16 Adjustment related to converting the Fusion transaction from the pooling of interests method to the purchase method .............. 0.03 (0.04) ------------ --------- Restated ...................................... $ 0.21 $ 0.12 ============ ========= Earnings per share - Diluted: As previously reported ........................ $ 0.13 $ 0.13 Adjustment related to converting the Fusion transaction from the pooling of interests method to the purchase method .............. 0.02 (0.04) Adjustment for restatement of treasury stock method (See Note 2) ...... 0.02 0.01 ------------ --------- Restated ...................................... $ 0.17 $ 0.10 ============ ============
7 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of IMRglobal Corp. ("IMRglobal") and its wholly and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated. COMPUTATION OF EARNINGS PER SHARE - Per share data and number of shares outstanding have been adjusted to reflect the 3-for-2 stock split in the form of a stock dividend paid by IMRglobal on April 3, 1998. 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):
THREE MONTHS ENDED MARCH 31, ---------------------------- 1998 1999 ------------ -------------- Weighted average common stock outstanding .............................................. 26,802 30,565 Weighted average common stock equivalents .............................................. 6,941 5,210 ------- ------- Shares used in diluted earnings per share calculation ................................................. 33,743 35,775 ======= =======
Shares used in the diluted earnings per share calculation have been restated to reflect the income tax benefit which could be used to purchase additional treasury shares. This restatement has resulted in a decrease in shares of 4.3 million and 3.1 million and an increase in diluted earnings per share of $0.02 and $0.01 for the three months ended March 31, 1998 and 1999, respectively. 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 (i) technological feasibility is established for the software and (ii) all research and development activities for the other components of the product or process have been completed. Amortization is charged to income based upon a revenue formula over the shorter of the remaining estimated economic life of the product or estimated lifetime revenue of the product. 8 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 4. SHAREHOLDERS' EQUITY Changes in shareholders' equity for the three months ended March 31, 1999 are summarized as follows (in thousands):
ACCUMULATED COMPREHENSIVE ADDITIONAL OTHER INCOME COMMON PAID-IN RETAINED COMPREHENSIVE (EXPENSE) STOCK CAPITAL EARNINGS OTHER EXPENSE TOTAL --------- --------- --------- --------- --------- --------- --------- Balance, December 31, 1998 (Restated) .... $ -- $ 3,039 $ 139,800 $ 33,433 $ (366) $ (1,092) $ 174,814 Common stock issued in connection with acquisitions .......... -- 390 42,471 -- -- -- 42,861 Employee stock purchase plan ............. -- 1 245 -- -- -- 246 Stock options exercised .................. -- 6 506 -- -- -- 512 Tax benefit of stock options exercised.... -- -- 427 -- -- -- 427 Net income ............................... 3,667 -- -- 3,667 -- -- 3,667 Translation adjustment ................... (964) -- -- -- -- (964) (964) --------- Comprehensive income ..................... $ 2,703 -- -- -- -- -- -- ========= --------- --------- --------- --------- --------- --------- Balance, March 31, 1999 .................. $ 3,436 $ 183,449 $ 37,100 $ (366) $ (2,056) $ 221,563 ========= ========= ========= ========= ========= =========
IMRglobal has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires the presentation of comprehensive income (expense) and its components. Comprehensive income (expense) presents a measure of all changes in equity that result from recognized transactions and other economic events during the period other than transactions with stockholders. SFAS 130 requires restatement of all prior period financial statements presented and is effective for periods beginning after December 15, 1997. IMRglobal has elected to disclose this information in the Statement of Shareholders' Equity. As of March 31, 1999, the accumulated other comprehensive expense account consists of cumulative foreign currency translation adjustments. 