<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
------ --------
Commission File Number: 333-49821
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3323099
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
275 REX BOULEVARD, AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices) (Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 and 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
None of the registrant's common stock is held by non-affiliates of the
registrant.
Number of shares outstanding of each of the registrant's classes of common stock
at March 25, 1999:
100,003 shares of Class A Common Stock, $.01 par value
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
PART I
1. Business.................................................................................... 2
2. Properties.................................................................................. 9
3. Legal Proceedings........................................................................... 9
4. Submission of Matters to a Vote of Security Holders......................................... 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters....................... 11
6. Selected Financial Data..................................................................... 11
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................................ 12
7A. Quantitative and Qualitative Disclosures about Market Risk ................................. 23
8. Financial Statements and Supplementary Data................................................. 24
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................................ 53
PART III
10. Directors and Executive Officers of the Registrant.......................................... 54
11. Executive Compensation...................................................................... 56
12. Security Ownership of Certain Beneficial Owners and Management.............................. 58
13. Certain Relationships and Related Transactions.............................................. 60
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................ 63
Signatures.................................................................................. 67
</TABLE>
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PART I
ITEM 1. BUSINESS
MSX International, Inc. is a leading supplier of people and
technology-driven engineering and business services, principally to the
automotive industry in the United States and Europe, with the capability to
provide services on a worldwide basis. Through internal growth and acquisitions,
the Company is now a single source provider of a broad range of complementary
outsourcing services, provided both at customer and Company facilities. Services
offered by the Company include technical and professional contract staffing;
product development services; training services; digital document and
information storage and retrieval; process improvement consulting; comprehensive
marketing information processing; teleservices; and purchasing support services,
which include processes to manage the procurement of staffing, training and
other professional services.
MSX International was incorporated under the laws of Delaware in late 1996.
On January 3, 1997, the Company acquired (the "TSG Acquisition") selected assets
and operations of the former engineering and technical business service units of
MascoTech Automotive Systems Group, Inc. ("MASG") and MascoTech, Inc.
("MascoTech"). Through the consummation of the TSG Acquisition, the Company also
acquired (the "APX Acquisition") the net assets of APX International ("APX")
which previously had been acquired by MASG as of November 6, 1996. All
references herein to the Company, unless the context otherwise requires, shall
mean MSX International, Inc., including its consolidated subsidiaries, and its
predecessor for accounting purposes, the Technical Services Group of MascoTech
("TSG").
Effective August 31, 1997, the Company acquired (the "GRI Acquisition") all
of the issued and outstanding stock of Geometric Results Incorporated ("GRI")
from Ford Motor Company ("Ford"). In connection with this acquisition, the
Company entered into two five-year agreements with Ford to manage certain
temporary staffing procurement services for Ford (the "Ford Master Vendor
Agreement") and to continue providing certain general business services (the
"Ford Master Supply Agreement").
By adding GRI's capabilities to its traditional strength in technical
staffing and design and engineering services, the Company expanded its ability
to sell a broad range of complementary services to both existing and new
customers within and outside the automotive industry. The Company believes that
it is the only company currently providing such a broad range of services to the
automotive industry on a worldwide basis.
In January 1998, MSX International completed a private placement of a $100
million offering of senior subordinated notes. In August, the Company exchanged
its notes for publicly registered notes, pursuant to an effective Registration
Statement on Form S-4.
The Company employed or sourced over 12,000 individuals at 64 operating
facilities in 23 countries as of January 3, 1999. The Company continues to
pursue a dual growth strategy focused on both internal development and
complementary acquisitions.
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SEGMENT INFORMATION
The Company reports its services in two segments: Outsourcing Services and
Purchasing Support Services. The following table sets forth, for the three years
ended January 3, 1999, the net sales and earnings before interest and taxes,
including Michigan Single Business Tax, ("EBIT") for each industry segment.
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year
Year Ended Ended Ended
December 31, December 28, January 3,
1996 1997 1999
----------------- ----------------- -----------------
NET SALES(1) - (In Thousands)
<S> <C> <C> <C>
Outsourcing Services $ 228,260 $ 374,207 $ 515,880
Purchasing Support Services - 197,186 591,538
----------------- ----------------- -----------------
$ 228,260 $ 571,393 $1,107,418
================= ================= =================
EBIT -
Outsourcing Services $ 9,440 $ 10,368 $ 22,339
Purchasing Support Services - 2,152 4,432
----------------- ----------------- -----------------
$ 9,440 $ 12,520 $ 26,771
================= ================= =================
</TABLE>
(1) Results do not reflect the elimination of inter-segment sales, which
were $6.8 million and $26.4 million in fiscal years 1997 and 1998.
OUTSOURCING SERVICES
In the Outsourcing Services segment, the Company provides technical support
services. These services include technical and professional contract staffing,
product development support and other business services. Sales in the
Outsourcing Services segment are based principally on fees charged for resources
provided to support development, manufacturing and distribution of customer
products and services. The Company's customers are increasingly relying on third
parties to provide them with these and other essential services, allowing
customers to improve operating efficiency by focusing on core competencies.
The Company provides a multi-discipline, technical and professional
staffing service with international delivery, recruiting, and training
capability. The Company principally provides engineers, designers, and
technicians, primarily to the automotive industry, and information technology
personnel to a variety of industries. The Company is a leader in automotive
technical staffing worldwide. Through internal growth and recent acquisitions,
it has also developed information technology staffing capabilities on the West
Coast and in the mid-Atlantic states.
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The Company provides a complete range of vehicle engineering services
covering all phases of the product development cycle. Such services, which are
primarily provided at the Company's own facilities, include computer-aided
design and engineering, product and manufacturing engineering, assembly tooling,
program management, and specialty vehicle support for original equipment
manufacturer ("OEM") marketing programs and non-automotive vehicle applications.
As of January 1999, approximately $210 million of its engineering services sales
are either "booked" or recurring based on long-term relationships, compared to
approximately $170 million in January 1998.
The remaining services provided by the Company in the Outsourcing Services
segment are a broad range of technology-based business services. These include
design and delivery of training programs, digital document and information
storage and retrieval, internet-based systems development and integration,
comprehensive marketing information processing, teleservices such as hotline and
customer assistance, process improvement implementation, and other services.
In the Outsourcing Services segment, the Company obtains its sales from
more than 150 customers including the major United States and European
automotive OEMs and a number of automotive suppliers. Ford, General Motors
Corporation, and DaimlerChrysler Corporation accounted for 47.0%, 17.0%, and
16.2% of net sales in this segment for the fiscal year ended January 3, 1999.
PURCHASING SUPPORT SERVICES
In the Purchasing Support Services segment, the Company provides
administrative support to large companies for the purchase of various services.
Customers in this segment use the Company and its automated processes to manage
the procurement of staffing, training, consulting and other professional
services. Sales from this segment include the billings from sub-suppliers for
their services rendered, plus a small mark-up for management and processing. For
the fiscal year ended January 3, 1999, the Purchasing Support Services segment
obtained its sales primarily from Ford.
Additional financial information concerning the Company's segments as of
January 3, 1999 and for each of the three years in the period ended January 3,
1999 is set forth in the Note to the Company's Combined and Consolidated
Financial Statements captioned "Segment Information" included in Item 8 of this
Report.
GENERAL INFORMATION
The Company believes that it has developed strong relationships with its
customers and has a reputation for quality, reliability and service that has
been recognized through Ford's Q1 and DaimlerChrysler's Pentastar awards. In
addition, most of its operations are certified to the ISO 9001 or 9002
international quality standards. An operation receives ISO certification when an
independent assessor determines that the operation is in compliance with a
documented quality management system.
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A substantial portion of sales to Ford were made pursuant to the Ford
Master Vendor Agreement and the Ford Master Supply Agreement, which were entered
into for five year terms when the Company acquired GRI in August 1997. These
agreements are subject to earlier termination in the event that the Company
fails to satisfy certain standards of performance and competitiveness. However,
both Ford and the Company have agreed to negotiate in good faith to extend the
term for an additional five years beyond the initial five year term. Ford and
the Company have also agreed to maintain an advisory board comprised of
executives from both companies to monitor and enhance the relationship between
the companies.
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services of the Company have historically been lower
during the year-end holidays.
Except as noted above, no material portion of the Company's business is
dependent upon any one customer or is subject to re-negotiation of prices. In
general, equipment and technologies required by the Company to support its
service offerings are obtainable from various sources in the quantities desired.
ENVIRONMENTAL
Compliance with foreign, federal, state and local environmental protection
laws and regulations is not expected to result in material capital expenditures
by the Company or to have a material effect on the Company's results of
operations, cashflows or competitive position.
RECENT DEVELOPMENTS
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in Item 7 of this Report for further discussion
regarding the following developments. Additional financial information is also
set forth in the Notes to the Company's Combined and Consolidated Financial
Statements captioned "Acquisitions of Businesses" and "Debt," included in Item 8
of this Report.
Acquisitions
Since January 1998, the Company has completed five acquisitions and made
one equity investment. These transactions have expanded the Company's geographic
coverage, its service offerings, and its reach to customers outside the
automotive industry.
The following table sets forth certain information on the businesses
acquired since January 1998. The aggregate unaudited pro forma 1998 net sales of
these companies totaled approximately $110.0 million.
5
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<TABLE>
<CAPTION>
- ------------------------------- ----------------- --------------------- ------------------ -------------------- -------------
NAME MONTH ACQUIRED SERVICES GEOGRAPHIC MARKETS NUMBER OF
COVERAGE SITES
- ------------------------------- ----------------- --------------------- ------------------ -------------------- -------------
<S> <C> <C> <C> <C> <C>
Gold Arrow Contract Services, August 1998 Information United Kingdom, Automotive, 2
Ltd technology and Northern Europe financial
technical staffing services, and other
commercial markets
Lexstra International, Inc. October 1998 Information Mid-Atlantic Financial 4
technology staffing Region services, and other
commercial markets
Lexus Temporaries, Inc. October 1998 Network support Mid-Atlantic Telecommunications 4
staffing Region
Pilot Computer Services, Inc. December 1998 Information California Government, health 3
technology staffing care, and other
commercial markets
MegaTech Engineering, Inc. December 1998 Technical staffing Michigan Automotive 1
and product original equipment
development manufacturers and
services suppliers
- ------------------------------- ----------------- --------------------- ------------------ -------------------- -------------
</TABLE>
Equity Investment
In January 1999, the Company acquired an approximate 25% interest and an
option to acquire an additional interest in Cadform GmbH ("Cadform"), a German
company that provides design and tooling services to the automotive industry.
See the Note to the Company's Combined and Consolidated Financial Statements
captioned "Subsequent Event" included in Item 8 of this Report. Cadform is based
in Homburg, Germany. It specializes in engineering for automotive interior
systems and cast aluminum products. The Company and Cadform plan to engage in
joint projects to leverage their combined product development capabilities.
INTERNATIONAL OPERATIONS
The Company's international presence is an important competitive advantage
in winning and retaining new business and meeting the global sourcing, quality
and engineering requirements of many of its customers. The Company, through its
subsidiaries, has businesses located in 23 countries. Foreign operations are
subject to political, monetary, economic and other risks accompanying
international business. In the fiscal year ended January 3, 1999, 16% of the
Company's net sales were generated outside the United States.
6
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The Company expanded its UK staffing services capabilities in 1998 through
the acquisition of Gold Arrow Contract Services, Ltd. ("Gold Arrow"), an
information technology and technical staffing company headquartered in Basildon,
Essex, England. The Gold Arrow acquisition enhances the Company's ability to
support UK customer requirements for technical staffing in the automotive,
financial services, and other industries. Similarly, planned joint projects with
Cadform are expected to strengthen the Company's positioning with German
automotive manufacturers and their suppliers.
COMPETITION
The major domestic and foreign markets for the Company's products and
services are highly competitive. In some cases, the Company's global competitors
include a number of other well-established vendors, as well as customers with
their own internal capabilities. Although a number of companies of varying sizes
compete with the Company, no single competitor is in substantial competition
with the Company with respect to all of its services.
The Company depends upon its ability to attract, retain and develop
personnel, particularly technical personnel, who possess the skills and
experience necessary to meet the needs of customers. Competition for individuals
with proven technical or professional skills is intense. The Company competes
with other staffing companies, as well as the Company's customers and other
employers for qualified personnel. The acquisition of Megatech Engineering, Inc.
reinforced the Company's commitment to training and development. As part of the
transaction, the Company acquired a training academy that operates a
degree-granting program in automotive design and engineering in conjunction with
Central Michigan University.
Competition among vendors of outsourced product development services is
based on the types of individual and bundled services offered and by the
location of customers. The basis of competition includes the size of competing
firms, global capability, relevant experience, prior relationships with
customers, and price. In the United States, the Company competes with Modern
Engineering, a subsidiary of CDI, and Defiance, among others. European
competition includes Bertrandt, Hawtal Whiting, Engineering & Design AG and
Ruecker.
The Company supplies outsourced technical staffing based on its ability to
identify, match, and provide high quality personnel on an efficient basis and at
a competitive price. The Company both manages and competes with many companies
in the temporary staffing industry, which is highly competitive, fragmented, and
has limited barriers to entry. The Company uses a variety of resources and
techniques to support its recruiting capability, including support of
web-enabled recruiting databases, internal training, international recruiting
coordination, and competitive benchmarking of compensation and benefits. The
Company's principal competitors in staffing services include CDI, TechAid,
Manpower, Kelly Services Technical, Olsten, Randstad (in Europe, only), Volt,
and numerous regional information technology staffing firms.
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The degree of competition among suppliers of the remaining outsourced
business services provided by the Company is high. In many cases, the Company's
principal competition is the customer's in-house operations. For certain
services, such as training, marketing and imaging services, there are numerous
outside competitors, many of whom have greater name recognition and marketing,
financial and other resources than the Company.
The Company's Purchasing Support Services segment, today, primarily
provides services to Ford pursuant to agreements that expire in 2002. The
Company remains subject to competitive benchmarking with respect to price,
service quality, and responsiveness.
PATENTS AND TRADEMARKS
The Company holds a number of United States and foreign patents, licenses,
trademarks and tradenames. The Company regards its patents and licenses to be
valuable, but does not believe that there is any reasonable likelihood that the
loss of such rights would have a material effect on the Company's industry
segments or its present business as a whole.
EMPLOYEES
The following table sets forth certain information regarding the Company's
employees as of January 3, 1999.
<TABLE>
<CAPTION>
NUMBER OF
EMPLOYEES
---------
<S> <C>
North America................ 5,764
United Kingdom............... 1,111
Germany...................... 335
Rest of Europe............... 563
South America................ 77
Australasia.................. 49
---------------
Total...................... 7,899
</TABLE>
8
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Of the Company's 7,899 employees, approximately 5,600 were paid on an
hourly basis. Currently, approximately 200 of the Company's employees in the
United States are members of unions. The Company believes its current relations
with its employees are good.
ITEM 2. PROPERTIES
The following table sets forth the number of facilities operated by the
Company by region as of January 3, 1999. The Company believes that substantially
all of its property and equipment is in good condition and that it has
sufficient capacity to meet its current and projected operating needs. All of
the Company's facilities are utilized in its Outsourcing Services segment. Three
of these facilities are also utilized to provide Purchasing Support Services.
<TABLE>
<CAPTION>
NUMBER OF
REGION FACILITIES
---------------- ----------
<S> <C>
North America.............................. 38
United Kingdom............................. 9
Germany.................................... 6
Rest of Europe............................. 6
South America.............................. 2
Australasia................................ 3
------
Total...................................... 64
======
</TABLE>
As part of the Megatech acquisition, the Company acquired a campus of five
buildings located in Warren, Michigan. The Company anticipates completing a
sale/leaseback transaction related to this property prior to June 30, 1999, when
a contractual obligation to pay Johnson Controls, Incorporated becomes due.
Additional financial information regarding this obligation is set forth in the
Notes to the Company's Combined and Consolidated Financial Statements captioned
"Acquisitions of Businesses" and "Property and Equipment, Net," included in Item
8 of this Report.
Excluding the Megatech buildings held for sale, all but one of the
Company's facilities are leased. The Company believes that the termination of
any one of its leases would not materially adversely affect the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various proceedings incidental to the ordinary
conduct of its business. The Company believes that none of these proceedings
will have a material adverse effect on the Company's financial condition or
results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is privately owned and there is no public trading market for
the Company's equity securities. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management." For further information related to ownership
aspects of the Common Stock, see the discussion under "Stockholders' Agreement"
contained in "Item 13. Certain Relationships and Related Transactions."
In August 1999, the Company completed an exchange offer with respect to its
senior subordinated notes. The Company may not declare or pay any dividends or
other distribution with respect to any common stock or other class or series of
stock ranking junior to the Preferred Stock without first complying with
restrictions specified in the Stockholders' Agreement. See the Note to the
Company's Combined and Consolidated Financial Statements captioned "Redeemable
Series A Preferred Stock" included in Item 8 of this Report.
ITEM 6. SELECTED FINANCIAL DATA
The following summary historical combined statement of operations data of
the Company for the year ended December 31, 1994 have been derived from the
audited historical combined statement of operations of TSG for the year ended
December 31, 1994. The selected historical combined balance sheet data of the
Company as of December 31, 1994 have been derived from the unaudited combined
balance sheet of TSG as of December 31, 1994. The selected historical combined
financial data of the Company as of and for the years ended December 31, 1995
and 1996 have been derived from the audited historical combined financial
statements of TSG as of and for the periods then ended. The selected historical
consolidated financial data of the Company as of and for the fiscal years ended
December 28, 1997 and January 3, 1999 have been derived from the audited
historical financial statements of the Company, as of and for the fiscal years
then ended. The selected financial and other data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere herein.
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<TABLE>
<CAPTION>
Year Ended December 31, Fiscal Year Ended (A)
----------------------------------------- -------------------------------
December 28, January 3,
1994 1995 1996 1997 1999
----------- ----------- ---------- ----------- --------------
(Dollars In Thousands)
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C>
Net sales $ 184,540 $ 216,130 $ 228,260 $ 564,546 $ 1,081,042
Cost of sales (149,950) (178,760) (192,510) (514,019) (997,014)
----------- ----------- ----------- ----------- -----------
Gross profit 34,590 37,370 35,750 50,527 84,028
Selling, general and administrative
expenses (23,550) (25,230) (26,240) (36,007) (57,257)
Michigan Single Business Tax (1,760) (1,500) (1,510) (2,868) (3,516)
Restructuring costs -- -- -- (2,000) --
----------- ----------- ----------- ----------- -----------
Operating income 9,280 10,640 8,000 9,652 23,255
Interest expense, net (920) (1,470) (1,310) (12,400) (17,416)
Other income (expense), net 180 1,070 (70) -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes 8,540 10,240 6,620 (2,748) 5,839
Income tax provision (3,140) (3,820) (2,800) (225) (3,068)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 5,400 $ 6,420 $ 3,820 $ (2,973) $ 2,771
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 1,540 $ 1,800 $ 7,070 $ 11,575 $ 4,248
Receivables, net 47,240 60,190 58,860 178,938 208,451
Total assets 69,490 87,480 94,150 287,176 356,724
Total debt and capital lease
obligations 3,370 3,550 4,200 153,246 185,081
Redeemable Series A Preferred
Stock -- -- -- 36,000 36,000
Shareholders' equity (deficit) 46,430 63,650 69,450 (26,364) (26,105)
OTHER DATA:
EBITDA (B) $ 15,430 $ 16,680 $ 14,480 $ 22,379 $ 40,152
Capital Expenditures 7,030 8,400 4,840 11,518 11,559
Depreciation and amortization 4,390 4,540 4,970 9,859 14,109
Ratio of earnings to fixed
charges (C) 4.1x 3.4x 3.1x -- 1.2x
</TABLE>
(A) Beginning in 1997, the Company adopted a 52-53 week fiscal year which ends
on the Sunday nearest December 31.
(B) EBITDA represents income (loss) before income taxes plus net interest
expense, depreciation, amortization, Michigan Single Business Tax and other
income/(expense), net. EBITDA is presented as additional information
because management believes it to be a useful indicator of a company's
ability to meet debt service and capital expenditure requirements. It is
not, however, intended as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles).
(C) For purposes of computing the ratio of earnings to fixed charges, earnings
represent net income (loss) before income taxes and fixed charges. Fixed
charges consist of interest expense, the interest component of operating
leases and amortization of deferred financing costs. For the fiscal year
ended December 28, 1997 earnings were inadequate to cover fixed charges by
approximately $2.7 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of financial condition and results of operations of
the Company should be read in conjunction with MSX International's Combined and
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Form 10-K.
The Company was organized to pursue growth opportunities in
technology-driven engineering and business services. In January 1997, the
Company completed the TSG Acquisition, which included the November 6, 1996 APX
Acquisition. Since then, the Company has pursued a strategy of internal growth
and complementary acquisitions. Acquisitions have expanded the Company's
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geographic coverage, its service offerings, and its reach to customers
outside the automotive industry. In August 1997, the Company completed the GRI
Acquisition. Since January 1998, the Company completed five additional
acquisitions in fiscal 1998 and made one equity investment in early 1999.
The results of operations for the fiscal years ended January 3, 1999 and
December 28, 1997 include the results of operations of acquired companies from
the date of their acquisition. As a result, the financial performance of the
Company for the fiscal years ended December 28, 1997 and January 3, 1999 are not
directly comparable to the results of operations for the immediately preceding
year.
GENERAL
The Company is a holding company formed and owned by Citicorp Venture
Capital, Ltd., MascoTech, Inc., and certain members of management. The Company
believes that it is well positioned to increase its market share among existing
customers and in the global automotive market, as well as to expand into
non-automotive markets. As it pursues additional strategic acquisitions, the
Company also intends to continue to rationalize its cost structure through the
elimination of redundant back office activities, operating facilities,
management and administrative offices.
The Company operates in two industry segments: Outsourcing Services and
Purchasing Support Services.
Outsourcing Services provides technical support services to commercial
enterprises, including technical and professional contract staffing, product
development support, and other business services. During the fiscal year ended
January 3, 1999, the Company had over 150 customers in this segment, including
Ford, General Motors, and DaimlerChrysler, who accounted for 47.0%, 17.0%, and
16.2% of net sales for the fiscal year ended January 3, 1999. The Company
achieved earnings before interest and taxes, including Michigan Single Business
Tax ("EBIT"), of $22.3 million on net sales in the Outsourcing Services segment
totaling $515.9 million. As a result of the GRI Acquisition, a substantial
portion of the Company's sales to Ford of other business services are generated
pursuant to the Ford Master Supply Agreement, a five-year agreement that was
executed when the Company acquired GRI. The Company is the sole or preferred
provider of outsourcing services identified in the agreement to various business
units of Ford.
In its Purchasing Support Services segment, the Company provides
administrative support to large companies for the purchase of contract staffing,
training and other professional services. For fiscal 1998, this segment
generated EBIT of $4.4 million on net sales totaling $591.5 million. The Company
generates substantially all of its net sales in its Purchasing Support Services
segment pursuant to the Ford Master Supply Agreement, as well as the Ford Master
Vendor Agreement, which describes staffing services provided by the Company to
Ford.
