1
Exhibit 13.1
IMRS
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1994 ANNUAL REPORT
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DELIVERING THE WORLD'S BEST BUSINESS SOFTWARE SOLUTIONS
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HEADQUARTERED IN STAMFORD, CONNECTICUT, IMRS(R) IS A LEADING DEVELOPER AND
SUPPLIER OF CLIENT/SERVER FINANCIAL SOFTWARE FOR ENTERPRISES WORLDWIDE. A
TECHNOLOGY LEADER, IMRS HAS BEEN DEVELOPING FINANCIAL APPLICATIONS FOR NETWORK
COMPUTING ENVIRONMENTS SINCE 1981.
TODAY, IMRS SOFTWARE IS USED IN A WIDE VARIETY OF BUSINESS APPLICATIONS
INCLUDING ACCOUNTING, FINANCIAL CONSOLIDATION, MANAGEMENT REPORTING, BUDGETING,
PLANNING AND ANALYSIS.
PRODUCTS INCLUDE: HYPERION(R) AND HYPERION SQL(TM), FOR FINANCIAL
MANAGEMENT UNDER MICROSOFT WINDOWS; MICRO CONTROL(R), FOR ENTERPRISE-WIDE
FINANCIAL REPORTING; FASTAR(R), FOR SPREADSHEET-BASED REPORTING; FINALFORM,
FOR CONTROLLED DATA COLLECTION; IMRS FORMS(TM), A WINDOWS-BASED DATA COLLECTION
PRODUCT; AND IMRS ONTRACK(R), FOR GRAPHICAL DATA PRESENTATION. THE DELIVERY OF
HYPERION FINANCIALS(TM), A WINDOWS-BASED SUITE OF INTEGRATED ACCOUNTING
SOFTWARE FOR CLIENT/SERVER ENVIRONMENTS, WILL ROUND OUT THE COMPANY'S FAMILY OF
COMPLETE FINANCIAL SOFTWARE SOLUTIONS.
THROUGH DIRECT SALES AND SUPPORT OPERATIONS IN 23 COUNTRIES, IMRS HAS DELIVERED
SOLUTIONS TO OVER 1600 BLUE CHIP MULTINATIONAL CLIENTS.
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FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share data)
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For the Year Ended June 30
1990 1991 1992 1993 1994
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Revenues $24,087 $34,324 $45,996 $61,025 $84,384
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Net income 1,664 2,651 4,202 4,284 8,470
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Earnings per share $ .29 $ .46 $ .61 $ .57 $ 1.09
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R & D spending $ 4,164 $ 5,774 $ 6,888 $11,679 $14,547
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As of June 30
Cash and cash equivalents $ 1,409 $ 4,798 $22,870 $22,887 $35,404
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Working capital 2,442 5,499 24,970 26,185 34,157
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Total assets 18.949 23,867 51,160 64,571 89,371
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Stockholders' equity $ 6,084 $ 8,735 $33,337 $40,519 $52,305
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Number of employees 190 261 335 419 554
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<FN>
* includes a one-time charge relating to the fiscal 1993 purchase of R&D, which had the effect of reducing
net income by approximately $1,560 or $.21 per share.
3
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TO OUR STOCKHOLDERS
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I am pleased to report another year of exceptional growth and success for IMRS.
With total revenue growth of 38%, to $84.4 million, including a 42% increase in
software license revenues, we continue to demonstrate our ability to provide
strong financial management solutions for our customers - enterprises numbering
over 1600 worldwide.
A STRONG PRODUCT LINE;
A TECHNOLOGY VISION; A COMMITMENT Operating income increased 107% to $13.9 million from $6.7 million for the
TO SERVICE; AND OUR COMPHENSIVE prior year ended June 30, 1993, reflecting an operating margin of 16.4% of
GLOBAL CAPABILITIES, ALLOW US TO revenues for fiscal 1994. Net income was $8.5 million or $1.09 per share, up
DELIVER THE WORLD'S BEST BUSINESS 98% from $4.3 million ($.57 per share) last year. IMRS's fiscal 1993 operating
SOFTWARE SOLUTIONS TO OUR CUSTOMERS. results included a one-time charge relating to the purchase of research and
development, which had the effect of reducing net income for that year by $1.6
million (or $.21 per share).
During the year IMRS was identified by Forbes magazine as one of "The World's Best
Small Companies." And, once again we were included in Software Magazine's listing of "Top
100 Independent Software Companies," this year cited among the 20 fastest growing of the
top 100 worldwide.
International Data Corporation, a leading market research firm, recently recognized
IMRS as having the third largest share of client/server financial systems. We are in fact
the largest Windows-based solutions provider in this market - even before the addition of
our transaction accounting product line.
Our Windows products - Hyperion, IMRS OnTrack, and IMRS Forms, now combine to provide a
unique and powerful enterprise-wide financial management system. We remain convinced that
over the next several years the market will increasingly demand an integrated financial
solution - a line of management reporting and accounting products built around new
client/server technologies and a Microsoft Windows graphical user interface.
IMRS is a company that has repeatedly broken new ground. With Micro Control we were the
first software company to prove that corporate solutions could be achieved using networks
of personal computers. With the introduction of Hyperion we demonstrated that a
Windows-based solution could successfully manage large scale financial data requirements.
Our internal tracking shows that Hyperion, which collects, manages and reports financial
information, was chosen in more than 80 percent of all corporate decisions in North
America in this product category. As of June our Hyperion client base numbered 560
headquarters sites.
And now as we introduce Hyperion Financials, our new line of accounting products, we
are prepared once again to lead the way with all the components of a complete solution -
one that we believe no competitor can match.
4
THE BEST TECHNOLOGY
Technology changes continue to be rapid and complex. Our ability to
successfully turn the latest advances in information technology into useful
solutions has made us an innovator in financial management software.
A pure, balanced client/server architecture underlies our new product line.
Our products are built in an object-oriented programming environment, and
offer performance, portability, and scalability.
As an early Windows NT applications developer, we were one of the first to
ship a Windows 32-bit application. In addition, the development work
we've done for Hyperion NT has provided us with a running start on
Microsoft's new operating system, Windows 95.
Our agreement with Sybase to develop client/server products for Sybase SQL
server has resulted in Hyperion SQL, released in December, 1993. Hyperion
and Hyperion SQL are integrated with IMRS OnTrack, for graphical data
presentation, and with IMRS Forms, our new Windows-based data collection
system. The IMRS interfaces to Lotus 1-2-3 and Microsoft Excel, along with
the Hyperion Developer's Toolkit, further extend the accessibility of IMRS
applications.
We will continue to base our information technology strategies on open
standards - and develop client/server products that fit into mixed
environments and provide open access to financial data. Our product design
anticipates continued change and allows us to quickly adapt to new
technologies as they are introduced and established.
REVENUE CHART
SEE FINANCIAL HIGHLIGHTS TABLE FOR THE 5 YEARS ENDED JUNE 30, 1994
NET INCOME CHART
SEE FINANCIAL HIGHLIGHTS TABLE FOR THE 5 YEARS ENDED JUNE 30, 1994
AN INTEGRATED PRODUCT LINE
To meet the high volume and complex requirements of our customers we provide
comprehensive solutions that address both financial management and
accounting. IMRS software meets the diverse accounting, financial
consolidation, management reporting, budgeting, planning and information
access needs of these corporations with a suite of high performance
products. Through our drill-down analytical capabilities, we are able to
provide companies with dynamic access to their corporate information - the
view from the top and high volume supporting detail.
Hyperion Financials carries forward the IMRS vision of enterprise-wide
financial management. With our established reporting, consolidation and
analysis products, IMRS will provide the broadest set of client/server
financial applications on the market - extending from transaction level
processing through accounting to sophisticated planning and analysis.
5
R&D SPENDING CHART
SEE FINANCIAL HIGHLIGHTS TABLE FOR THE 5 YEARS ENDED JUNE 30, 1994
COMPANY STABILITY AND VIABILITY
A track record of strong growth, profitability, and 13 years of solid
financial applications expertise has earned IMRS credibility and long-term
relationships with CFOs, controllers and information systems professionals.
Our enterprise financial management solutions have helped many of the most
successful companies in the world maintain their leadership positions.