9 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 5. BUSINESS COMBINATIONS ATECHSYS S.A. ("ATECHSYS")--On January 8, 1999, IMRglobal acquired 100% of the outstanding stock of Atechsys S.A., a privately held information technology company based in Paris, France, specializing in business and technology consulting specific to capital markets businesses. In exchange for Atechsys' common stock, Atechsys' shareholders received 718,859 shares of IMRglobal common stock. The Atechsys acquisition is accounted for as a pooling of interests combination pursuant to the provisions of APB Opinion No. 16. Financial statements for all periods have been restated to give effect to the business combination. Costs of approximately $1.9 million related to the acquisition have been charged to acquisition costs and included in the statement of income for the three months ended March 31, 1999. ECWERKS, INC. ("ECWERKS")--On January 15, 1999, IMRglobal acquired 100% of the outstanding stock of ECWerks, Inc., a privately held electronic commerce business and technology consulting company based in Tampa, Florida. In exchange for ECWerks' common stock, ECWerks' shareholders received 163,054 shares (valued at $3.6 million) of IMRglobal's unregistered common stock. In addition, a contingent payment of up to $28.0 million of common stock is payable if certain specified financial goals are achieved during 1999. Any contingent payment would result in an increase in the purchase price and the resulting goodwill. The ECWerks acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16. 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 (valued at $39.3 million) of IMRglobal common stock. On October 25, 1999, IMRglobal reacquired approximately 1.5 million shares of common stock issued to the Fusion stockholders in exchange for $22.4 million. The Fusion acquisition is accounted for as a purchase pursuant to the provisions of APB Opinion No. 16. The purchased assets and assumed liabilities in connection with the acquisition of Fusion were recorded at their estimated fair value at the acquisition date. In connection with the Fusion acquisition, we retained an independent appraiser to complete a valuation of the assets of Fusion, including valuation of certain in-process research and development. We identified 27 project categories for which technological feasibility had not been achieved as of the acquisition date and for which there was no alternative future use. The project categories include eight modules for the Japan market, nine modules for the worldwide market and ten modules for specific countries outside of Japan. The value associated with these projects was determined using a discounted cash flow model with a risk adjusted discount rate of 25%. The model reflects revenue to be generated beginning in 1999 and continuing through 2006 for all projects. The valuation also incorporated a stage of completion methodology where the value was adjusted based on the technology's percentage of completion. 10 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 5. BUSINESS COMBINATIONS (CONTINUED) Fusion's main product is Fox, an electronic order manager system for the capital markets industry. As of the acquisition date, the general design of the core modules was completed. This design identified the primary core modules required for multiple modules in the capital markets industry. As of the acquisition date over 50% of the Japan modules and under 50% of the worldwide component modules had been coded. Testing has not been completed for these modules. The schedule below details the status of each project as of the acquisition date and its appraised in-process research and development value (dollar amounts in thousands).
PERCENT DATE PERCENT COMPLETE PERCENT AMOUNT FOX PRODUCT/ R&D PROTOTYPE COMPLETE CALENDAR COMPLETE IN COMPONENT START DATE COMPLETE MAN MONTHS TIME VALUE BASIS CONCLUDED THOUSANDS - ----------------------- ---------- --------- ---------- ---- ----------- --------- --------- Japan: BTA 01-Aug-97 01-Jun-99 90% 90% 90% 90% $ 120 STA/BTA/OBA merge 31-Dec-98 31-Mar-00 19% 19% 19% 19% 40 Extended Limit Type 01-Nov-98 01-May-99 80% 80% 80% 80% 50 AA 01-Aug-97 01-Jul-99 86% 86% 86% 86% 110 XA 01-Feb-99 01-Jan-00 16% 16% 16% 16% 20 OES-Upgrades 01-Jan-98 01-Jul-99 82% 82% 82% 82% 170 LH JASDAQ 01-Nov-97 01-Aug-99 80% 80% 90% 90% 330 LH TIFFE 01-Mar-99 01-Sep-99 14% 14% 57% 57% 160 World: STA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 110 BTA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 140 OBA 30-Jun-98 30-Jun-00 37% 37% 68% 68% 110 STA/BTA/OBA merge 31-Dec-98 30-Jun-00 21% 16% 61% 61% 50 TT 01-Jan-98 30-Jun-00 21% 49% 60% 60% 30 DBA 01-Jan-98 30-Jun-00 21% 49% 60% 60% 50 FOX Router 01-Dec-96 01-Dec-99 32% 77% 83% 83% 20 MGS 30-Jun-97 01-Dec-00 51% 51% 63% 63% 90 OES 01-Jan-98 01-Dec-00 42% 42% 57% 57% 130 -------- Subtotal carried forward 1,730
11 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 5. BUSINESS COMBINATIONS (CONTINUED)