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The Company recorded $26.4 million of inter-company sales from its contract
staffing unit to its Purchasing Support Services business in fiscal 1998.
CONSOLIDATED RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 3, 1999 COMPARED WITH THE FISCAL YEAR ENDED DECEMBER
28, 1997
Net Sales
The Company's net sales for fiscal 1998 increased $516.5 million (91.5%)
from $564.5 million to $1,081.0 million, as compared to the fiscal year ended
December 28, 1997. This increase resulted principally from the inclusion of a
full year of operations from the GRI Acquisition in fiscal 1998 as compared to
four months in fiscal 1997. Net sales of the Company's Purchasing Support
Services segment increased $394.3 million, which related entirely to the
inclusion of a full year of operations of the GRI Acquisition. Net sales of the
Company's Outsourcing Services segment increased $141.6 million. The increase in
net sales of this segment is comprised of $78.7 million relating to a full year
of operations from the GRI Acquisition, increased volume in contract staffing
services of $44.4 million (which includes $16.1 million from acquisitions of
businesses in fiscal 1998), and an increase in revenues from product development
totaling $18.5 million. In addition to its acquisitions, the increase in
contract staffing is related to a combination of internal growth, including the
opening of new locations, and increased sales resulting from customers'
consolidation of their supplier base. Net sales from product development support
increased primarily due to an increase in customer orders for automotive design
and engineering in the United Kingdom.
Gross Profit
Gross profit for fiscal 1998 increased $33.5 million (66.3%), from $50.5
million to $84.0 million, as compared to fiscal 1997. This increase resulted
principally from the inclusion of a full year of operations from the GRI
Acquisition in fiscal 1998 as compared to four months in fiscal 1997. In
addition, the Company's contract staffing and product development support
services improved in both sales volume and margins.
Gross profit as a percentage of net sales for fiscal 1998 decreased from 9.0% to
7.8%, as compared to fiscal 1997, principally due to the inclusion of the gross
profits from the Company's Purchasing Support Services operations acquired from
GRI, which has a higher sales volume and lower margins than the Company's
Outsourcing Services.
14
<PAGE> 16
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses in fiscal 1998
increased $21.3 million (59.0%), from $36.0 million to $57.3 million, as
compared to fiscal 1997. This increase resulted principally from the inclusion
of a full year of operations from the GRI Acquisition in fiscal 1998 as compared
to four months in fiscal 1997, increased investment in the Company's human
resources and business systems to support acquisitions and internal growth, and
the implementation of a performance incentive plan. Selling, general and
administrative expenses as a percentage of net sales in fiscal 1998 was 5.3% as
compared to 6.4% in fiscal 1997. The decline as a percentage of net sales
principally related to the continued consolidation of centralized administrative
services and the increase in net sales volume during the period.
In fiscal 1997 there was a one-time, pre-tax charge of $2.0 million for
restructuring costs relating to the closure of two facilities.
Operating Income
Principally as a result of the foregoing, offset by an increase in Michigan
Single Business Tax of $0.6 million, the Company's operating income for fiscal
1998 increased $13.6 million (140.9%), from $9.7 million to $23.3 million, as
compared to fiscal 1997. Operating income as a percentage of net sales for
fiscal 1998 increased from 1.7% to 2.2%, as compared to fiscal 1997.
FISCAL YEAR ENDED DECEMBER 28, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1996
Net Sales
The Company's net sales for fiscal 1997 increased $336.2 million (147.3%),
from $228.3 million to $564.5 million, as compared to 1996. This increase
resulted principally from the APX and GRI acquisitions. These increases were
offset by a decline in the Outsourcing Services segment's net sales from product
development support in the United States due to the completion of a multi-year
project, the early termination of an engineering project in Europe and the
planned elimination of an unprofitable shop facility in the United States.
Gross Profit
The Company's gross profit for fiscal 1997, which includes gross profits
from GRI for four months, increased $14.8 million (41.5%), from $35.7 million to
$50.5 million, as compared to 1996. This increase resulted principally from the
APX and GRI Acquisitions. Gross profit as a percentage of net sales for fiscal
1997 decreased from 15.7% to 9.0% as compared to 1996, principally due to the
inclusion of gross profits from the Company's Purchasing Support Services
15
<PAGE> 17
acquired from GRI, which is at a lower margin than the Company's Outsourcing
Services, and due to lower margins earned on sales of product development
services as a result of under-absorbed fixed costs resulting from the decrease
in sales in Europe and North America. Gross profit as a percentage of net sales
also decreased as a result of a change in the pricing of certain manufacturing
engineering purchase orders from fixed-price to time-and-materials.
Selling, General and Administrative Expenses
The Company's selling, general and administrative expenses for fiscal 1997
increased $9.8 million (37.4%), from $26.2 million to $36.0 million, as compared
to 1996. This increase resulted principally from the APX Acquisition and the GRI
Acquisition. In addition, there was a one-time, pre-tax charge of $2.0 million
in 1997 related to the closure of two facilities. Selling, general and
administrative expenses as a percentage of net sales for fiscal 1997 decreased
from 11.5% to 6.4%, as compared to 1996. This decrease principally related to
the consolidation of centralized administrative services and the increase in net
sales volume during the period.
Operating Income
Principally as a result of the foregoing, offset by an increase in Michigan
Single Business Tax of $1.4 million, the Company's operating income for fiscal
1997 increased $1.7 million (21.3%), from $8.0 million to $9.7 million, as
compared to 1996. Operating income as a percentage of sales for fiscal 1997
decreased from 3.5% to 1.7% as compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for the acquisition of
businesses, capital expenditures, and working capital to support growth. These
requirements have been met through a combination of bank debt, issuance of
senior subordinated notes and cash from operations.
Shortly after its inception in late 1996, the Company completed the TSG
Acquisition at a purchase price of $145.6 million. The TSG Acquisition, which
followed the initial capitalization of the Company, was financed through $3.8
million of common equity, $36.0 million of Redeemable Series A Preferred Stock,
$70.0 million of senior subordinated debt, and $35.8 million of borrowings under
credit facilities between the Company and Bank One Corporation as agent and its
affiliates (the "Old Credit Facility"). On August 31, 1997, the Company acquired
GRI for $60.0 million which was financed with borrowings under the Old Credit
Facility, offset in part by substantial cash balances acquired.
16
<PAGE> 18
The Company typically pays its employees on a weekly basis and is
reimbursed by its customers within invoicing terms, which is generally a 60 day
period after it makes such payment. However, in connection with Purchasing
Support Services, the Company collects related receivables at approximately the
same time it makes payment to its suppliers.
Net cash from operating activities for fiscal 1998 increased $24.7 million
from $1.8 million in fiscal 1997 to $26.5 million in fiscal 1998. This increase
was principally due to an increase in net income of $5.7 million, a change in
non-cash charges for depreciation and amortization of $4.3 million, and a change
in other items of $14.7 million, principally due to the timing of receipts and
payments associated with the Company's Purchasing Support Services as well as
improved collections of accounts receivable in the United Kingdom. Net cash from
operating activities for fiscal 1997 decreased $6.0 million, from $7.8
million in 1996 to $1.8 million in fiscal 1997. The decrease was principally due
to an unfavorable change in net income of $(6.8) million, offset by an increase
in non-cash charges for depreciation and amortization of $4.9 million, and a
decrease in other items affecting cash provided by operating activities of
$(4.1) million.
Net cash used for investing activities for fiscal 1998 decreased $117.4
million from $170.7 million to $53.3 million, as compared to fiscal 1997.
Acquisitions in fiscal 1998 were not as large as in fiscal 1997, which included
the TSG Acquisition and the GRI Acquisition. Capital expenditures for fiscal
1998 and fiscal 1997 were $11.6 million and $11.5 million, respectively. The
majority of these capital expenditures were to acquire equipment for specific
customer projects, including computer systems and improvements on leased
facilities. In the year ended December 31, 1996, TSG, the Company's predecessor
for accounting purposes, invested $4.8 million, principally for capital
expenditures.
Net cash from financing activities for fiscal 1998 decreased $162.1 million
from the comparable prior period. Financing requirements decreased commensurate
with the declines in investing activities and the improvement in cash flow from
operating activities after initial capitalization of the Company. Net cash from
financing activities for fiscal 1997, increased $177.4 million, from $4.2
million to $181.6 million, as compared to fiscal 1996. This increase was due to
the CVC and MascoTech bridge loans, aggregating $40.0 million, the issuance of
$3.8 million of Common Stock, $36.0 million of Redeemable Series A Preferred
Stock, a $30.0 million Senior Subordinated Note and borrowings under the Old
Credit Facility.
On January 22, 1998, the Company issued, in a private placement, $100
million aggregate principal amount of 11-3/8% unsecured senior subordinated
notes maturing January 15, 2008. On August 20, 1998, the Company consummated an
offer to exchange 11-3/8% Senior Subordinated Notes ("Notes") which had been
registered under the Securities Act of 1933 for any and all outstanding notes.
The Company's Registration Statement on Form S-4 with the Securities and
Exchange Commission became effective on July 22, 1998.
17
<PAGE> 19
Concurrent with the private placement, the Company entered into a $100
million New Credit Facility with Bank One Corporation (the "New Credit
Facility") to replace the Old Credit Facility. On April 14, 1998, the Company
syndicated the New Credit Facility to add additional commercial lenders and
amended and restated the New Credit Facility to add a $30 million term loan
portion. On the same date, the Company borrowed the full amount available under
the term loan and used the funds to reduce outstanding balances under the
revolving loan portion of the New Credit Facility. As of January 3, 1999, $80.4
million was outstanding under the New Credit Facility as amended and restated.
The Company's total indebtedness consists of the Notes, borrowings under
the New Credit Facility and borrowings under various short-term arrangements.
Additional information regarding these obligations is set forth in the Notes to
the Company's Combined and Consolidated Financial Statements captioned "Debt,"
included in Item 8 of this report. The ability of the Company to meet its debt
service obligations will be dependent upon the future performance of the
Company, which will be impacted by general economic conditions and other
factors.
During fiscal 1998, the Company finalized the purchase price of the APX
Acquisition, which resulted in a favorable purchase price adjustment totaling
$4.8 million. This amount was collected in October 1998.
CORPORATE DEVELOPMENT
In fiscal 1998, the Company completed several strategic acquisitions that
have expanded its geographic coverage, increased its service offerings, and
increased its reach to customers outside the automotive industry.
On August 4, 1998, the Company acquired Gold Arrow Contract Services,
Ltd., a technical and information technology staffing services company located
in the United Kingdom with annual sales of approximately $20 million. Funding
for the transaction was provided by borrowings under the New Credit Facility as
amended and restated.
Effective October 31, 1998, the Company acquired Lexstra International,
Inc. and Lexus Temporaries, Inc., providers of contract computer consultants,
systems analysts and network support personnel. The companies are headquartered
in New York, NY and have offices in Boston, MA, Red Banks, NJ and Silver Spring,
MD. The companies have combined annual sales of approximately $50 million. The
purchase price was $24 million at closing, with additional payments contingent
on achieving improved operating results for the years 1998 through 2000. Funding
for the initial transaction was provided by borrowings under the New Credit
Facility as amended and restated.
On December 18, 1998, the Company acquired Pilot Computer Services, Inc.
This Concord, California-based company provides computer professionals
experienced in systems development, systems enhancement and project management.
18
<PAGE> 20
Effective December 26, 1998, the Company acquired MegaTech Engineering,
Inc. ("MEI") from Johnson Controls, Incorporated ("JCI"). MEI offers technical
staffing and product development support services. The total purchase price was
$30 million, including $15 million which was paid at the closing using
borrowings under the New Credit Agreement as amended and restated. The balance
of the purchase price is due, without interest, in fiscal 1999 and is expected
to be provided by the proceeds from the sale of real property acquired. As part
of the transaction, the Company significantly enhanced its opportunity to
provide services to JCI. It also strengthened its training resources by
acquiring a training academy that operates a degree-granting program in
automotive design and engineering in conjunction with Central Michigan
University.
Subsequent Events
On January 8, 1999, the Company acquired an approximate 25% interest in
Cadform GmbH, a German company with sales of approximately $22 million that
provides product design and tooling services to the automotive industry. Based
in Homburg, Germany, Cadform specializes in automotive interior systems and cast
aluminum products. Cadform plans to engage in joint projects with the Company.
As part of the investment, the Company obtained an option to acquire an
additional interest in Cadform.
In early April 1999, the Company expects to acquire a permanent placement
staffing company based in Pennsylvania with sales of approximately $5.0 million.
Additional information related to these developments is set forth in the
Notes to the Company's Combined and Consolidated Financial Statements captioned
"Acquisitions of Businesses" and "Subsequent Event" included in Item 8 of this
Report.
UNITED KINGDOM WORKING TIME DIRECTIVE
The Company is monitoring developments in the United Kingdom related to
government mandated, minimum vacation benefits for employees. Prompted by the
commonization of employment legislation across Europe, the United Kingdom
adopted a "Working Time Directive" in Fall 1998. The Directive requires payment
of a minimum three week vacation benefit to employees, retroactive to October
1998. In October 1999, the minimum vacation benefit will be raised to four
weeks. The application of the Directive to all employment classes is not yet
finalized, nor is it resolved whether staffing vendors or their customers will
bear the expected increase in employment costs. The Company is working with
professional advisors to assess the likely result of the Working Time Directive
and alternative benefit strategies. The Company believes that the ultimate
impact of the Directive will not have a material impact on the results of
operations and cash flows of the Company, taken as a whole.
19
<PAGE> 21
INFLATION
Although the Company cannot anticipate future inflation, it does not
believe that inflation has had, or is likely in the forseeable future, to have a
material impact on its results of operations. While the Company's contracts
typically do not include automatic adjustments for inflation, the Ford Master
Vendor Agreement does provide for automatic adjustments for inflation for
services provided under the Master Vendor Program.
SEASONALITY
The Company's quarterly operating results are affected primarily by the
number of billing days in the quarter and the seasonality of its customers'
businesses. Demand for services of the Company have historically been lower
during the year-end holidays.
YEAR 2000
The Year 2000 issue ("Y2K") is the result of computer programs having been
written using two digits, rather than four, to define the applicable year. Any
of the Company's computers, computer programs and manufacturing and
administrative equipment that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than as the year 2000. If any of the
Company's systems or equipment that have date-sensitive software use only two
digits, system failures or miscalculations may result. This may cause
disruptions of operations including, among other things, a temporary inability
to process transactions or send and receive electronic data with third parties,
or to engage in similar normal business activities.
The Company, on a coordinated basis and with the assistance of consultants,
is addressing Y2K. The Company's Y2K methodology categorizes its assets into
four areas: applications, facility systems, PCs and peripherals, and third party
providers.
1. Applications have been classified depending on the associated business
unit or corporate sponsor. Managers are in place with responsibility for
prioritization, assessment, remediation planning and implementation, and
testing. Four hundred applications have been identified, of which, 68 are
considered critical. The majority of critical applications are scheduled for
remediation and testing by the Spring of 1999, with the balance through
remediation and testing by June 30, 1999. Although there can be no assurances
that the Company will identify and correct every Y2K defect, the Company
believes it has in place a comprehensive program to identify, remediate and test
all applicable applications.
2. The Company has inventoried all facility systems (e.g., HVAC, security,
telephones, etc.) worldwide. Non-compliance reports have been distributed to
individual business units. Less than five percent of all facility systems were
not Y2K compliant. Business units will replace, retire or repair facility
systems as necessary.
20
<PAGE> 22
3. PC's and peripherals have been inventoried worldwide. All PC's will be
upgraded to ensure hardware and software compliance by the second fiscal quarter
of 1999. Substantially all network operations hardware and software have been
upgraded and are compliant as of the date of this Report.
4. The majority of third party providers and key suppliers have been
contacted with a letter requesting Y2K status. Contingency planning has
commenced with the identification of critical facilities and systems. Specific
back-up system plans will be finalized by the end of the first fiscal quarter of
1999. The ability of key service providers, such as utility companies, to
facilitate the Company's needs is of paramount importance. In some cases,
especially with respect to its utility vendors, alternative suppliers may not be
available.
For its information technology, the Company currently uses a mid-range,
non-mainframe based computer environment which is complemented by a series of
local-area networks ("LANs") that are connected via a wide-area network ("WAN").
Enabled versions of the Company's financial, human resource and business systems
are in place. The Company incorporates limited use of embedded technology.
The Company's most significant risks with respect to Y2K problems are lost
revenue and damaged relations with the Company's customers resulting from a
delay in the delivery of goods and services and the effect of shutting down
production or a customer facility. The Company believes the risks may be
somewhat mitigated as the majority of the Company's revenue is generated from
the sale of business systems, system technology and staffing services as opposed
to the delivery of manufactured product.
The Company's cost for Y2K compliance preparation in 1998 was $500,000. Y2K
remediation costs for 1999 are expected to reach $2.0 million, which includes
upgrades, repair and programming. As the Y2K project continues, the Company may
discover additional Y2K problems, may not be able to develop, implement or test
remediation or contingency plans, or may find that the costs of these activities
exceed current expectations. In many cases, the Company must rely on assurances
from suppliers that new and upgraded information systems as well as key services
will be Y2K compliant. While the Company plans to validate supplier
representations, it cannot be sure that its tests will be adequate, or that, if
problems are identified, they will be addressed in a timely and satisfactory
manner. Even if the Company, in a timely manner, completes all of its
assessments, implements and tests all remediation plans, and develops
contingency plans, some problems may not be identified or corrected in time to
prevent material adverse consequences or business interruptions to the Company.
21
<PAGE> 23
EUROCURRENCY
On January 1, 1999, the member states of the European Economic and Monetary
Union have agreed to adopt the Euro as their common legal currency. The existing
member state currencies are scheduled to remain legal tender as denominations of
the Euro until at least January 1, 2002 but not later than July 1, 2002. During
this transition period, monetary transactions may be settled using either the
Euro or the existing member state currencies.
The Company has both operating divisions and customers located in Europe.
In 1998, combined revenues from these sources were approximately 14.8% of total
revenues. The Company has operations in substantially all European Economic and
Monetary Union participating countries, as well as in the United Kingdom, which
has elected not to participate in the Euro conversion at this time. The affected
operations plan to make the Euro the functional currency sometime during the
transition period, although certain of the Company's European operations have
already entered into Euro-based transactions, such as bank borrowing and
collection of accounts receivable.
It is difficult to assess the competitive impact of the Euro conversion on
the Company's operations, both in Europe and in the United States. In markets
where sales are made in U.S. dollars, there may be pressures to denominate sales
in the Euro. However, exchange risks resulting from these transactions could be
mitigated through hedging. It is not anticipated that changes to information
technology and other systems which are necessary for the Euro conversion will be
material. The Company is currently assessing the impact the Euro conversion may
have on items such as taxation and other issues.
The Company is in the process of implementing system software required for
the Euro currency conversion and does not anticipate the conversion to have a
significant impact on the operations, financial position or liquidity of its
European businesses.
FORWARD LOOKING STATEMENTS
This report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Such forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties. Actual results may vary materially
from those in the forward-looking statements as a result of any number of
factors, many of which are beyond the control of management. These factors
include, but are not limited to, the Company's leverage, its reliance on major
customers in the automotive industry, the degree and nature of competition, the
Company's ability to
22
<PAGE> 24
recruit and place qualified personnel, risks associated with its acquisition
strategy, and employment liability risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks, including interest rates
and currency exchange rates. Risk exposure relating to these market risks are
summarized below. This information should be read in connection with the
Combined and Consolidated Financial Statements and the related notes thereto
included elsewhere in this Report.
Currency Rate Management
For fiscal 1998, approximately 16% of the Company's net sales were from
foreign markets. To date, the Company has been able to minimize its currency
exposure by receiving its foreign revenues in local currency, which are
naturally hedged as the corresponding costs are usually in the same currency.
Interest Rate Management
The Company manages its interest cost using a combination of fixed and
variable rate debt. As of January 3, 1999 the Company has $100 million of Senior
Subordinated Notes outstanding at a fixed interest rate of 11-3/8%. In addition,
the Company has a $130 million credit facility at variable rates of interest. As
of January 3, 1999, $80.4 million of the New Credit Facility was outstanding at
interest rates ranging from 6.75% to 7.81%. A 1% change in the credit facility's
applicable interest rate would result in additional interest expense of
approximately $0.8 million per year.
As of January 3, 1999 the fair value of the Senior Subordinated Notes was
$97.5 million compared to its carrying value of $100 million.
Sales with Major Customers
Three customers accounted for approximately 75%, 8% and 8% of consolidated
net sales for fiscal 1998.
