<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 4, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
275 REX BOULEVARD AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices) (Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
<PAGE> 2
MSX INTERNATIONAL, INC.
<TABLE>
<CAPTION>
INDEX PAGES
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements - (Unaudited)
Condensed Consolidated Balance Sheets as of April 4, 1999 and
January 3, 1999.....................................................................................1
Condensed Consolidated Statements of Operations for the Fiscal Quarters
Ended April 4, 1999 and March 29, 1998..............................................................2
Condensed Consolidated Statements of Cash Flows for the Fiscal Quarters
Ended April 4, 1999 and March 29, 1998..............................................................3
Condensed Consolidated Statement of Shareholders' Equity (Deficit)
For the Fiscal Quarter Ended April 4, 1999..........................................................4
Notes to Condensed Consolidated Financial Statements....................................................5-14
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................................15-19
PART II - OTHER INFORMATION AND SIGNATURE...................................................................... 20-22
EXHIBITS........................................................................................................ 23-25
</TABLE>
<PAGE> 3
MSX INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
as of April 4, 1999 and January 3, 1999
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1999 1999
----------- ----------
(unaudited)
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,642 $ 4,248
Receivables, net 230,905 208,451
Inventory 1,435 2,362
Prepaid expenses and other assets 7,951 5,559
Deferred income taxes 900 961
--------- ---------
Total current assets 244,833 221,581
Property and equipment, net of accumulated depreciation
of $54,513 and $51,863, respectively 35,500 35,265
Buildings held for sale 15,000 15,000
Goodwill, net of accumulated amortization
of $2,952 and $2,337, respectively 58,369 58,993
Other assets 15,645 13,349
Deferred income taxes 12,318 12,536
--------- ---------
Total assets $ 381,665 $ 356,724
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ 4,572 $ 4,581
Accounts payable 98,967 89,886
Accrued payroll and benefits 25,318 23,286
Other accrued liabilities 21,733 26,825
Contractual acquisition obligation 15,000 15,000
Deferred income taxes 1,736 2,192
--------- ---------
Total current liabilities 167,326 161,770
Long-term debt 198,754 180,356
Long-term deferred compensation liability and other 4,394 4,703
--------- ---------
Total liabilities 370,474 346,829
--------- ---------
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 100,003 shares and 97,004 shares, respectively l 1
Additional paid-in capital (24,644) (24,764)
Accumulated other comprehensive income (loss) (2,414) (1,140)
Retained earnings (accumulated deficit) 2,248 (202)
--------- ---------
Total shareholders' equity (deficit) (24,809) (26,105)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 381,665 $ 356,724
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
1
<PAGE> 4
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal quarters ended April 4, 1999 and March 29, 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(dollars in thousands)
(unaudited)
<S> <C> <C>
Net sales $ 339,488 $ 255,056
Cost of sales (315,184) (236,719)
--------- ---------
Gross profit 24,304 18,337
Selling, general and administrative expenses (14,151) (12,504)
Michigan Single Business Tax (1,315) (772)
--------- --------
Operating income 8,838 5,061
--------- ---------
Interest expense, net (4,659) (3,755)
Interest expense, related parties -- (558)
--------- ---------
4,659 (4,313)
--------- ---------
Income before income taxes 4,179 748
Income tax provision 1,729 370
--------- ---------
Net income $ 2,450 $ 378
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
2
<PAGE> 5
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal quarters ended April 4, 1999 and March 29, 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(dollars in thousands)
(unaudited)
Cash from (used for) operating activities:
<S> <C> <C>
Net income $ 2,450 $ 378
Adjustments to reconcile net income to net cash from
(used for) operating activities:
Depreciation 2,731 3,487
Amortization 775 352
Deferred taxes (177) --
(Increase) decrease in receivables, net (22,454) 1,002
(Increase) decrease in inventory 927 64
(Increase) decrease in prepaid expenses and other assets (2,392) 966
Increase (decrease) in current liabilities 7,485 (6,292)
Other, net (229) (165)
-------- --------
Net cash (used for) operating activities (10,884) (208)
-------- --------
Cash from (used for) investing activities:
Capital expenditures (3,010) (1,763)
Acquisition of businesses, net of cash received (2,429) --
Proceeds from sale of property and equipment 38 --
-------- --------
Net cash (used for) investing activities (5,401) (1,763)
-------- --------
Cash from (used for) financing activities:
Proceeds from long-term debt issues -- 96,778
Payment of long-term debt -- (70,000)
Changes in revolving debt 18,503 (22,083)
Changes in book overdraft (1,463) 1,839
Sale of Common Stock 120 --
Other, net (207) (324)
-------- --------
Net cash from financing activities 16,953 6,210
-------- --------
Effect of foreign exchange rate changes on cash (1,274) (776)
-------- --------
Cash:
Increase (decrease) for the period (606) 3,463
Balance, beginning of period 4,248 11,575
-------- --------
Balance, end of period $ 3,642 $ 15,038
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 6
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
for the fiscal quarter ended April 4, 1999
<TABLE>
<CAPTION>
RETAINED
OTHER EARNINGS TOTAL
COMMON ADDITIONAL COMPREHENSIVE (ACCUMULATED SHAREHOLDERS'
STOCK PAID-IN CAPITAL INCOME(LOSS) DEFICIT) EQUITY (DEFICIT)
----- --------------- ------------- ----------- ----------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance at January 3, 1999 $ 1 $ (24,764) $ (1,140) $ (202) $ (26,105)
Comprehensive income (loss)
Net income 2,450 2,450
Cumulative translation adjustment (1,274) (1,274)
---------
Total comprehensive income (loss) 1,176
Sale of Common Stock 120 120
------- --------- -------- ------- ---------
Balance at April 4, 1999 $ 1 $ (24,644) $ (2,414) $ 2,248 $ (24,809)
======= ========= ======== ======= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 7
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise stated)
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"). The Company is principally engaged in the business
of providing technical support services, primarily to automobile manufacturers
and suppliers in the United States and Europe.