PERCENT DATE PERCENT COMPLETE PERCENT AMOUNT FOX PRODUCT/ R&D PROTOTYPE COMPLETE CALENDAR COMPLETE IN COMPONENT START DATE COMPLETE MAN MONTHS TIME VALUE BASIS CONCLUDED THOUSANDS - ----------------------- ---------- --------- ---------- ---- ----------- --------- --------- Balance brought forward 1,730 World: LH HK 01-Oct-98 01-Oct-99 28% 48% 64% 64% 220 LH TAIWAN 01-Oct-98 01-Oct-99 28% 48% 64% 64% 290 LH KOREA 01-Oct-98 01-Mar-00 31% 34% 65% 65% 210 LH SING 01-Oct-98 01-Mar-00 31% 34% 65% 65% 100 LH AUS 01-Oct-98 01-Sep-99 32% 53% 66% 66% 250 LH SH 01-Oct-98 01-Mar-00 31% 34% 65% 65% 90 LH LON 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130 LH EUREX 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130 LH PARIS 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130 LH FRANK 01-Oct-98 01-Jun-00 26% 29% 63% 63% 130 -------- $ 3,410 ========
Based on the results of the appraisal, $3.4 million was attributed to the in-process research and development for the Fusion acquisition and expensed in the first quarter of 1999 when the acquisition was consummated. 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 headquartered in Howell, New Jersey. 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. 12 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 5. BUSINESS COMBINATIONS (CONTINUED) Separate results of operations for the periods prior to the merger with Atechsys are summarized below (in thousands): THREE MONTHS ENDED MARCH 31, ------------------ 1998 ------------------ Revenue: IMRglobal ................................. $32,327 Adjustment for pooling of interests ....... 2,289 ------- Combined ......................... $34,616 ======= Net income: IMRglobal ................................. $ 5,498 Adjustment for pooling of interests ....... 249 ------- Combined ......................... $ 5,747 ======= Other changes in shareholders' equity: IMRglobal ................................. $46,479 Adjustment for pooling of interests .... -- ------- Combined ......................... $46,479 ======= 13 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 6. SEGMENT INFORMATION (IN THOUSANDS):
THREE MONTHS ENDED ------------------------------- MARCH 31, 1998 MARCH 31, 1999 -------------- -------------- Revenue by service offering: Transitional outsourcing ..................... $ 14,020 $ 32,714 Year 2000 .................................... 17,821 15,675 Professional services ........................ 2,775 3,499 -------- -------- Total revenue .......................... $ 34,616 $ 51,888 ======== ======== Income from operations: Sales organizations .......................... $ 6,183 $ 10,998 Software Development Centers ................. 2,257 1,813 -------- -------- Income from operations - sales and delivery centers .......... 8,440 12,811 Research and development ..................... (989) (1,232) Goodwill amortization ........................ (290) (821) Acquisition costs and acquired in-process research and development .................. -- (5,346) -------- -------- Income from operations ................. $ 7,161 $ 5,412 ======== ========
The Company is engaged in one business segment. The sales organization provides IT transitional outsourcing 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 are accounted for at prices representative of unaffiliated party transactions and are eliminated in consolidation. 14 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 7. ACQUISITIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) During 1998 and 1999, IMRglobal completed several acquisitions (see Note 4). The following unaudited table compares IMRglobal's reported operating results to pro forma information prepared on the basis that the acquisition had taken place at the beginning of the fiscal year for each of the periods presented (in thousands except per share amounts): THREE MONTHS ENDED MARCH 31, -------------------------- 1998 1999 ---------- ---------- As reported: Revenue .......................... $ 34,616 $ 51,888 Net income ....................... $ 5,747 $ 3,667 Basic earnings per share ...... $ 0.21 $ 0.12 Diluted earnings per share .... $ 0.17 $ 0.10 Pro forma (unaudited): Revenue .......................... $ 46,394 $ 61,071 Net income ....................... $ 5,573 $ 2,252 Basic earnings per share ...... $ 0.18 $ 0.07 Diluted earnings per share .... $ 0.15 $ 0.06 In management's opinion, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of 1998 or 1999 or of future operations of the combined companies under the ownership and management of IMRglobal. 8. CONTINGENCIES During May 1998, IMRglobal acquired 100% of Lyon Consultants S.A. ("Lyon") for approximately $16.7 million in cash and 531,353 shares in IMRglobal. 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 15, 1999 was $18.768 per share. Accordingly, the liability to the former shareholders of Lyon was approximately $4.2 million. 