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<PAGE> 25
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of MSX International, Inc.:
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) present fairly, in all material respects, the financial position
of MSX International, Inc. and its subsidiaries at December 28, 1997 and January
3, 1999, and the results of their operations and their cash flows for each of
the three years in the period ended January 3, 1999, in conformity with
generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 14(a)(2)
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
March 4, 1999
24
<PAGE> 26
MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1997 1999
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,575 $ 4,248
Receivables, net 178,938 208,451
Inventory 1,239 2,362
Prepaid expenses and other assets 5,638 5,559
Deferred income taxes, net 2,352 961
-------- --------
Total current assets 199,742 221,581
Property and equipment, net 34,337 35,265
Buildings held for sale - 15,000
Goodwill, net of accumulated amortization of $892 and $2,337, respectively 31,934 58,993
Other assets 8,783 13,349
Deferred income taxes, net 12,380 12,536
-------- --------
Total assets $287,176 $356,724
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ 87,930 $ 4,581
Accounts payable 80,366 89,886
Accrued payroll and benefits 16,984 23,286
Other accrued liabilities 20,907 26,825
Contractual acquisition obligation - 15,000
Deferred income taxes, net 984 2,192
-------- --------
Total current liabilities 207,171 161,770
Long-term debt 65,000 180,356
Long-term deferred compensation liability and other 5,369 4,703
-------- --------
Total liabilities 277,540 346,829
-------- --------
Redeemable Series A Preferred Stock, authorized 500,000
shares; issued and outstanding 360,000 shares 36,000 36,000
-------- --------
Shareholders' equity (deficit):
Common Stock, $.01 par, authorized 2,000,000 shares; issued
and outstanding 95,004 shares and 97,004 shares, respectively 1 1
Additional paid-in capital (22,251) (24,764)
Other comprehensive income (loss) (1,141) (1,140)
Accumulated deficit (2,973) (202)
-------- --------
Total shareholders' equity (deficit) (26,364) (26,105)
-------- --------
Total liabilities and shareholders' equity (deficit) $287,176 $356,724
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 27
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
PREDECESSOR FISCAL YEAR FISCAL YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 228,260 $ 564,546 $1,081,042
Cost of sales (192,510) (514,019) (997,014)
--------- --------- ----------
Gross profit 35,750 50,527 84,028
Selling, general and administrative expenses (26,240) (36,007) (57,257)
Michigan Single Business Tax (1,510) (2,868) (3,516)
Restructuring costs - (2,000) -
--------- --------- ----------
Operating income 8,000 9,652 23,255
--------- --------- ----------
Other income (expense), net:
Interest expense, net (170) (4,383) (16,858)
Interest expense, related parties (1,140) (8,017) (558)
Other (expense), net (70) - -
--------- --------- ----------
(1,380) (12,400) (17,416)
--------- --------- ----------
Income (loss) before income taxes 6,620 (2,748) 5,839
Income tax provision 2,800 225 3,068
--------- --------- ----------
Net income (loss) $ 3,820 $ (2,973) $ 2,771
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 28
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
PREDECESSOR FISCAL YEAR FISCAL YEAR
YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) $ 3,820 $ (2,973) $ 2,771
Adjustments to reconcile net income (loss)
to net cash from (used for) operating activities:
Depreciation 4,970 8,967 11,908
Amortization - 892 2,201
Deferred taxes - - 1,038
(Gain) loss on sale of property and equipment - - 162
(Increase) decrease in receivables, net 1,380 (36,343) (11,829)
(Increase) decrease in inventory 530 (309) (36)
(Increase) decrease in prepaid expenses and other assets 210 (1,513) 367
Increase (decrease) in current liabilities 10 30,487 19,902
Other, net (3,130) 2,576 (14)
------- --------- --------
Net cash from operating activities 7,790 1,784 26,470
------- --------- --------
Investing activities:
Capital expenditures (4,840) (11,518) (11,559)
Acquisition of businesses, net of cash received - (159,137) (42,940)
Proceeds from sale of property and equipment - - 1,231
Other, net 70 (5) -
------- --------- --------
Net cash (used for) investing activities (4,770) (170,660) (53,268)
------- --------- --------
Financing activities:
Proceeds from issuance of debt 650 70,000 180,356
Debt issuance costs - - (4,637)
Payment of Senior Subordinated Notes and Bridge Loans - - (70,000)
Changes in revolving debt - 73,399 (78,577)
Changes in book overdraft - (669) (7,963)
Sale of Redeemable Preferred Stock - 36,000 -
Sale of Common Stock - 3,800 80
Increase in MascoTech, Inc. net investment
and advances 4,110 - -
Other, net (610) (938) 213
------- --------- --------
Net cash from financing activities 4,150 181,592 19,472
------- --------- --------
Effect of foreign exchange rate changes on cash (1,900) (1,141) (1)
------- --------- --------
Cash:
Increase (decrease) for the period 5,270 11,575 (7,327)
Balance, beginning of period 1,800 - 11,575
------- --------- --------
Balance, end of period $ 7,070 $ 11,575 $ 4,248
======= ========= ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 500 $ 7,400 $ 16,800
Cash paid for income taxes $ 3,600 $ 1,600 $ 800
Non-cash investing and financing activities:
Contractual acquisition obligation $ - $ - $ 15,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 29
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
MASCOTECH, INC. OTHER TOTAL
NET INVESTMENT COMMON ADDITIONAL COMPREHENSIVE ACCUMULATED SHAREHOLDERS'
AND ADVANCES STOCK PAID-IN CAPITAL INCOME (LOSS) DEFICIT EQUITY (DEFICIT)
-------------- ------ --------------- ------------- ----------- ---------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 63,650 $ - $ - $ (890) $ - $ 62,760
Comprehensive income (loss)
Net income 3,820 3,820
Cumulative translation adjustment (1,900) (1,900)
---------
Total comprehensive income (loss) 1,920
MascoTech, Inc. additional net investment
and advances 4,770 4,770
-------- ------ --------- -------- -------- ---------
Balance at December 31, 1996 72,240 - - (2,790) - 69,450
Comprehensive income (loss)
Net (loss) (2,973) (2,973)
Cumulative translation adjustment (1,141) (1,141)
---------
Total comprehensive income (loss) (4,114)
Payment to MascoTech, Inc. for book
value of TSG (72,240) 2,790 (69,450)
Payment to MascoTech, Inc. in excess
of book value of TSG (26,050) (26,050)
Sale of Common Stock 1 3,799 3,800
-------- ------ --------- -------- -------- ---------
Balance at December 28, 1997 - 1 (22,251) (1,141) (2,973) (26,364)
Comprehensive income (loss)
Net income 2,771 2,771
Cumulative translation adjustment 1 1
---------
Total comprehensive income (loss) 2,772
Adjustment due to the final allocation of
of taxable temporary differences related
to the TSG Acquisition (2,593) (2,593)
Sale of Common Stock 80 80
-------- ------ --------- -------- -------- ---------
Balance at January 3, 1999 $ - $ 1 $ (24,764) $ (1,140) $ (202) $ (26,105)
======== ====== ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 30
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements represent the consolidated assets
and liabilities and operations of MSX International, Inc. and its subsidiaries
("MSXI" or the "Company") in fiscal 1998 and fiscal 1997, and in 1996 the
combined assets and liabilities and operations of certain subsidiaries and
divisions of subsidiaries of MascoTech, Inc. ("MascoTech") which constituted the
Technical Services Group of MascoTech ("TSG"). MSXI is a holding company formed
and owned by Citicorp Venture Capital, Ltd. ("CVC"), MascoTech and certain
members of management. The Company was formed to consummate the acquisition of
TSG ("TSG Acquisition"), in which it acquired selected assets and operations of
TSG owned by MascoTech and MascoTech Automotive Systems Group ("MASG"), as well
as the net assets of APX International ("APX"), a design and engineering
services provider, which had been acquired by MASG effective November 6, 1996.
The TSG Acquisition was effective on January 3, 1997. Effective August 31, 1997,
the Company acquired certain service-providing operations of Ford Motor Company
("Ford") through the acquisition of Geometric Results Incorporated ("GRI"), a
wholly-owned subsidiary of Ford. The results of operations of APX and GRI have
been included in the results of operations of the Company from January 3, 1997
and September 1, 1997, respectively. As a result of these acquisitions and new
basis of accounting (See Note 3), the Company's financial statements for the
periods subsequent to the acquisitions are not comparable to the Predecessor's
financial statements for the periods prior to the acquisitions.
The Company is principally engaged in providing purchasing support
services and outsourcing services, primarily to automobile manufacturers and
suppliers in the United States and Europe.
Until it was sold, TSG paid MascoTech a management fee for various
corporate support staff and administrative services. Such fees approximated one
percent of domestic net sales and amounted to approximately $1.5 million in
1996. Certain of TSG's employee benefit plans and insurance coverages were
administered by MascoTech. These costs, as well as other costs incurred on TSG's
behalf, were charged directly to TSG. Interest expense was also charged at
various rates for TSG's European operations on the average amounts due
MascoTech. This charge aggregated $1.1 million in 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation/Combination: The accompanying financial
statements include the accounts of MSXI and TSG, as appropriate. Significant
intercompany transactions have been eliminated. Beginning in 1997, the Company
adopted a 52-53 week fiscal year which ends on the Sunday nearest December 31.
b. Cash and Cash Equivalents: All highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents.
c. Receivables: Receivables are presented net of aggregate allowances
for doubtful accounts of $1.2 million at December 28, 1997 and $3.4 million
(including $2.0 million of allowance accounts from acquired businesses) at
January 3, 1999.
d. Inventory: Inventory is comprised of raw materials, parts and
supplies which are stated at the lower of cost or net realizable value, with
cost determined using the first-in, first-out method.
e. Property and Equipment: Property and equipment, including
significant betterments to existing facilities, are recorded at cost. Upon
retirement or disposal of property and equipment, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is included in
income. Maintenance and repair costs are charged to expense as incurred.
29
<PAGE> 31
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
f. Goodwill: The excess of the purchase price over the estimated fair
values of acquired assets and assumed liabilities is being amortized using the
straight-line method over the period estimated to be benefited, ranging from 20
to 30 years.
At each balance sheet date, management assesses whether there has been
a permanent impairment of goodwill by comparing anticipated undiscounted future
cash flows from operating activities with the carrying amount of the excess of
cost over net assets of acquired companies. The factors considered by management
in performing this assessment include current operating results, business
prospects, market trends, competitive activities and other economic factors.
Based on this assessment, there was no permanent impairment related to goodwill
at January 3, 1999.
g. Fair Value of Financial Instruments: The estimated fair value of
cash and cash equivalents, accounts receivable, accounts payable, and short-term
debt approximate their carrying amounts. The estimated fair value and carrying
amounts of long-term debt borrowings are reported in Note 8.
h. Foreign Currency Translation: Net assets of operations outside of
the United States are translated into U.S. dollars using current exchange rates
with the effects of translation adjustments included in Shareholders' Equity
(Deficit) as a separate component of comprehensive income (loss). Revenues and
expenses of operations outside of the United States are translated at the
average rates of exchange during the period.
i. Revenue Recognition: Outsourcing Services revenue is primarily
comprised of revenue from fixed price contracts and time and material contracts.
Revenues from fixed price contracts are recognized using the percentage of
completion method, measured by comparing the percentage of labor costs incurred
to date to the estimated total labor costs for each contract. Revenues from time
and material contracts are valued at selling price based on contractual billing
rates. Revenues from Purchasing Support Services are recorded at the completion
of each individual service.
Contract costs include all direct material and labor costs and indirect
costs such as indirect labor, supplies, tools and repairs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in fixed price contracts may result in revisions
to estimates of costs and revenues and are recognized in the period in which the
revisions are determined.
j. Depreciation: Depreciation is computed using the straight-line
method over the estimated useful lives of assets as follows:
<TABLE>
<CAPTION>
Useful Lives
in Years
--------------
<S> <C>
Buildings and improvements.....................................10-15
Machinery and equipment.........................................3-12
Computers, peripherals and software.............................2- 5
Automobiles and trucks..........................................3- 5
</TABLE>
Leasehold improvements are amortized on a straight-line basis over
their estimated useful lives or the term of the lease, whichever is shorter.
k. Income Taxes: Deferred income taxes are recorded to reflect the tax
liability or benefit on future years of differences between the tax basis and
financial reporting amounts of assets and liabilities at each fiscal year end.
As of December 31, 1996, the domestic operations of TSG were included
in the consolidated federal income tax return of MascoTech. For the year ended
December 31, 1996, income tax expense and credits were computed on a separate
return basis.
30
<PAGE> 32
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - (CONTINUED)
l. Reclassification: Certain prior year amounts have been reclassified
to conform with current year presentation.
m. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenues and expenses during the reporting periods. Actual
results may differ from such estimates and assumptions.
n. Segments: In fiscal 1998, the Company adopted Statement of Financial
Accounting Standards ("FAS") 131, "Disclosures about Segments of an Enterprise
and Related Information". FAS 131 superceded FAS 14, "Financial Reporting for
Segments of a Business Enterprise" replacing the "industry segment" approach
with the "management" approach. The management approach reports segment
information based on how the internal organization makes operating decisions and
assesses performance. FAS 131 also requires disclosure about products and
services, geographic areas of business and major customers. The adoption of FAS
131 has also been retroactively applied for fiscal 1997 and 1996.
o. Comprehensive Income: In fiscal 1999, the Company adopted FAS 130,
"Reporting Comprehensive Income". This statement requires that all items
recognized under accounting standards as components of comprehensive earnings be
reported in an annual financial statement that is displayed with the same
prominence as other annual financial statements. This statement also requires
that an entity classify items of other comprehensive earnings by their nature in
an annual financial statement. Annual financial statements for prior periods
have been reclassified.
p. Recently Issued Financial Accounting Standards: In March 1998, the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position ("SOP") 98-1, "Accounting for the Cost of Computer Software Developed
or Obtained for Internal Use", and SOP 98-5, "Reporting the Cost of Start-Up
Activities", both of which are effective for fiscal 1999. The Company believes
the adoption of these statements will have no material impact on the Company's
financial statements.
3. ACQUISITIONS OF BUSINESSES:
On January 3, 1997, the Company acquired selected assets and
operations of the former engineering and technical business service units of
MASG and MascoTech, as well as the net assets of APX, a design and engineering
services provider which had been acquired by MASG effective November 6, 1996
(the "TSG Acquisition").
The purchase price of the TSG Acquisition was $145.6 million which was
financed through $3.8 million of common equity, $36 million of redeemable
preferred stock, a $20 million bridge loan provided by CVC, a $20 million bridge
loan provided by MascoTech, the issuance of a $30 million Senior Subordinated
Note to MascoTech and $35.8 million of borrowings under the Old Credit Facility
(See Note 8). The acquisition of TSG was accounted for, using the purchase
method of accounting, at carryover basis as no change in control resulted from
the acquisition. The amount paid in excess of book value for TSG of $26.1
million was recorded as a reduction of additional paid-capital. In accordance
with FAS 109, "Accounting for Income Taxes", the Company established deferred
taxes related to the TSG Acquisition by recording an increase in additional
paid-in capital in the amount of $10.4 million. The acquisition of APX was
accounted for using the purchase method of accounting and, accordingly, the
purchase price of the acquisition was allocated to the acquired assets and
assumed liabilities based upon the estimated fair value as of the closing of the
acquisition. The excess of purchase price over the acquired net assets of APX
resulted in goodwill of $19.8 million. The determination of the purchase price
for the APX acquisition was finalized upon the resolution of certain contractual
matters during 1998 resulting in a decrease in goodwill of $4.8 million from the
prior year.
31
<PAGE> 33
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
3. ACQUISITIONS OF BUSINESSES: - (CONTINUED)
The Company acquired certain service-providing operations of Ford
through the acquisition of GRI, a wholly-owned subsidiary of Ford, pursuant to a
stock purchase agreement dated August 31, 1997. As part of Ford, GRI used
automated processes to manage the procurement of staffing, training and other
professional services for Ford. The purchase price of $60 million was financed
with borrowings under the Old Credit Facility, offset in part by substantial
cash balances acquired. The acquisition of GRI was accounted for using the
purchase method of accounting and, accordingly, the purchase price of the
acquisition was allocated to the acquired assets and assumed liabilities based
upon the estimated fair values as of the closing of the acquisition. The excess
of purchase price over the acquired net assets of GRI resulted in goodwill of
$13.3 million. The allocation of the purchase price of GRI was completed during
fiscal year 1998, resulting in an increase in goodwill from the prior year of
$5.1 million. The increase in goodwill will be amortized to expense over the
remaining amortization period.
Effective October 31, 1998, the Company consummated its acquisition of
Lexstra International, Inc. and Lexus Temporaries, Inc. (the "Lexus
Acquisition") pursuant to an Asset Purchase Agreement dated October 23, 1998.
These companies are providers of contract computer consultants, systems
analysts, and network support personnel. Under the Asset Purchase Agreement, a
wholly-owned subsidiary of MSX International, Inc. purchased substantially all
of the assets and assumed substantially all of the operating liabilities of
Lexstra International, Inc. and Lexus Temporaries, Inc. The Company did not
assume any bank debt. The total purchase price for these net assets was $24
million at the closing with additional payments due contingent on achieving
certain operating results for the years 1998 through 2000. No such contingent
payments have been accrued as of January 3,1999. Funding for the transaction was
provided by borrowings under the New Credit Facility (See Note 8). The
acquisition was accounted for under the purchase method of accounting, resulting
in goodwill of $15.1 million.
Effective December 26, 1998, the Company consummated its acquisition of
MegaTech Engineering, Inc. ("MEI") from Johnson Controls, Incorporated ("JCI")
pursuant to the Stock Purchase Agreement dated as of December 22, 1998. MEI
offers technical staffing and product development services specializing in
vehicle interiors, HVAC and electrical design. Under the Stock Purchase
Agreement, a wholly-owned subsidiary of MSX International, Inc. purchased one
hundred percent of the outstanding shares of MEI from Becker Group, Inc., a
wholly-owned subsidiary of Johnson Controls, Inc. (the "MegaTech Acquisition").
The Company did not assume any bank debt. The total purchase price for the stock
of MEI was $30 million of which $15 million was paid at the closing using
borrowings under the New Credit Facility. The remaining $15 million (which is
non-interest bearing) is due to JCI no later than June 30, 1999, and is expected
to be provided by the proceeds from the sale of real property acquired. Such
real property has been presented as buildings held for sale and the related
amount due to JCI has been presented as a contractual acquisition obligation.
The acquisition was accounted for under the purchase method of accounting,
resulting in goodwill of $5.4 million.
Also during 1998, the Company acquired Pilot Computer Services, Inc.
(the "Pilot Acquisition") and Gold Arrow Contract Services, Ltd. (the "Gold
Arrow Acquisition") for an aggregate purchase price of $9.4 million. Pilot
Computer Services, Inc. is a provider of computer professionals experienced in
all aspects of systems development, systems enhancement and project management,
which is headquartered in Concord, California. Gold Arrow Contract Services,
Ltd. is an information technology and technical staffing company, which is
headquartered in Basildon, Essex, England. The Pilot and Gold Arrow Acquisitions
were accounted for under the purchase method of accounting resulting in goodwill
of $7.9 million.
32
<PAGE> 34
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
3. ACQUISITIONS OF BUSINESSES: - (CONTINUED)
The following unaudited pro forma consolidated results of operations
for the fiscal years ended December 28, 1997 and January 3, 1999 are presented
as if the GRI, Lexus, MegaTech, Gold Arrow and Pilot Acquisitions had been made
at the beginning of each period presented. The unaudited pro forma information
is not necessarily indicative of either the results of operations that would
have occurred had the acquisitions been made during the period presented or the
future results of the combined operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 28, JANUARY 3,
1997 1999
(Unaudited) (Unaudited)
-------------------- -------------------
<S> <C> <C>
Net sales $ 1,066,675 $ 1,180,271
Income before income taxes 3,191 9,586
Net income 507 5,182
</TABLE>
4. ACCOUNTS RECEIVABLE, NET:
Receivables arise from services provided pursuant to contracts or
agreements with customers for such services. The primary users of MSXI's and
TSG's services are manufacturers in the automotive industry. Sales to one
customer were 25.5%, 56.8% and 74.4% of total sales in 1996, fiscal 1997 and
fiscal 1998, respectively; sales to a second customer were 21.7%, 13.7% and 8.1%
of total sales in 1996, fiscal 1997 and fiscal 1998, respectively; and sales to
a third customer were 19.9%, 13.3% and 7.7% of total sales in 1996, fiscal 1997
and fiscal 1998, respectively. At December 31, 1996, December 28, 1997 and
January 3, 1999, the foregoing three customers accounted for approximately 67%,
69% and 67%, respectively, of the billed accounts receivable balance.
Accounts receivable include both billed and unbilled receivables.
Unbilled receivables amounted to $74.9 million and $82.2 million at December 28,
1997 and at January 3, 1999, respectively. All such billings are expected to be
collected within the ensuing year.
5. PROPERTY AND EQUIPMENT, NET:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
--------------- -------------
<S> <C> <C>
Cost:
Land and improvements $ 108 $ 1,309
Buildings and improvements 9,927 9,095
Machinery and equipment 45,972 48,389
Computers, peripherals and software 21,146 26,514
Automobiles and trucks 1,609 1,821
-------- --------
78,762 87,128
Less accumulated depreciation (44,425) (51,863)
-------- --------
$ 34,337 $ 35,265
======== ========
Buildings held for sale $ -- $ 15,000
======== ========
</TABLE>
Buildings held for sale represent the estimated fair value (based on
appraisals dated December 1998) of the buildings acquired in the purchase of
MegaTech less the estimated selling costs. The Company intends to sell and lease
back these buildings pursuant to an operating lease and does not anticipate any
significant gain or loss on disposition.
33
<PAGE> 35
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
6. OTHER ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
--------------- --------------
<S> <C> <C>
Income and other taxes $ 911 $ 1,283
Restructuring costs 6,097 1,272
Deferred income 4,078 11,224
Interest 4,979 5,639
Other 4,842 7,407
-------- --------
$ 20,907 $ 26,825
======== ========
</TABLE>
7. RESTRUCTURING ACTIONS:
During fiscal 1997, restructuring costs aggregated $6.7 million. These
costs were comprised of $2.7 million of severance pay for certain employees of
an acquired business, facility closure costs of $2.0 million which were
primarily remaining operating lease obligations of acquired facilities closed
subsequent to the acquisition, and $2.0 million of remaining lease obligations
and other costs related to the closure of MSXI facilities. Restructuring costs
accounted for in the purchase of the related businesses and costs charged to
operations were $4.7 million and $2.0 million, respectively. Restructuring
charges were accounted for in accordance with approved management plans and are
expected to be completed in fiscal 1999. Remaining accrued restructuring costs
totaled $1.3 million as of January 3, 1999, which are expected to be paid in
fiscal 1999.
8. DEBT:
Debt is comprised of the following:
<TABLE>
<CAPTION>
INTEREST RATES AT OUTSTANDING AT
--------------------------------
JANUARY 3, DECEMBER 28, JANUARY 3,
1999 1997 1999
--------------- --------------- -------------
<S> <C> <C> <C>
Senior Subordinated Notes 11.375% $ -- $100,000
Credit Facilities, as amended and restated:
Revolving line of credit notes 7.03 - 7.75% 40,000 26,238
Swingline notes 6.75 - 7.81% 35,450 24,118
Term notes 7.29% -- 30,000
Bridge loans due to:
CVC -- 20,000 --
MascoTech -- 20,000 --
MascoTech Senior Subordinated Notes -- 30,000 --
Ford Motor Company Limited, line of credit 8.69% 7,480 4,581
-------- --------
152,930 184,937
Less current portion 87,930 4,581
-------- --------
Total long-term debt $ 65,000 $180,356
======== ========
</TABLE>
34
<PAGE> 36
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
8. DEBT: - (CONTINUED)
Senior Subordinated Notes
On January 22, 1998, the Company issued, in a private placement, $100
million aggregate principal amount of 11-3/8% unsecured senior subordinated
notes maturing January 15, 2008. On August 20, 1998, the Company consummated an
offer to exchange 11-3/8% Senior Subordinated Notes which had been registered
under the Securities Act of 1933 for any and all outstanding Notes. The
Company's Registration Statement on Form S-4 with the Securities and Exchange
Commission became effective on July 22, 1998. Interest on the Notes is payable
semi-annually at 11-3/8% per annum and commenced July 15, 1998. The Notes may be
redeemed subsequent to January 15, 2003 at premiums, which begin at 105.6875%
and decline each year to face for redemptions taking place after January 15,
2006. In addition, at any time prior to January 15, 2001, the Company may redeem
up to 35% of the original aggregate principal amount of the Notes with the
proceeds of one or more public equity offerings at a redemption price of
111.375% plus accrued and unpaid interest, if any. Also, upon the occurrence of
a Change of Control, as defined in the Indenture (the "Indenture"), the Notes
may be redeemed at the option of the Note holders at a premium of one percent,
plus accrued and unpaid interest, if any. The Notes contain covenants which,
among others, limit the incurrence of additional indebtedness and restrict
capital transactions, distributions and asset dispositions of certain
subsidiaries.
In connection with the Notes offering, each of the Company's domestic
restricted subsidiaries, as defined in the Indenture (the "Guarantor
Subsidiaries"), irrevocably and unconditionally guarantee the Company's
performance under the Notes as primary obligors.
