<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
October 23, 1998
(Date of earliest event reported)
MSX INTERNATIONAL, INC.
(Exact name of registrant as
specified in its charter)
Delaware 333-49821 38-3323099
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
275 REX BOULEVARD AUBURN HILLS, MICHIGAN
(Address of principal executive offices)
48326
(Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective October 31, 1998, the Company consummated its
acquisition of Lexstra International, Inc, and Lexus Temporaries,
Inc. ("the Acquisition") pursuant to an Asset Purchase Agreement
dated as of October 23, 1998. 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 contingent on achieving
certain operating results for the years 1998 through 2000. The
Acquisition was initially announced on October 27, 1998 and will
be accounted for under the purchase method of accounting. Funding
for the transaction was provided by borrowings under the New
Credit Facility.
Lexstra International, Inc. and Lexus Temporaries, Inc. are
providers of contract computer consultants, systems analysts, and
network support personnel. The companies are headquartered in New
York, NY and have locations in Boston, MA, Red Bank, NJ, and
Silver Spring, MD. Larry Levine, president of Lexstra
International, Inc., and Karen Suss, vice president of Lexus
Temporaries, Inc., who founded the companies in 1991, will
continue in their senior management roles.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Financial Statements:
The following financial statements of the businesses acquired are
attached hereto:
LEXSTRA INTERNATIONAL, INC.:
Report of Independent Accountants ............................F-1
Balance Sheet as of October 31, 1998 .........................F-2
Income Statement for the ten month period ended October
31, 1998 .....................................................F-3
Statement of Cash Flows for the ten month period ended October
31, 1998 .....................................................F-4
Notes to Financial Statements ..........................F-5 - F-7
LEXUS TEMPORARIES, INC.:
Report of Independent Accountants ............................F-8
Balance Sheet as of October 31, 1998 .........................F-9
Income Statement for the ten month period ended October
31, 1998 ....................................................F-10
Statement of Cash Flows for the ten month period ended October
31, 1998 ....................................................F-11
Notes to Financial Statements ........................F-12 - F-14
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
Dated: January 11, 1999
MSX INTERNATIONAL, INC.
By /s/ Frederick K. Minturn
------------------------
Frederick K. Minturn
Executive Vice President, Chief Financial Officer
<PAGE> 4
LEXSTRA INTERNATIONAL, INC.:
Report of Independent Accountants ...........................F-15
Balance Sheets as of December 31, 1997 and 1996 .............F-16
Statements of Income and Retained Earnings for the years ended
December 31, 1997 and 1996 ..................................F-17
Statements of Cash Flows for the years ended December 31, 1997
and 1996 ....................................................F-18
Notes to Financial Statements ........................F-19 - F-21
LEXUS TEMPORARIES, INC.:
Report of Independent Accountants ...........................F-22
Balance Sheets as of December 31, 1997 and 1996 .............F-23
Statement of Income and Retained Earnings for the years ended
December 31, 1997 and 1996 ..................................F-24
Statements of Cash Flows for the years ended December 31, 1997
and 1996 ....................................................F-25
Notes to Financial Statements ........................F-26 - F-28
(b) Pro Forma Consolidated Financial Data
Pro Forma Financial Data ....................................F-29
Pro Forma Consolidated Balance Sheet as of September 27,
1998 (unaudited) ............................................F-30
Pro Forma Consolidated Statement of Operations for the
fiscal nine month period ended September 27, 1998
(unaudited) .................................................F-31
Pro Forma Consolidated Statement of Operations for the
fiscal year ended December 28, 1997
(unaudited) .................................................F-32
Notes to Pro Forma Consolidated Financial
Information ..........................................F-33 - F-34
(c) Exhibits
The acquisition was previously disclosed, and the related Asset
Purchase Agreement was previously filed, under Item 5 of Form
10-Q dated November 11, 1998, and the related exhibits thereto
under Item 6(a) Exhibit 10, respectively.
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Lexstra International, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
income and cash flows present fairly, in all material respects, the financial
position of Lexstra International, Inc. at October 31, 1998, and the results of
their operations and their cash flows for the ten month period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 7, 1999
F-1
<PAGE> 6
LEXSTRA INTERNATIONAL, INC.
BALANCE SHEET
as of October 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,582,941
Accounts receivable, net 5,038,461
Prepaid expenses and other current assets 29,255
Due from Lexus Temporaries, Inc. 757,250
------------
Total current assets 7,407,907
Furniture and equipment, net 92,634
Due from employees 10,449
Due from stockholders 62,782
Other assets 33,365
------------
$ 7,607,137
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 530,639
Commissions payable 458,459
Discounts payable 406,220
Accrued payroll and benefits 636,476
------------
Total current liabilities 2,031,794
------------
Stockholders' equity:
Common stock, no par value; 200 shares authorized, 100 shares issued and outstanding 50,000
Retained earnings 5,525,343
------------
Total stockholders' equity 5,575,343
------------
$ 7,607,137
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 7
LEXSTRA INTERNATIONAL, INC.