The Company adopted a 52-53 week fiscal year which ends on the Sunday
nearest December 31.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments which are normal and
recurring in nature necessary to present fairly its financial position at April
4, 1999, its shareholders' equity (deficit) as of April 4, 1999, its results of
operations for the fiscal quarters ended April 4, 1999 and March 29, 1998 and
its cash flows for the fiscal quarters ended April 4, 1999 and March 29, 1998.
The operating results for the fiscal quarters ended April 4, 1999 and March 29,
1998 are not necessarily indicative of the results of operations for the entire
year. Reference should be made to the consolidated financial statements included
in the Company's Annual Report on Form 10-K for the fiscal year ended January 3,
1999.
2. REDEEMABLE SERIES A PREFERRED STOCK:
Dividends on preferred stock are payable in cash at a rate per annum
equal to 12 percent of the stated value plus an amount equal to any accrued and
unpaid dividends. As of April 4, 1999, the Company had not declared any
dividends. Accordingly, no dividends have been paid or accrued. Dividends
accumulated but not declared aggregated approximately $10.8 million as of April
4, 1999.
3. DEBT:
Debt is comprised of the following:
<TABLE>
<CAPTION>
Interest Rate at Outstanding at
-----------------------------------------------------------------
April 4, January 3, April 4, January 3,
1999 1999 1999 1999
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Senior Subordinated Notes 11.375% 11.375% $ 100,000 $ 100,000
Credit Facilities, as amended and restated:
Revolving line of credit notes 6.34 - 7.75% 7.03 - 7.75% 46,393 26,238
Swingline notes 6.44 - 7.06% 6.75 - 7.81% 22,361 24,118
Term notes 6.69% 7.29% 30,000 30,000
Ford Motor Company Limited, line of credit 7.34% 8.69% 4,572 4,581
--------- ---------
203,326 184,937
Less current portion 4,572 4,581
--------- ---------
Total long-term debt $ 198,754 $ 180,356
========= =========
</TABLE>
5
<PAGE> 8
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise stated)
3. 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 (the "Series A Notes"). 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
Series A 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 Series A Notes is payable semi-annually at 11-3/8% per annum. The Series
A 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
Series A 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 dated
January 15, 1998 (the "Indenture"), the Series A 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 Series A 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 Series A 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
credit facility with Bank One Corporation (the "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 Credit Facility to add additional commercial lenders and amended and
restated the 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 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 Credit Facility. The
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. The term loan was issued with a
five-year maturity. Interest on the loans under the 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, for swingline loans which
accrue at an annual rate equal to a fixed or floating rate as negotiated at the
time of each borrowing.
Each significant domestic subsidiary of the Company guarantees all
obligations of the Company under the 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 Credit Facility rank senior to all other indebtedness of the
Company.
6
<PAGE> 9
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
3. DEBT: - (CONTINUED)
The 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 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.
The net proceeds from the issuance of Series A Notes and the Credit
Facility were used to retire the bridge loans with CVC and MascoTech, the
MascoTech Subordinated Notes and the outstanding amount under the Old Credit
Facility.
As of April 4, 1999, $98.8 million was outstanding under the 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 Credit Facility.
4. 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. Accordingly, there were negative book balances of $12.8 million and
$14.3 million at April 4, 1999 and January 3, 1999, respectively. Such balances
are included in Accounts Payable in the Condensed Consolidated Balance Sheets.