Credit Facilities
Concurrently with the private placement, the Company entered into a New
Credit Facility with Bank One Corporation (the "New Credit Facility"), with a
borrowing base of up to $100 million, as defined, to replace the prior Credit
Facility (the "Old Credit Facility"). On April 14, 1998, the Company syndicated
the New Credit Facility to add additional commercial lenders and amended and
restated the New Credit Facility to add a $30 million term loan portion. On the
same date, the Company borrowed the full amount available under the term loan
and used the funds to reduce outstanding balances under the revolving loan
portion of the New Credit Facility as amended and restated. Term loan borrowings
are subject to satisfaction of the same borrowing base requirements and
financial reporting and operating covenants as are other borrowings under the
New Credit Facility. The New Credit Facility provides for borrowings as
revolving credit loans, letters of credit, swingline loans and term loans. This
Facility expires January 22, 2003. Revolving credit loans, swingline loans and
letters of credit (collectively "Revolving Debt") are payable on demand. Term
loans are issued with a five-year maturity. Interest on the loans under the New
Credit Facility is payable quarterly or, if earlier, at the end of each interest
period and accrues at an annual rate equal to a floating rate, as defined, or
except for swingline loans which accrue at an annual rate equal to a fixed or
floating rate as negotiated at the time of borrowing.
Each significant domestic subsidiary of the Company guarantees all
obligations of the Company under the New Credit Facility. In addition, the
Company has pledged the stock of such domestic subsidiaries and 65% of the stock
of the significant foreign subsidiaries. Additionally, a first lien exists on
substantially all assets of such domestic subsidiaries. The obligations of the
Company under the New Credit Facility rank senior to all other indebtedness of
the Company, including the Notes.
The New Credit Facility contains certain reporting covenants, customary
affirmative covenants and various negative covenants including, but not limited
to, certain limitations on mergers, sales of assets, acquisitions, liens,
investments, indebtedness, contingent obligations, dividends, subsidiaries'
ability to agree to dividend restrictions, affiliate transactions and changes of
business. The New Credit Facility also contains certain covenants with respect
to employee benefit arrangements and environmental matters and certain financial
covenants including, but not limited to, a ratio of total debt to EBITDA, a
fixed charge coverage ratio and a minimum net worth requirement, each as
defined.
35
<PAGE> 37
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
8. DEBT: - (CONTINUED)
The net proceeds from the issuance of Senior Subordinated Notes and the
New Credit Facility were used to retire the bridge loans to CVC and MascoTech,
the Senior Subordinated Notes and the outstanding amount under the Old Credit
Facility.
As of January 3, 1999, $80.4 million was outstanding under the New
Credit Facility and has been classified as long-term debt as the Company has
both the ability and intent to refinance such amounts under the New Credit
Facility.
Fair Value of Debt
The estimated fair values and carrying amounts of debt borrowings are
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 28, AT JANUARY 3,
1997 1999
------------------- ------------------
<S> <C> <C>
Fair value $ 65,000 $ 177,856
Carrying amounts $ 65,000 $ 180,356
</TABLE>
The fair value of $100 million aggregate principle amount of 11-3/8%
Senior Subordinated Notes as of January 3, 1999 was determined to be
approximately $97.5 million based on a quoted market price. The fair values of
amounts outstanding under the New Credit Facility of $65.0 million and $80.4
million as of December 28, 1997 and January 3, 1999, respectively, approximate
their carrying amounts as the variable rates inherent in the related financial
instrument reflect changes in the overall market interest rates.
9. BOOK OVERDRAFTS:
Book overdrafts represent checks drawn on zero balance accounts that
have not yet been presented to the Company's banks for funding. Such overdrafts
are funded when the related checks are presented and are not subject to finance
charges. There were aggregate book overdrafts of $21.9 million and $14.3 million
at December 28, 1997 and January 3, 1999, respectively. Such balances are
included in Accounts Payable in the Consolidated Balance Sheets.
36
<PAGE> 38
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
10. LEASE COMMITMENTS:
MSXI and its subsidiaries have leases for real estate and equipment
utilized in its business. In most cases, management expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Future minimum rental payments required under leases that have an initial or
remaining non-cancelable lease term in excess of one year are as follows:
<TABLE>
<CAPTION>
OTHER
CAPITAL OPERATING
TOTAL LEASES LEASES
------------ --------- -------------
<S> <C> <C> <C>
Fiscal year ended:
1999 $21,672 $ 69 $21,603
2000 16,531 68 16,463
2001 10,937 27 10,910
2002 4,493 -- 4,493
2003 3,611 -- 3,611
Thereafter 8,901 -- 8,901
------ ---- -------
$66,145 164 $65,981
======= 20 =======
Less amount representing interest ----
Present value of minimum payments $144
====
</TABLE>
Rental expense was approximately $17.6 million and $22.3 million for
the fiscal years ended December 28, 1997 and January 3, 1999, respectively.
Rental expense for the Technical Service Group was approximately $ 5.4 million
in 1996.
11. REDEEMABLE SERIES A PREFERRED STOCK:
In connection with the TSG Acquisition, the Company issued 360,000
shares of 12% Series A Cumulative Redeemable Preferred Stock ("the Preferred
Stock") with a stated value and redemption value of $100 per share or $36
million.
Dividends on the Preferred Stock are payable in cash at the rate per
annum equal to 12% of the stated value plus an amount equal to any accrued and
unpaid dividends. As of January 3, 1999, the Company has not declared any
dividends. Accordingly, no dividends have been paid or accrued. Dividends
accumulated, but not declared, aggregate approximately $9.4 million as of
January 3, 1999. The Company may not declare or pay any dividends or other
distribution with respect to any common stock or other class or series of stock
ranking junior to the Preferred Stock without first complying with restrictions
specified in the Stockholders' Agreement. The Preferred Stock, which has no
voting rights, is mandatorily redeemable at the earlier of December 31, 2008 or
the date on which a sale transaction, as defined, occurs. The Company may redeem
any or all of the Preferred Stock at its election prior to December 31, 2008.
The Company may also elect to acquire shares of the Preferred Stock from time to
time without redeeming or otherwise acquiring all or any other issued shares of
the Preferred Stock pursuant to the terms of the Stockholders' Agreement. As of
January 3, 1999, no Preferred Stock has been redeemed or acquired by the
Company.
37
<PAGE> 39
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
12. SHAREHOLDERS' EQUITY (DEFICIT):
The common stock at par value resulted from the initial capitalization
of the Company by MascoTech, CVC and certain members of management. The
additional paid-in capital amount at December 28, 1997 of approximately $(22.3)
million represented amounts received from the issuance of common stock in excess
of par value of $3.8 million, reduced by amounts paid to MascoTech for the
acquisition of TSG in excess of book value as of December 31, 1996 of $(26.1)
million. As the acquisition of TSG did not involve a change in control, the
acquisition was recorded at carryover basis. In accordance with FAS 109,
"Accounting for Income Taxes", the Company established deferred taxes related to
the TSG Acquisition by recording an increase in additional paid-in capital in
the amount of $10.4 million. In 1998, in connection with preparing the initial
tax returns of the Company, which incorporated the opening balance sheet of TSG,
certain adjustments to the estimated tax assets and liabilities acquired were
identified when the final allocation of taxable temporary differences related to
the acquisition was completed. These adjustments have been reflected as a change
in additional paid-in capital.
13. EMPLOYEE BENEFIT PLANS:
The Company maintains a qualified cash or deferred compensation plan
under Section 401(k) of the Internal Revenue Code. Participation in this plan is
available to substantially all salaried employees and to certain groups of
hourly employees. Under the plan, employees may elect to defer up to 20 percent
of their annual wages, subject to the limitations of the Internal Revenue Code.
Third party administrative costs paid by the plan approximated $0.1 million for
fiscal 1998.
Contributions to union-sponsored, multi-employer pension plans were
approximately $0.5 million in 1996, $0.7 million for the fiscal year ended
December 28, 1997 and $0.7 million for the fiscal year ended January 3, 1999.
These plans are not administered by the Company and contributions are determined
in accordance with provisions of negotiated labor contracts. MSXI has no present
intention of withdrawing from any of these plans, nor has MSXI been informed
that there is any intention to terminate such plans.
MSXI has an unfunded deferred compensation plan for certain salaried
employees. Individual participants make pre-tax contributions to the plan and
MSXI matches up to 5 percent of the individual's annual salary. MSXI
contributions vest over a period of time. Individuals may elect to receive lump
sum or defined payments of vested balances upon retirement or termination. The
deferred compensation plan liability at December 28, 1997 and January 3, 1999
was $3.2 million and $3.4 million, respectively. This is an unfunded and
unsecured obligation of MSXI. However, MSXI has, through deposits to a grantor
trust, restricted certain corporate assets having a fair value of $1.6 million
at both December 28, 1997 and January 3, 1999 that are intended to be used to
settle a portion of the obligation.
With the APX Acquisition, the Company acquired certain obligations with
respect to a frozen defined benefit pension plan. The plan was frozen in 1988
and covers certain union and non-union employees who were employed by
Autodynamics Corporation of America, Inc., a company acquired previously by one
of the companies that comprised APX. This plan is not administered by the
Company. Contributions are determined in accordance with provisions of the plan.
38
<PAGE> 40
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
13. EMPLOYEE BENEFIT PLANS: - (CONTINUED)
The Autodynamics plan status as of June 30, 1998, the date of the most
recent actuarial report, was as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $767
====
Accumulated benefit obligation $767
====
Projected benefit obligation $767
Plan assets at fair value 829
----
Plan assets in excess of projected benefit obligation $ 62
====
</TABLE>
14. INCOME TAXES:
<TABLE>
<CAPTION>
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
---------------- --------------- ----------------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic $ 1,700 $ 3,236 $ 2,898
Foreign 4,920 (5,984) 2,941
-------- -------- --------
$ 6,620 $ (2,748) $ 5,839
======== ======== ========
Provision for income taxes (benefit):
Currently payable:
Federal $ 2,810 $ 1,049 $ (573)
Foreign 1,950 (640) 2,178
State -- -- 104
Deferred:
Federal (2,170) 315 1,871
Foreign 210 (499) (512)
-------- -------- --------
$ 2,800 $ 225 $ 3,068
======== ======== ========
Deferred tax assets (liabilities):
Amortizable goodwill $ -- $ 9,111 $ 7,890
Accrued interest expense -- 2,023 1,019
Accrued liabilities and deferred compensation 3,480 863 (1,662)
Net operating loss -- 360 3,604
German tax benefit 240 332 --
Property and equipment (700) 1,937 1,264
Contractual advances 1,300 -- --
Accounts receivable (800) (984) (587)
Valuation allowance -- (535) (736)
Unrealized foreign gain -- -- 181
Other, net 70 641 332
-------- -------- --------
Net deferred tax asset $ 3,590 $ 13,748 $ 11,305
======== ======== ========
</TABLE>
39
<PAGE> 41
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
14. INCOME TAXES: - (CONTINUED)
The following is a reconciliation of the tax at the U.S. federal
statutory rate to the provision for income taxes allocated to income before
income taxes:
<TABLE>
<CAPTION>
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
---------------- ---------------- ---------------
<S> <C> <C> <C>
35% 35% 35%
--- --- ---
Tax at U.S. statutory rate $ 2,320 $ (961) $ 2,043
Valuation allowance -- 535 201
Higher effective foreign tax rate 440 351 367
Other, net 40 300 457
------- ------- -------
$ 2,800 $ 225 $ 3,068
======= ======= =======
</TABLE>
As of December 31, 1996, December 28, 1997 and January 3, 1999, a
provision had not been made for U.S. or additional foreign taxes on
approximately $8.7 million, $1.4 million, and $2.3 million, respectively, of
undistributed earnings of foreign subsidiaries, as those earnings were intended
to be permanently reinvested. Generally, such earnings become taxable upon the
remittance of dividends and under certain other circumstances. It was not
practicable to estimate the amount of deferred tax liability on such
undistributed earnings.
Income taxes paid were approximately $3.6 million, $1.6 million and
$0.8 million in 1996, fiscal 1997 and fiscal 1998, respectively.
15. SEGMENT INFORMATION:
The Company has adopted FAS 131, "Disclosures about Segments of an
Enterprise and Related Information" for 1996, fiscal 1997 and fiscal 1998. The
Company has two reportable segments which are Purchasing Support Services and
Outsourcing Services. In 1996 the Company's operations were comprised totally of
Outsourcing Services.
In its Purchasing Support Services segment, the Company provides
administrative support to large companies for the purchase of various services.
The customers in this segment use the Company and its automated processes to
manage the procurement of staffing, training and other professional services.
Sales for this segment include the billings from sub-suppliers for their
services rendered, plus a small mark-up for management and processing.
In its Outsourcing Services segment, the Company provides technical
support services, including technical and professional contract staffing,
product development support and other business services. Sales in this segment
are based principally on fees charged for resources provided to support
customers' development, manufacturing and distribution of their products and
services.
40
<PAGE> 42
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
15. SEGMENT INFORMATION: - (CONTINUED)
The segment data includes intersegment sales as well as charges
allocating corporate selling, general and administrative expenses to each of the
operating segments. The Company evaluates performance based on earnings before
interest and taxes, including the Michigan Single Business Tax and other
(expense), net (EBIT), as defined.
Summarized below is the segment information for 1996, fiscal 1997 and
fiscal 1998:
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------ -------------------------------------------- -------------------------------------------
PURCHASING PURCHASING
OUTSOURCING SUPPORT OUTSOURCING SUPPORT OUTSOURCING
SERVICES SERVICES SERVICES TOTAL SERVICES SERVICES TOTAL
-------- -------- -------- ----- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 228,260 $ 197,186 $ 374,207 $ 571,393 $ 591,538 $ 515,880 $1,107,418
EBIT $ 9,440 $ 2,152 $ 10,368 $ 12,520 $ 4,432 $ 22,339 $ 26,771
</TABLE>
During fiscal 1997, the Outsourcing Services segment incurred $2
million of restructuring costs which are included in the above operating
results. Refer to Note 7 for more details.
A reconciliation of total segment sales and EBIT to the Company's
consolidated sales and EBIT are as follows:
<TABLE>
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
------------- ------------------ -----------------
<S> <C> <C> <C>
Sales
Total segment sales $ 228,260 $ 571,393 $ 1,107,418
Elimination of intersegment sales -- (6,847) (26,376)
----------- ----------- -----------
Consolidated sales $ 228,260 $ 564,546 $ 1,081,042
=========== =========== ===========
<CAPTION>
YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999
-------------------- -------------------- --------------------
<S> <C> <C> <C>
EBIT
Total EBIT
Interest expense $ 9,440 $ 12,520 $ 26,771
Michigan Single Business Tax (1,310) (12,400) (17,416)
(1,510) (2,868) (3,516)
Consolidated income (loss) before taxes -------- -------- --------
$ 6,620 $ (2,748) $ 5,839
======== ======== ========
</TABLE>
41
<PAGE> 43
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
15. SEGMENT INFORMATION: - (CONTINUED)
Sales and long-lived asset information by geographic area are as
follows:
<TABLE>
<CAPTION>
SALES LONG-LIVED ASSETS
------------------------------------------ ---------------------------------------
YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED AS OF AS OF AS OF
DECEMBER 31, DECEMBER 28, JANUARY 3, DECEMBER 31, DECEMBER 28, JANUARY 3,
1996 1997 1999 1996 1997 1999
------------ ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
United States $ 140,770 $ 463,141 $ 909,803 $ 15,861 $ 63,436 $ 106,580
Foreign:
United Kingdom 72,118 72,105 110,362 5,089 7,593 12,144
Other Foreign 15,372 29,300 60,877 2,740 4,025 3,883
---------- ---------- ---------- ---------- ---------- ----------
$ 228,260 $ 564,546 $1,081,042 $ 23,690 $ 75,054 $ 122,607
========== ========== ========== ========== ========== ==========
</TABLE>
Major Customers
The Company's Purchasing Support Services segment obtains its sales
from primarily one customer. The Outsourcing Services segment obtains its sales
from various customers of which three customers account for 25.2%, 21.5% and
19.7% of the segment's total sales in 1996; 34.7%, 20.7% and 20.0% of the
segment's total sales in fiscal 1997; and 47.0%, 17.0% and 16.2% of the
segment's total sales in fiscal 1998.
16. SUBSEQUENT EVENT:
Cadform Investment
On January 8, 1999, the Company acquired an approximate 25% interest in
Cadform GmbH ("Cadform"), a German company with sales of approximately $22
million that provides product design and tooling services to the automotive
industry. Based in Homburg, Germany, Cadform specializes in automotive interior
systems and cast aluminum products. Cadform plans to engage in joint projects
with the Company. As part of the investment, the Company obtained an option to
acquire an additional interest in Cadform.
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:
In connection with the Notes Offering on January 22, 1998, each of the
Company's domestic restricted subsidiaries, as defined in the Indenture ("the
Guarantor Subsidiaries"), irrevocably and unconditionally guaranteed the
Company's performance under the Notes as primary obligors. The following
condensed consolidating and combining financial data provides information
regarding the financial position, results of operations and cash flows of the
Guarantor Subsidiaries (including Predecessor combining financial data) as set
forth. Separate financial statements of the Guarantor Subsidiaries are not
presented because management has determined those would not be material to the
holders of the Notes.
The Guarantor Subsidiaries account for their investments in the
non-guarantor subsidiaries, if any, on the equity method. The principal
elimination entries are to eliminate the investments in subsidiaries and
intercompany balances and transactions.
GRI is a guarantor subsidiary. The statements of operations and of
cash flows for the year ended December 31, 1996 and for the eight months in the
period ended August 31, 1997 are separately included on a consolidated basis
with its subsidiaries.