Along the way, we created an international program of high quality service
and support - backed by a sincere commitment to customer satisfaction. The
10th annual IMRS user conference held last April saw record attendance of
more than 1200 customers. Our European user conference, to be held next
month in Cannes, France, will bring together customers from 15 countries.
Our product direction and focus comes from information drawn from these
conferences, our quarterly regional meetings, product user groups, customer
surveys, and informal client interaction throughout the year.
This partnership with our customers drives us to continue to deliver
products and services that address the real world needs of business
users. And we believe the key to success in the still emerging
client/server financial software market will be the delivery of real
solutions. Great software backed by dedicated support professionals has
driven our leadership in the past, and we will carry forward that formula
for success.
Our mission statement defines our business:
DELIVER THE WORLD'S BEST BUSINESS SOFTWARE SOLUTIONS
* We have proven our ability to consistently produce great software.
* We understand the importance of service and support in delivering
superior customer solutions.
* We will continue to grow our business globally as our product line is
extended, our solutions broadened, and our growth horizons expanded.
We are proud of our achievements in the past year and look forward to the
exciting opportunities and challenges of the year ahead.
Sincerely,
James A. Perakis
President and CEO
September 26, 1994
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"IMRS SOLUTIONS ARE
THE LIFEBLOOD OF OUR FINANCIAL
INFORMATION MANAGEMENT."
James Froisland, Vice President/Corporate Controller,
BUDGET RENT A CAR CORPORATION
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A STRONG PRODUCT LINE
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IMRS products are designed by application experts with experience in largescale
finance and accounting departments. This real world business expertise along
with on-going customer input ensures products that meet growing application
demands.
At IMRS we understand the challenges facing financial professionals. From the
start we recognized the value of giving users flexibility and control over their
financial applications. Today more and more companies are using IMRS software
for their diverse accounting, financial consolidation, management reporting,
budgeting, planning and information access needs. Our integrated solutions
optimize the flow of information across the enterprise to increase productivity
and deliver consistent information to all levels of users.
With 13 years experience in delivering high performance financial software,
we've put our expertise to work for some of the most successful corporations in
the world. Our customer base continues to grow in every major industry,
including advertising, banking, chemicals, communications, computers, consumer
products, education, government, healthcare, insurance, manufacturing,
publishing, retail, transportation and utilities.
"TODAY, IMRS HAS
ROUGHLY A 75% MARKET SHARE
IN THE FINANCIAL REPORTING
AND CONSOLIDATION MARKET SECTOR."
W. Christopher Mortenson,
ALEX. BROWN & SONS INCORPORATED
[PHOTOGRAPH OF:]
LUCY RAE RICCIARDI
Vice President and Chief Financial Officer
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[PHOTOGRAPH OF:]
JAMES A. PERAKIS
President and CEO
IMRS financial management and accounting products provide clients with a total
solution - from transaction level processing through sophisticated planning and
analysis.
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IMRS SOLUTIONS FOR BUSINESS
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HYPERION, HYPERION SQL
Windows-based, client/server financial management
MICRO CONTROL
Enterprise-wide financial reporting
FASTAR
Spreadsheet-based reporting
FINALFORM
DOS-based controlled data collection
IMRSFORMS
Windows-based data collection
IMRS OnTrack
Graphical data presentation
HYPERION FINANCIALS
High performance, client/server accounting applications
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TECHNOLOGY VISION
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"IMRS HAS HARNESSED
A POWERFUL LINK BETWEEN THEIR HYPERION PRODUCT
AND LOTUS SPREADSHEET PRODUCTS.
THIS TECHNOLOGY EXEMPLIFIES
THE WAY 3RD PARTIES CAN
ADD VALUE TO THEIR APPLICATIONS WITH CONNECTIONS
TO OUR PACKAGED PRODUCTS."
Jeffrey Anderholm, Director of Spreadsheet Marketing,
LOTUS DEVELOPMENT CORPORATION
Today's progressive enterprises are basing information technology strategies on
open standards. IMRS solutions are open, adhere to standards and provide
upward compatibility from one generation of technology to the next. We leverage
these standards to deliver high quality applications that offer long-term
flexibility and choice.
Through client/server architecture, Microsoft Windows, high performance
time-series databases, high speed data access capabilities, and SQL databases,
we provide innovative solutions to meet the challenges of enterprise financial
management.
Our extensive client/server experience has helped us re-define this powerful
technology to incorporate a balanced approach in our software design. By
developing applications that balance processing between the client and server
we are able to significantly improve the performance in large, high volume
applications.
"IMRS UNDERSTANDS
THE BENEFITS OF OUR TECHNOLOGY, AND THEIR HYPERION PRODUCT
IS JUST THE KIND OF
APPLICATION WE ENVISIONED
RUNNING IN THE
MICROSOFT WINDOWS NT
ENVIRONMENT."
Daniel Bourgoin, Manager of Vertical
Market Development, MICROSOFT CORPORATION
[PHOTOGRAPH OF:]
Vice President - Product Management and Planning, GORDON O. RAPKIN
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[PHOTOGRAPH OF:]
Vice President - Product Development, THOMAS E. BELL
"HYPERION FROM IMRS IS
ONE OF THE FIRST
ENTERPRISE-WIDE FINANCIAL
APPLICATIONS TO TAKE ADVANTAGE OF THE SPEED AND PERFORMANCE
OF DIGITAL'S 64-BIT ALPHA AXP SYSTEMS - MAKING HIGH PERFORMANCE
A PRIORITY IN THEIR
APPLICATION DELIVERY."
Michael Carabetta, Vice President of Cross Industry
Applications Marketing,
DIGITAL EQUIPMENT MARKETING
Through our object-oriented design we are able to ensure application integrity,
simplify system maintenance, and create an environment for rapid application
development. And IMRS's multi-layered approach to systems architecture
insulates application functionality from changes in hardware, networks, and
operating systems.
IMRS develops the highest level of partnership with the industry's primary
leaders and innovators. Through a new partnering program, Enterprise
Solutions Partners, we are able to further enhance the scope of our total
financial management solutions.
Our design philosophy is to apply the best technologies to real world business
needs. Our most important criterion is to give users the benefits of
technology - benefits like portability, scalability, cost-effectiveness and
performance.
"IMRS IS THE TYPE
OF PARTNER THAT SYBASE ENJOYS
WORKING WITH. THEIR
TECHNOLOGY LEADERSHIP IS EVIDENT
IN THEIR SELECTION OF SYBASE
AS THE FIRST SQL DATABASE TO WORK
WITH THEIR NEW PRODUCT LINE."
Verne Dykema, Vice President
NORTH AMERICAN CHANNELS, SYBASE INC.
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A COMMITMENT TO SERVICE
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"IMRS SERVICE AND SUPPORT STAFF
ARE KNOWLEDGEABLE AND WELL
TRAINED; THEIR APPROACH IS VERY
CUSTOMER ORIENTED."
Jeffrey Limm, Assistant Controller,
YORK INTERNATIONAL CORPORATION
We understand the importance of quality consulting, support and training
services in helping our customers meet the ongoing challenges of financial
management. That's why our worldwide support and service programs are an
integral part of the IMRS offering.
We continue to broaden our already comprehensive service and support program to
ensure complete customer satisfaction. We accomplish this through a network of
global support resources dedicated to superior customer solutions. Our strong
client relationships focus on long term needs.
Through our unmatched product and technical consulting expertise, a wide range
of comprehensive training programs and true customer-oriented Hotline support
we are able to deliver complete solutions.
"GOOD SOFTWARE IS ONLY PART OF
THE FINANCIAL SYSTEMS SOLUTION.
YOU ALSO NEED A SUPPLIER WITH A
PRODUCT STRATEGY IN TOUCH WITH A
FAST CHANGING ENVIRONMENT AND
STRONG SERVICE AND SUPPORT
CAPABILITIES"
Ray Lamy, Manager,
Financial Systems Administration
UNITED TECHNOLOGIES CORPORATION,
CORPORATE HEADQUARTERS
[PHOTOGRAPH OF:]
CRAIG M. SCHIFF
Vice President - Products and Services
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[PHOTOGRAPH OF:]
TERENCE W. ROGERS
Executive Vice President
Our international service capabilities include a full range of programs and
activities designed to maintain an ongoing, open dialog with customers.