15 IMRGLOBAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 (UNAUDITED) 8. CONTINGENCIES (CONTINUED) Subsequent to May 10, 1999, IMRglobal renegotiated the above contingency. IMRglobal's current agreement is that if the average price of the IMRglobal shares on NASDAQ is less than $34.05 per share for the seven trading days prior to May 15, 2000, then IMRglobal will pay the former Lyon shareholders the difference between the average price on NASDAQ and $34.05 for only the shares continuing to be held by the former Lyon shareholders. 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 from IMRglobal. 9. SUBSEQUENT EVENTS On June 15, 1999, IMRglobal acquired 100% of the outstanding stock of Orion Consulting, Inc. ("Orion"), a privately held management consulting firm, headquartered in Cleveland, Ohio, primarily serving the Health Care industry. In exchange for Orion's common stock, Orion's shareholders received 3,028,414 shares (valued at $41.4 million) of IMRglobal's common stock. The Orion acquisition is being accounted for as a purchase pursuant to the provisions of APB Opinion No. 16. 16 IMRGLOBAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained herein, some matters discussed in this report, including but not limited to statements relating to rates of wage cost increases in comparison to rates of inflation in the countries in which IMRglobal does business, IMRglobal's ability to expand its infrastructure, the rate of revenue growth, future income from operations and the impact of the year 2000 on IMRglobal's results of operations and financial condition constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. IMRglobal notes that a variety of risk factors could cause IMRglobal's actual results and experience to differ materially from the anticipated results or other expectations expressed in IMRglobal's forward-looking statements. Reference is made in particular to the discussion set forth below in this report and set forth in IMRglobal's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as filed with the Commission. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 REVENUE. For the three months ended March 31, 1999, revenue increased to $51.9 million representing a 49.9% increase over revenue of $34.6 million for the three months ended March 31, 1998. The 1998 and 1999 acquisitions of ECWerks, Visual Systems, Inc. and Lyon Consultants, S.A. accounted for approximately one-half of the revenue increase. Revenue from IMRglobal's core transitional outsourcing services (software development, application maintenance and migration, re-engineering services, consulting and E-commerce) increased to $32.7 million or 133.3% for the quarter ended March 31, 1999, compared to $14.0 million for the quarter ended March 31, 1998. Revenue from IMRglobal's Year 2000 conversion services ("Year 2000 revenue") decreased to $15.7 million or 12.0% for the quarter ended March 31, 1999 compared to $17.8 million for the quarter ended March 31, 1998. As a percentage of total revenue, Year 2000 revenue decreased to 30.2% for the three months ended March 31, 1999 as compared to 51.5% for the three months ended March 31, 1998. The decrease of Year 2000 revenue is expected to continue over the next four quarters. COST OF REVENUE. Cost of revenue was $27.7 million, or 53.5% of revenue, for the three months ended March 31, 1999, as compared to $18.8 million, or 54.2% of revenue, for the three months ended March 31, 1998. The decrease in cost of revenue as a percentage of revenue reflects: (i) productivity gains from IMRglobal's transformation toolsets; (ii) improved utilization of software development personnel in India and Northern Ireland; and (iii) a 16.7% devaluation in the Indian Rupee since September 30, 1997, which resulted in reduced costs at IMRglobal's Indian software development centers. Wage costs continue to increase at a greater rate than general inflation in each of the countries in which IMRglobal has operations, and IMRglobal anticipates that this trend will continue in the near term. IMRglobal has been able to pass these wage increases on to its customers in the form of increased prices for its service offerings. However, there can be no assurance that IMRglobal will be able to continue to increase prices to its customers to offset future wage increases. GROSS PROFIT. Gross profit increased 52.5% to $24.1 million in the first quarter of 1999 compared to $15.8 million in the prior comparable period. As a percentage of revenue, gross profit increased to 46.5% in the first quarter of 1999 compared to 45.8% in the first quarter of 1998. 