INCOME STATEMENT
for the ten month period ended October 31, 1998
<TABLE>
<S> <C>
Net revenues $ 21,268,061
Cost of revenues 15,859,015
------------
Gross profit 5,409,046
------------
Operating expenses:
Officers salaries and related benefits 343,655
Selling 2,242,465
General and administration 642,451
Interest 3,750
------------
Total operating expenses 3,232,321
------------
Net income $ 2,176,725
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 8
LEXSTRA INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
for the ten month period ended October 31, 1998
<TABLE>
<S> <C>
Cash flows from (used in) operating activities:
Net income $ 2,176,725
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation 24,148
Bad debt expense 58,000
Changes in:
Accounts receivable (504,937)
Prepaid expenses and other current assets 56,861
Accounts payable, accrued expenses and other current liabilities 724,794
-----------
Net cash provided by operating activities 2,535,591
-----------
Cash flows used in investing activities, acquisitions of property and equipment (51,372)
-----------
Net cash used in investing activities (51,372)
-----------
Cash flows from (used in) financing activities:
Due from bank 583,412
Advances to related party (1,500,000)
Due from employees (10,449)
-----------
Net cash used in financing activities (927,037)
-----------
Net increase in cash and cash equivalents 1,557,182
Cash and cash equivalents, beginning of period 25,759
-----------
Cash and cash equivalents, end of period $ 1,582,941
===========
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 3,750
===========
Income taxes $ 8,236
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 9
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
a. NATURE OF BUSINESS: Lexstra International, Inc. (the "Company")
provides computer consulting services for high technical content
positions in the computer software development field. Services are
provided to a diverse corporate client base located primarily in the
Northeastern United States.
Effective October 31, 1998, the stockholders of the Company sold
substantially all of the assets and liabilities of the Company to MSX
International, Inc.
b. CASH AND CASH EQUIVALENTS: The Company considers all short-term
investments with an original maturity of three months or less to be
cash equivalents.
c. REVENUE RECOGNITION: Revenues are recognized as contract costs are
incurred, and are valued at selling price based on contractual billing
rates. Contract costs include direct labor costs and reimbursable
expenses.
d. INCOME TAXES: The Company, with the consent of its stockholders, has
elected to be taxed under Subchapter-S of the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the stockholders
are taxed individually on their pro rata share of the Company's taxable
income. Accordingly, no provision or liability for federal or certain
state income taxes is reflected in the financial statements. State and
local tax provisions, which are not material, have been included in
general and administration expenses.
e. 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 revenue
and expenses during the reporting periods. Actual results may differ
from such estimates and assumptions.
f. ADVERTISING: The Company charges advertising costs to expense as
incurred. Advertising costs charged to expense for the ten month period
ended October 31, 1998 were approximately $45,000.
2. ACCOUNTS RECEIVABLE, NET:
Receivables are presented net of aggregate allowances for doubtful
accounts of $758,000 at October 31, 1998. Receivables arise from services
provided pursuant to contracts or agreements with customers for such
services. Accounts receivable include both billed and unbilled
receivables. Unbilled receivables amounted to $2,021,925 at October 31,
1998. All billings are expected to be collected with the ensuing year.
F-5
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. NOTE PAYABLE:
The Company was involved in a banking agreement with a commercial lender.
Under that agreement, the Company could borrow up to 80 percent of
outstanding accounts receivable subject to certain limitations as defined
in the agreement. The borrowings, which bore interest at the lender's base
rate plus two percent were collateralized by substantially all of the
Company's assets and were guaranteed by the stockholders. The note was
paid in full during 1998 and the banking agreement has been terminated.
4. COMMITMENT:
The Company leases office space for its corporate headquarters in New York
City under a ten year lease agreement which expires in 2007. The Company
also leases office space in several other locations which expire between
April 1999 and January 2000.
Aggregate annual rentals under the agreement are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
1998 remaining $ 26,167
1999 148,317
2000 128,770
2001 131,817
2002 135,771
Thereafter 742,473
</TABLE>
Rent expense for the ten months ended October 31, 1998 was approximately
$65,000.
5. COMMON STOCK:
Eight shares of the issued and outstanding common stock have no voting
rights.
6. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATION:
For the ten months ended October 31, 1998, two clients, engaged in the
banking and financial services industries, respectively, accounted for, in
aggregate, approximately 34 percent of total revenues. Amounts due from
these clients represented approximately 40 percent of total accounts
receivable at October 31, 1998.
F-6
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS:
a. LEXUS TEMPORARIES, INC.: The Company shares office space and certain
other resources with Lexus Temporaries, Inc. ("Lexus"), an entity which
is owned by two stockholders of the Company. Due from Lexus Temporaries,
Inc. represents net non-interest bearing advances made to Lexus.
b. DUE FROM STOCKHOLDERS: Due from stockholders represents non-interest
bearing advances made by the Company to certain stockholders.
8. STOCKHOLDERS' EQUITY:
<TABLE>
AT OCT 31,
1998
<S> <C>
Balance, beginning of period $3,398,618
Net income 2,176,725
----------
Balance, end of period $5,575,343
==========
</TABLE>
9. RETIREMENT PLAN:
The Company maintains a 401(k) Retirement Plan for all of its employees.
The Plan allows each employee the opportunity to contribute up to a
maximum of $10,000 per year. The Company is not obligated to contribute to
the Plan. The Company made no contributions to the Plan during the ten
months ended October 31, 1998.