42
<PAGE> 44
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------- -------------- -------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,690 $ 2,558 $ -- $ 4,248
Receivables, net 145,715 62,736 -- 208,451
Inventory 2,315 47 -- 2,362
Prepaid expenses and other assets 4,029 1,530 -- 5,559
Deferred income taxes -- 961 -- 961
-------- -------- -------- ---------
Total current assets 153,749 67,832 -- 221,581
Property and equipment, net 23,255 12,010 -- 35,265
Buildings held for sale 15,000 - -- 15,000
Goodwill, net 55,335 3,658 -- 58,993
Investment in subsidiaries 33,703 - (33,703) --
Other assets 12,990 359 -- 13,349
Deferred income taxes 9,711 2,825 -- 12,536
-------- -------- -------- ---------
Total assets $303,743 $ 86,684 $(33,703) $ 356,724
======== ======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ -- $ 4,581 $ -- $ 4,581
Accounts payable 74,705 15,181 -- 89,886
Accrued liabilities 41,057 9,086 (32) 50,111
Contractual acquisition obligation 15,000 -- -- 15,000
Deferred income taxes 930 1,262 -- 2,192
-------- -------- -------- ---------
Total current liabilities 131,692 30,110 (32) 161,770
Long-term debt 173,238 7,118 -- 180,356
Intercompany accounts (28,832) 28,832 -- --
Long-term deferred compensation liability
and other 4,629 74 -- 4,703
-------- -------- -------- ---------
Total liabilities 280,727 66,134 (32) 346,829
-------- -------- -------- ---------
Redeemable Series A Preferred Stock 36,000 -- -- 36,000
-------- -------- -------- ---------
Shareholders' equity (deficit) (12,984) 20,550 (33,671) (26,105)
-------- -------- -------- ---------
Total liabilities and shareholders'
equity (deficit) $303,743 $ 86,684 $(33,703) $ 356,724
======== ======== ======== =========
</TABLE>
43
<PAGE> 45
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 28, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,449 $ 9,126 $ -- $ 11,575
Receivables, net 130,404 48,534 -- 178,938
Inventory 1,204 35 -- 1,239
Prepaid expenses and other assets 2,106 3,532 -- 5,638
Deferred income taxes 863 1,489 -- 2,352
--------- --------- --------- ---------
Total current assets 137,026 62,716 -- 199,742
Property and equipment, net 23,208 11,129 -- 34,337
Goodwill, net 31,934 -- -- 31,934
Investment in subsidiaries 20,583 -- (20,583) --
Other assets 8,294 489 -- 8,783
Deferred income taxes 11,036 1,344 -- 12,380
--------- --------- --------- ---------
Total assets $ 232,081 $ 75,678 $ (20,583) $ 287,176
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 71,280 $ 16,650 $ -- $ 87,930
Accounts payable 73,726 6,640 -- 80,366
Accrued liabilities 31,752 6,171 (32) 37,891
Deferred income taxes -- 984 -- 984
--------- --------- --------- ---------
Total current liabilities 176,758 30,445 (32) 207,171
Long-term debt 65,000 -- -- 65,000
Intercompany accounts (31,389) 31,389 -- --
Long-term deferred compensation liability
and other 4,970 399 -- 5,369
--------- --------- --------- ---------
Total liabilities 215,339 62,233 (32) 277,540
--------- --------- --------- ---------
Redeemable Series A Preferred Stock 36,000 32 (32) 36,000
--------- --------- --------- ---------
Shareholders' equity (deficit) (19,258) 13,413 (20,519) (26,364)
--------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 232,081 $ 75,678 $ (20,583) $ 287,176
========= ========= ========= =========
</TABLE>
44
<PAGE> 46
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED DECEMBER 28, 1997 AND JANUARY 3, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Net sales $ 140,770 $ 87,490 $ -- $ 228,260
Cost of sales (120,614) (71,896) -- (192,510)
----------- ----------- ---------- -----------
Gross profit 20,156 15,594 -- 35,750
Selling, general and administrative expenses (16,775) (9,465) -- (26,240)
Michigan Single Business Tax (1,510) -- -- (1,510)
----------- ----------- ---------- -----------
Operating income 1,871 6,129 -- 8,000
Other (expense), net (171) (1,209) -- (1,380)
----------- ----------- ---------- -----------
Income before income taxes 1,700 4,920 -- 6,620
Income tax provision 640 2,160 -- 2,800
----------- ----------- ---------- -----------
Net income $ 1,060 $ 2,760 $ -- $ 3,820
=========== =========== ========== ===========
FISCAL YEAR ENDED DECEMBER 28, 1997
Net sales $ 463,141 $ 101,405 $ -- $ 564,546
Cost of sales (420,999) (93,020) -- (514,019)
----------- ----------- ---------- -----------
Gross profit 42,142 8,385 -- 50,527
Selling, general and administrative expenses (24,572) (11,435) -- (36,007)
Michigan Single Business Tax (2,868) -- -- (2,868)
Restructuring costs (2,000) -- -- (2,000)
----------- ----------- ---------- -----------
Operating income (loss) 12,702 (3,050) -- 9,652
Other (expense), net (9,466) (2,934) -- (12,400)
Equity in subsidiary earnings (loss) (4,845) -- 4,845 --
----------- ----------- ----------- -----------
Loss before income taxes (1,609) (5,984) 4,845 (2,748)
Income tax provision (benefit) 1,364 (1,139) -- 225
----------- ----------- ----------- -----------
Net (loss) $ (2,973) $ (4,845) $ 4,845 $ (2,973)
=========== =========== =========== ===========
FISCAL YEAR ENDED JANUARY 3, 1999
Net sales $ 909,803 $ 171,239 $ -- $ 1,081,042
Cost of sales (850,859) (146,155) -- (997,014)
----------- ----------- ----------- -----------
Gross profit 58,944 25,084 -- 84,028
Selling, general and administrative expenses (38,540) (18,717) -- (57,257)
Michigan Single Business Tax (3,516) -- -- (3,516)
----------- ----------- ----------- -----------
Operating income 16,888 6,367 -- 23,255
Other (expense), net (13,990) (3,426) -- (17,416)
Equity in subsidiary earnings 1,274 -- (1,274) --
----------- ----------- ----------- -----------
Income before income taxes 4,172 2,941 (1,274) 5,839
Income tax provision 1,401 1,667 -- 3,068
----------- ----------- ----------- -----------
Net income $ 2,771 $ 1,274 $ (1,274) $ 2,771
=========== =========== =========== ===========
</TABLE>
45
<PAGE> 47
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) $ 1,497 $ 1,274 $ -- $ 2,771
Equity in earnings of subsidiaries 1,274 -- (1,274) --
Adjustments to reconcile net income (loss)
to net cash from (used for) operating activities:
Depreciation 7,607 4,301 -- 11,908
Amortization 2,094 107 -- 2,201
Deferred taxes 2,306 (1,268) -- 1,038
(Gain) loss of sale of property and equipment 194 (32) -- 162
(Increase) decrease in receivables, net 1,249 (13,078) -- (11,829)
(Increase) decrease in inventory (25) (11) -- (36)
(Increase) decrease in prepaid expenses
and other assets (1,794) 2,161 -- 367
Increase (decrease) in current liabilities 13,850 6,052 -- 19,902
Other, net 363 2,470 (2,847) (14)
--------- --------- --------- ---------
Net cash from (used for) operating activities 28,615 1,976 (4,121) 26,470
--------- --------- --------- ---------
Investing activities:
Capital expenditures (6,025) (5,534) -- (11,559)
Acquisition of businesses, net of cash received (38,460) (4,480) -- (42,940)
Proceeds from sale of property and equipment 764 467 -- 1,231
--------- --------- --------- ---------
Net cash used for investing activities (43,721) (9,547) -- (53,268)
--------- --------- --------- ---------
Financing activities:
Intercompany 2,591 (2,591) -- --
Investment in subsidiaries (15,970) 10,645 5,325 --
Equity of subsidiaries 6,780 (4,174) (2,606) --
Proceeds from the issuance of debt 173,239 7,117 -- 180,356
Debt issuance costs (4,637) -- -- (4,637)
Payment of Senior Subordinated Notes and Bridge (70,000) -- -- (70,000)
Changes in revolving debt (66,509) (12,068) -- (78,577)
Changes in book overdraft (9,762) 1,799 -- (7,963)
Sale of Common Stock 80 -- -- 80
Other, net 1 212 -- 213
--------- --------- --------- ---------
Net cash from financing activities 15,813 940 2,719 19,472
--------- --------- --------- ---------
Effect of foreign exchange rates changes cash (1,466) 63 1,402 (1)
--------- --------- --------- ---------
Cash:
(Decrease) for the period (759) (6,568) -- (7,327)
Balance, beginning of period 2,449 9,126 -- 11,575
--------- --------- --------- ---------
Balance, end of period $ 1,690 $ 2,558 $ -- $ 4,248
========= ========= ========= =========
</TABLE>
46
<PAGE> 48
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:- (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) $ 1,872 $ (4,845) $ - $ (2,973)
Equity in earnings of subsidiaries (4,845) - 4,845 -
Adjustments to reconcile net income (loss)
to net cash from (used for) operating activities:
Depreciation 5,523 3,444 - 8,967
Amortization 892 - - 892
(Increase) decrease in receivables, net (28,394) (7,949) - (36,343)
(Increase) decrease in inventory (310) 1 - (309)
(Increase) decrease in prepaid expenses
and other assets (828) (685) - (1,513)
Increase (decrease) in current liabilities 32,558 (2,071) - 30,487
Other, net 2,861 (285) - 2,576
--------- --------- --------- ---------
Net cash from (used for) operating activities 9,329 (12,390) 4,845 1,784
--------- --------- --------- ---------
Investing activities:
Capital expenditures (7,433) (4,085) - (11,518)
Acquisition of business, net of cash received (122,806) (30,327) (6,004) (159,137)
Investment in foreign subsidiaries (24,378) - 24,378 -
Other, net (8) 3 - (5)
--------- --------- --------- ---------
Net cash (used for) investing activities (154,625) (34,409) 18,374 (170,660)
--------- --------- --------- ---------
Financing activities:
Intercompany (30,610) 30,610 - -
Investment in subsidiaries 8 19,385 (19,393) -
Equity of subsidiaries 3,794 - (3,794) -
Proceeds from the issuance of debt 70,000 - - 70,000
Changes in revolving debt 66,275 7,124 - 73,399
Change in book overdraft (669) - - (669)
Sale of Redeemable Preferred Stock 36,000 - - 36,000
Sale of Common Stock 3,800 - - 3,800
Other, net (830) (76) (32) (938)
--------- --------- --------- ---------
Net cash from financing activities 147,768 57,043 (23,219) 181,592
--------- --------- --------- ---------
Effect of foreign exchange rates changes (23) (1,118) - (1,141)
--------- --------- --------- ---------
Cash:
Increase for the period 2,449 9,126 - 11,575
Balance, beginning of period - - - -
--------- --------- --------- ---------
Balance, end of period $ 2,449 $ 9,126 $ - $ 11,575
========= ========= ========= =========
</TABLE>
47
<PAGE> 49
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
(INCLUDING ITS PREDECESSOR TSG)
CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES COMBINED
------------ ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating activities:
Net income (loss) $ 1,060 $ 2,760 $ 3,820
Adjustments to reconcile net income (loss) to net cash
from (used for) operating activities:
Depreciation and amortization 2,373 2,597 4,970
Decrease in receivables, net 412 968 1,380
(Increase) decrease in inventory 533 (3) 530
(Increase) decrease in prepaid expenses and other assets 630 (420) 210
Increase (decrease) in current liabilities 2,800 (2,790) 10
Other, net (1,537) (1,593) (3,130)
------- ------- -------
Net cash from operating activities 6,271 1,519 7,790
------- ------- -------
Investing activities:
Capital expenditures, net (2,178) (2,592) (4,770)
------- ------- -------
Net cash used for investing activities (2,178) (2,592) (4,770)
------- ------- -------
Financing activities:
Proceeds from the issuance debt - 650 650
Increase (decrease) in MascoTech Inc., net investment
and advances (3,237) 7,347 4,110
Other, net (670) 60 (610)
------- ------- -------
Net cash from (used for) financing activities (3,907) 8,057 4,150
------- ------- -------
Effect of foreign exchange rates changes on cash - (1,900) (1,900)
------- ------- -------
Cash:
Increase for the period 186 5,084 5,270
Balance, beginning of period 154 1,646 1,800
------- ------- -------
Balance, end of period $ 340 $ 6,730 $ 7,070
======= ======= =======
</TABLE>
48
<PAGE> 50
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
GEOMETRIC RESULTS INCORPORATED - SERVICES
(A FORMER BUSINESS UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE EIGHT-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 31,
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales $ 690,468 $ 431,134
Cost of sales (665,661) (411,518)
--------- ---------
Gross profit 24,807 19,616
Selling, general and administrative expenses (21,576) (13,636)
Michigan Single Business Tax (251) (239)
--------- ---------
Operating income 2,980 5,741
Other income, net 2,511 1,136
--------- ---------
Income before income taxes 5,491 6,877
Income tax provision 2,530 2,908
--------- ---------
Net income $ 2,961 $ 3,969
========= =========
</TABLE>
49
<PAGE> 51
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
GEOMETRIC RESULTS INCORPORATED - SERVICES
(A FORMER BUSINESS UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE EIGHT-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
FOR THE
FOR THE EIGHT MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, AUGUST 31,
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash from (used for):
Operating Activities:
Net income $ 2,961 $ 3,969
Adjustments to reconcile net income to net cash
from (used for) operating activities:
Depreciation 5,111 3,960
Loss on disposal of assets 481 8
Provision for doubtful accounts (62) (2)
Deferred income taxes (101) 262
(Increase) decrease in receivables (15,602) 39,865
(Increase) decrease in prepaid expenses and other assets (2,588) (1,071)
Increase (decrease) in accounts payable (8,571) (10,750)
Increase (decrease) in accrued payroll and benefits 2,162 (1,962)
Increase (decrease) in income taxes due to parent 4,618 2,192
Increase (decrease) in accrued expenses (656) (248)
-------- --------
Net cash from (used for) operating activities (12,247) 36,223
-------- --------
Investing activities:
Proceeds from sale of assets 333 -
Capital expenditures (3,676) (4,047)
-------- --------
Net cash used for investing activities (3,343) (4,047)
-------- --------
Financing activities:
Net borrowings on lines of credit from parent (3,231) 2,135
Divisional equity transfer 10,215 1,007
Increase in cash overdraft 9,273 4,221
-------- --------
Net cash from financing activities 16,257 7,363
-------- --------
Effect of exchange rate changes on cash 117 (441)
-------- --------
Cash and cash investments:
Increase for the period 784 39,098
At January 1 16,496 17,280
-------- --------
At end of period $ 17,280 $ 56,378
======== ========
</TABLE>
50
<PAGE> 52
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
APX INTERNATIONAL
CONDENSED COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 31, 1995 TO NOVEMBER 6, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1995 TO
NOVEMBER 6, 1996
----------------------------------------------
GUARANTOR NON-GUARANTOR APX
SUBSIDIARIES SUBSIDIARIES COMBINED
------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales $ 126,853 $ 8,197 $ 135,050
Cost of sales (118,566) (8,554) (127,120)
--------- --------- ---------
Gross profit (loss) 8,287 (357) 7,930
Selling, general and administrative expenses (7,357) (528) (7,885)
Michigan Single Business Tax (806) - (806)
--------- --------- ---------
Operating profit (loss) 124 (885) (761)
Other expense, net (2,126) (3) (2,129)
--------- --------- ---------
Loss before income tax benefit (2,002) (888) (2,890)
Income tax benefit 195 - 195
--------- --------- ---------
Net loss $ (1,807) $ (888) $ (2,695)
========= ========= =========
</TABLE>
51
<PAGE> 53
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
APX INTERNATIONAL
CONDENSED COMBINING STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 31, 1995 TO NOVEMBER 6, 1996
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 31, 1995 TO
NOVEMBER 6, 1996
---------------------------------------------
GUARANTOR NON-GUARANTOR APX
SUBSIDIARIES SUBSIDIARIES COMBINED
------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash from (used for):
Operating Activities:
Net loss $(1,807) $ (888) $(2,695)
Adjustments to reconcile net income to net cash
from (used for) operating activities:
Depreciation and amortization 1,745 97 1,842
Loss on disposal of fixed assets 633 - 633
Changes in asssets and liabilities:
Accounts receivable 2,914 (1,153) 1,761
Inventory 1,503 - 1,503
Prepaid expenses and other current assets (834) 170 (664)
Accounts payable 764 2 766
Accrued expenses 3,980 (25) 3,955
------- ------- -------
Net cash provided (used) by operating activities 8,898 (1,797) 7,101
------- ------- -------
Investing Activities:
Purchases of equipment (444) (162) (606)
------- ------- -------
Net cash used for investing activities (444) (162) (606)
------- ------- -------
Financing activities:
Advances from affiliates (9,969) 1,802 (8,167)
Capital lease payments (394) - (394)
Bank overdraft 1,455 - 1,455
Other (164) 164 -
------- ------- -------
Net cash from (used for) financing activities (9,072) 1,966 (7,106)
------- ------- -------
Net increase (decrease) in cash (618) 7 (611)
Cash, beginning of period 657 80 737
------- ------- -------
Cash, end of period $ 39 $ 87 $ 126
======= ======= =======
</TABLE>
52
<PAGE> 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
53
<PAGE> 55
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to
directors and executive officers of the Company as of January 3, 1999.
NAME AGE POSITION
---- --- --------
Erwin H. Billig...................... 72 Chief Executive Officer,
Chairman of the Board of
Directors
Frederick K. Minturn................. 42 Executive Vice President; Chief
Financial Officer
Roger Fridholm....................... 58 President, Business, Technology
and Staffing Services Division
John Risk............................ 60 President, Product Development
Services Division
Ralph L. Miller...................... 56 Special Assistant to the
Chairman of the Board
Richard M. Cashin, Jr................ 45 Director
David E. Cole........................ 61 Director
Michael A. Delaney................... 44 Director
Lee Gardner.......................... 51 Director
Richard A. Manoogian................. 62 Director
Erwin H. Billig has been Chief Executive Officer since April 28, 1998 and
Chairman of the Board of Directors since January 3, 1997. He served as Vice
Chairman of MascoTech from 1994 to 1997 and was President and Chief Operating
Officer of MascoTech from 1986 to 1994. He is also the Chairman of the Board of
Directors of Titan Wheel International, Inc., a director of OEA, Inc. and a
director and Vice Chairman of Delco Remy International, Inc.
Frederick K. Minturn has been Executive Vice President and Chief Financial
Officer since January 3, 1997. Mr. Minturn was Group Controller of MascoTech's
Automotive Operations from 1991 through December 1996 and was a Vice President
of such group from 1994 through December 1996.
Roger Fridholm has been President of the Business, Technology and Staffing
Services Division since May 26, 1998. Mr. Fridholm has also served as President
of St. Clair Group, Inc., a private investment company, since 1991 and as
Chairman of Ad Hoc Legal Resources LLC since 1995, as President of IPG Services
Corporation since 1996, and as President of Ad Hoc, Inc. since 1997, all of
which are staffing service companies. Mr. Fridholm is a director of The Stroh
Companies, Inc., MascoTech, Inc., MCN Energy Group and Comerica Bank.
54
<PAGE> 56
John Risk has been President of the Product Development Services Division
since May 11, 1998. Mr. Risk retired from Ford Motor Company in 1997, where he
served as director of a vehicle line from 1994 to 1997.
Ralph L. Miller has been Special Assistant to the Chairman of the Board
since April 28, 1998. From January 3, 1997 to April 28, 1998, Mr. Miller served
as President and Chief Operating Officer. He was President and Chief Executive
Officer of APX International, Inc. from January 1994 through December 1996. He
is also a director of Separation Dynamics International Ltd. and iX Systems,
Inc.
Richard M. Cashin, Jr. has been a director since January 3, 1997. Mr.
Cashin has been president of CVC since 1994. Mr. Cashin is also a director of
Levitz Furniture Inc., Delco Remy International, Inc., LifeStyle Furnishings
International Ltd., Fairchild Semiconductor Corporation, FFC Holding, Inc.,
Cable Systems International, Euramax International, Plc, Titan Wheel
International, Inc., Hoover Group Inc., Thermal Engineering, Gerber
Childrenswear Inc., JAC Holding Corporation, GVC Holdings, Ballantrae
Corporation and Delta Commodities, Inc.
David E. Cole has been a director since January 3, 1997. Mr. Cole has been
the Director of the Office for the Study of Automotive Transportation (OSAT) at
the University of Michigan's Transportation Research Institute since 1978. Mr.
Cole is a director of Mechanical Dynamics Inc., JPE Inc., Thyssen U.S., Saturn
Electronics and Engineering Inc., and Plastech Inc. Mr. Cole is also a director
of the Automotive Hall of Fame and is on the Board of Trustees of Hope College.
Michael A. Delaney has been a director since January 3, 1997. Mr. Delaney
has been a Vice President of CVC since 1989. Mr. Delaney is also a director of
Allied Digital Technologies, Inc., GVC Holdings, JAC Holding Corporation, CORT
Business Services Corporation, Inc., Palomar Technologies Corporation, Great
Lakes Dock & Dredge Corporation, SC Processing, Inc., Triumph Group, Inc., CLARK
Material Handling Inc., International Knife and Saw, Inc., Aetna Industries,
Inc., AmeriSource Health Corporation and Delco Remy International, Inc.
Lee M. Gardner has been a director since January 3, 1997. Mr. Gardner has
served as President and Chief Operating Officer of MascoTech since 1992.
Richard A. Manoogian has been a director since January 3, 1997. Mr.
Manoogian served as Chairman, Chief Executive Officer and a director of
MascoTech from 1984 to 1998 and continues to serve as Chairman and as a
director. Mr. Manoogian is also Chairman of the Board and CEO of Masco
Corporation and a director of Bank One Corporation, Detroit Renaissance and
The American Business Conference.
Each director of the Company holds office until a successor is elected and
qualified or until such director's earlier resignation or removal.
55
<PAGE> 57
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth certain information
with respect to all compensation paid or earned for services rendered to the
Company for the last two fiscal years (except for bonus amounts, which are
compensation for services rendered in the immediately preceding year) of those
persons who served as (i) the Company's Chief Executive Officer during fiscal
1998 and (ii) the Company's four most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers of
the Company at the end of fiscal 1998 (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
FISCAL YEAR OTHER ANNUAL
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) COMPENSATION
--------------------------- ($)
------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Erwin H. Billig.............................. 1/3/99 240,000 ---
Chief Executive Officer, Chairman 12/28/97 240,000 --- ---
of the Board of Directors
Ralph L. Miller.............................. 1/3/99 335,400 61,925 16,770(1)
Special Assistant to the Chairman 12/28/97 325,000 --- 13,575(1)
of the Board
Frederick K. Minturn......................... 1/3/99 212,500 20,000 105,128(2)
Executive Vice President; Chief 12/28/97 200,000 65,000 100,594(2)
Financial Officer
Roger Fridholm............................... 1/3/99 152,700 --- ---
President, Business, Technology, and 12/28/97 --- --- ---
Staffing Services Division
John Risk.................................... 1/3/99 174,667 --- ---
President, Product Development 12/28/97 --- --- ---
Services
</TABLE>
- -------------------------
(1) Company match of amounts of employee salary deferrals pursuant to the
Company's Deferred Compensation Plan.
(2) Company match of amounts of employee salary deferrals pursuant to the
Company's Deferred Compensation Plan totaling $10,625 in fiscal 1998 and
$8,333 in fiscal 1997, combined with the value on the date of vesting of
4,697 shares of common stock of MascoTech granted pursuant to
MascoTech's 1991 Stock Incentive Plan, being compensation for services
prior to 1997.
Pursuant to the Company's Deferred Compensation Plan, certain of the
Company's management employees have the option of deferring salary and bonus
amounts up to a maximum amount of 10% of salary. In addition, deferred
discretionary bonuses may be awarded by the Company to participants in the
Deferred Compensation Plan. Such deferred amounts and Company matches are
credited to an account on the books of the Company, which is credited annually
with earnings. In 1997 and 1998, the Company matched five percent of the amount
deferred by participants in the Deferred Compensation Plan.
56
<PAGE> 58
DIRECTOR COMPENSATION
Outside directors are entitled to receive $10,000 in annual compensation
and $500 per meeting attended. As of the date of this Report, Mr. Cole is the
only outside director.
EMPLOYMENT AGREEMENTS
Ralph L. Miller and Frederick K. Minturn. Effective as of January 3, 1997,
the Company entered into employment agreements with Mr. Miller to serve as
President and Chief Operating Officer (Mr. Miller's position prior to April 28,
1998) and Mr. Minturn to serve as Executive Vice President and Chief Financial
Officer, each for an initial term of two years. Effective May 1, 1998, Mr.
Miller's Employment Agreement was amended to reflect the change in duties for
Mr. Miller's position and to adjust his compensation (the "Amendment"). The
following terms of Mr. Miller's agreement are still effective although his
position has changed. The agreements will automatically renew for successive
one-year terms unless otherwise terminated in writing by either the Company or
Messrs. Miller or Minturn, as the case may be. Annual base salary for Mr.
Miller, pursuant to the Amendment, is $335,400 and for Mr. Minturn is $200,000,
subject, in each case, to increases upon approval by the Board of Directors. The
agreements also provide that the Company will pay Mr. Miller and Mr. Minturn an
annual performance bonus pursuant to the Performance Incentive Plan described
below. Mr. Miller and Mr. Minturn will also be entitled to all other employee
benefits maintained for officers and employees of the Company. The Company may
terminate employment upon death or disability. Either the Company or Mr. Miller
or Mr. Minturn, as applicable, may terminate the agreement, with or without
cause (as defined therein). If the agreement is terminated without cause by the
Company or with good reason (as defined therein) by Mr. Miller or Mr. Minturn,
as applicable, the Company will pay to Mr. Miller or Mr. Minturn, as applicable,
the full base salary for the remainder of the term then in effect. The
agreements also provide that, during the term of their employment, and
thereafter for the greater of twelve months or the remainder of the then current
term, Mr. Miller and Mr. Minturn will not, directly or indirectly, engage in
certain activities competitive with the business of the Company. Pursuant to the
Amendment, the Company may elect to extend Mr. Miller's non-compete provision
for an additional six-month period in exchange for a payment equaling $10,000
per month.
Roger Fridholm. Mr. Fridholm's services are provided to the Company
pursuant to a Agreement with St. Clair Group, Inc. ("St. Clair Group"). Annual
compensation paid to St. Clair Group for Mr. Fridholm's services is $250,000,
subject to increase upon approval of the Board of Directors. The agreement also
provides that the Company will pay to St. Clair Group a discretionary annual
performance bonus for Mr. Fridholm's services. The bonus is guaranteed for 1998
at an amount equal to 50% of the fees paid to St. Clair Group, prorated based on
length of service. In addition, the agreement provides that St. Clair Group and
the Company may agree to extend Mr. Fridholm's term of service for an additional
three years. If such an extension is agreed upon, the Company has agreed to
purchase from Mr. Fridholm, for an amount less than $4.0 million, an employee
leasing business owned by Mr. Fridholm's spouse.
57
<PAGE> 59
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee are Messrs. Billig, Delaney and
Gardner. Messrs. Billig and Delaney also serve on the compensation committee of
Delco Remy International, Inc.
The compensation committee recommended adoption of the Company's
Performance Incentive Plan to reflect the Company's compensation policy.
PERFORMANCE INCENTIVE PLAN
The Company introduced the Performance Incentive Plan ("PIP") in April
1998. All of the Company's salaried employees, including executive officers, are
eligible to receive payments under PIP. PIP offers target awards based on a
percentage of an employee's annual base salary. Actual awards are based on
individual as well as corporate and business unit performance. Under PIP, each
of Mr. Miller, Mr. Minturn, and Mr. Risk may receive a discretionary annual
performance bonus, capped at 87.5% of his annual base salary, if the Company
meets or exceeds its target performance.
Mr. Billig is eligible to receive discretionary annual bonuses as
determined by the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding the beneficial
ownership, as defined in Rule 13d-3 of the Securities Exchange Act of 1934 (the
"Exchange Act"), of the Company's common stock as of March 25, 1999 by (i) each
stockholder known to the Company to be the beneficial owner of 5% or more of any
class of the Company's voting securities, (ii) each of the Company's directors
and executive officers and (iii) all directors and executive officers as a
group. So far as is known to the Company, the persons named in the tables below
as beneficially owning the shares set forth therein have sole voting power and
sole investment power with respect to such shares, unless otherwise indicated.