5. INCOME TAXES:
For the fiscal quarters ended April 4, 1999 and March 29, 1998, the
effective income tax rate was 41.4% and 49.5%, respectively. The decrease in the
Company's effective income tax rate resulted from the expected increased ratio
of earnings to non-deductible expenses and a decrease in certain foreign
statutory income tax rates.
6. SEGMENT INFORMATION:
The Company has two reportable segments: Purchasing Support Services
and 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.
7
<PAGE> 10
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
6. SEGMENT INFORMATION: - (CONTINUED)
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.
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 (EBIT), including the Michigan Single Business Tax.
Summarized below is the segment information for fiscal quarters ended April
4, 1999 and March 29, 1998:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL QUARTER ENDED
APRIL 4, 1999 MARCH 29, 1998
-------------------------------------------------------------------------------------
PURCHASING PURCHASING
SUPPORT OUTSOURCING SUPPORT OUTSOURCING
SERVICES SERVICES TOTAL SERVICES SERVICES TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 170,312 $178,375 $ 348,687 $ 145,240 $ 114,698 $ 259,938
EBIT $ 1,272 $ 8,881 $ 10,153 $ 637 $ 5,196 $ 5,833
</TABLE>
A reconciliation of total segment sales and EBIT to the Company's
consolidated sales and EBIT are as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL QUARTER ENDED
APRIL 4, 1999 MARCH 29, 1998
------------------- --------------------
<S> <C> <C>
SALES
Total segment sales $ 348,687 $ 259,938
Elimination of intersegment sales (9,199) (4,882)
--------- ---------
Consolidated sales $ 339,488 $ 255,056
========= =========
<CAPTION>
FISCAL QUARTER ENDED FISCAL QUARTER ENDED
APRIL 4, 1999 MARCH 29, 1998
------------------- --------------------
<S> <C> <C>
EBIT
Total EBIT $ 10,153 $ 5,833
Interest expense (4,659) (4,313)
Michigan Single Business Tax (1,315) (772)
--------- ---------
Consolidated income before income taxes $ 4,179 $ 748
========= =========
</TABLE>
8
<PAGE> 11
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
7. SUBSEQUENT EVENTS:
On May 18, 1999, the Company issued, in a private placement, $30
million aggregate principle amount of 11-3/8% unsecured senior subordinated
notes maturing January 15, 2008 (the "Series B Notes"). The Series B Notes were
issued, net of discount, at an aggregate amount of $29.4 million. These Series B
Notes are substantially identical to, and rank pari passu in right of payment
with, the Series A Notes issued by the Company on January 22, 1998. These Series
B Notes and the previously issued Series A Notes will trade as separate
securities prior to the consummation of an Exchange Offer (an "Exchange Offer").
It is anticipated that an Exchange Offer will be consummated pursuant to an
effective registration statement within 210 days of the issuance of the Series B
Notes. The net proceeds received from the issuance of the notes were used to
repay outstanding indebtedness under the Company's Credit Facility.
In early April 1999, the Company acquired Rice Cohen International, a
permanent placement staffing company based in Yardley, Pennsylvania with annual
sales of approximately $5 million.
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:
In connection with the Series A 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 Series A Notes as primary
obligors. The following condensed consolidating financial data provides
information regarding the financial position, results of operations and cash
flows of the Guarantor Subsidiaries as set forth below. Separate financial
statements of the Guarantor Subsidiaries are not presented because management
has determined those would not be material to the holders of the Series A 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.