10. SUBSEQUENT EVENT:
The stockholders of the Company entered into an agreement dated October 23,
1998, whereby the stockholders sold substantially all of the assets and
liabilities of the Company, effective October 31, 1998. The sale price was
in excess of book value.
No effect has been given to this transaction in the accompanying financial
statements.
F-7
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Lexus Temporaries, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
income and cash flows present fairly, in all material respects, the financial
position of Lexus Temporaries, Inc. at October 31, 1998, and the results of
their operations and their cash flows for the ten month period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
January 7, 1999
F-8
<PAGE> 13
LEXUS TEMPORARIES, INC.
BALANCE SHEET
as of October 31, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 322,478
Accounts receivable, net 4,199,442
Prepaid expenses and other current assets 15,064
-----------
Total current assets 4,536,984
Furniture and equipment, net 20,035
Other assets 33,000
Due from stockholder 30,000
Due from employees 2,851
-----------
$ 4,622,870
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to Lexstra International, Inc. $ 757,250
Accounts payable 73,132
Accrued payroll and benefits 403,474
Accrued, other 21,000
-----------
Total current liabilities 1,254,856
-----------
Stockholders' equity:
Common stock, no par value; 100 shares authorized, issued and outstanding 45,000
Retained earnings 3,323,014
-----------
Total stockholders' equity 3,368,014
-----------
$ 4,622,870
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 14
LEXUS TEMPORARIES, INC.
INCOME STATEMENT
for the ten month period ended October 31, 1998
<TABLE>
<S> <C>
Net revenues $ 17,509,456
Cost of revenues 14,799,296
------------
Gross profit 2,710,160
------------
Operating expenses:
Officers salaries and related benefits 391,842
Selling 108,958
General and administration 765,055
Interest 89,786
------------
Total operating expenses 1,355,641
------------
Net income $ 1,354,519
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 15
LEXUS TEMPORARIES, INC.
STATEMENT OF CASH FLOWS
for the ten month period ended October 31, 1998
<TABLE>
<S> <C>
Cash flows from (used in) operating activities:
Net income $ 1,354,519
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation 5,793
Bad debt expense 361,000
Changes in:
Accounts receivable (1,566,307)
Accounts payable, accrued expenses and other current liabilities (135,110)
------------
Net cash provided by operating activities 19,895
------------
Cash flows used in investing activities, acquisitions of property and equipment (6,042)
------------
Net cash used in investing activities (6,042)
------------
Cash flows from (used in) financing activities:
Repayment of note payable, bank, net (1,236,362)
Advances from related party 1,500,000
Due from employee (2,851)
------------
Net cash provided by financing activities 260,787
Net increase in cash and cash equivalents 274,640
Cash and cash equivalents, beginning of period 47,838
------------
Cash and cash equivalents, end of period $ 322,478
============
Supplemental disclosures of cash flow information:
Cash payments for:
Interest $ 89,786
============
Income taxes $ 5,204
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 16
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
a. NATURE OF BUSINESS: Lexus Temporaries, Inc. (the "Company") provides
temporary services to corporations, including special technical content
jobs, such as PC technicians and low technical content positions, such
as secretarial and clerical.
Effective October 31, 1998, the stockholders of the Company sold
substantially all of the assets and liabilities of the Company to
MSX International, Inc.
b. CASH AND CASH EQUIVALENTS: The Company considers all short-term
investments with an original maturity of three months or less to be
cash equivalents.
c. REVENUE RECOGNITION: Revenues are recognized as contract costs are
incurred and are valued at selling price based on contractual billing
rates. Contract costs include direct labor costs and reimbursable
expenses.
d. INCOME TAXES: The Company, with the consent of its stockholders, has
elected to be taxed under Subchapter-S of the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the
stockholders are taxed individually on their pro-rata share of the
Company's taxable income. Accordingly, no provision or liability for
Federal or certain state income taxes is reflected in the financial
statements. State and local tax provisions, which are generally not
material, have been included in general and administration expenses.
e. 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 revenue
and expenses during the reporting periods. Actual results may differ
from such estimates and assumptions.
f. ADVERTISING: The Company charges advertising costs to expense as
incurred. Advertising costs charged to expense for the ten month period
ended October 31, 1998 were approximately $57,000.
2. ACCOUNTS RECEIVABLE, NET:
Receivables are presented net of an aggregate allowances for doubtful
accounts of $511,000 at October 31, 1998. Receivables arise from services
provided pursuant to contracts or agreements with customers for such
services.
F-12
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. NOTE PAYABLE:
The Company was involved in a banking agreement with a commercial lender.
Under that agreement, the Company could borrow up to 80 percent of
outstanding accounts receivable subject to certain limitations as defined in
the agreement. The borrowings, which bore interest at the lender's base rate
plus two percent were collateralized by substantially all of the Company's
assets and were guaranteed by the stockholders. The note was paid in full
during 1998 and the banking agreement has been terminated.
4. COMMITMENT:
The Company leases office space for its corporate headquarters in New York
City under a ten year lease agreement which expires in 2007. The Company \
also leases office space in several other locations which expire between
April 1999 and January 2000.