* Bulletin Board
* Customer Council
* Customer Development
Partnerships
* Customer Surveys
* Customized Documentation
* Customized Training
* External Test Client Programs
* Focus Groups
* Hotline Report
* Newsletter and Quarterly Client Updates
* Product User Groups
* Regional Meetings
* Technical Consulting
* Usability Studies
* User Conferences
* User Group Steering Committee
And by working closely with customers we will continue to provide financial
applications that help maximize success in a rapidly competitive business
world.
REPRESENTATIVES FROM THE FOLLOWING COMPANIES SERVE ON THE 1994 IMRS USER
GROUP STEERING COMMITTEE
American Brands
American General
American National Can
AT&T
Bon Secours Health Systems
Caltex Petroleum
ITT
Otis Elevator Company
Siecor
Tenneco
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GLOBAL CAPABILITIES
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"IMRS HAS OFFICES
AND DISTRIBUTORSHIPS IN THE
COUNTRIES WE DO
BUSINESS IN. LOCAL SERVICE
AND SUPPORT IS
A REAL PLUS IN GETTING THE
SYSTEM INTO
OUR INTERNATIONAL OFFICES."
Luca Moroni, Senior Financial Analyst,
WHIRLPOOL CORPORATION
Our goal is to provide clients with the tools and resources necessary to
effectively meet the demands of managing information while operating in a
global marketplace. We are extending and enriching our international product
and service capabilities. Today, IMRS has offices in 23 countries. Through a
team of international technical and financial experts, we are able to deliver
solutions that match unique local information requirements.
During the year these events helped strengthen our worldwide capabilities and
those of our clients.
The new KANJI version of Hyperion helps Japanese companies obtain critical
information and enables them to react more quickly to changing business
conditions. IMRS products are designed to handle multi-language implementations
to ensure global companies have a consistent set of applications.
Our annual European user conference, this year in Cannes, France, brings
together customers representing 15 countries. The simultaneous translation
of general sessions ensures all attendees are able to participate fully in the
conference. In addition, individual break out sessions and all conference
materials are available in local languages.
[PHOTOGRAPH OF:]
JOHN N. ADINOLFI
Vice President - Marketing
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[PHOTOGRAPH OF:]
DAVID M. SAMPLE
Senior Vice President
The recent openings of IMRS Italia in Milan and a new office in The Netherlands
help us provide ongoing services to existing clients in these countries. Our
global business strategy includes plans for further expansion in the
international marketplace.
Through our distributor Consultores de Integracion de Sistemas S.A. de C.V.,
IMRS is providing Mexican companies with a full range of financial management
technology.
We will continue to seek new global business opportunities and partnerships
in order to provide a comprehensive suite of products and services worldwide.
"THE TOTAL
TECHNOLOGY SOLUTION FROM
IMRS WILL HELP US MEET AMBITIOUS
CORPORATE OBJECTIVES
IN THE FINANCIAL AREA, INCLUDING
STANDARDIZATION
OF OUR FINANCIAL OPERATIONS AND
SUPPORT FOR LEGAL AND
STATUTORY REQUIREMENTS.
WE WILL BE ABLE
TO DOWNSIZE PROCESSING
USING CLIENT/SERVER TECHNOLOGY,
AND ACCOMMODATE
MORE EFFICIENT CLOSINGS AND
MANAGEMENT REPORTING."
Herman Gierhl, Deputy Director, SIEMENS A.G.
14
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
STATEMENT OF INCOME DATA
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YEAR ENDED JUNE 30 1994 1993 1992(a) 1991 1990(b)
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REVENUES
Software licenses $45,286 $32,004 $26,574 $19,303 $16,268
License renewals and services 39,098 29,021 19,422 15,021 7,819
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Total revenues 84,384 61,025 45,996 34,324 24,087
COSTS AND EXPENSES
Cost of revenues:
Software licenses 2,716 1,800 1,272 535 556
License renewals and services 24,300 18,050 12,032 10,233 5,541
Sales and marketing 25,937 18,211 15,673 10,587 8,972
Product development 10,538 7,029 5,398 5,018 3,938
Purchased research and development 2,600
General and administrative 7,039 6,655 4,821 3,094 2,137
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70,530 54,345 39,196 29,467 21,144
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OPERATING INCOME 13,854 6,680 6,800 4,857 2,943
Interest income 825 579 533 106 69
Interest expense (79) (115) (381) (478) (346)
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INCOME BEFORE INCOME TAXES 14,600 7,144 6,952 4,485 2,666
Provision for income taxes 6,130 2,860 2,750 1,834 1,002
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NET INCOME $ 8,470 $ 4,284(c) $ 4,202 $ 2,651 $ 1,664
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EARNINGS PER SHARE
Primary $1.09 $.58(c) $.62 $.47 $.30
Fully diluted $1.09 $.57(c) $.61 $.46 $.29
AVERAGE NUMBER OF SHARES OUTSTANDING
Primary 7,736 7,325 6,767 5,700 5,572
Fully diluted 7,744 7,527 6,837 5,759 5,660
BALANCE SHEET DATA
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JUNE 30 1994 1993 1992(a) 1991 1990(b)
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Working capital $34,157 $26,185 $24,970 $ 5,499 $ 2,442
Total assets 89,371 64,571 51,160 23,867 18,949
Total long-term debt - - - 2,731 2,612
Stockholders' equity 52,305 40,519 33,337 8,735 6,084
<FN>
(a) Reflects the initial public offering of the Company's Common Stock in
November 1991.
(b) Reflects the acquisition of Corporate Class Software, Inc. in October 1989.
Unaudited pro forma revenues, net income and earnings per share as if the
acquisition had occurred at the beginning of the 1990 fiscal year were:
$24,983, $584 and $.11 for 1990.
(c) Includes a one-time charge relating to the fiscal 1993 purchase of research
and development, which had the effect of reducing net income by
approximately $1,560 or $.21 per share.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
RESULTS OF OPERATIONS
IMRS derives revenues from licensing its software products and providing related
product installation, support and training services. Customers are billed an
initial license fee for the software upon delivery and, subsequently, are billed
an annual license renewal fee, entitling them to routine support and product
updates. IMRS licenses its products throughout the world primarily through a
direct sales force. In certain territories outside of North America, products
are licensed through independent distributors, including major accounting
firms. The Company includes in revenues its net share of revenues generated
by distributors.
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FISCAL 1994 COMPARED TO FISCAL 1993
REVENUES
1994 CHANGE 1993
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Software licenses $45,286 41.5% $32,004
Percentage of total revenues 53.7% 52.4%
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License renewals and services $39,098 34.7% $29,021
Percentage of total revenues 46.3% 47.6%
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Software license revenues rose primarily as a result of an increase in the
number of licenses sold. Demand for the Company's Microsoft Windows-based
products rose sharply. In 1994, Windows-based product licenses comprised 91.4%
of the Company's total software license revenues, up from 55.8% for 1993. While
the Company intends to continue enhancing its DOS-based product, Micro Control,
it expects the trend toward the Windows market to continue. Accordingly, the
Company has extended its suite of integrated Windows-based, client/server
products, including IMRS Forms, data collection and forms management software;
Hyperion 1.8 ("Hyperion SQL") which allows for the use of Sybase SQL Server or
Microsoft SQL Server for the Hyperion database, providing open access and
scalability of hardware for server processing; and Hyperion Financials, a line
of transaction-based accounting applications, currently under-going internal and
external testing. IMRS Forms and Hyperion SQL were delivered in December 1993.
The increase in license renewal and service revenue is mainly attributable to
the year-to-year growth of the Company's installed customer base.
Revenues generated from markets outside the United States for fiscal 1994 and
1993 were $24,743 and $16,973, or 29.3% and 27.8% of total revenues,
respectively.
COST OF REVENUES
1994 CHANGE 1993
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Software Licenses $ 2,716 50.9% $ 1,800
Gross profit percentage 94.0% 94.4%
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License renewals and services $24,300 34.6% $18,050
Gross profit percentage 37.8% 37.8%
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16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
Cost of software license revenues consists primarily of the cost of product
packaging and documentation materials, amortization of capitalized software
costs, amortization of certain intangible assets related to business
acquisitions, and royalty expenses. The increase in the cost of software
license revenues resulted principally from the amortization of capitalized costs
related to new products and product enhancements, which commenced upon the
general release of the software to customers in the second half of fiscal 1993
and in the second quarter of fiscal 1994.
The increase in the cost of license renewal and service revenues was due
primarily to additional staffing expense for both installation and ongoing
support services.