17 IMRGLOBAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. For the three months ended March 31, 1999, selling, general and administrative (SG&A) expenses increased to $11.3 million, compared to $7.4 million for the three months ended March 31, 1998. As a percentage of revenue, SG&A expenses for the three months ended March 31, 1999 increased to 21.9% from 21.4% for the same period in 1998. The dollar increase in SG&A expenses is attributable to the addition of eight sales offices, the expansion of sales personnel, the Lyon, Visual and ECWerks acquisitions, expansion of IMRglobal's delivery capacity, regionalization of operations and increases in costs related to expanding IMRglobal's general support staff (primarily recruiting and employee services personnel). IMRglobal intends to continue to expand its SG&A infrastructure in order to position IMRglobal for continued revenue growth. RESEARCH AND DEVELOPMENT EXPENSES. Research and development (R&D) expenses increased to approximately $1.2 million for the three months ended March 31, 1999 from approximately $1.0 million in the comparable period of 1998. As a percentage of revenue, R&D decreased to 2.4% from 2.9% for the same period in 1998. This decrease as a percentage of revenue occurred due to the capitalization of costs related to component development. The increase in dollars is attributable to: (i) the acquisition of Lyon and the continued development of Lyon's component technology for certain targeted industries offset by capitalized costs of components nearing completion; and (ii) the expansion of efforts to develop and enhance IMRglobal's transformation toolsets. GOODWILL AND INTANGIBLE AMORTIZATION. Goodwill and intangible amortization increased to approximately $821,000 for the three months ended March 31, 1999 from approximately $290,000 for the three months ended March 31, 1998. The additional expense primarily reflects the amortization of goodwill and intangibles generated by the acquisition of ECWerks, Lyon and Visual. ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT ("IPRD") AND ACQUISITION COSTS. The purchased assets and assumed liabilities in connection with the acquisition of Fusion were recorded at their estimated fair values at the acquisition date. We received an appraisal of the intangible assets which indicated that approximately $3.4 million of the acquired intangible assets was acquired IPRD that had not yet reached technological feasibility and had no alternative future use (See Note 5). To determine the value of the IPRD, our appraisal considered, among other factors, the state of development of each project, the time and cost needed to complete each project, expected income, discounted cash flow and associated risks which included the inherent difficulties and uncertainties in completing each project and thereby achieving technological feasibility and risks related to the viability of and potential changes to future target markets. This analysis results in amounts assigned to the cost of in-process research and development for projects that had not yet reached technological feasibility and had no alternative future uses. Accordingly, the acquired IPRD was charged to expense by the Company in its quarter ended March 31, 1999. In addition, the Company recorded a one-time charge of approximately $1.9 million for costs related to the Atechsys pooling of interests. 18 IMRGLOBAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998 INCOME FROM OPERATIONS. Operating income for the first quarter of 1999 was $5.4 million compared to $7.2 million in the comparable period of 1998. As a percentage of revenue, income from operations for the three months ended March 31, 1999 decreased to 10.4% from 20.7% in the comparable period in 1998. The decrease in income from operations as a percentage of revenue was the result of one-time charges of $5.3 million for acquired in-process research and development and acquisition costs related to the Atechsys and Fusion acquisitions. Excluding these one-time charges income from operations was $10.8 million compared to $7.2 million in the comparable period in 1998. Excluding these one-time charges, as a percentage of revenue, income from operations was 20.7% for the three months ended March 31, 1998 and 1999. OTHER INCOME (EXPENSE). IMRglobal realized net other income of approximately $1.6 million in the first quarter of 1999 compared to net other income of approximately $1.0 million in the comparable period of 1998. Other income consists primarily of investment income generated by IMRglobal's cash and marketable securities. PROVISION FOR INCOME TAXES. The provision for income taxes increased to approximately $3.3 million for the three months ended March 31, 1999 from approximately $2.5 million for the three months ended March 31, 1998. This increase is due to increased earnings in the current year excluding one-time charges for acquisition costs, which are not deductible for tax purposes. Excluding nondeductible one-time charges, the effective tax rate was 30.0% and 37.3% for the three month periods ended March 31, 1998 and March 31, 1999, respectively. Historically, IMRglobal has