Aggregate annual rentals under the agreement are as follows:
<TABLE>
AMOUNT
------
<S> <C>
1998 remaining $ 26,167
1999 148,317
2000 128,770
2001 131,817
2002 135,771
Thereafter 742,473
</TABLE>
Rent expense for the ten months ended October 31, 1998 was approximately
$64,000.
5. RELATED PARTY TRANSACTIONS:
a. LEXSTRA INTERNATIONAL, INC.: The Company shares office space and
certain other resources with Lexstra International, Inc. ("Lexstra"),
an entity which is primarily owned by the two stockholders of the
Company. Due to Lexstra International, Inc. represents net non-interest
bearing advances received from Lexstra.
b. DUE FROM STOCKHOLDERS: Due from stockholders represents
non-interest bearing advances made by the Company to the stockholders.
F-13
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. MAJOR CUSTOMER A CREDIT RISK CONCENTRATION:
Approximately 93 percent of the Company's service fees for the ten months
ended October 31, 1998, are attributable to one customer, a regional
telephone company. Amounts due from this client represented approximately 92
percent of total accounts receivable at October 31, 1998.
7. STOCKHOLDERS' EQUITY:
<TABLE>
AT OCT 31,
1998
----------
<S> <C>
Balance, beginning of period $2,013,495
Net income 1,354,519
----------
Balance, end of period $3,368,014
==========
</TABLE>
8. RETIREMENT PLAN:
The Company maintains a 401(k) Retirement Plan for all of its employees. The
Plan allows each employee the opportunity to contribute up to a maximum of
$10,000 per year. The Company is not obligated to contribute to the Plan.
The Company made no contributions to the Plan during the 10 months ended
October 31, 1998.
9. SUBSEQUENT EVENT:
The stockholders of the Company entered into an agreement dated October 23,
1998, whereby the stockholders sold substantially all of the assets and
liabilities of the Company, effective October 31, 1998. The sale price was
in excess of book value.
No effect has been given to these transactions in the accompanying financial
statements.
F-14
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
ON THE FINANCIAL STATEMENTS
To the Stockholders
Lexstra International, Inc.
We have audited the accompanying balance sheets of Lexstra International, Inc.
as of December 31, 1997 and 1996, and the related statements of income and
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lexstra International, Inc. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ URBACH KAHN & WERLIN, PC
New York, New York
March 27, 1998
F-15
<PAGE> 20
LEXSTRA INTERNATIONAL, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,759 $ 190,823
Accounts receivable - trade, net of allowances of
$180,000 - 1997 and $194,000 - 1996 4,591,524 3,006,575
Prepaid expenses and other current assets 86,116 37,890
Due from bank 583,412 --
Due from stockholders 62,782 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 5,349,593 3,235,288
FURNITURE AND EQUIPMENT, net 65,410 17,262
OTHER ASSETS 33,365 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $5,448,368 $3,252,550
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $ -- $ 350,000
Due to Lexus Temporaries, Inc. 742,750 75,000
Due to stockholders -- 34,670
Accounts payable and accrued expenses 1,307,000 761,792
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,049,750 1,221,462
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value; 200 shares authorized,
100 shares issued and outstanding 50,000 50,000
Retained earnings 3,348,618 1,981,088
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,398,618 2,031,088
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 5,448,368 $3,252,550
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-16
<PAGE> 21
LEXSTRA INTERNATIONAL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Consulting $19,003,678 $11,152,164
Commissions 398,116 168,510
- ------------------------------------------------------------------------------------------------------------------------------------
19,401,794 11,320,674
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of revenues
Personnel 13,785,713 8,807,186
Referral fees and recruiting expenses 660,577 431,317
- ------------------------------------------------------------------------------------------------------------------------------------
14,446,290 9,238,503
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 4,955,504 2,082,171
- ------------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Officers' salaries and related benefits 1,115,069 272,595
Selling 1,671,886 743,124
General and administration 768,128 328,333
Interest 32,891 11,561
- ------------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,587,974 1,355,613
- ------------------------------------------------------------------------------------------------------------------------------------
Income from operations 1,367,530 726,558
Other income:
Interest - 11,710
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1,367,530 738,268
Retained earnings, beginning of year 1,981,088 1,674,338
Distributions - (431,518)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of year $ 3,348,618 $ 1,981,088
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-17
<PAGE> 22
LEXSTRA INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
===================================================================================================================================
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,367,530 $ 738,268
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 17,300 6,025
Changes in:
Accounts receivable (1,584,949) (1,406,523)
Prepaid expenses and other current assets (48,226) (22,515)
Accounts payable and accrued expenses and other
accrued liabilities 545,208 521,101
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 296,863 (163,644)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (65,448) (10,159)
Other assets (33,365) -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (98,813) (10,159)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable, net (933,412) 350,000
Repayments to stockholders, net (97,452) (50,000)
Advances from related party, net 667,750 75,000
Stockholders' distributions - (431,518)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (363,114) (56,518)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (165,064) (230,321)
Cash and cash equivalents, beginning of year 190,823 421,144
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 25,759 $ 190,823
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 32,891 $ 11,562
===================================================================================================================================
Income taxes $ 21,982 $ 60,656
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE> 23
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Lexstra International, Inc. (the "Company") provides per diem
computer software development field consulting services for high
technical content positions to a diverse client base located
primarily in the Northeastern United States.