OPERATING EXPENSES
1994 CHANGE 1993
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Sales and marketing $25,937 42.4% $18,211
Percentage of total revenues 30.7% 29.8%
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Product development $10,538 49.9% $ 7,029
Percentage of total revenues 12.5% 11.5%
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General and administrative $ 7,039 5.8% $ 6,655
Percentage of total revenues 8.3% 10.9%
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The increase in sales and marketing expenses is primarily due to a net increase
of sales-marketing personnel, greater overall marketing initiatives and an
increase in commission costs directly associated with the significant increase
in software license revenues.
The increase in product development expenses reflects additional personnel and
third-party development costs associated with expanded research and development
activities. In fiscal 1994 and 1993, the Company capitalized $4,009 and $2,050
of software development costs, respectively, in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed" ("FAS-86"). The amounts
capitalized by the Company in 1994 and 1993 primarily relate to the Company's
development of Microsoft Windows-based financial management applications for
client/server environments and represented 27.6% and 22.6%, respectively, of
total product development expenditures. In addition to IMRS Forms, Hyperion
SQL and Hyperion Financials, as mentioned above, various other development and
major product enhancement projects, which costs are required to be capitalized
under FAS-86, were in process during the year ended June 30, 1994. Capitalized
software costs are amortized over the estimated useful life of the product, but
not more than four years.
Currently, Hyperion Financials represents the Company's largest development
project. It began in February 1993 with the technology acquisition from MAI
Systems Corporation for $2,600. The substance of the transaction represented
the purchase of research and development and, as such, is included as a one-time
charge in the Company's operating results. The charge had the effect of
reducing net income for fiscal 1993 by approximately $1,560 or $.21 per share.
The increase in general and administrative expenses resulted from increases in
personnel and professional services costs incurred to support the growth of the
Company's overall operations, as well as an increase in the provision for
doubtful accounts directly associated with the significant increase in revenues.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
NONOPERATING INCOME AND EXPENSE
1994 CHANGE 1993
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Interest income $ 825 42.5% $ 579
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Interest expense $ (79) 31.3% $(115)
- - - -----------------------------------------------------------------------------------------------
Interest income increased primarily due to the increase in cash available for
investment which resulted from 1994's operations.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate increased from 40.0% to 42.0%, as a
greater portion of the Company's operations arose in certain jurisdictions where
the income tax rates are higher.
NET INCOME
As a result of the above factors, net income for 1994 increased to $8,470 or
by 97.7% from $4,284 for 1993.
To date, the overall impact of inflation on the Company has not been material.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company is required to adopt the new method
of accounting for certain investment securities in fiscal 1995. Adoption of
this statement is not expected to have a material effect on the Company's
financial position.
FISCAL 1993 COMPARED TO FISCAL 1992
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REVENUES
1994 CHANGE 1993
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Software licenses $32,004 20.4% $26,574
Percentage of total revenues 52.4% 57.8%
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License renewals and services $29,021 49.4% $19,422
Percentage of total revenues 47.6% 42.2%
- - - -----------------------------------------------------------------------------------------------
Software license revenues rose primarily as a result of an increase in the
number of licenses sold. In 1993, the Company saw an improvement in the mix of
software licenses sold. In particular, the demand for its Microsoft
Windows-based products, Hyperion and IMRS OnTrack, rose sharply.
License renewal and service revenue increased due to growth in the Company's
installed customer base and the establishment of Company-owned consulting and
training practices in the United Kingdom (July 1, 1992), France and Germany
(third quarter of fiscal 1992).
Revenues generated from markets outside the United States for fiscal 1993 and
1992 were $16,973 and $9,199, or 27.8% and 20.0% of total revenues,
respectively. The increase reflects the Company's overall success in Europe,
in particular its new direct presence in the UK.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
COST OF REVENUES
1993 CHANGE 1992
- - - -----------------------------------------------------------------------------------------------
Software licenses $ 1,800 41.5% $ 1,272
Gross profit percentage 94.4% 95.2%
- - - -----------------------------------------------------------------------------------------------
License renewals and services $18,050 50.0% $12,032
Gross profit percentage 37.8% 38.0%
- - - -----------------------------------------------------------------------------------------------
Cost of software license revenues consists primarily of the cost of product
packaging and documentation materials, amortization of capitalized software
costs, amortization of certain intangible assets related to business
acquisitions, and royalty expenses. The increase in the cost of software
license revenues resulted principally from the amortization of capitalized costs
related to IMRS OnTrack version 2.0 with Interactive/MC and Hyperion version
1.5, which commenced upon the general release of the products to customers in
the fourth quarter of fiscal 1992 and in the third quarter of fiscal 1993,
respectively, and an increase in royalties associated with increased sales of
IMRS OnTrack licenses.
The increase in the cost of license renewal and service revenues was due
primarily to additional staffing expense for both installation and ongoing
support services.
OPERATING EXPENSES
1993 CHANGE 1992
- - - -----------------------------------------------------------------------------------------------
Sales and marketing $18,211 16.2% $15,673
Percentage of total revenues 29.8% 34.1%
- - - -----------------------------------------------------------------------------------------------
Product development $ 7,029 30.2% $ 5,398
Percentage of total revenues 11.5% 11.7%
- - - -----------------------------------------------------------------------------------------------
Purchased research and development $ 2,600
Percentage of total revenues 4.3%
- - - -----------------------------------------------------------------------------------------------
General and administrative $ 6,655 38.0% $ 4,821
Percentage of total revenues 10.9% 10.5%
- - - -----------------------------------------------------------------------------------------------
The increase in sales and marketing expenses is primarily due to the addition
of sales-marketing personnel relating to the Company's recently established
operations in the UK, France and Germany.
The increase in product development expenses reflects additional personnel
associated with expanded research and development activities. In fiscal 1993
and 1992, the Company capitalized $2,050 and $1,490 of software development
costs, respectively, in accordance with Statement of Financial Accounting
Standards, No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." The amounts capitalized by the Company in 1993
and 1992 primarily relate to the Company's Microsoft Windows-based products and
represented 22.6% and 21.6%, respectively, of total product development
expenditures (excluding purchased research and development). Capitalized
software costs are amortized over the estimated useful life of the product, but
not more than four years.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
In February 1993, the Company acquired, from MAI Systems Corporation,
client/server accounting and related applications technology for $2,600. The
substance of the transaction represented the purchase of research and
development and, as such, is included as a one-time charge in the Company's
operating results. The Company is using this technology to develop
accounting software, including general ledger, accounts payable, accounts
receivable, fixed assets and purchasing systems. Complementing Hyperion, the
Company's existing Microsoft Windows-based financial information solution,
these products will constitute Hyperion Financials, a fully integrated line
of financial applications software designed for large company client/server
environments.
The increase in general and administrative expenses resulted principally from
increases in personnel and professional services costs incurred to support
the growth of the Company's overall operations, including newly established
subsidiaries in the UK, France and Germany.
NONOPERATING INCOME AND EXPENSE
1993 CHANGE 1992
- - - -----------------------------------------------------------------------------------------------
Interest income $ 579 8.6% $ 533
- - - -----------------------------------------------------------------------------------------------
Interest expense $(115) 69.8% $(381)
- - - -----------------------------------------------------------------------------------------------
In connection with the initial public offering of its Common Stock, the
Company repaid all of its outstanding bank debt in November 1991 and,
therefore, interest expense has declined.
PROVISION FOR INCOME TAXES
In the fourth quarter of fiscal 1993, the Company adopted the provisions of
Financial Accounting Standards Board Statement 109, "Accounting for Income
Taxes." The change to the newly required method of accounting for income
taxes had no material effect on the Company's financial statements.
The Company's effective income tax rate increased as follows:
1993 1992
- - - --------------------------------------------------------------------------------------------------
Statutory U.S. tax rate 34.0% 34.0%
State income taxes, net of U.S. tax benefit 7.0 7.8
Valuation change - deferred tax assets 3.1
Tax exempt interest (2.2) (1.9)
Export sales (1.9) (3.3)
Other - net 3.0
- - - --------------------------------------------------------------------------------------------------
Effective income tax rate 40.0% 39.6%
- - - --------------------------------------------------------------------------------------------------
NET INCOME
As a result of the above factors - including the one-time charge relating to
the purchase of R&D, which had the effect of reducing net income for 1993 by
$1,560 - net income for 1993 increased to $4,284 or by 2.0% from $4,202 for
1992.