enjoyed a low effective tax rate primarily due to the low tax rates in India. The effective tax rate increased as a result of recent acquisitions in France, Canada, Japan and Australia which have higher tax rates than India. In addition, amortization of goodwill and other intangible assets is often not deductible for income tax purposes. Intangible asset amortization has increased 183.1% from the first quarter of 1998 to the first quarter of 1999. NET INCOME. Net income decreased to $3.7 million for the three months ended March 31, 1999 compared to $5.8 million for the comparable 1998 period. This decrease was the result of the net after tax affect of approximately $4.0 million of one-time acquired in-process research and development and acquisition costs related to the acquisition of Atechsys and Fusion during the first quarter of 1999. Net income for the first quarter of 1999 excluding one-time charges is approximately $7.6 million compared to net income of approximately $5.7 million in the comparable period of 1998. Excluding one-time charges, as a percentage of revenue, net income for the three months ended March 31, 1999 decreased to 14.7% from 16.6% in the comparable period in 1998. EARNINGS PER SHARE - DILUTED. Earnings per share diluted was $0.10 per share for the three months ended March 31, 1999 compared to $0.17 per share for the comparable period in 1998. Excluding one-time charges, earnings per share was $0.21 for the three months ended March 31, 1999 as compared to $0.17 for the three months ended March 31, 1998. 19 IMRGLOBAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1999, IMRglobal had working capital of $114.4 million; a current ratio of 3.0 to 1.0; liquid assets (cash, cash equivalents and marketable securities) of $114.2 million; and available bank lines of credit of approximately $14.0 million. Additionally, cash provided by operations was approximately $3.3 million for the three months ended March 31, 1999. During June 1998, IMRglobal entered into a contract to purchase land and construct new facilities for its corporate headquarters. The total price of this project is expected to be approximately $28.0 million of which $7.2 million has been expended as of March 31, 1999. Completion of this project is scheduled for January 2000. On April 28, 1999, an additional $12 million of cash was expended in the acquisition of PLP. In addition, IMRglobal has a contingent liability to the former shareholders of Lyon Consultants, S.A. (See Note 8 of Notes to Consolidated Financial Statements). IMRglobal continuously reviews its future cash requirements, together with its available bank lines of credit and internally generated funds. IMRglobal believes it has adequate capital resources to meet all working capital obligations and fund the development of its current business operations. COSTS ASSOCIATED WITH THE YEAR 2000 INTRODUCTION. Many existing computer systems run software programs permitting only two-digit entries to reference the year in the date field (e.g., 1999 is read as "99") and therefore cannot properly process dates in the next century. Software programs that use the two-digit year date field to perform computations or decision-making functions may fail due to an inability to correctly interpret dates in the 21st century. For example, many software systems will misinterpret "00" to mean the year 1900 rather than 2000. IMRGLOBAL'S STATE OF READINESS. IMRglobal has assessed the impact that Year 2000 will have on its information technology and non-information technology systems, relationships with its third-party vendors and relationships with its clients. As a result of the initial assessment, IMRglobal believes that the Year 2000 will not give rise to any event that will have a material adverse effect on IMRglobal's results of operations and financial condition. Although IMRglobal continues to review its IT systems, as well as its non-IT systems, for Year 2000 compliance, to date, IMRglobal has discovered that only its internal accounting system is not Year 2000 compliant. IMRglobal is replacing this accounting system in fiscal year 1999 for reasons other than the fact that the system is not Year 2000 compliant and it has not accelerated replacement plans for such system in light of its non-compliance. Through March 31, 1999, IMRglobal has incurred expenses approximating $25,000 related to Year 2000 compliance and anticipates that the total cost should not exceed approximately $100,000. These cost estimates primarily reflect the costs related to IMRglobal personnel. IMRglobal does not believe that the costs associated with the replacement of the accounting system will have a material impact on IMRglobal's results of operations and financial condition. IMRglobal has not identified any other IT or non-IT system that is subject to a material risk of disruption due to the Year 2000. IMRglobal does not believe a formal contingency plan is required for internal systems. 