REVENUE RECOGNITION
Consulting revenues are recognized as the related services are
provided.
CASH AND CASH EQUIVALENTS:
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
INCOME TAXES:
The Company, with the consent of its stockholders, has elected to
be taxed as an "S" Corporation under the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the
stockholders are taxed individually on their pro-rata share of the
Company's taxable income. Accordingly, no provision or liability
for Federal or certain state income taxes is reflected in the
financial statements. State and local tax provisions, which are
not material, have been included in general and administration
expenses.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
ADVERTISING
The Company charges advertising costs to expense as incurred.
Advertising costs charged to expense for the year ended December 31,
1997 and 1996 was approximately $90,000 and $44,000.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year
financial statements to conform with the presentation for 1997.
F-19
<PAGE> 24
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2. NOTE PAYABLE/DUE FROM BANK
The Company entered into a new banking agreement with a commercial
lender in March, 1997. Under this agreement, the Company may borrow
up to 80% of outstanding accounts receivable subject to certain
limitations as defined in the agreement. The borrowings, which bear
interest at the lender's base rate plus 2% are collateralized by
substantially all of the Company's assets and are guaranteed by the
stockholders. Amounts due from bank represent collections of accounts
receivable, which have not been remitted to the Company, and are
being held as collateral for amounts due the bank from Lexus
Temporaries, Inc. (Note 3).
NOTE 3. RELATED PARTY TRANSACTIONS
LEXUS TEMPORARIES, INC.:
The Company shares office space and certain other resources with
Lexus Temporaries, Inc. ("Lexus"), an entity which is owned by
shareholders of the Company. Amounts due to Lexus represent
non-interest bearing advances made to the Company.
STOCKHOLDERS:
Due from stockholders at December 31, 1997 are non-interest
bearing advances.
Due to stockholders at December 31, 1996 consisted of non-interest
bearing advances.
NOTE 4. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATION
For the year ended December 31, 1997 and 1996, two clients in the
banking and financial services industries, accounted for
approximately 44% and 24% of total revenues, respectively. Amounts
due from these clients represented approximately 38% and 36% of total
accounts receivable at December 31, 1997 and 1996, respectively.
NOTE 5. COMMON STOCK
Five shares of the issued and outstanding common stock have no voting
rights.
NOTE 6. RETIREMENT PLAN
The Company maintains a 401(K) Retirement Plan for all of its
employees. The Plan allows each employee the opportunity to
contribute up to a maximum of $10,000 per year. The Company is not
obligated to contribute to the Plan. The Company made no
contributions to the Plan during the years ended December 31, 1997
and 1996.
F-20
<PAGE> 25
LEXSTRA INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 7. COMMITMENTS
LEASES:
The Company leases office space in New York City under a ten year
lease agreement which expires in 2007. The Company also leases
office space in Boston under a lease agreement which expires in
1998.
Aggregate annual rentals under the agreements are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
YEAR AMOUNT
--------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 60,624
1999 $ 63,519
2000 $ 65,433
2001 $ 67,392
2002 $ 69,414
Thereafter $318,795
</TABLE>
Rent expense for the year ended December 31, 1997 and 1996 was
approximately $53,000 and $31,000.
F-21
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Lexus Temporaries, Inc.
We have audited the accompanying balance sheets of Lexus Temporaries, Inc. as
of December 31, 1997 and 1996, and the related statements of income and retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lexus Temporaries, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ URBACH KAHN & WERLIN, PC
New York, New York
March 27, 1998
F-22
<PAGE> 27
LEXUS TEMPORARIES, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
====================================================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 47,838 $ 70,018
Accounts receivable - trade, net of allowances of $150,000 in
1997 and $57,000 in 1996 2,994,135 2,240,963
Prepaid expenses and other current assets 15,066 1,924
Due from Lexstra International, Inc. 742,750 75,000
Due from stockholders 30,000 30,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 3,829,789 2,417,905
FURNITURE AND EQUIPMENT, net 19,783 20,449
OTHER ASSETS 33,000 5,805
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $3,882,572 $2,444,159
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank $1,236,361 $ 387,500
Note payable, related party -- 300,000
Accounts payable and accrued expenses 632,716 311,074
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,869,077 998,574
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value; 100 shares authorized,
issued and outstanding 45,000 45,000
Retained earnings 1,968,495 1,400,585
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,013,495 1,445,585
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,882,572 $2,444,159
====================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-23
<PAGE> 28
LEXUS TEMPORARIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
===================================================================================================================================
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Service fees $15,167,201 $9,261,261
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Personnel 12,820,119 6,825,266
Referral fees and recruiting expenses 28,213 72,732
- -----------------------------------------------------------------------------------------------------------------------------------
12,848,332 6,897,998
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 2,318,869 2,363,263
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Officers salaries and related benefits 811,641 1,524,416
Selling 339,190 244,413
General and administration 503,106 350,751
Interest 97,022 28,938
- -----------------------------------------------------------------------------------------------------------------------------------
1,750,959 2,148,518
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 567,910 214,745
Other income:
Interest - 12,883
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 567,910 227,628
Retained earnings, beginning of year 1,400,585 1,245,941
Distributions - (72,984)
- -----------------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of year $ 1,968,495 $1,400,585
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-24
<PAGE> 29
LEXUS TEMPORARIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
===================================================================================================================================
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 567,910 $ 227,628
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 9,054 8,965
Changes in:
Accounts receivable (753,172) (790,249)
Prepaid expenses and other current assets (13,142) 491
Accounts payable and accrued expenses 321,642 109,720
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 132,292 (443,445)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of property and equipment (8,388) (13,034)
Other assets (27,195) (1,005)
Advances to related party, net (667,750) (75,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (703,333) (89,039)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on note payable, bank, net 848,861 387,500
Borrowings (repayments) on note from related party (300,000) 300,000
Repayments on loans from stockholders, net - (48,176)
Stockholders' distributions - (72,984)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 548,861 566,340
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (22,180) 33,856
Cash and cash equivalents, beginning of year 70,018 36,162
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 47,838 $ 70,018
===================================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 84,420 $ 17,383
===================================================================================================================================
Income taxes $ 51,317 $ 27,938
===================================================================================================================================
</TABLE>
See Notes to Financial Statements.