Recently issued, Financial Accounting Standards Board Statements Nos. 106 and
112 regarding accounting for postretirement and postemployment benefits, will
not have a material effect on the financial statements as the Company
generally does not offer its employees such benefits.
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
QUARTERLY FINANCIAL INFORMATION
- - - ------------------------------------------------------------------------------
The following table sets forth certain unaudited operating results for each
of the Company's eight most recent fiscal quarters. This information has
been prepared by the Company on the same basis as its audited consolidated
financial statements appearing elsewhere in this Annual Report and includes
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly this information when read in conjunction with the
Company's audited consolidated financial statements and notes thereto. The
Company's operating results for any one quarter or series of quarters are
not necessarily indicative of results for any future period.
- - - ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended June March Dec. Sept. June March Dec. Sept.
30, 1994 31, 1994 31, 1993 30, 1993 30, 1993 31, 1993 31, 1992 30, 1992
- - - ----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
(unaudited)
Total revenues $31,758 $18,038 $19,236 $15,352 $22,512 $13,317 $13,965 $11,231
Operating income (loss) 7,330 1,895 3,376 1,253 5,076 (1,456)* 2,139 921
Net income (loss) 4,414 1,203 2,043 810 3,104 (821)* 1,383 618
Earnings (loss) per share .57 .15 .26 .11 .41 (.12)* .18 .08
<FN>
* includes a one-time charge relating to the purchase of research and development, which had the effect of reducing operating
results by approximately $2,600 ($1,560 or $.21 per share after tax).
The Company operates with a minimal software licensing backlog. Therefore,
quarterly revenues and operating results are quite dependent on the volume
and timing of the signing of license agreements and product deliveries during
the quarter, which are difficult to forecast. The Company's future operating
results may fluctuate due to these and other factors, such as customer buying
patterns, the timing of new product introductions and product upgrade
releases, the Company's hiring plans, the scheduling of sales and marketing
programs, and new product development. The Company generally has realized
lower revenues in its first (September) and third (March) fiscal quarters
than in the immediately preceding quarters. The Company believes that these
revenue fluctuations are caused by customer buying patterns, including
traditionally slow purchase activity in the summer months and low purchase
activity in the accounting and financial reporting applications market during
the March quarter, as many potential customers are busy with their year-end
closing and financial reporting. Due to the relatively fixed nature of
certain costs, including personnel and facilities expenses, the decline in
revenues in the first and third fiscal quarters typically results in lower
profitability or may result in losses in these quarters.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has financed its business principally through positive
cash flow from operations, long-term and short-term borrowings and sales of
its Common Stock. For fiscal years 1994, 1993, and 1992, the Company
generated positive cash flow from operations of $19,834, $7,343 and $7,890,
respectively.
Cash used by investing activities amounted to $9,333 for fiscal 1994 - $5,324
for leasehold improvements and purchases of equipment and software, and
$4,009 for product development costs.
Financing activities in fiscal 1994, including stock options exercised by
employees and payment of short-term debt, generated cash of $1,879. In
connection with the stock options exercised by certain of its employees (for
a total of 224,337 common shares), the Company recognized (as a credit to
additional paid-in capital) an income tax benefit of $1,200 for the year
ended June 30, 1994.
As of June 30, 1994, the Company had cash and cash equivalents of $35,404 and
working capital of $34,157, no long-term debt, and its ratio of current
assets to current liabilities was 2 to 1. The Company
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(Dollars in thousands)
has long-term credit availability of $10,000 under a revolving credit
facility. For further details of the credit facility, see Note E of the
Company's consolidated financial statements. The Company anticipates capital
expenditures of approximately $12,000 for its 1995 fiscal year, including $4,000
of capitalized product development costs.
The Company believes that funds generated from operations, existing cash
balances and its available credit facility will be sufficient to finance
the Company's operations for at least the next two years.
RECENT DEVELOPMENT
- - - --------------------------------------------------------------------------------
On September 27, 1994, the Company agreed in principle to purchase an office
facility in Stamford, Connecticut for $11.4 million. The Company has outgrown,
particularly with respect to increases in research and development activities,
the offices it currently leases in Stamford. The new location has approximately
140,000 square feet of existent office space and it offers the possibility of
expansion.
The purchase price is to be financed by the Connecticut Development Authority
("CDA," an agency of the State of Connecticut) through a $9.5 million mortgage
loan, with Company funds to be used for the balance. In the interest of
Connecticut-based jobs, the CDA has agreed to such financing over a 15-year
period at LIBOR minus 2%, subject to among other things: (i) the creation of
a specified number of new Connecticut-based jobs, (ii) a 10-year residency in
the state, and (iii) the payment of the remaining unpaid principal at year ten.
Violations of certain such covenants, if any, would result in additional
interest charges and/or a penalty payment.
The purchase transaction is subject to a third party's right of first refusal
to acquire the property which right expires in October 1994, as well as the
outcome of customary due diligence procedures, including independent
appraisals of the property, and the execution of a definitive purchase and
sale agreement. In the meantime, the Company continues its evaluation of
various other expansion alternatives.
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
IMRS INC.
We have audited the accompanying consolidated balance sheet of IMRS Inc. and
subsidiaries as of June 30, 1994 and 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended June 30, 1994. 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 consolidated financial position of IMRS Inc. and
subsidiaries at June 30, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1994, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
July 22, 1994,
except for Note K, as to which
the date is September 27, 1994
22
IMRS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands, except for share data)
JUNE 30 1994 1993
- - - ----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $35,404 $22,887
Accounts receivable - net of allowances of $1,500 and $1,200 31,843 23,205
Prepaid expenses and other current assets 1,540 787
Deferred income taxes 770 2,387
- - - ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 69,557 49,266
Property and equipment - at cost, less accumulated
depreciation and amortization of $7,389 and $4,504 9,731 7,353
Product development costs - at cost, less accumulated
amortization of $2,355 and $1,103 6,443 3,686
Goodwill and other intangible assets - at cost, less accumulated
amortization of $3,605 and $2,749 2,671 3,475
Deposits and other assets 969 791
- - - ----------------------------------------------------------------------------------------------------------
Total assets $89,371 $64,571
- - - ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 7,323 $ 6,533
Accrued employee compensation and benefits 7,638 4,952
Income taxes payable 1,229 781
Deferred revenue 19,210 10,815
- - - ----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 35,400 23,081
Deferred income taxes 1,666 971
COMMITMENTS - Note H
Stockholders' equity:
Preferred stock - $.01 par value; authorized - 1,000,000 shares;
none issued
Common stock - $.01 par value; authorized - 15,000,000 shares;
issued - 9,298,721 and 9,074,384 shares 93 91
Additional paid-in capital 43,811 40,634
Retained earnings 21,870 13,400
Currency translation adjustments (436) (573)
Treasury stock, at cost - 2,160,420 shares (13,033) (13,033)
- - - ----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 52,305 40,519
- - - ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $89,371 $64,571
- - - ----------------------------------------------------------------------------------------------------------
See accompanying notes.
23
IMRS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
YEAR ENDED JUNE 30 1994 1993 1992
- - - ----------------------------------------------------------------------------------------------------------
REVENUES
Software licenses $45,286 $32,004 $26,574
License renewals and services 39,098 29,021 19,422
- - - ----------------------------------------------------------------------------------------------------------
Total revenues 84,384 61,025 45,996
COSTS AND EXPENSES
Cost of revenues:
Software licenses 2,716 1,800 1,272
License renewals and services 24,300 18,050 12,032
Sales and marketing 25,937 18,211 15,673
Product development 10,538 7,029 5,398
Purchased research and development 2,600
General and administrative 7,039 6,655 4,821
- - - ----------------------------------------------------------------------------------------------------------
70,530 54,345 39,196
- - - ----------------------------------------------------------------------------------------------------------
OPERATING INCOME 13,854 6,680 6,800
Interest income 825 579 533
Interest expense (79) (115) (381)
- - - ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,600 7,144 6,952
Provision for income taxes 6,130 2,860 2,750
- - - ----------------------------------------------------------------------------------------------------------
NET INCOME $ 8,470 $ 4,284 $ 4,202
- - - ----------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Primary $ 1.09 $ .58 $ .62
Fully diluted $ 1.09 $ .57 $ .61
AVERAGE NUMBER OF SHARES OUTSTANDING
Primary 7,736 7,325 6,767
Fully diluted 7,744 7,527 6,837
See accompanying notes.