58
<PAGE> 60
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY OWNED PERCENT OF CLASS
----------------------- -----------------------
CLASS SERIES A CLASS SERIES A
A PREFERRED A PREFERRED
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK
- ---------------------------------------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
MascoTech, Inc..................... 43,752* 180,000 43.8% 50.0%
21001 Van Born Road
Taylor, Michigan 48180
Citicorp Venture Capital, Ltd........... 32,041* 131,826 32.0% 36.6%
399 Park Avenue, 14th Floor
New York, New York 10043
CCT Partners IV, L.P............. 5,468* 22,495 5.5% 6.2%
399 Park Avenue, 14th Floor
New York, New York 10043
Richard M. Cashin, Jr.................. 1,084* 4,466 1.0% 1.2%
399 Park Avenue, 14th Fl.
New York, New York 10043
Michael A. Delaney................ 332* 1,367 0.3% 0.4%
399 Park Avenue, 14th Fl.
New York, New York 10043
Erwin H. Billig(1)...................... 3,000* -- 3.0% --
275 Rex Blvd.
Auburn Hills, MI 48326
Frederick K. Minturn.................... 1,500* -- 1.5% --
275 Rex Blvd.
Auburn Hills, MI 48326
Roger Fridholm..................... 1,999* -- 2.0% --
275 Rex Blvd.
Auburn Hills, MI 48326
John Risk............................. 1,000* -- 1.0% --
275 Rex Blvd.
Auburn Hills, MI 48326
Ralph L. Miller(2)...................... 4,867* 7,697 4.9% 2.1%
275 Rex Blvd.
Auburn Hills, MI 48326
All directors and executive officers as a
group.................................... 13,782 13,530 13.5% 3.8%
</TABLE>
* Consists of an equal number of shares of each of Series A-1 Common Stock,
Series A-2 Common Stock, Series A-3 Common Stock and Series A-4 Common
Stock (collectively, the "Class A Common Stock")
(1) In name of Billig Family Limited Partnership.
(2) As trustee of Kyung Ae Bae and Ralph L. Miller, Trustees
59
<PAGE> 61
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCKHOLDERS' AGREEMENT
On January 3, 1997, in connection with the ownership of certain capital
shares of the Company, the Company entered into a stockholders' agreement (the
"Stockholders' Agreement") with MascoTech, CVC and certain executive officers
and directors of the Company (the "Management Stockholders" and, together with
MascoTech and CVC, the "Stockholders"). The Stockholders' Agreement imposes
certain restrictions on, and rights with respect to, the transfer of shares of
the Company's Common Stock (as defined) and Series A Preferred Stock held by
MascoTech, CVC and the Management Stockholders. The Stockholders Agreement also
entitles the Stockholders to certain rights regarding corporate governance of
the Company and to CVC and MascoTech the right to purchase their pro rata share
in connection with the issuance of any new shares of Common Stock by the
Company.
The Stockholders' Agreement sets forth conditions under which the parties
may transfer their shares. The Stockholders' Agreement provides for a right of
first refusal in favor of the Company in the event that any Stockholder (the
"Selling Stockholder") desires to transfer its shares of Common Stock pursuant
to a bona fide third party offer or an involuntary transfer (as defined in the
Stockholders Agreement). To the extent that the Company elects to purchase fewer
than all of the shares proposed to be sold by such Selling Stockholder, the
Stockholders' Agreement provides for rights of first refusal on a pro rata basis
in favor of the other Stockholders. Pursuant to an Amendment to the Stockholders
Agreement dated as of August 10, 1998, as a result of the sale by CVC of shares
to Mr. Miller, CVC has the right of first refusal with respect to shares owned
by Mr. Miller, up to an amount necessary to bring CVC back to its original
ownership level. In the case of a bona fide third party offer, without the
consent of the Selling Stockholders, neither the Company nor the other
Stockholders may purchase any of the shares pursuant to the right of first
refusal unless all such shares are purchased. If such Selling Stockholder is
MascoTech or CVC, and such Selling Stockholder proposes to sell shares
representing more than 5% of the outstanding shares of Common Stock on a
fully-diluted basis or if any Selling Stockholder proposes to transfer shares of
Series A Preferred Stock, then such Selling Stockholder must also cause the
buyer to give the other Stockholders an option to sell a pro rata number of
their respective shares of the same class and on the same terms and conditions
as the Selling Stockholder.
In the event that a Management Stockholder's shares of capital stock are
subject to an involuntary transfer (such as a seizure pursuant to a judgment
lien or in connection with any voluntary or involuntary bankruptcy proceeding),
the Stockholders' Agreement grants similar rights to purchase such shares first
to the Company and then to MascoTech and CVC, pro rata.
Subject to certain restrictions, following the fifth anniversary of the
date of the Stockholders' Agreement and for as long as CVC or MascoTech, as the
case may be, or any of their permitted successors and assigns, shall hold more
than 60% of the Common Stock of the Company originally issued to them, the
Stockholders' Agreement grants each
60
<PAGE> 62
of MascoTech and CVC certain "drag-along rights." The drag-along rights require
the other Stockholders to sell all of their capital stock upon the same terms
and conditions as MascoTech and CVC in connection with the sale of all of the
shares of MascoTech or CVC, as the case may be, to a third party. In addition,
if MascoTech or CVC propose the transfer or sale of all or substantially all of
the assets or business of the Company to any third party, MascoTech or CVC, as
the case may be, may require the other Selling Stockholders to take all action
necessary to cause the Company to approve such transaction.
The Stockholders' Agreement provides that the Board of Directors (the
"Board") of the Company shall consist of seven members consisting of two
nominees of CVC, two nominees of MascoTech, one nominee of the Management
Stockholders and two disinterested directors. Voting on the Board is weighted so
as to provide each MascoTech designate with 17.5%, each CVC designate with
17.5%, the Management designate with 10%, and each disinterested director with
10%, respectively, of the voting power on the Board.
REGISTRATION RIGHTS AGREEMENT
On January 3, 1997, the Company entered into a registration rights
agreement (the "MSXI Registration Rights Agreement") with the CVC, MascoTech and
the Management Stockholders. The MSXI Registration Rights Agreement provides
that CVC and MascoTech shall be entitled, at any time, to request that the
Company effect an underwritten primary or secondary public offering, which
raises aggregate net proceeds to the Company of at least $50,000,000 or, after
June 3, 1998, to request that the Company effect an underwritten primary or
secondary public offering of at least 25% of the Company's Common Stock on a
fully diluted basis; and in connection with any such public offering the Company
is required to use reasonable efforts to include in such offering all other
shares, subject to certain exceptions, that the stockholders request for
inclusion therein. In addition, at any time following an initial public offering
of the Company's shares, the MSXI Registration Rights Agreement provides that,
subject to certain limitations, each of CVC and MascoTech shall be entitled to
request three long-form registrations using SEC Form S-1 or S-2 and request
unlimited short-form registrations using Form S-3 (any registration effected in
accordance with this or the preceding sentence, a "Demand Registration"). If (i)
the Company's Board determines that a Demand Registration must be postponed to
avoid the disclosure of material non-public information or (ii) as a result of a
pending material financing or acquisition, then the Company may require CVC or
MascoTech, as the case may be, to withdraw its Demand Registration and not
submit another Demand Registration for up to sixty days. Whenever the Company
decides to register any of its shares (other than on Forms S-4 and S-8), the
CVC, MascoTech and Management Stockholders have the right to register (or
"piggyback") their shares on the same terms as the Company. The Company is
obligated to pay all reasonable fees, costs and expenses in connection with any
initial, demand or piggyback registration.
61
<PAGE> 63
Notwithstanding such demand registration rights, the Company shall not be
obligated to effect a Demand Registration statement if, within 90 days of such
request, a registration statement in which CVC or MascoTech was entitled to
participate, pursuant to their demand or piggyback registration rights, was
filed. In addition, the Company and each Stockholder shall be precluded from
effecting any public sale or distribution of the shares for a certain period
prior to and following the effective date of any initial public offering or any
demand or piggyback registration. In each demand registration, holders of
registrable securities other than the holders initiating such registration may
include their securities in such registration, subject to certain restrictions.
The MSXI Registration Rights Agreement contains indemnity and contribution
provisions between the Company and any selling stockholders for losses arising
out of any registration effected pursuant to the MSXI Registration Rights
Agreement.
OTHER
The services of Mr. Fridholm are provided to the Company through his
employer, St. Clair Group, a company owned by Mr. Fridholm's spouse. See
"Executive Compensation."
On August 10, 1998, CVC sold to Mr. Miller 1,900 shares of the Company's
Class A Common Stock and 7,815 shares of the Company's Series A Preferred Stock
for a cumulative purchase price of $1 million.
62
<PAGE> 64
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) LISTING OF DOCUMENTS
(1) Financial Statements. The Company's Consolidated Financial
Statements included in Item 8 hereof, as required for the year
ended December 31, 1996 and for the fiscal years ended December
28, 1997 and January 3, 1999, consist of the following:
Consolidated Balance Sheet
Combined and Consolidated Statements of Operations
Combined and Consolidated Statements of Cash Flows
Combined and Consolidated Statements of Shareholders'
Equity (Deficit)
Notes to Combined and Consolidated Financial Statements
(2) Financial Statement Schedules.
(i) Financial Statement Schedule of the Company appended hereto,
as required for the year ended December 31, 1996 and fiscal
years ended December 28, 1997 and January 3, 1999, consist
of the following:
II. Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 Amended and Restated By-laws of the Company.(1)
4.1 Indenture dated as of January 15, 1998 by and between the
Company, the Subsidiary Guarantors and IBJ Schroder Bank &
Trust Company, as trustee, in respect of the 11-3/8% Senior
Subordinated Notes due 2008.(1)
4.2 Form of Exchange Notes. (1)
4.3 Registration Agreement dated as of January 16, 1998 by and
among the Company, the Subsidiary Guarantors and Salomon
Brothers Inc, Lehman Brothers Inc. and First Chicago Capital
Markets, Inc. (1)
10.1 Stockholders' Agreement dated as of January 3, 1997 among
the Company, MascoTech, Inc. ("MascoTech"), Citicorp Venture
Capital, Ltd. ("CVC") and certain executive officers and
directors of the Company (1) and Amendment to Stockholders'
Agreement dated August 10, 1998.
63
<PAGE> 65
10.2 Registration Rights Agreement dated as of January 3, 1997
among the Company, CVC, MascoTech and certain executive
officers and directors of the Company.(1)
10.3 Amended and Restated Credit Agreement dated as of April 14,
1998 among the Company, the Subsidiary Guarantors and NBD
Bank as agent to the lenders party thereto. (1)
10.4 Master Vendor Agreement dated as of August 31, 1997 between
the Company and Ford Motor Company ("Ford").(1)
10.5 Master Supply Agreement dated as of August 31, 1997 between
the Company and Ford.(1)
10.6 MascoTech Subscription Agreement dated as of January 3,
1997 between the Company and MascoTech.(1)
10.7 CVC Subscription Agreement dated as of January 3, 1997
between the Company and CVC.(1)
10.8 Management Subscription Agreement dated as of January 3,
1997 between the Company and certain executive officers of
the Company.(1)
10.9 Stock Purchase Agreement dated as of July 25, 1997 between
MSX International (Holdings), Inc. and Ford.(1)
10.10 Acquisition Agreement dated as of November 12, 1996 among
the Company, MascoTech and ASG Holdings Inc. (1)
10.11 Employment Agreement dated as of January 3, 1997 between
the Company and Ralph L. Miller(1) and the Amendment
thereto dated May 1, 1998.
10.12 Employment Agreement dated as of January 3, 1997 between
the Company and Frederick K. Minturn.(1)
10.13 Asset Purchase Agreement dated as of October 23, 1998,
between MSX International Engineering Services, Inc. and
Lexstra International, Inc. and Lexus Temporaries, Inc.(2)
10.14 Deferred Compensation Plan.(1)
10.15 Services Agreement dated as of May 21, 1998 between MSX
International Inc., and St. Clair Group, Inc.
12 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Company.
27 Financial Data Schedule.
-------------------------
(1) Incorporated by reference to the Exhibits filed with MSX
International's Registration Statement on Form S-4 filed
July 21, 1998 (Amendment No. 3).
(2) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed
October 28, 1998.
64
<PAGE> 66
(b) REPORTS ON FORM 8-K.
(1) A Current Report on Form 8-K was filed by MSX International, Inc.
during the quarter ended January 3, 1999 reporting under Item 5 "Other
Events," the acquisition of Lexstra International, Inc. and Lexus
Temporaries, Inc. Included under Item 7 of such report was the
following exhibit:
(i) MSX International Press Release of October 27, 1998
announcing the acquisition of Lexstra International, Inc.
and Lexus Temporaries, Inc.
(2) A Current Report on Form 8-K was filed by MSX International, Inc.
during the quarter ending March 28, 1999 reporting under Item 2,
"Acquisition or Disposition of Assets," the acquisition of Lexstra
International, Inc. and Lexus Temporaries, Inc. Included under Item 7
of such report were the following exhibits:
(i) The audited financial statements of Lexstra International,
Inc. and Lexus Temporaries, Inc. as of and for the
ten-month period ended October 31, 1998.
(ii) The audited financial statements of Lexstra International,
Inc. and Lexus Temporaries, Inc. as of December 31, 1996
and 1997 and for each of the two years in the period ended
December 31, 1997.
(iii) MSX International, Inc. Pro Forma Consolidated Statement
of Operations for the fiscal nine-month period ended
September 27, 1998 (unaudited).
(iv) MSX International, Inc. Pro Forma Consolidated Statement
of Operations for the fiscal year ended December 28, 1997
(unaudited).
(v) MSX International, Inc. Pro Forma Consolidated Balance
Sheet as of September 27, 1998 (unaudited).
(3) A Current Report on Form 8-K was filed by MSX International, Inc.
during the quarter ending March 28, 1999 reporting under Item 5 "Other
Events," the acquisition of Megatech Engineering, Inc. Included under
Item 7 of such report was the following exhibit:
(ii) MSX International Press Release of December 23, 1998
announcing the acquisition of Megatech Engineering, Inc.
(c) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
None.
65
<PAGE> 67
(d) FINANCIAL STATEMENTS EXCLUDED FROM ANNUAL REPORT
None.
66
<PAGE> 68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MSX INTERNATIONAL, INC.
By: /s/ FREDERICK K. MINTURN
------------------------------------------
FREDERICK K. MINTURN
Executive Vice President and
Chief Financial Officer
April 1, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER: |
|
/s/ ERWIN H. BILLIG Chairman of the Board |
- ------------------------------- and Chief Executive Officer, |
ERWIN H. BILLIG Director |
|
|
CHIEF FINANCIAL OFFICER: |
|
/s/ FREDERICK K. MINTURN Executive Vice President |
- ------------------------------- and Chief Financial Officer |
FREDERICK K. MINTURN |
|
|
/s/ RICHARD M. CASHIN, JR. Director |
- ------------------------------- |
RICHARD M. CASHIN, JR |
|
|
/s/ DAVID COLE Director | April 1, 1999
- ------------------------------- |
DAVID COLE |
|
|
/s/ MICHAEL A. DELANEY Director |
- ------------------------------- |
MICHAEL A. DELANEY |
|
|
/s/ LEE GARDNER Director |
- ------------------------------- |
LEE GARDNER |
|
|
/s/ RICHARD A. MANOOGIAN Director |
- ------------------------------- |
RICHARD A. MANOOGIAN |
67
<PAGE> 69
MSX INTERNATIONAL, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(A)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
Schedules, as required for the fiscal years ended January 3, 1999 and December
28, 1997 and December 31, 1996:
PAGE
----
II. Valuation and Qualifying Accounts F-2
F-1
<PAGE> 70
<TABLE>
<CAPTION>
MSX INTERNATIONAL, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended January 3, 1999 and December 28, 1997 and the Year Ended December 31, 1996
Column A Column B Column C Column D Column E
-------------- -------------- --------------------------------- -------------- --------------
Additions
---------------------------------
Charged Charged
Balance at (Credited) (Credited) Balance at
Beginning of to costs to Other End of
Description Period and Expenses Accounts Deductions Period
-------------- -------------- ------------ --------------- -------------- --------------
(A) (B)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
deducted from accounts receivable
in the balance:
1998 $ 1,218,075 $ 662,289 $ 2,016,206 $ 421,004 $ 3,475,556
=============== ============== =============== ============== ===============
1997 $ - $ 445,124 $ 1,441,729 $ 668,778 $ 1,218,075
=============== ============== =============== ============== ===============
1996 (C) $ 300,000 $ 394,000 $ - $ 354,000 $ 342,000
=============== ============== =============== ============== ===============
</TABLE>
(A) Allowance of companies acquired including TSG in fiscal 1997, the Company's
predecessor for accounting purposes.
(B) Doubtful accounts charged off, net of recoveries.
(C) Results shown are for TSG.
F-2
<PAGE> 1
EXHIBIT 10.1
STOCKHOLDERS' AGREEMENT
AMENDMENT DATED AUGUST 10, 1998
Amendment No. 1 (this "Amendment"), dated as of August 10,
1998, to the STOCKHOLDERS' AGREEMENT (the "Agreement") dated as of January 3,
1997 by and among MSX INTERNATIONAL, INC., a Delaware corporation (the
"Company"), MascoTech, Inc. a Delaware corporation ("MascoTech"), Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), and each of the
individuals whose name appears on the signature pages thereto (individually, a
"Management Group Member" and, collectively, the "Management Group").
Capitalized terms are used as defined in Article I of the Agreement.
RECITALS
WHEREAS, the Company, MascoTech and MSX International, Inc., a
Michigan corporation and wholly-owned subsidiary of MascoTech, entered into an
Acquisition Agreement dated as of November 12, 1996 (as the same may be amended,
supplemented or modified from time to time, the "Acquisition Agreement");
WHEREAS, in connection with the consummation of the
transactions contemplated by the Acquisition Agreement and pursuant to the
Subscription Agreements, the Company issued shares of its capital stock to CVC,
MascoTech and the Management Group as set forth in Annex I to the Agreement;
WHEREAS, each of the Stockholders and the Company entered into
the Agreement to regulate certain aspects of their relationship and to provide
for, among other things, restrictions on the transfer or other disposition of
securities of the Company and matters relating to the corporate governance of
the Company and its Subsidiaries; and
WHEREAS, in connection with the Transfer of shares of Class A
Common and Series A Preferred to a Management Stockholder by CVC, each of the
Company, MascoTech and CVC desire to amend certain provisions of the Agreement,
all in accordance with Section 7.2 of the Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Section 1.1 "Defined Terms" shall be amended to include the
following terms to be inserted in alphabetical order:
<PAGE> 2
"Original Ownership Level Ratio" means a fraction the
numerator of which is the number of shares of Common Stock acquired by the
Institutional Stockholders on or prior to the Closing Date and the denominator
of which is the number of shares of Common Stock issued and outstanding as of
the Closing Date, in each case on a Fully-Diluted Basis and subject to any stock
splits, stock dividends or reclassifications or other similar events.
"Pro Rata" means, with respect to one or more Stockholders (i)
as it relates to the Common Stock, Equity Equivalents or New Common Stock, in
proportion to the number of shares of Common Stock on a Fully-Diluted Basis
owned by such Stockholder or Stockholders or which may be acquired by any
Stockholder or Stockholders, and (ii) as it relates to Series A Preferred, in
proportion to the number of shares of Series A Preferred, owned by such
Stockholder or Stockholders; provided, however, that for purposes of calculating
an Institutional Stockholder's holdings in accordance with the foregoing no
effect shall be given to a Transfer of any Common Stock or Series A Preferred to
a Miller Stockholder other than for purposes of Article III hereof.
"Series A Preferred Original Level Ratio" means a fraction the
numerator of which is the number of shares of Series A Preferred, acquired by
the Institutional Stockholders on or prior to the Closing Date and the
denominator of which is the number of shares of Series A Preferred issued and
outstanding as of the Closing Date, in each case subject to any stock splits,
stock dividends or reclassifications or other similar events.
1.2 Section 1.1 "Defined Terms" shall be amended to include the
following terms in subsection (c):
<TABLE>
<CAPTION>
- ---------------------------------------------- --------------------------------
Term Section
---- -------
- ---------------------------------------------- --------------------------------
<S> <C>
"Institutional Stockholder Notice" 2.5(b)
- ---------------------------------------------- --------------------------------
"Involuntary Transfer Notice" 2.6(a)
- ---------------------------------------------- --------------------------------
"Involuntary Transfer Purchase Notice" 2.6(b)
- ---------------------------------------------- --------------------------------
"Miller Stockholders" 2.5(b)
- ---------------------------------------------- --------------------------------
"Sale Event Notice" 4.1(a)
- ---------------------------------------------- --------------------------------
"Sale Event Purchase Notice" 4.1(b)
- ---------------------------------------------- --------------------------------
</TABLE>
1.3 Section 1.1 "Defined Terms" shall be amended to reflect the new
section reference opposite the following terms in subsection (c):
<TABLE>
<CAPTION>
- ---------------------------------------------- --------------------------------
Term Section
---- -------
- ---------------------------------------------- --------------------------------
<S> <C>
"Company Notice" 2.5(c)
- ---------------------------------------------- --------------------------------
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
---------------------------------------------- --------------------------------
Term Section
---- -------
---------------------------------------------- --------------------------------
<S> <C>
"Company Designee" 4.1(c)
---------------------------------------------- --------------------------------
"Prospective Buyer Notice" 2.5(d)
---------------------------------------------- --------------------------------
"Purchase Notice" 4.1(c)
---------------------------------------------- --------------------------------
"Sellers" 4.1(c)
---------------------------------------------- --------------------------------
"Subject Securities" 2.6(d)
---------------------------------------------- --------------------------------
"Third Party" 2.5(f)
---------------------------------------------- --------------------------------
</TABLE>
ARTICLE II
RESTRICTIONS ON TRANSFER
2.1 Subsection (a) of Section 2.4 "Transfer Restrictions" shall be
deleted in its entirety and replaced with the following:
"(a) Each of the Management Stockholders and the Additional
Stockholders severally agrees that it will not Transfer any Restricted
Securities, except (i) to a Permitted Transferee who shall have executed a
Joinder Agreement and thereby become a party to this Agreement; (ii) pursuant to
Section 2.6 (Involuntary Transfers); (iii) pursuant to 2.7 (Drag-Along Rights);
(iv) in accordance with Article III (Rights of Inclusion) in the capacity of an
Offeree thereunder; (v) pursuant to Article IV (Repurchase of Securities); (vi)
in a registered public offering or in a Rule 144 Transaction; or (vii) pursuant
to Section 2.5 (Right of First Refusal); provided, however, that no Management
Stockholder or Additional Management Stockholder shall Transfer any Restricted
Securities pursuant to Section 2.5 for a period of five years following the
Closing Date, and provided, further, that no Management Stockholder or
Additional Management Stockholder shall transfer any Unvested Shares except (x)
to a Permitted Transferee who shall have executed a Joinder Agreement and
thereby become a party to this Agreement or (y) pursuant to Section 2.6
(Involuntary Transfers), Section 2.7 (Drag-Along Rights) or Article IV
(Repurchase of Securities)."