F-25
<PAGE> 30
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Lexus Temporaries, Inc. (the "Company") provides temporary
personnel services to business organizations, including special
technical content jobs such as PC technicians, and low technical
content positions such as secretarial and clerical. Substantially
all of the Company's service fees (97% in 1997 and 94% in 1996)
were attributable to one client, a regional telephone company.
Amounts due from this client represented approximately 96% and 90%
of total accounts receivable at December 31, 1997 and 1996.
CASH AND CASH EQUIVALENTS:
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
INCOME TAXES:
The Company, with the consent of its stockholders, has elected to
be taxed as an "S" Corporation under the Internal Revenue Code,
which provides that, in lieu of corporate income taxes, the
stockholders are taxed individually on their pro-rata share of the
Company's taxable income. Accordingly, no provision or liability
for Federal or certain state income taxes is reflected in the
financial statements. State and local tax provisions, which are
generally not material, have been included in general and
administration expenses.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes.
Actual results could differ from those estimates.
ADVERTISING:
The Company charges advertising costs to expense as incurred.
Advertising costs charged to expense for the year ended December
31, 1997 and 1996 was approximately $74,000 and $122,000.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year
financial statements to conform with the presentation for 1997.
F-26
<PAGE> 31
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 2. NOTE PAYABLE, BANK
The Company entered into a new banking agreement with a commercial
lender in March, 1997. Under this agreement, the Company may borrow
up to 80% of outstanding accounts receivable subject to certain
limitations as defined in the agreement. The borrowings, which bear
interest at the lenders base rate plus 2% are collateralized by
substantially all of the Company's assets and are guaranteed by the
stockholders. At December 31, 1997, approximately $583,000 in cash
collections from Lexstra International, Inc. (Note 3) were being held
as collateral for Company borrowings.
NOTE 3. RELATED PARTY TRANSACTIONS
LEXSTRA INTERNATIONAL, INC.:
The Company shares office space and certain other resources with
Lexstra International, Inc. ("Lexstra"), an entity which is owned
by the stockholders of the Company. Amounts due from related party
represent non-interest bearing advances made by the Company.
RELATED PARTY:
Note payable, related party, at December 31, 1996, represented a
loan made to the Company by a relative of one of the stockholders.
The loan, with interest at 9%, was repaid in January, 1997.
DUE FROM STOCKHOLDERS:
Due from stockholders represents non-interest bearing advances
made by the Company.
NOTE 4. RETIREMENT PLAN
Effective November 1, 1996, the Company established a 401(K)
Retirement Plan for all of its employees. The Plan allows each
employee the opportunity to contribute up to a maximum of $10,000 per
year. The Company is not obligated to contribute to the Plan. The
Company made no contributions to the Plan during the years ended
December 31, 1997 and 1996
F-27
<PAGE> 32
LEXUS TEMPORARIES, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE 5. COMMITMENT
The Company leases office space in New York City under a ten year
lease agreement which expires in 2007. The Company also leases office
space in Boston under a lease agreement which expires in 1998.
Aggregate annual rentals under the agreements are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
YEAR AMOUNT
--------------------------------------------------------------------------------------------------
<S> <C>
1998 $ 60,624
1999 $ 63,519
2000 $ 65,433
2001 $ 67,392
2002 $ 69,417
$318,795
</TABLE>
Rent expense for the year ended December 31, 1997 and 1996 was
approximately $41,000 and $19,000, respectively.
F-28
<PAGE> 33
ITEM 7 (b) PRO FORMA CONSOLIDATED FINANCIAL DATA
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data has been derived from the
unaudited historical consolidated financial statements as of and for the nine
months ended September 27, 1998 for MSX International, Inc. ("MSXI" or "the
Company") and from the unaudited historical financial statements of Lexstra
International, Inc. and Lexus Temporaries, Inc. as of and for the nine months
ended September 30, 1998 and from the audited historical financial statements of
the Company for the fiscal year ended December 28, 1997 and of Lexstra
International, Inc. ("Lexstra") and Lexus Temporaries, Inc. ("Lexus") for the
year ended December 31, 1997.