24
IMRS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except for share data)
COMMON STOCK
------------ Additional Currency
Par Paid-in Retained Translation Treasury
Shares Value Capital Earnings Adjustments Stock
- - - -----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1991 4,929,520 $49 $ 3,772 $ 4,914 -- --
Net proceeds from
private placement 1,166,666 12 6,740
Purchase of outstanding
common shares - 2,160,420 $(13,033)
Net proceeds from initial
public offering 2,036,180 21 22,902
Exercise of stock options 528,704 5 1,455
Income tax benefit from
exercise of stock options 2,298
Net income 4,202
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1992 8,661,070 87 37,167 9,116 -- (13,033)
Exercise of stock options 413,314 4 2,075
Income tax benefit from
exercise of stock options 1,392
Currency translation effect $(573)
Net income 4,284
- - - ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1993 9,074,384 91 40,634 13,400 (573) (13,033)
Exercise of stock options 224,337 2 1,977
Income tax benefit from
exercise of stock options 1,200
Currency translation effect 137
Net income 8,470
- - - ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 9,298,721 $93 $43,811 $21,870 $(436) $(13,033)
- - - ---------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
25
IMRS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
YEAR ENDED JUNE 30 1994 1993 1992
- - - -------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 8,470 $ 4,284 $ 4,202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,053 3,154 1,942
Accounts receivable allowance provisions 1,904 1,194 706
Deferred income taxes 2,312 (513) (6)
Changes in operating assets and liabilities:
Accounts receivable (10,542) (8,131) (5,205)
Prepaid expenses and other assets 218 1,604 1,450
Accounts payable and accrued expenses 3,576 1,955 3,306
Income taxes payable 448 781 (735)
Deferred revenue 8,395 3,015 2,230
- - - -------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 19,834 7,343 7,890
INVESTING ACTIVITIES
Leasehold improvements and purchases
of furniture, equipment and software (5,324) (4,685) (2,946)
Product development costs (4,009) (2,050) (1,490)
Acquisition of business (1,764)
Security deposits and other assets (329) (640)
- - - -------------------------------------------------------------------------------------------------------------
Cash used by investing activities (9,333) (8,828) (5,076)
FINANCING ACTIVITIES
Proceeds from long-term borrowings 7,231
Principal payments on long-term borrowings (9,962)
Principal payments on capital lease/notes payable (100) (111) (113)
Exercise of stock options by employees/
sale of Common Stock 1,979 1,980 31,135
Acquisition of treasury stock (13,033)
- - - -------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 1,879 1,869 15,258
Effect of exchange rate changes 137 (367)
- - - -------------------------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 12,517 17 18,072
Cash and cash equivalents at beginning of year 22,887 22,870 4,798
- - - -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $35,404 $22,887 $22,870
- - - -------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes $ 2,170 $ 746 $ 1,266
Interest 31 74 317
See accompanying notes.
26
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS
IMRS Inc. (the "Company") develops, markets and supports financial
management software for client/server environments. Customers consist primarily
of large multinational corporations.
- - - --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate on the balance sheet date. The related revenues, costs and
expenses are translated at average rates of exchange prevailing during the
reporting period. Translation adjustments resulting from this process are
charged or credited to stockholders' equity.
REVENUE RECOGNITION
Revenues and costs associated with the initial software licensing period
(generally 90 days) are recognized upon execution of the license agreement and
delivery of the software.
License renewal fees, for routine support and product updates, are recognized
ratably over the term of the license agreement.
CASH EQUIVALENTS
The Company considers highly liquid investment instruments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company is required to adopt the new
method of accounting for certain investment securities in fiscal 1995.
Adoption of this statement is not expected to have a material effect on the
Company's financial position.
PRODUCT DEVELOPMENT COSTS
The Company begins capitalizing product development costs, principally wages and
contractor fees, only after establishing commercial and technical viability.
Product development costs are stated at the lower of cost or net realizable
value. These costs are amortized using the straight-line method over the
shorter of the estimated useful life of the product or four years.
Amortization commences when the product is available for general release to
customers. Amortization expense totaled $1.3 million for 1994, $.6 million for
1993 and $.3 million for 1992.
27
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
DEPRECIATION/AMORTIZATION
Depreciation and amortization are computed principally using the straight-line
method over the estimated useful lives of the applicable assets.
INCOME TAXES
The Company provides for taxes based on current taxable income and the future
tax consequences of temporary differences between the financial reporting and
income tax carrying values of its assets and liabilities.
EARNINGS PER SHARE
Earnings per share (EPS) are calculated by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
period. For primary EPS, common equivalent shares are shares which would be
issuable upon the exercise of outstanding stock options, reduced by the number
of shares assumed to be purchased by the Company with the proceeds obtained
thereby at the average market price during the period. For the fully diluted
EPS calculation, shares are assumed to be purchased by the Company at the
higher of the average or period-end market price and, therefore, this
calculation may include additional equivalent shares.
RECLASSIFICATION
Certain amounts included in the 1993 balance sheet have been reclassified to
conform to the current year presentation.
B. ACQUISITIONS
- - - --------------------------------------------------------------------------------
On July 1, 1992, the Company acquired the business, assets and assumed certain
liabilities of the Sema Financial Management Systems Group (Sema), a unit of
Sema Group Systems Ltd. Sema began exclusive distribution of the Company's
products in the United Kingdom and Ireland in August 1987 and had developed
a related customer support practice. The acquisition of the net assets was
accounted for as a purchase transaction and, accordingly, the purchase price,
$1.8 million was allocated to identifiable assets and liabilities based on their
estimated fair values. The excess purchase price over such allocation,
$1.1 million, was ascribed to goodwill. The net earnings of the acquired
business for the years ended June 30, 1994 and 1993, are included in the
consolidated statement of income. Pro forma consolidated statement of income
data as if the acquisition had occurred on July 1, 1991 is not shown as it
would not differ significantly from reported results.
On January 21, 1993, the Company acquired certain form building and forms
management software and related technology from Columbia Software, Inc. The
transaction represented the purchase of discrete assets and, accordingly, was
accounted for at cost, $1.2 million. In connection with this transaction, the
Company paid Columbia Software an additional $.8 million in fiscal 1994 for
its part in developing IMRS Forms, a Windows-based data collection and forms
management product linking to Hyperion.
On February 12, 1993, the Company acquired, from MAI Systems Corporation,
client/server accounting and related applications technology for $2.6 million.
The substance of the transaction represented the purchase of research and
development and, as such, is included as a one-time charge in the Company's
operating results. The charge had the effect of reducing net income for fiscal
1993 by approximately $1.6 million or $.21 per share.
28
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - ----------------------------------------------------------------------------------------
C. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at June 30:
(In thousands) 1994 1993
- - - ----------------------------------------------------------------------------------------
Furniture, equipment and software $15,951 $10,899
Leasehold improvements 1,169 958
- - - ----------------------------------------------------------------------------------------
17,120 11,857
Less accumulated depreciation and amortization 7,389 4,504
- - - ----------------------------------------------------------------------------------------
$ 9,731 $ 7,353
Depreciation and amortization of these assets totaled $2.9 million, $2 million
and $1.1 million for 1994, 1993 and 1992, respectively.
- - - ----------------------------------------------------------------------------------------
D. GOODWILL AND OTHER INTANGIBLE ASSETS
Components of intangible assets, which relate primarily to business acquisitions,
are as follows at June 30:
Amortization
(In thousands) 1994 1993 Period (years)
- - - ----------------------------------------------------------------------------------------
Goodwill $2,649 $2,611 9 to 20
Software 1,789 1,789 4 to 5
Customer base 1,019 1,019 5
Noncompete agreements 476 476 3
Technology 300 300 6
Trademarks and other 43 29 various
- - - ----------------------------------------------------------------------------------------
6,276 6,224
Less accumulated amortization 3,605 2,749
- - - ----------------------------------------------------------------------------------------
$2,671 $3,475
- - - ----------------------------------------------------------------------------------------
29
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
E. AVAILABLE CREDIT FACILITY
The Company may borrow up to $10 million under an amended and restated credit
facility (the "Facility") with The Bank of New York. Key provisions of
the Facility are as follows: (i) the maturity date is June 30, 1997, (ii) the
interest rate is the bank's base rate plus .25% or, at the Company's option,
LIBOR plus 1.5%, (iii) a commitment fee is charged based on any unused credit,
at the rate of .375% per annum, and (iv) borrowings under the Facility are
limited to the sum of (a) 85% of eligible accounts receivable, as defined, from
debtors located in the United States, plus (b) 75% of eligible accounts
receivable, as defined, from debtors located outside of the United States.