20 IMRGLOBAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) IMRglobal has assessed whether a system failure experienced by any of IMRglobal's third-party vendors would negatively impact the IMRglobal's operations or financial condition. IMRglobal has determined that a Year 2000 system failure experienced by IMRglobal's satellite and communication vendors could potentially interrupt communications between client sites and IMRglobal's software development centers. This interruption could result in loss of revenue, increased costs and project delays. Management has contacted its satellite and communications vendors in order to assess whether they anticipate any communications failures or interruptions, as a result of the Year 2000. No such failures or interruptions are presently anticipated, and IMRglobal does not expect to experience any adverse effects on its results of operations and financial condition. If, however, further analysis determines that one or more of IMRglobal's satellite or communications vendors may encounter Year 2000 related failures or interruptions, IMRglobal will be required to develop a contingency plan. It is anticipated that a contingency plan, if necessary, will be developed by the third quarter of 1999. IMRglobal has determined that a system failure experienced by the satellite and communication vendors could have a material effect on IMRglobal's results of operations and financial condition. System failure by any other third party vendor would not have a material affect on IMRglobal's results of operations and financial condition. RISKS PRESENTED BY THE YEAR 2000. Many of IMRglobal's client engagements include Year 2000 conversion services that are critical to the operations of its clients' businesses. Any failure in a client's system could result in a claim for substantial damages against IMRglobal, regardless of IMRglobal's responsibility for such failure. Although IMRglobal attempts to limit contractually its liability for damages arising from negligent acts, errors, mistakes or omissions in rendering its IT services, there can be no assurance the limitations of liability set forth in its service contracts will be enforceable in all instances or would otherwise protect IMRglobal from liability for damages. IMRglobal maintains general liability insurance coverage, including coverage for errors or omissions. There can be no assurance that such coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage as to any future claim. The successful assertion of one or more large claims against IMRglobal that exceed available insurance coverage or changes in IMRglobal's insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect IMRglobal's results of operations and financial condition. IMRGLOBAL'S CONTINGENCY PLANS. IMRglobal is a high quality provider of Year 2000 compliance services. Accordingly, if IMRglobal experiences a failure in its Year 2000 preparedness, experienced staff will be redeployed to address any potential Year 2000 compliance issue. Otherwise, IMRglobal has no material contingency plan identified for Year 2000 readiness issues. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS IMRglobal is exposed to market risk from changes in interest rates and exchange rates between the U.S. dollar and the currencies of various countries in which we operate. IMRglobal does not engage in hedging transactions and is not a party to any leveraged derivatives. 21 IMRGLOBAL CORP. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not a party to any pending material litigation. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 1. The Registrant filed a report on Form 8-K on January 15, 1999 under Item 4 disclosing a change in the Registrant's certifying accountant. 22 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 NOVEMBER 19, 1999 /s/ SATISH K. SANAN ----------------------------- ----------------------------------- Satish K. Sanan Chief Executive Officer Date NOVEMBER 19, 1999 /s/ ROBERT M. MOLSICK ----------------------------- ----------------------------------- Robert M. Molsick Chief Financial Officer 23 IMRGLOBAL CORP. EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------ ----------- 27 Financial Data Schedule EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 79,600 34,565 34,113 295 0 172,155 36,254 8,340 284,628 57,805 1,894 0 0 3,436 218,127 284,628 0 51,888 0 27,739 18,730 7 4 7,007 3,340 3,667 0 0 0 3,667 .12 .10 Amounts inapplicable or not disclosed as a separate line on the Statement of Financial Position or Results of Operations are reported as 0 herein.
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