The Company acquired Lexstra International, Inc. and Lexus Temporaries, Inc.
effective October 31, 1998 ("the Acquisition"). The pro forma information gives
effect to the Acquisition as described in the notes to the unaudited pro forma
consolidated financial data.
The unaudited pro forma consolidated balance sheet gives effect to the
Acquisition as if it had occurred on September 27, 1998. The unaudited pro forma
consolidated statements of operations give effect to the Acquisition as if
the transaction had occurred on January 3, 1997. The unaudited pro forma
consolidated financial data do not purport to represent what the Company's
results of operations or financial position would actually have been had these
transactions occurred at such times. This data also does nor purport to project
the Company's results of operations or financial position for or at any future
period or date.
The unaudited pro forma consolidated financial data should be read in
conjunction with the related historical financial statements and the notes
thereto.
F-29
<PAGE> 34
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 27, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MSXI LEXUS LEXSTRA ADJUSTMENTS PRO FORMA
---- ----- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $3,949 $322 $1,583 $5,854
Receivables, net 164,445 4,200 5,038 173,683
Inventory 1,681 1,681
Prepaid expenses and other assets 9,766 45 29 9,840
Deferred income taxes 2,015 2,015
-------- ------ ------ ------- -------
Total current assets 181,856 4,567 6,650 193,073
Property and equipment, net 31,829 20 93 31,942
Goodwill, net 34,082 $15,130 (A) 49,212
Other assets 11,610 36 864 (830)(B) 11,680
Deferred income taxes 15,680 15,680
-------- ------ ------ ------- --------
Total assets $275,057 $4,623 $7,607 $14,300 $301,587
======== ====== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $4,511 $4,511
Accounts payable 77,375 $ 73 $ 531 77,979
Accrued payroll and benefits 21,492 404 636 22,532
Accrued expenses 18,341 778 865 ($757)(B) 19,227
Deferred income taxes 2,704 2,704
-------- ------ ------ ------- -------
Total current liabilities 124,423 1,255 2,032 (757) 126,953
Long-term debt 134,850 24,000 (C) 158,850
Long-term capital lease obligations 281 281
Long-term deferred compensation liability and other 3,911 3,911
-------- ------ ------- ------- -------
Total liabilities 263,465 1,255 2,032 23,243 289,995
-------- ------ ------- ------- -------
Redeemable Series A Preferred Stock 36,000 36,000
Shareholders' equity
Common stock 1 45 50 (95)(D) 1
Additional paid-in capital (22,251) (22,251)
Accumulated other comprehensive income (706) (706)
Retained earnings (accumulated deficit) (1,452) 3,323 5,525 (8,848)(D) (1,452)
-------- ------ ------- ------- -------
Total shareholders' equity (deficit) (24,408) 3,368 5,575 (8,943) (24,408)
------- ------ ------- ------- --------
Total liabilities and shareholders' equity $275,057 $4,623 $7,607 $14,300 $301,587
======== ====== ====== ======= ========
</TABLE>
F-30
<PAGE> 35
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL NINE MONTH PERIOD ENDED SEPTEMBER 27, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MSXI LEXUS LEXSTRA ADJUSTMENTS PRO FORMA
---- ----- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $783,749 $ 15,758 $ 19,324 $818,831
Cost of sales (723,722) (12,323) (13,591) (749,636)
-------- -------- ------- --------- --------
Gross profit 60,027 3,435 5,733 69,195
-------- -------- ------- --------- --------
Selling,general and administrative expenses (41,069) (2,136) (3,770) $ 379 (A)
(378)(B) (46,974)
Michigan Single Business Tax (2,733) (2,733)
-------- -------- ------- --------- --------
Operating income 16,225 1,299 1,963 1 19,488
-------- -------- ------- --------- --------
Other income (expense), net
Interest expense, net (11,936) (81) (4) (1,191)(C) (13,212)
Interest expense, related parties (1,040) (1,040)
-------- -------- ------- --------- --------
(12,976) (81) (4) (1,191) (14,252)
-------- -------- ------- --------- --------
Income (loss) before income taxes 3,249 1,218 1,959 (1,190) 5,236
Income tax provision (benefit) 1,728 (452)(D)
1,207 (E) 2,483
------- ------- ------- --------- --------
Net income (loss) $ 1,521 $ 1,218 $ 1,959 $ (1,945) $ 2,753
======= ======= ======= ========= ========
</TABLE>
F-31
<PAGE> 36
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
MSXI LEXUS LEXSTRA ADJUSTMENTS PRO FORMA
---- ----- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 564,546 $ 15,167 $ 19,402 $ 599,115
Cost of sales (514,019) (12,848) (14,446) (541,313)
--------- -------- -------- ------- ---------
Gross profit 50,527 2,319 4,956 57,802
--------- -------- -------- ------- ---------
Selling, general and administrative expenses (36,007) (1,654) (3,555) $1,599 (A)
(504)(B) (40,121)
Michigan Single Business Tax (2,868) (2,868)
Restructuring costs (2,000) (2,000)
--------- -------- -------- ------- ---------
Operating income 9,652 665 1,401 1,095 12,813
--------- -------- -------- ------- ---------
Other income (expense), net:
Interest expense, net (4,383) (97) (33) (1,589)(C) (6,102)
Interest expense, related parties (8,017) (8,017)
--------- -------- -------- ------- ---------
(12,400) (97) (33) (1,589) (14,119)
--------- -------- -------- ------- ---------
Income (loss) before income taxes (2,748) 568 1,368 (494) (1,306)
Income tax provision (benefit) 225 (188)(D)
736 (E) 773
--------- -------- -------- ------- ---------
Net income (loss) $ (2,973) $ 568 $ 1,368 $(1,042) $ (2,079)
========= ======== ======== ======= =========
</TABLE>
F-32
<PAGE> 37
BASIS OF PRESENTATION
Effective October 31, 1998, MSX International, Inc. ("MSXI" or "the Company")
consummated its acquisition of Lexstra International, Inc, and Lexus
Temporaries, Inc. ("the Acquisition") pursuant to an Asset Purchase Agreement
dated as of October 23, 1998. 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 contingent on achieving certain operating
results for the years 1998 through 2000. The Acquisition was initially announced
on October 27, 1998, and via a filing under Form 8-K on October 28, 1998. The
Acquisition will be accounted for under the purchase method of accounting.