2.2 Section 2.5 "Right of First Refusal" shall be deleted in its
entirety and replaced with the following:
"2.5 RIGHT OF FIRST REFUSAL.
(a) Except for Transfers permitted pursuant to Section 2.4(a),
Section 2.4(b), 2.4(c) or 2.4(d), if pursuant to a bona fide third party offer a
Stockholder desires to Transfer any Restricted Securities (such transferring
Stockholder, a "Selling Stockholder" and such securities proposed to be so
Transferred, the "Offered Securities"), prior to any Transfer it shall give
written
-3-
<PAGE> 4
notice of the proposed Transfer (the "Notice of Intention") to the Company, each
of the Institutional Stockholders and the MascoTech Stockholders (such parties
other than the Company to whom notice is given, but excluding the Selling
Stockholder, the "Prospective Buyers"), specifying the type and number of
Offered Securities which such Selling Stockholder wishes to Transfer, the
proposed purchase price (the "Offer Price") therefor and all other material
terms and conditions of the proposed Transfer.
(b) If the Selling Stockholder is Ralph L. Miller or any of his
Permitted Transferees (collectively, the "Miller Stockholders"), for a period of
thirty (30) days following its receipt of the Notice of Intention, each of the
Institutional Stockholders shall have the right to purchase all or any portion
of the Offered Securities at the Offer Price and on the other terms specified in
the Notice of Intention, up to such amount of Offered Securities so that, upon
such purchase, the Institutional Stockholders' Original Ownership Level Ratio
would be equal to 46.54%, calculated as if such purchase had been in effect on
the Closing Date and without giving effect to any Transfer of Common Stock by
the Institutional Stockholders other than to the Miller Stockholders,
exercisable by delivery of an irrevocable notice (the "Institutional Stockholder
Notice") to the Miller Stockholders, with a copy to the Company and the other
Prospective Buyer, specifying the number of Offered Securities with respect to
which each Institutional Stockholder is exercising its option.
(c) (A) For a period of thirty (30) days following its receipt of
the (x) Institutional Stockholder Notice or (y) the Notice of Intention, if no
Institutional Stock Notice of Intention may be given, or (B) for a period of
sixty (60) days following its receipt of the Notice of Intention, if no
Institutional Stockholder Notice is so received, but may be given, the Company
shall have the right to purchase (i) all or any portion of the Offered
Securities, if no Institutional Stockholder Notice is given but may be, (ii) any
portion of the Offered Securities which the Institutional Stockholder has
elected not to purchase, if an Institutional Stockholder Notice has been given,
or (iii) all or any portion of the Offered Securities, if no Institutional
Stockholder Notice may be given, in each case at the Offer Price and on the
other terms specified in the Notice of Intention, exercisable by delivery of an
irrevocable notice (the "Company Notice") to the Selling Stockholder, with a
copy to each of the Prospective Buyers, specifying the number of Offered
Securities with respect to which the Company is exercising its option.
(d) For a period of thirty (30) days following its receipt of the
Company Notice or, if no Company Notice is so received, for a period of thirty
(30) days following the last date on which such Company Notice may have been
given, each of the Prospective Buyers shall have the right to purchase at the
Offer Price and on the other terms specified in the Notice of Intention
addressed to it, any or all of the Offered Securities which neither the
Institutional Stockholder nor the Company has elected to purchase pursuant to
Sections 2.5(b) and (c), Pro Rata among the Prospective Buyers; provided,
however, that in the event any Prospective Buyer does not purchase any or all of
its Pro Rata portion of the Offered Securities, the other Prospective Buyers
shall have the right to purchase such portion, Pro Rata, until all of such
Offered Securities are purchased or until such other Prospective Buyers do not
desire to purchase any more Offered Securities. The right
-4-
<PAGE> 5
of the Prospective Buyers pursuant to this Section 2.5(d) shall be exercisable
by delivery of a notice (the "Prospective Buyer Notice") setting forth the
maximum number of Offered Securities that such Prospective Buyer wishes to
purchase, to the Selling Stockholder, the Company and the other Prospective
Buyers and shall expire if unexercised within such 30-day period.
(e) Notwithstanding the foregoing provisions of this Section 2.5,
except for purchases pursuant to Section 2.5(b), unless the Selling Stockholder
shall have consented to the purchase of less than all of the Offered Securities,
neither the Company nor any Prospective Buyer may purchase any Offered
Securities unless all of the Offered Securities are to be purchased (whether by
the Company or the Prospective Buyers, or any combination thereof).
(f) If all notices required to be given pursuant to this Section
2.5 have been duly given, and the Company and the Prospective Buyers determine
not to exercise their respective options to purchase the Offered Securities at
the Offer Price and on the other terms specified in the Notice of Intention or
determine, with the consent of the Selling Stockholder, to exercise their
options to purchase less than all of the Offered Securities, then the Selling
Stockholder shall have the right, for a period of ninety (90) days from the
earlier of (i) the expiration of the last applicable option period pursuant to
this Section 2.5 or (ii) the date on which such Selling Stockholder receives
notice from the Company and the Prospective Buyers that they will not exercise
in whole or in part the options granted pursuant to this Section 2.5, to sell to
a third party (a "Third Party") the Offered Securities remaining unsold under
this Section 2.5 at a price not less than the Offer Price and on other terms
which shall not be materially more favorable to the Third Party in the aggregate
than those terms set forth in the Notice of Intention; provided that prior to
any such Transfer to a Third Party, such Third Party executes and delivers to
the Company a Joinder Agreement and thereby becomes a party to this Agreement.
(g) The closing of any purchase and sale pursuant to this Section
2.5 shall take place on such date, not later than fifteen (15) business days
after the later of (A) delivery to the Selling Stockholder of (i) the
Institutional Stockholders' Notice, if applicable, (ii) the Company Notice or
(iii) the Prospective Buyer Notice and (B) if any of the foregoing notices are
not given, the last date on which such notice may be given, as the parties to
such purchase and sale shall select. At the closing of such purchase and sale,
the Selling Stockholder shall deliver certificates evidencing the Offered
Securities being sold duly endorsed, or accompanied by written instruments of
Transfer in form satisfactory to the purchasers thereof, duly executed by the
Selling Stockholder, free and clear of any Liens, against delivery of the Offer
Price therefor.
(h) Any Transfer by a MascoTech Stockholder or an Institutional
Stockholder which is subject to the requirements of Section 2.5 (including to
the Company, to another Stockholder or to a third party) shall be subject to
each other Stockholder's rights of inclusion under Article III; and prior to any
such Transfer, the Selling Stockholder, if applicable, shall deliver to the
other Stockholders an Inclusion Notice pursuant to Section 3.1(a)."
2.3 Section 2.6 "Involuntary Transfers" shall be deleted in its
entirety and replaced with the following:
-5-
<PAGE> 6
"2.6 INVOLUNTARY TRANSFERS.
(a) Upon the occurrence of any event which would cause any
Restricted Securities or Restricted Preferred Securities owned by a Management
Stockholder or an Additional Management Stockholder to be Transferred by
Involuntary Transfer, such Stockholder (or his or its legal representative or
successor) shall give the Company, the MascoTech Stockholders and the
Institutional Stockholders written notice thereof (the "Involuntary Transfer
Notice") stating the terms of such Involuntary Transfer, the identity of the
transferee or proposed transferee, the price or other consideration, if readily
determinable, for which the Restricted Securities or Restricted Preferred
Securities are proposed to be or have been Transferred and the number of
Restricted Securities or Restricted Preferred Securities which are the subject
of such Transfer, and the Company shall provide the MascoTech Stockholders and
the Institutional Stockholders with copies of such notice.
(b) If such Involuntary Transferee is with respect to a Miller
Stockholder, after its receipt of the Involuntary Transfer Notice or, failing
such receipt, after the Company otherwise obtains actual knowledge of such a
proposed or completed Involuntary Transfer and notifies the Institutional
Stockholders of the same, each of the Institutional Stockholders shall have the
right and option to purchase all or any portion of such Restricted Securities up
to such amount of such Restricted Securities so that, upon such purchase, the
Institutional Stockholders' Original Ownership Level Ratio would be equal to
46.54%, and (y) such Restricted Preferred Securities up to such amount of such
Restricted Preferred Securities so that, upon such purchase, the Institutional
Stockholders' Series A Preferred Original Ownership Level Ratio would be equal
to 50%, in each case calculated as if such purchase had been in effect on the
Closing Date and without given effect to any Transfer of Restricted Securities
or Restricted Preferred Securities by an Institutional Stockholder other than to
a Miller Stockholder, which right shall be exercised by written notice (the
"Involuntary Transfer Purchase Notice") given by each of the Institutional
Stockholders to the transferor (or transferee following the occurrence of any
Involuntary Transfer) and to the Company within thirty (30) days following the
Institutional Stockholders' receipt of such notice.
(c) After its receipt of the Involuntary Transfer Notice or,
failing such receipt, after the Company otherwise obtains actual knowledge of
such a proposed or completed Involuntary Transfer, subject to Section 2.6(b),
the Company shall have the right and option to purchase (or to have any designee
purchase) all or any portion of such Restricted Securities or Restricted
Preferred Securities, which right shall be exercised by written notice given by
the Company to the transferor (or transferee following the occurrence of any
Involuntary Transfer) and to the MascoTech Stockholders and the Institutional
Stockholders within thirty (30) days following the later of (i) the Company's
receipt of the Involuntary Transfer Notice or, failing such receipt, the
Company's obtaining actual knowledge of such proposed or completed Transfer,
(ii) the date of such Involuntary Transfer and (iii) the Company's receipt of
the Involuntary Transfer Purchase Notice, if applicable and given.
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<PAGE> 7
(d) In the event that the Institutional Stockholders and the
Company elect not to purchase all of such Restricted Securities or Restricted
Preferred Securities pursuant to Sections 2.6 (b) and (c), then the Company
shall on or prior to the end of such thirty (30) day period, notify the
MascoTech Stockholders and the Institutional Stockholders thereof, such notice
to identify the Securities not purchased by the Institutional Stockholders and
the Company pursuant to Sections 2.6(b) and (c) (the "Subject Securities"). For
a period of thirty (30) days after receipt of such notice from the Company, each
of the MascoTech Stockholders and the Institutional Stockholders shall have the
irrevocable right to purchase any or all of the Subject Securities, Pro Rata
(based on the proportion as between the MascoTech Stockholders and the
Institutional Stockholders of the Pro Rata number of shares of Restricted
Securities or Restricted Preferred Securities (as the case may be) held by the
MascoTech Stockholders or Institutional Stockholders); provided, however, that
in the event any MascoTech Stockholder or Institutional Stockholder does not
purchase any or all of its pro rata portion of the Subject Securities, the
remaining MascoTech Stockholders and Institutional Stockholders shall have the
right to purchase such portion pro rata as among themselves until all of the
Subject Securities are purchased or until such persons do not desire to purchase
any more Subject Securities. The right of the MascoTech Stockholders and the
Institutional Stockholders to purchase Subject Securities pursuant to this
Section 2.6 shall be exercisable by delivery of a notice to the transferor (or
transferee following the occurrence of any Involuntary Transfer) setting forth
the maximum number of Subject Securities that such person wishes to purchase
including any number which would be allocated in the event that any MascoTech
Stockholder or Institutional Stockholder does not purchase all or any portion of
its pro rata portion.
(e) Any purchase pursuant to this Section 2.6 shall be at the
price and on the terms applicable to such Involuntary Transfer; provided,
however, that if the nature of the event giving rise to such Involuntary
Transfer is such that no readily determinable consideration is to be paid for or
assigned to the Transfer of the Restricted Securities or Restricted Preferred
Securities, the price to be paid by the Company, the MascoTech Stockholders or
the Institutional Stockholders, as the case may be, and the applicable terms
shall be the purchase price and terms applicable to a Sale Event pursuant to
Section 4.2. The closing of the purchase and sale of such Restricted Securities
or Restricted Preferred Securities pursuant to this Section 2.6 shall be held at
the place and on the date to be established by the Company, the MascoTech
Stockholders and/or the Institutional Stockholders, as the case may be, which in
no event shall be less than ten (10) nor more than forty-five (45) days from the
date on which the Company (or the MascoTech Stockholders and/or the
Institutional Stockholders, as the case may be) gives notice of its election to
purchase such Restricted Securities or Restricted Preferred Securities. At such
closing, the Stockholder (or his or its legal representative or successor) shall
deliver the certificates evidencing the Restricted Securities or Restricted
Preferred Securities to be purchased by the Company (or the MascoTech
Stockholders and/or the Institutional Stockholders, as the case may be), as
applicable, accompanied by stock powers, duly endorsed in blank, or duly
executed instruments of Transfer, and any other documents that are necessary to
Transfer to the Company (or the MascoTech Stockholders and/or the Institutional
Stockholders, as the case may be) good title to such Restricted Securities or
Restricted Preferred Securities free and clear of all Liens and, concurrently
with such delivery, the Company (or the MascoTech Stockholders and/or the
Institutional Stockholders, as the case may be) shall
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<PAGE> 8
deliver to the transferor thereof the full amount of the purchase price therefor
by certified or bank cashier's check.
(f) Notwithstanding anything to the contrary contained herein, in
the event a purchase (or the payment of the purchase price) by the Company
pursuant to this Section 2.6 would violate or conflict with any statute, rule,
injunction, regulation, order, judgment or decree applicable to the Company or
any of its Subsidiaries or by which any of them or their respective properties
may be bound or affected or would result in any breach of, or constitute a
change of control or a default (or an event which with notice or lapse of time,
or both, would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the property or assets of the Company or any of its
Subsidiaries pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, franchise or other instrument or obligation to which
the Company or any of its Subsidiaries is a party or by which any of their
respective properties is bound or affected, with the prior written consent of
each of the Institutional Stockholders and the MascoTech Stockholders, the
rights of the Company to purchase (or to have any designee purchase) the
Restricted Securities or Restricted Preferred Securities of any Stockholder
shall be suspended until the earlier of (i) the date which falls thirty (30)
days following such time as such prohibition first lapses or is waived and no
such default would be caused or (ii) the date which is one hundred eighty (180)
days after the date of the Involuntary Transfer. For the purposes of this
Section 2.6 (other than Section 2.6 (b) hereof) only, the date of such lapse or
waiver shall be deemed the date of the Involuntary Transfer for purposes of the
purchase and sale of Restricted Securities or Restricted Preferred Securities
pursuant to this Section 2.6. The Company shall use its reasonable efforts to
obtain a waiver of any such prohibition, but shall not be obligated to incur any
additional interest or other costs or charges or to make any prepayment with
respect to any indebtedness in connection with such efforts.
(g) Notwithstanding anything to the contrary contained in this
Section 2.6, any event giving rise to an Involuntary Transfer which is also
subject to the provisions of Article IV shall be governed by the provisions of
Article IV.
ARTICLE III
REPURCHASE OF SECURITIES
3.1 Section 4.1 "Sale Event" shall be deleted in its entirety and
replaced with the following:
"4.1 SALE EVENT.
(a) In the event that any Management Stockholder or any Additional
Management Stockholder shall cease to be employed by (or in the case of any
non-employee ceases to be a director of) the Company or any of its Subsidiaries
for any reason, including death, permanent disability, termination for cause or
without cause, voluntary termination, retirement or
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<PAGE> 9
otherwise (such cessation of employment or directorship being referred to herein
as a "Sale Event"), but in each case subject to Section 4.4, such Management
Stockholder (or his personal representative) or such Additional Management
Stockholder (or his personal representative) shall promptly notify (the "Sale
Event Notice") the Company, the MascoTech Stockholders and the Institutional
Stockholders of the applicable Sale Event.
(b) If such Sale Event is with respect to a Miller Stockholder,
within ninety (90) days after the Institutional Stockholders' receipt of the
Sale Event Notice, each of the Institutional Stockholders may, at its option,
elect to purchase an amount of Management Securities as follows: (x) if
Restricted Securities, up to such amount so that, upon such purchase, the
Institutional Stockholders' Original Ownership Level Ratio would be equal to
46.54% and (y) if Restricted Preferred Securities, up to such amount so that,
upon such purchase, the Institutional Stockholders Series A Preferred Original
Ownership Level Ratio would be equal to 50%, in each case calculated as if such
purchase had been in effect on the Closing Date and without giving effect to any
Transfer of Restricted Securities or Restricted Preferred Securities by an
Institutional Stockholder other than to the Miller Stockholders, exercisable by
written notice (a "Sale Event Purchase Notice") delivered to such Management
Stockholder (or his personal representative) (with copies thereof to the
Company) and his respective Permitted Transferees who hold Management Securities
which are attributable to the Management Stockholder whose employment or
directorship has ceased (collectively, the "Sellers"). Upon the giving of a Sale
Event Purchase Notice, the Sellers shall be obligated to sell to the
Institutional Stockholders those Management Securities which are designated in
the Sale Event Purchase Notice; provided, however, that in the event a Sale
Event Notice is not given, a Sale Event Purchase Notice may in any event be
given at any time following a Sale Event. The time periods set forth herein and
in Sections 4.1(c) and (d) below shall be tolled for the duration of any
suspension period under Section 4.4 hereof and the remaining balance of any such
time period shall re-commence as of the end of any such suspension period.
(c) Subject to Section 4.1(b), within ninety (90) days after the
later of the Company's receipt of the Sale Event Notice or the Sale Event
Purchase Notice, if applicable and given, the Company or, at the option of the
Company, any present or future employee or director of the Company or any of its
Subsidiaries who shall have been designated by the Board acting by an
Institutional Affirmative Board Vote and a MascoTech Affirmative Board Vote
(subject, in each case, to the same qualification applicable to a Significant
Transaction under Section 5.5) (a "Company Designee") may, at its option, elect
to purchase the Securities described in the next sentence of this Section
4.1(c), exercisable by written notice (a "Purchase Notice") delivered to each of
the Sellers (with a copy to the Institutional Stockholders and the MascoTech
Stockholders). Upon the giving of such notice, the Sellers shall be obligated to
sell to the Company or the Company Designee those Management Securities (whether
Vested Shares or Unvested Shares) of the Sellers which are designated in the
Purchase Notice (but in no event in an amount in excess of the total number of
Management Securities less any Management Securities that the Institutional
Stockholders have elected to purchase pursuant to Section 4.1(b)); provided,
however, that in the event a Sale Event Notice is not given, a Purchase Notice
(or notice from the Institutional
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<PAGE> 10
Stockholders and/or MascoTech Stockholders as described in Section 4.1(d)) may
in any event be given at any time following a Sale Event.
(d) To the extent the Institutional Stockholders fail to deliver a
Sale Event Purchase Notice and the Company or any Company Designee fails to
deliver a Purchase Notice or otherwise does not purchase all of the Management
Securities then owned by the Sellers, the Institutional Stockholders and the
MascoTech Stockholders may, at their option, exercisable by written notice
delivered to the Sellers within fifteen (15) days after delivery of the Purchase
Notice (or (x) one hundred (100) days after the Sale Event Notice, if no Sale
Event Purchase Notice may be given by the Institutional Stockholders, or (y) one
hundred ninety (190) days after the Sale Event Notice, if a Sale Event Notice
may be given, but no Purchase Notice is given by Company or any Company
Designee), on a pro rata basis (in proportion to the number of shares of Common
Stock on a Fully-Diluted Basis owned by the Institutional Stockholders as
compared with the number of such shares owned by the MascoTech Stockholders (and
including on such pro rata basis with respect to the number of Vested Shares or
Unvested Shares purchasable by each such Person)) purchase the Management
Securities not so purchased by the Institutional Stockholders and the Company
pursuant to Sections 4.1(b) and (c) which are designated in such written notice
from the Institutional Stockholders and/or the MascoTech Stockholders."
ARTICLE IV
MISCELLANEOUS
4.1 A new Section 7.21 shall be added to Article VII which shall read
as follows:
"7.21 VESTING OF CERTAIN MANAGEMENT STOCK. Notwithstanding any other
provision of this Agreement or the Management Subscription Agreement between
Ralph L. Miller (the "Executive") and the Company dated as of January 3, 1997
(the "Management Subscription Agreement") which conditions vesting of the
Management Stock owned by Ralph L. Miller (the "Executive") upon the continued
employment of the Executive, should the Executive's Employment Period (as
defined in the Employment Agreement between the Executive and the Company, dated
as of November 12, 1996, as amended (the "Employment Agreement")) terminate
prior to the third anniversary of the Management Subscription Agreement (the
"Third Anniversary"), (unless terminated by the Company for "cause" or by the
Executive for "Good Reason", as such terms are defined in the Employment
Agreement), any unvested portion of the Management Stock issued to the Executive
on January 3, 1997 (being 3,000 shares of Class A Common Stock of the Company,
as adjusted to reflect all stock splits, stock dividends, recapitalization or
similar events affecting such shares subsequent to such date) which would have
vested during the period from the effective date of termination through the
Third Anniversary shall be deemed vested on the effective date of termination of
the Executive's employment. After the Third Anniversary, vesting of such shares
shall continue only if the Executive remains employed by the Company or is
otherwise eligible for vesting as stated in and subject to the terms and
conditions of this Agreement and Management Subscription Agreement."
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<PAGE> 11
[Signature Page to follow]
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
MSX INTERNATIONAL, INC.
By: /s/ Frederick K. Minturn
---------------------------------------
Name: Frederick K. Minturn
Title: Executive Vice President
MASCOTECH, INC.
By: /s/ Lee M. Gardner
---------------------------------------
Name: Lee M. Gardner
Title: President
CITICORP VENTURE CAPITAL, LTD.
By: /s/ Michael A. Delaney
---------------------------------------
Name: Michael A. Delaney
Title: Vice President
[Signature Page to Amendment]
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<PAGE> 1
EXHIBIT 10.11
RALPH L. MILLER EMPLOYMENT AGREEMENT
AMENDMENT DATED MAY 1, 1998
This AMENDMENT TO EMPLOYMENT AGREEMENT is made as of the first day of
May, 1998 (the "Amendment") by and between MSX International, Inc., a Delaware
corporation (formerly ASG Holdings, Inc.) (the "Company"), and Ralph L. Miller
(the "Executive").
A. The Company and the Executive are parties to an Employment Agreement
dated as of November 12, 1996 (the "Agreement").
B. The Company and the Executive desire to amend the Agreement, upon
the terms and conditions stated in this Amendment.
Therefore, in consideration of the mutual promises contained in this
Amendment, the value and sufficiency of which are hereby acknowledged, the
parties to this Amendment agree as follows:
1. AMENDMENT OF EMPLOYMENT DUTIES. Paragraph 2 of the Agreement is
hereby amended by deleting the first two sentences of such Paragraph 2 in their
entirety and substituting the following language:
"The Company shall employ the Executive as the Special Assistant to the
Chairman for the "Employment Period" as defined in Section 3. The
Executive, in such capacity, shall have such duties, responsibilities
and authority as are consistent with such position and specified by the
Board of Directors or its designee."