Other significant terms of the Facility restrict the Company regarding the
payment of dividends, capital expenditures and acquisitions and additional
indebtedness, including other fiscal commitments, and require the Company to
maintain minimum net worth and working capital ratios and to meet certain
profitability criteria, as defined. Substantially all of the Company's assets
have been pledged as security under terms of the Facility.
- - - -------------------------------------------------------------------------------
F. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and their tax bases. Significant components of deferred tax
assets and liabilities at June 30 are as follows:
(In thousands) 1994 1993
- - - -------------------------------------------------------------------------------
Deferred income tax assets:
Deferred revenue $ 931* $1,750
Acquired technology, amortization 668 962
Accounts receivable, allowances 577 431
Net operating loss carryforwards 500 225
Other 71 118
- - - -------------------------------------------------------------------------------
2,747 3,486
Less valuation allowance 500 225
- - - -------------------------------------------------------------------------------
2,247 3,261
- - - -------------------------------------------------------------------------------
Deferred income tax liabilities:
Product development costs 2,642 1,475
Property and equipment, depreciation 439 370
Other 62
- - - -------------------------------------------------------------------------------
3,143 1,845
- - - -------------------------------------------------------------------------------
Net deferred income tax (liability) asset $ (896) $1,416
- - - -------------------------------------------------------------------------------
<FN>
* In fiscal 1994, the Company was permitted, with respect to U.S. taxes, to
change its method of accounting for license renewal fees to the same revenue
recognition policy used for financial reporting purposes (see Note A). Due to
the phase-in provisions of the accounting change, there still remains a
significant deferred tax asset relating to license renewal fees.
30
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The provision for income taxes consists of the following charges (credits):
- - - ---------------------------------------------------------------------------------
F. INCOME TAXES (continued)
(In thousands) 1994 1993 1992
- - - ---------------------------------------------------------------------------------
Current:
U.S. $2,261 $2,200 $1,851
State 957 946 905
Other countries 600 227
- - - ---------------------------------------------------------------------------------
3,818 3,373 2,756
- - - ---------------------------------------------------------------------------------
Deferred:
U.S. 1,766 (400) (5)
State 588 (134) (1)
Other countries (42) (21)
- - - ---------------------------------------------------------------------------------
2,312 (513) (6)
- - - ---------------------------------------------------------------------------------
$6,130 $2,860 $2,750
- - - ---------------------------------------------------------------------------------
The effective income tax rate varied from the statutory U.S. federal tax rate
as follows:
1994 1993 1992
- - - ---------------------------------------------------------------------------------
Statutory U.S. tax rate 35.0% 34.0% 34.0%
State income taxes, net of U.S. tax benefit 7.0 7.0 7.8
Valuation change - deferred tax assets 1.9 3.1
Tax exempt interest (1.3) (2.2) (1.9)
Export sales (1.0) (1.9) (3.3)
Other - net .4 3.0
- - - ---------------------------------------------------------------------------------
Effective income tax rate 42.0% 40.0% 39.6%
- - - ---------------------------------------------------------------------------------
The Company has non-U.S. net operating loss carryforwards of $1.4 million,
$1.1 million of which may be carried forward indefinitely.
31
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
G. STOCK OPTION AND EMPLOYEE SAVINGS PROGRAMS
Under the Company's stock option plans and its employee stock purchase plan
("Plans") and under certain employee compensation arrangements, 2,905,645
shares of Common Stock are reserved for issuance to eligible participants
at June 30, 1994.
Changes in outstanding options were as follows:
Price Range Shares
- - - -----------------------------------------------------------------------------------
Outstanding, June 30, 1991 $ .415 - $ 5.50 1,772,000
Options granted:
Plans 9.00 - 17.50 373,924
Options exercised:
Plans .415 - 12.00 (83,104)
Compensation arrangements .415 - 5.50 (445,600)
- - - -----------------------------------------------------------------------------------
Outstanding, June 30, 1992 .415 - 17.50 1,617,220
- - - -----------------------------------------------------------------------------------
Options granted:
Plans 12.75 - 18.00 199,739
Options exercised:
Plans .415 - 17.50 (179,314)
Compensation arrangements .415 - 5.50 (234,000)
Options forfeited:
Plans 14.25 - 17.50 (875)
- - - -----------------------------------------------------------------------------------
Outstanding, June 30, 1993 .415 - 18.00 1,402,770
- - - -----------------------------------------------------------------------------------
Options granted:
Plans 14.50 - 25.00 382,087
Options exercised:
Plans 1.50 - 19.50 (117,615)
Compensation arrangements .75 - 5.50 (106,722)
Options forfeited:
Plans 14.25 - 18.25 (4,250)
- - - -----------------------------------------------------------------------------------
Outstanding, June 30, 1994 .415 - 25.00 1,556,270
- - - -----------------------------------------------------------------------------------
Generally, options under the stock option plans expire 10 years after the date
of grant, are granted at prices not less than fair market value and become
exercisable over two to four year periods. Under the employee stock purchase
plan, shares of the Company's Common Stock may be purchased at six-month
intervals at 85% of the lower of the fair market value on the first or the last
business day of each six-month period. Employees may purchase shares having a
value not exceeding 10% of their gross compensation, up to 500 shares, during
an offering period. Options granted under employee compensation
arrangements become exercisable and expire over various periods. At June 30,
1994, 1,064,271 options outstanding for Common Stock were exercisable and the
average option price for all outstanding options was $9.77 per share.
Outstanding options expire on various dates beginning December 22, 1994 and
ending on June 18, 2004.
The Company maintains an employee savings plan that qualifies as a cash or
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the plan, participating U.S. employees may defer up to 15% of
their pre-tax compensation, but not more than approximately $9,000 per
calendar year. The Company contributes to the plan, annually, up to a maximum
of $1,000 per participant. A similar savings plan is maintained with respect
to certain non-U.S. employees. In fiscal 1994, 1993 and 1992, the Company
contributed $.6 million, $.4 million and $.3 million, respectively, to the
savings plans.
32
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
H. COMMITMENTS
The Company leases office facilities and certain equipment under various
operating lease agreements. The leases expire at various times through
the year 2000.
Future minimum lease payments under all operating leases with noncancellable
terms in excess of one year are as follows :
(In thousands)
- - - ---------------------------------------------------------------------------
1995 $3,033
1996 1,536
1997 689
1998 331
1999 and thereafter 249
- - - ---------------------------------------------------------------------------
$5,838
- - - ---------------------------------------------------------------------------
Certain of the office leases provide as well for contingent payments based on
building operating expenses. Rental expense for the years ended June 30,
1994, 1993 and 1992 under all lease agreements was $2.6 million, $2.3 million
and $2 million, respectively.
- - - ----------------------------------------------------------------------------
I. FINANCIAL DATA BY GEOGRAPHIC AREA
U.S. U.K. Other International
(In thousands) Operations Operations Operations Eliminations Consolidated
- - - -------------------------------------------------------------------------------------------------------
1994
Revenues:
Customers $72,703 $9,070 $2,611 $84,384
Intercompany 2,900 3,913 $(6,813)
- - - -------------------------------------------------------------------------------------------------------
Total 75,603 9,070 6,524 $(6,813) 84,384
- - - -------------------------------------------------------------------------------------------------------
Operating income (loss) 14,013 667 (826) -- 13,854
- - - -------------------------------------------------------------------------------------------------------
Identifiable assets $80,788 $5,413 $3,170 -- $89,371
- - - -------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------
1993
Revenues:
Customers $51,278 $8,007 $1,740 $61,025
Intercompany 1,895 2,215 $(4,110)
- - - -------------------------------------------------------------------------------------------------------
Total 53,173 8,007 3,955 (4,110) 61,025
- - - -------------------------------------------------------------------------------------------------------
Operating income (loss) 6,481 858 (651) $ (8) 6,680
- - - -------------------------------------------------------------------------------------------------------
Identifiable assets $58,445 $4,547 $1,579 -- $64,571
- - - -------------------------------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------------------------------
33
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - --------------------------------------------------------------------------------
I. FINANCIAL DATA BY GEOGRAPHIC AREA (continued)
"Other International Operations" relate primarily to subsidiaries in Belgium,
Canada, France, Germany and Italy. Intercompany revenues between geographic
areas are accounted for at prices representative of unaffiliated party
transactions of a similar nature.