Funding for the transaction was provided by borrowings under the New Credit
Facility.
The pro forma consolidated financial statements include preliminary allocations
of the aggregate purchase price to the assets acquired and liabilities assumed
based on estimated fair values. Purchase accounting adjustments necessary to
allocate the aggregate purchase price remain subject to change and amortization
expense reflected in the MSX International, Inc. financial statements may vary
from the pro forma information. The final determination of the purchase price
for the Acquisition will be completed when certain contractual matters are
concluded. Any adjustments to the purchase price will change recorded goodwill
and will be amortized to expense over the remaining goodwill period. Management
believes the resolution of these matters will not have a material effect on the
results of operations, financial position or cash flows of the Company.
The following unaudited pro forma adjustments are based on available information
and certain management estimates and assumptions. The Company believes that such
adjustments provide a reasonable basis for presenting all of the significant
effects of the Acquisition and that the pro forma adjustments are properly
applied in the unaudited pro forma consolidated financial statements.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 27, 1998
The accompanying unaudited pro forma consolidated balance sheet as of
September 27, 1998 has been prepared as if the Acquisition had been consummated
as of September 27, 1998.
(A) Record the excess of purchase price over the estimated fair value of
acquired assets and assumed liabilities.
(B) Eliminate assets not acquired and liabilities not assumed.
(C) Record borrowings under the New Credit Facility.
(D) Eliminate equity of the acquired businesses.
F-33
<PAGE> 38
ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL
NINE MONTHS ENDED SEPTEMBER 27, 1998
The accompanying unaudited pro forma consolidated statement of operations for
the fiscal nine months ended September 27, 1998 include the following
adjustments to present results as if the Acquisition had been consummated
on January 3, 1997.
(A) Reduce executive compensation expense to reflect new contractual agreements
negotiated in connection with the Acquisition.
(B) Record amortization of goodwill resulting from the Acquisition over an
estimated useful life of 30 years.
(C) Record interest expense associated with the New Credit Facility at an
assumed annual interest rate of 7.19%.
(D) Record the income tax benefit resulting from the pro forma adjustments
related to the Acquisition at an assumed effective income tax rate of 38%.
(E) Lexstra International, Inc. and Lexus Temporaries, Inc. had elected to be
taxed under Subchapter-S of the Internal Revenue Code, which provided that,
in lieu of corporate income taxes, the stockholders were taxed individually
on their pro-rata share of taxable income. This adjustment is to record the
assumed income tax provision that would have been incurred if Lexstra
International, Inc. and Lexus Temporaries, Inc. had been taxable
corporations taxed at an assumed effective income tax rate of 38%.
ADJUSTMENTS TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE FISCAL
YEAR ENDED DECEMBER 28, 1997
The accompanying unaudited pro forma consolidated statement of operations for
the fiscal year ended December 28, 1997 include the following adjustments to
present results as if the Acquisition had been consummated on January 3, 1997.
(A) Reduce executive compensation expense to reflect new contractual agreements
negotiated in connection with the Acquisition.
(B) Record amortization of goodwill resulting from the Acquisition over an
estimated useful life of 30 years.
(C) Record interest expense associated with the New Credit Facility at an
assumed annual interest rate of 7.19%.
(D) Record the income tax benefit resulting from the pro forma adjustments
related to the Acquisition at an assumed effective income tax rate of 38%.
(E) Lexstra International, Inc. and Lexus Temporaries, Inc. had elected to be
taxed under Subchapter-S of the Internal Revenue Code, which provided that,
in lieu of corporate income taxes, the stockholders were taxed individually
on their pro-rata share of taxable income. This adjustment is to record the
assumed income tax provision that would have been incurred if Lexstra
International, Inc. and Lexus Temporaries, Inc. had been taxable
corporations taxed at an assumed effective income tax rate of 38%.
F-34