2. AMENDMENT OF CERTAIN COMPENSATION PROVISIONS. Paragraph 4(a) of the
Agreement is hereby amended by substituting the amount of $335,400 in the first
sentence thereof as the Executive's Base Salary. Further, Paragraph 4(b) of the
Agreement is hereby amended by deleting such paragraph in its entirety and
substituting the following language:
"In addition to the Base Salary, the Executive may be entitled to
receive an annual bonus for each fiscal year of the Company that ends
during the Employment Period up to 50% of his Annual Base Salary in
accordance with the terms of the Company's Performance Incentive Plan."
3. AMENDMENT OF CERTAIN TERMINATION PROVISIONS. The first sentence of
the third paragraph of Paragraph 8(b) of the Agreement is hereby amended by
deleting subsection (i) in its entirety.
<PAGE> 2
4. AMENDMENT OF NON-COMPETE. Paragraph 12 of the Agreement is hereby
amended by adding the following paragraph:
"At the election of the Company, made by giving written notice to the
Exective 90 days prior to expiration of the period referred to in
Paragraph 11 and the first sentence of Paragraph 12, the restrictions
on the Executive contained in Paragraph 11 and the first sentence of
Paragraph 12 of this Agreement may be extended for an additional six
month period, in which event the Company shall pay the Executive the
amount of $10,000 per month, payable in arrears through the end of such
six month period."
5. AMENDMENT OF ENFORCEMENT PROVISION. Paragraph 13 of the of the
Agreement is hereby amended by adding the following language to the end thereof:
"The covenants set forth this Agreement, including, but not limited to,
Paragraphs 5, 11 and 12, supplement and are in addition to, and are not
superseded by, any similar covenants made in any other agreements
between the parties hereto (including, without limitation, the
Management Subscription Agreement between the Company and the Executive
dated as of January 3, 1997)."
6. AGREEMENT UNAFFECTED. The remainder of the Agreement shall remain
unamended and in full force and effect.
IN WITNESS WHEREOF, the parties to this Amendment have executed this
Amendment as of the date first written above.
MSX INTERNATIONAL, INC.
/s/ Frederick K. Minturn /s/ Ralph L. Miller
------------------------ --------------------
Frederick K. Minturn Ralph L. Miller
<PAGE> 1
EXHIBIT 10.15
SERVICES AGREEMENT
THIS SERVICES AGREEMENT ("the Agreement") is made effective as of May
21, 1998 between MSX INTERNATIONAL ENGINEERING SERVICES, INC., a Delaware
corporation (the "Company") and St. Clair Group, a Michigan corporation ("SCG").
The Company and SCG desire to enter into an agreement whereby the
Company shall retain SCG to provide the services of its employee, Roger Fridholm
(the "Executive"), to service in the capacity of President/Business Services
Group of the Company.
Therefore, in consideration of the premises, the parties agree as
follows.
1. TERM.
The company shall engage SCG to provide the services of the
Executive under the terms of this Agreement for an initial term
beginning effective as of May 21, 1998 (the "Effective Date") and
ending on December 31, 1999 (the "Initial Term"). The Company and SCG
may, by separate written agreement, extend the term of this Agreement
beyond the Initial term. The period of time between the Effective Date
and the termination of the Executive's services hereunder shall be
referred to as the "Services Period".
2. SERVICES.
a) CAPACITY. SCG shall provide the services of the Executive for the
Services Period to serve in the capacity of President/Business Services
Group of the Company on the terms and conditions set forth in this
Agreement.
b) DUTIES. SCG shall cause the Executive to serve the Company as the
President of its Business Services Group and to perform such duties and
functions and discharge such responsibilities as may be established by
the Chief Executive Officer of the Company (the "CEO") from time to
time in his discretion, which may include, without limitation, those
duties and responsibilities generally associated with the position of
chief executive officer of a division of a corporation. During the
Services Period, SCG shall cause the Executive to devote sufficient
business time, skill and efforts to the business of the Company to
perform such duties and responsibilities.
3. COMPENSATION AND BENEFITS.
a) FEE. During the Services Period, the Company shall pay to SCG, in
consideration for providing the services of the Executive under this
Agreement, the amount of $250,000 per annum, payable in arrears not
less frequently than monthly (the "Base Fee").
b) ANNUAL INCENTIVE PAYMENT. During 1999, SCG shall be eligible to
earn an annual incentive payment upon the Executive's satisfaction of
performance criteria contained in the Company's incentive payment plan
("Performance Incentive Plan"). The Company reserves the right to
amend, supplement or cancel its Performance Incentive Plan at any time
for any reason or for no reason. The final determinations as to the
actual corporate and individual performance against the preestablished
goals and objectives and the amount of any additional incentive
payment in relationship to the Executive's performance will be made by
the Company in its sole discretion and the incentive payment, if any,
shall be paid to SCG at such time as other incentive payments are paid
to the Company's officers and executives. For the period May 21, 1998,
through December 31, 1998, SCG shall receive a guaranteed incentive
payment equal to 50% of the Base Fee prorated in proportion to the
number of days in such period.
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<PAGE> 2
c) NO OTHER BENEFITS. For the term of the Services Period, the
Executive shall not be entitled to participate in the various benefit
plans which the Company extends to its employees.
d) BUSINESS EXPENSES. During the Services Period, the Company shall
promptly reimburse SCG for all documented reasonable and necessary
business expenses incurred in connection with the performance of the
Executive's duties under this Agreement in accordance with the
Company's policies and standards for reimbursement and documentation.
4. TERMINATION OF SERVICES.
(a) TERMINATION FOR CAUSE. The Company may terminate this
Agreement for cause or without cause. For purposes of this Agreement,
and subject to SCG's opportunity to cure as provided in Section 4(c)
hereof, the Company shall have "cause" to terminate this Agreement for
any of the following reasons:
(i) SCG or the Executive commits any act or omission
which represents a material breach in any respect of the terms
of this Agreement (including the Confirmation of Agreement
signed by the Executive in connection with this Agreement);
(ii) the Executive commits any act of gross
misconduct that, in the reasonable good faith opinion of the
Company, is or may be injurious to the Company.
(iii) the Executive's gross negligence or wanton and
reckless acts or omissions in the performance of his duties.
(iv) the Executive's commits a felony under the laws
of the United States or any state or political subdivision
thereof as to which the Executive shall have plead guilty or
have been convicted; or
(v) SCG becomes insolvent, or if bankruptcy or other
insolvency proceedings are instituted against SCG or its
assets are attached by a creditor and such proceedings are not
terminated within 60 days.
(b) TERMINATION FOR GOOD REASON. SCG shall have the right at
any time to terminate this Agreement for good reason or for no reason.
For purposes of this Agreement, and subject to Company's opportunity to
cure as provided in Section 4(c) hereof, SCG shall have "good reason"
to terminate this Agreement if such termination shall be the result of:
(i) a material diminution during the Services Period
in the Executive's title, duties, reporting relationship or
responsibilities as set forth in Section 2 hereof;
(ii) a breach by the Company of the payment
provisions of Section 3 hereof; or
(iii) a material breach by the Company of the terms
of this Agreement.
(c) NOTICE AND OPPORTUNITY TO CURE. Notwithstanding the
foregoing, it shall be a condition precedent to a party's right to
terminate this Agreement for "cause" or "good reason" that (i) the
party seeking the termination shall first have given the other party
written notice stating with specificity the reason for the termination
("Event of Breach") and (ii) if such Event of Breach is susceptible of
cure or remedy, a period of thirty (30) days from and after the giving
of such notice shall have elapsed without the party receiving such
notice having effectively cured or remedied such Event of Breach.
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<PAGE> 3
(d) TERMINATION UPON DEATH OR DISABILITY. The Services Period
shall be terminated by the death of the Executive. The Services Period
may be terminated by the Company if the Executive shall be rendered
incapable of performing his duties hereunder because of any physical or
mental impairment which reasonably can be expected to continue, or does
continue, for a period of three (3) or more months from the first day
of such impairment. The Company shall give SCG thirty (30) days prior
written notice of intent to terminate by reason of physical or mental
impairment of the Executive.
5. CONSEQUENCES OF TERMINATION.
(a) TERMINATION FOR CAUSE OR WITH GOOD REASON. In the event of
termination of this Agreement by the Company without "cause" (other
than termination upon death or disability), or by SCG for "good
reason", the Company shall pay to SCG (i) the Base Fee in the amount,
at the times and in the manner set forth in Section 3(a) hereof until
December 31, 1999, and (ii) to the extent not previously paid, the
incentive payment payable by the Company pursuant to Section 3(b)
hereof for 1998.
(b) TERMINATION UPON DISABILITY. In the event of termination
of this Agreement by the Company by reason of physical or mental
impairment of the Executive pursuant to Section 4(d) hereof, the
Company shall pay SCG (i) periodic payments of the Base Fee as in
effect immediately prior to such termination for a period of 6 months;
and (ii) a portion of the annual incentive payment SCG would have
received pursuant to Section 3(b) hereof had this Agreement continued
through the end of the Company's fiscal year, such portion being the
amount of such incentive payment reduced by a percentage of the fiscal
year elapsed between the date of termination and the end of the
Company's fiscal year.
(c) TERMINATION UPON DEATH. In the event of termination of
this Agreement by the Company by reason of the Executive's death, the
Company shall pay to SCG a portion of the Base Fee and incentive
payment calculated in accordance with Section 5(b) above reduced by the
amount of any life insurance benefits payable to beneficiaries (other
than the Company) designated by the Executive under policies of
insurance the premiums for which were paid entirely by the Company, if
any.
(d) OTHER TERMINATIONS. In the event of termination of the
Executive's employment hereunder for any reasons other than those
specified in Sections 5(a) through 5(c), SCG shall not be entitled to
any fee or other compensation under this Agreement.
6. CONFIDENTIALITY. SCG shall not during the Services Period or at any
time thereafter for any reason, directly or indirectly, divulge,
disclose or communicate to any person or entity any confidential
information or trade secrets concerning the business of the Company,
including, without limitation, the techniques, methods or systems of
its operations or management, any information regarding its financial
conditions or practices, or any other material information concerning
the business of the Company or its clients or customers (collectively,
the "Business"). SCG shall cause the Executive to comply with the terms
of this Section 6; provided however, that the provisions of the Section
6 shall not apply to (i) information disclosed by the Executive in the
performance of the Executive's duties to the Company based on his good
faith belief that such a disclosure is in the best interests of the
Company; (ii) information that is, at the time of its disclosure,
public knowledge, (iii) information disseminated by the Company to
third parties in the ordinary course of business; (iv) information
lawfully received by SCG or (v) information required to be disclosed by
applicable legal authority having jurisdiction over SCG or the
Executive.
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<PAGE> 4
7. INVENTIONS. The Executive's functions hereunder include the making
of technical and managerial contributions of value to the Company. SCG
shall, and shall cause the Executive to, assign to the Company all
right, title and interest in such contributions and inventions, whether
or not patentable, made or conceived by the Executive alone or jointly
with others during the Services Period which relate to the Business.
This assignment shall include (a) the right to file and prosecute
patent applications for such inventions in any and all countries, (b)
the patent applications filed and patents issuing thereon, and (c) the
right to obtain copyright, trademark or trade name protection for any
such work product. SCG shall, and shall cause the Executive to,
promptly and fully disclose all such contributions and inventions to
Company and will assist Company in obtaining and protecting the rights
therein in any and all countries. SCG will retain, however, all right,
title and interest in and to inventions made by the Executive not
related to or useful in the Business.
8. NON-COMPETITION. SCG shall not, and shall cause the Executive to
not, during the Services Period and for a period of one year
thereafter, without the approval of the CEO, directly or indirectly,
alone or as a partner, joint venturer, officer, director, employee,
consultant or investor of or in any entity (whether or not for
pecuniary advantage) directly compete with any product or service of
the Company or with any entity which, during the Services Period, to
the knowledge of SCG or the Executive, the Board of Directors or the
executive officers of the Company actively considered as a potential
acquisition or merger partner or any affiliate of the foregoing. For
the purposes of this Section 8, SCG's current operations and the
Executive's participation in the temporary staffing business of IPG
Services; Ad Hoc Legal Resources; Ad Hoc, Inc.; PEO 101, L.L.C. and PEO
102, L.L.C. (as well as entities similar to PEO 101, L.L.C. established
after the date hereof), both doing business as Key Human Resources
Management; and SCG as presently configured and operated shall not be
deemed in direct competition with the products or services of the
Company. During the period that the restriction on competition applies,
SCG shall not, and shall cause the Executive to not, without the prior
written consent of the Company, solicit any employee of the Company or
any current or future subsidiary or affiliate thereof to terminate his
or her employment with the Company.
9. INJUNCTIVE RELIEF. The parties agree that a breach or violation by
SCG or the Executive of Sections 6, 7 or 8 will result in immediate and
irreparable injury and harm to the Company and that the Company shall
have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to seek an injunction, specific
performance or other equitable relief to prevent the violation of the
obligations hereunder. It is expressly understood and agreed that,
although SCG and MSX consider the restrictions contained in Sections 6
and 8 reasonable for the purpose of preserving for MSX its proprietary
rights, going business value and goodwill, if a final judicial
determination is made by a court or other tribunal having jurisdiction
that the time or territory or any other restriction contained in
Sections 6 or 8 above is an unenforceable restriction against SCG, the
provisions of such restriction shall not be rendered void but shall be
deemed amended to apply to such maximum time and territory and to such
other extent as such court or tribunal may judicially determine or
indicate to be reasonable.
10. NOTICE. All notices required or desired to be given pursuant to
this Agreement, shall be in writing and shall be sent or delivered by
United States Mail or by confirmed facsimile transmission addressed as
follows:
IF TO THE COMPANY: MSX International, Inc.
Attn.: E.H. Billig, Chairman
275 Rex Boulevard
Auburn Hills, MI 48326
Facsimilie: (248) 299-1010
Page 4
<PAGE> 5
WITH A COPY TO: General Counsel
MSX International, Inc.
275 Rex Boulevard
Auburn Hills, MI 48326
Facsimilie: (248) 299-1013
IF TO SCG: St. Clair Group
15840 Lakeview Ct.
Grosse Pointe, MI 48230
(313) 823-6280
or to such other such respective addresses as the parties hereto shall designate
to the other by like notice, provided, that a change of address shall be
effective only upon receipt thereof.
11. ARBITRATION. Except as provided in Section 9 hereof, any dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. The arbitration shall be held in the
general area of Metropolitan Detroit, shall be final and binding and judgement
may be entered upon the award.
12. WAIVER OF BREACH. Any waiver of any breach of the Agreement by either party
shall not be construed to be a continuing waiver or consent to any subsequent
breach on the part of the other party.
13. NON-ASSIGNMENT; SUCCESSORS. Neither party hereto may assign its rights or
delegate its duties under this Agreement without the prior written consent of
the other party; provided, however, that this Agreement shall ensure to benefit
of and be binding upon the successors and assigns of the Company upon any sale
of all or substantially all of the Company's assets or upon any merger,
consolidation, stock exchange or reorganization of the Company.
14. NON-EMPLOYEE STATUS. The Executive shall not be an employee of the Company.
Any taxes or contributions levied by any law based upon payroll of or employment
of or by the Executive shall be paid by and shall be the exclusive liability of
SCG.
15. INDEMNIFICATION. SCG shall indemnify the Company and its subsidiaries and
affiliates, and their directors, officers, employees, agents and other
representatives, and hold each of them harmless from and against any and all
claims, losses, expenses, liabilities, demands, obligations, costs, attorneys
fees or damages of every kind and character without limitation and without
regard to the cause or causes thereof or the negligence of any party, arising in
any way out of any injury to the Executive or with respect to the Executive's
status as an employee of SCG. The obligations described in this Paragraph 15
shall be deemed continuous and shall survive any expiration or termination of
this Agreement.
16. SEVERABILITY. If any provision of this Agreement shall be invalid or
unenforceable for any reason, the remainder of this Agreement shall be
unaffected and shall continue in full force and effect.
17. AUTHORITY. SCG and the Company each warrant one to the other that it has
full power and authority to enter upon this Agreement and that the entry by it
upon this Agreement and its performance hereunder shall not constitute a breach
of any other covenant or agreement to which it is a party or by which it is
bound.
18. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
with the laws of the State of Michigan without giving effect to the choice of
law principles thereof.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
Company and SCG with respect to the subject matter hereof and supersedes any and
all prior representations, agreements or understandings, whether written or
oral. This Agreement may be amended or modified only by written instrument
executed by the Company and SCG.
Page 5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first set forth above.
MSX INTERNATIONAL ENGINEERING
SERVICES, INC.
BY: /S/ FREDERICK K. MINTURN
-------------------------------------
ITS:
ST. CLAIR GROUP
BY: /S/ ROGER FRIDHOLM
-------------------------------------
ITS:
Page 6
<PAGE> 7
CONFIRMATION OF AGREEMENT
I acknowledge and accept the foregoing Agreement between St.
Clair Group ("SCG") and MSX International Engineering Services, Inc.
("MSX") effective as of May 21, 1998 (the "Agreement"), and I agree to
be bound by the provisions thereof which concern me as the Executive. I
confirm in particular, but without limiting the generality of the
foregoing, that:
1. I will serve as the Executive within the meaning of
the Agreement for MSX, and I will fully comply with
all undertakings of the Executive provided in the
Agreement.
2. All rights to designs, inventions, improvements,
technical information know-how, technology,
suggestions or intellectual property rights which I
develop will accrue solely and exclusively to SCG,
and SCG shall have the right to transfer them to MSX
pursuant to the terms of the Agreement.
3. All claims for compensation which I may have on any
legal basis whatsoever are against SCG and I release
MSX from any responsibility for such claims.
4. I will adhere to the provisions of Section 2(b) of
the Agreement relative to devotion of sufficient
business time, skill and efforts to MSX, provided
that I may (i) make and manage personal business
investments of my choice; (ii) serve in any capacity
with any civic, educational or charitable
organization or any trade association without seeking
or obtaining approval of the CEO; and (iii) serve as
a director or officer of IPG Services Corporation
("IPG Services"), but not as an employee thereof;
provided however, that such activities and service do
not materially interfere or conflict with the
performance of my duties. I shall also be permitted
to serve on the boards of directors of Comerica Bank,
MCN Energy, The Stroh Brewery Company and the Stroh
Companies, Inc., MascoTech, Inc., and, with the
approval of the CEO, on the boards of directors of
other corporations.
5. I will adhere to the provisions of Sections 6 and 8
of the Agreement relative to confidentiality and
non-competition, respectively.
6. I agree that Sections 6, 7 and 8 of the Agreement may
be enforced against me with respect to my obligations
as Executive by MSX or SCG in the manner set forth in
Paragraph 9 of the Agreement.
7. In consideration of my agreeing to serve as the
Executive under the Agreement, MSX has agreed to sell
to me, and I have agreed to purchase, 2,000 shares of
MSX Class A common stock at $40 per share (the
"Shares"). I understand that issuance of the Shares
is subject to my execution of a Management
Subscription Agreement and related documents and will
be governed by a Stockholders' Agreement among MSX,
MascoTech, Inc., Citicorp Venture Capital and others
as well as ancillary agreements relative thereto,
copies of which have been previously provided to me.
Page 7
<PAGE> 8
This confirmation of Agreement shall inure to the benefit of, and be
enforceable by, both SCG and MSX or either of them, and cannot be modified
except with the express written consent of both SCG and MSX.
Dated: May 21, 1998 /s/ Roger Fridholm
----------------------------------
Roger Fridholm
Accepted and Agreed: Accepted and Agreed:
ST. CLAIR GROUP MSX INTERNATIONAL ENGINEERING
SERVICES, INC.
By: /s/ Roger Fridholm By: /s/ Frederick K Minturn
-------------------------- ------------------------------
Page 8
<PAGE> 1
EXHIBIT 12
MSX INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR FISCAL FISCAL
------------------------------------------- YEAR YEAR
YEAR ENDED December 31, ENDED ENDED
------------------------------------------- December 28, January 3,
1994 1995 1996 1997 1999
-------------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Earnings before income taxes and
fixed charges:
Income from continuing operations
before income taxes $ 8,540 $ 10,240 $ 6,620 $ (2,748) $ 5,839
Add interest on indebtedness, net 920 1,470 1,310 12,400 16,906
Add amortization of debt expense - - - - 510
Add estimated interest factor
for rentals 1,800 2,733 1,800 5,867 7,442
-------------- ------------- ----------- ------------- ---------------
Earnings before income taxes and
fixed charges $11,260 $ 14,443 $ 9,730 $ 15,519 $ 30,697
-------------- ------------- ----------- ------------- ---------------
Fixed charges:
Interest on indebtedness $ 920 $ 1,470 $ 1,310 $ 12,400 $ 16,906
Amortization of debt expense - - - - 510
Estimated interest factor for rentals 1,800 2,733 1,800 5,867 7,442
-------------- ------------- ----------- ------------- ---------------
$ 2,720 $ 4,203 $ 3,110 $ 18,267 $ 24,858
-------------- ------------- ----------- ------------- ---------------
Ratio of earnings to fixed charges 4.1 3.4 3.1 (a) 1.2
</TABLE>
(a) Earnings were insufficient to cover fixed charges by $2.7 million for the
fiscal year ended December 28, 1997
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
MSX International, Inc. (Delaware)
MSX International (Holdings), Inc. (Delaware)
MSX International (USA), Inc. (Delaware)
MSX International do Brasil (Brazil)
MSX International de Mexico, S.A. de C.V. (Mexico)
MSX International Canada Limited (Canada)
MSX International Australia Pty Limited (Australia)
MSX International Business Services, Inc. (Delaware)
MSX International Engineering Services, Inc. (Delaware)
dba Lexstra International, Inc. (Delaware)
dba Lexus Temporaries, Inc. (Delaware)
Pilot Computer Services, Inc. (California)
MegaTech Engineering, Inc. (Michigan)
MegaTech Academy, a non-profit corporation (Michigan)
MSX International Technology Services, Inc. (Delaware)
MSX International Holdings, Ltd. (UK)
MSX International Holding GmbH (Germany)
MSX International GmbH (Germany)
APX International GmbH (Germany)
MSX International TechServices, S.A. (Spain)
MSX International, Ltd. (UK)
Gold Arrow Computer Services Ltd. (UK)
Canewdon, Ltd. (UK)
Canewdon Consultants Limited (UK)
Geometric Results (GB) Ltd. (UK)
MSX International SARL (France)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JANUARY 3,
1999 MSX INTERNATIONAL, INC. 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> JAN-03-1999
<CASH> 4,248
<SECURITIES> 0
<RECEIVABLES> 208,451
<ALLOWANCES> 0
<INVENTORY> 2,362
<CURRENT-ASSETS> 221,581
<PP&E> 87,128
<DEPRECIATION> (51,863)
<TOTAL-ASSETS> 356,724
<CURRENT-LIABILITIES> 161,770
<BONDS> 180,356
36,000
0
<COMMON> 1
<OTHER-SE> (26,105)
<TOTAL-LIABILITY-AND-EQUITY> 356,724
<SALES> 1,081,042
<TOTAL-REVENUES> 1,081,042
<CGS> 997,014
<TOTAL-COSTS> 997,014
<OTHER-EXPENSES> 60,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,416
<INCOME-PRETAX> 5,839
<INCOME-TAX> 3,068
<INCOME-CONTINUING> 2,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,771
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