Revenues from markets outside the United States were as follows (dollars in thousands):
1994 1993
- - - ----------------------------------------------------------------------------------
U.K operations $ 9,070 $ 8,007
Other international operations 2,611 1,740
Export 13,062 7,226
- - - ----------------------------------------------------------------------------------
$24,743 $16,973
- - - ----------------------------------------------------------------------------------
Percentage of total revenues 29% 28%
- - - ----------------------------------------------------------------------------------
- - - ----------------------------------------------------------------------------------
The majority of "Export" revenues, some of which are generated through
independent distributors, results from product licenses and services sold to
customers in Europe.
- - - --------------------------------------------------------------------------------
J. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended June 30, 1994 (thousands of dollars, except per
share data):
- - - ---------------------------------------------------------------------------
Fiscal 1994 Sept. 30 Dec. 31 March 31 June 30
- - - ---------------------------------------------------------------------------
Total revenues $15,352 $19,236 $18,038 $31,758
Gross profit 9,883 13,514 11,519 22,452
Net income 810 2,043 1,203 4,414
Earnings per share .11 .26 .15 .57
- - - ---------------------------------------------------------------------------
Fiscal 1993 Sept. 30 Dec. 31 March 31 June 30
- - - ---------------------------------------------------------------------------
Total revenues $11,231 $13,965 $13,317 $22,512
Gross profit 7,160 9,613 8,458 15,944
Net income (loss) 618 1,383 (821)* 3,104
Earnings (loss) per share .08 .18 (.12)* .41
<FN>
* includes a one-time charge relating to the purchase of research and
development (see Note B), which had the effect of reducing results of
operations by approximately $1,560 or $.21 per share.
34
IMRS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - - ---------------------------------------------------------------------------
K. SUBSEQUENT EVENT
On September 27, 1994, the Company agreed in principle to purchase an office
facility in Stamford, Connecticut for $11.4 million. The Company has outgrown,
particularly with respect to increases in research and development activities,
the offices it currently leases in Stamford. The new location has
approximately 140,000 square feet of existent office space and it offers the
possibility of expansion.
The purchase price is to be financed by the Connecticut Development Authority
("CDA," an agency of the State of Connecticut) through a $9.5 million mortgage
loan, with Company funds to be used for the balance. In the interest of
Connecticut-based jobs, the CDA has agreed to such financing over a 15-year
period at LIBOR minus 2%, subject to, among other things: (i) the creation of a
specified number of new Connecticut-based jobs, (ii) a 10-year residency in the
state, and (iii) the payment of the remaining unpaid principal at year ten.
Violations of certain such covenants, if any, would result in additional
interest charges and/or a penalty payment.
The purchase transaction is subject to a third party's right of first refusal to
acquire the property which right expires in October 1994, as well as the outcome
of customary due diligence procedures, including independent appraisals of
the property, and the execution of a definitive purchase and sale agreement. In
the meantime, the Company continues its evaluation of various other expansion
alternatives.
COMMON STOCK DATA
The Company's Common Stock is listed on the NASDAQ National Market System under
the symbol "IMRS." The following table sets forth, for the periods indicated,
the high and low closing prices of the Common Stock as reported on the NASDAQ
National Market System.
- - - -----------------------------------------------------------------------------
Fiscal 1993: High Low
- - - -----------------------------------------------------------------------------
First quarter $17 1/2 $14 1/4
Second quarter 24 3/4 15 1/4
Third quarter 25 12 1/4
Fourth quarter 19 1/2 11 3/4
- - - -----------------------------------------------------------------------------
FISCAL 1994: HIGH LOW
- - - -----------------------------------------------------------------------------
First quarter $21 1/2 $16 1/4
Second quarter 27 1/8 19
Third quarter 28 3/4 21 3/4
Fourth quarter 26 1/4 19 1/4
- - - -----------------------------------------------------------------------------
FISCAL 1995: HIGH LOW
- - - -----------------------------------------------------------------------------
First quarter (through September 15th) $35 3/4 $21 7/8
The Company has never declared or paid any cash dividends on its capital stock.
The Company currently intends to retain all earnings to finance future growth
and therefore does not anticipate paying any cash dividends in the
foreseeable future. The Company's credit agreement with its bank contains
covenants that restrict the Company regarding the payment of dividends.
As of September 15, 1994, the Company had 74 stockholders of record and
approximately 1,800 beneficial holders of its Common Stock.
35
STOCKHOLDER INFORMATION BOARD OF DIRECTORS IMRS CORPORATE HEADQUARTERS
COMMON STOCK James A. Perakis 777 Long Ridge Road
The Company's Common Stock is listed Chairman of the Board Stamford, CT 06902
on the NASDAQ National Market System President and Chief Executive Officer, Tel (203) 321-3500
under the symbol "IMRS". IMRS Inc. Fax (203) 322-3904
FORM 10-K Marco Arese Lucini
Copies of the Company's Annual Report Co-Founder, IMRS Inc. REGIONAL OFFICES
on Form 10-K are available upon written Atlanta
request from: Gary G. Greenfield Boston
IMRS Inc. Chief Operating Officer Calgary
Investor Relations Department INTERSOLV, Inc. Chicago
777 Long Ridge Road (software) Dallas
Stamford, CT 06902 Denver
Harry S. Gruner Detroit
ANNUAL MEETING General Partner, JMI, Inc. Houston
The annual meeting of stockholders will (investment group) Los Angeles
be held Tuesday, November 15, 1994, Newark
9:00 am at the Hyatt Regency Greenwich, William W. Helman IV Ottawa
Old Greenwich, Connecticut. General Partner, Philadelphia
Greylock Limited Partnership St. Louis
TRANSFER AGENT AND REGISTRAR (venture capital) San Francisco
The transfer agent and registrar for the Seattle
Company's Common Stock is the American Aldo Papone Tampa
Stock Transfer & Trust Company. Senior Advisor Toronto
American Express Company Washington, D.C.
INDEPENDENT AUDITORS (financial services)
Ernst & Young LLP
Stamford, Connecticut Robert W. Thomson
Founder, IMRS Inc.
LEGAL COUNSEL
Kleban & Samor, P.C. INTERNATIONAL OFFICES
Southport, Connecticut EXECUTIVE OFFICERS Brussels
Frankfurt
Testa, Hurwitz & Thibeault James A. Perakis Hong Kong
Boston, Massachusetts President and CEO London
Manchester
Terence W. Rogers Milan
USER GROUP Executive Vice President Paris
Rome
David M. Sample The Netherlands
Elected representatives from the following Senior Vice President
companies serve on the 1994 IMRS User
Group Steering Committee: John N. Adinolfi
Vice President - Marketing
American Brands
American General Thomas E. Bell
American National Can Vice President - Product Development DISTRIBUTORS
AT&T Australia - KPMG
Bon Secours Health Systems Gordon O. Rapkin Austria - Al Informatics
Caltex Petroleum Vice President - Product Management Japan - Arthur Andersen
ITT Corp. and Planning Mexico - Consultores de Integracion
Otis Elevator Company de Sistemas S.A. de C.V.
Siecor Lucy Rae Ricciardi New Zealand - KPMG
Tenneco Vice President and Chief Financial Scandinavia - IMRS Nordic
Officer South Africa - Prologic Decision
Support Ltd.
Craig M. Schiff Southeast Asia - Delteq Systems Pte Ltd.
Vice President - Products and Services Spain - Arthur Andersen Auditores S.A.
and Corporate Secretary Switzerland - Arthur Andersen AG
Fastar, FinalForm, Financial Intelligence, Hyperion, IMRS, IMRS OnTrack,
Interactive MC, Micro Control, and Retrieve-MC are registered trademarks, and
Hyperion Financials, Hyperion SQL, and IMRS Forms are trademarks of IMRS Inc.
All other trademarks and company names mentioned are the property of their
respective owners.