9
<PAGE> 12
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of April 4, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------------------------------------------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 480 $ 3,162 $ -- $ 3,642
Receivables, net 169,937 60,968 -- 230,905
Inventory 1,390 45 -- 1,435
Prepaid expenses and other assets 5,498 2,453 -- 7,951
Deferred income taxes 807 93 -- 900
------------------------------------------------
Total current assets 178,112 66,721 -- 244,833
Property and equipment, net 22,666 12,834 -- 35,500
Buildings held for sale 15,000 -- -- 15,000
Goodwill, net 54,794 3,575 -- 58,369
Investment in subsidiaries 33,593 3,697 (37,290) --
Other assets 12,794 2,851 -- 15,645
Deferred income taxes 9,501 2,817 -- 12,318
------------------------------------------------
Total assets $ 326,460 $ 92,495 $ (37,290) $ 381,665
================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 4,572 $ -- $ 4,572
Accounts payable 84,130 14,837 -- 98,967
Accrued liabilities 38,256 8,827 (32) 47,051
Contractual acquisition obligation 15,000 -- -- 15,000
Deferred income taxes 1,738 (2) -- 1,736
------------------------------------------------
Total current liabilities 139,124 28,234 (32) 167,326
Long-term debt 186,450 12,304 -- 198,754
Intercompany accounts (28,465) 28,465 -- --
Long-term deferred compensation liability and other 4,394 -- -- 4,394
------------------------------------------------
Total liabilities 301,503 69,003 (32) 370,474
------------------------------------------------
Redeemable Series A Preferred Stock 36,000 -- -- 36,000
------------------------------------------------
Shareholders' equity (deficit) (11,043) 23,492 (37,258) (24,809)
------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 326,460 $ 92,495 $ (37,290) $ 381,665
================================================
</TABLE>
10
<PAGE> 13
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. 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)
(unaudited)
<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>
11
<PAGE> 14
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
for the fiscal quarters ended April 4,1999 and March 29, 1998
<TABLE>
<CAPTION>
1999
--------------------------------------------------------------
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 287,855 $ 51,633 $ -- $ 339,488
Cost of sales (271,204) (43,980) -- (315,184)
--------- -------- -------- ---------
Gross profit 16,651 7,653 -- 24,304
Selling, general and administrative expense (9,045) (5,106) -- (14,151)
Michigan Single Business Tax (1,315) -- -- (1,315)
--------- -------- -------- ---------
Operating income 6,291 2,547 -- 8,838
Interest expense, net (4,060) (599) -- (4,659)
Equity in subsidiary earnings 1,246 -- (1,246) --
--------- -------- -------- ---------
Income before income taxes 3,477 1,948 (1,246) 4,179
Income tax provision 1,027 702 -- 1,729
--------- -------- -------- ---------
Net income $ 2,450 $ 1,246 $ (1,246) $ 2,450
========= ======== ======== =========
<CAPTION>
1998
--------------------------------------------------------------
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ 217,966 $ 37,090 $ -- $ 255,056
Cost of sales (205,300) (31,419) -- (236,719)
--------- -------- -------- ---------
Gross profit 12,666 5,671 -- 18,337
Selling, general and administrative expense (8,638) (3,866) -- (12,504)
Michigan Single Business Tax (772) -- -- (772)
--------- -------- -------- ---------
Operating income (loss) 3,256 1,805 -- 5,061
Interest expense, net (3,380) (933) -- (4,313)
Equity in subsidiary earnings 450 -- (450) --
--------- -------- -------- ---------
Income before income taxes 326 872 (450) 748
Income tax provision (benefit) (52) 422 -- 370
--------- -------- -------- ---------
Net income $ 378 $ 450 $ (450) $ 378
========= ======== ======== =========
</TABLE>
12
<PAGE> 15
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal quarter ended April 4, 1999
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(dollars in thousands)
(unaudited)
Cash from (used for) operating activities:
<S> <C> <C> <C> <C>
Net income $ 1,204 $ 1,246 $ -- $ 2,450
Equity in earnings of subsidiaries 1,246 -- (1,246) --
Adjustments to reconcile net income to net cash from
(used for) operating activities:
Depreciation 2,218 513 -- 2,731
Amortization 729 46 -- 775
Deferred taxes 211 (388) -- (177)
(Increase) decrease in receivables, net (24,385) 1,931 -- (22,454)
(Increase) decrease in inventory 926 1 -- 927
(Increase) decrease in prepaid expenses and other assets (1,478) (914) -- (2,392)
Increase (decrease) in current liabilities 6,375 1,110 -- 7,485
Other, net (259) 176 (146) (229)
-------- ------- -------- --------
Net cash from (used for) operating activities (13,213) 3,721 (1,392) (10,884)
-------- ------- -------- --------
Cash from (used for) investing activities:
Capital expenditures (1,730) (1,280) -- (3,010)
Acquisition of businesses, net of cash received (77) (2,352) -- (2,429)
Proceeds from sale of property and equipment -- 38 -- 38
-------- ------- -------- --------
Net cash (used for) investing activities (1,807) (3,594) -- (5,401)
-------- ------- -------- --------
Cash from (used for) financing activities:
Intercompany 1,407 (1,407) -- --
Investment in subsidiaries (3,545) (146) 3,691 --
Equity in subsidiaries 3,406 (205) (3,201) --
Changes in revolving debt 13,325 5,178 -- 18,503
Changes in book overdraft (1) (1,462) -- (1,463)
Sale of Common Stock 120 -- -- 120
Other, net -- (207) -- (207)
-------- ------- -------- --------
Net cash from financing activities 14,712 1,751 490 16,953
-------- ------- -------- --------
Effect of foreign exchange rate changes on cash (902) (1,274) 902 (1,274)
-------- ------- -------- --------
Cash:
Increase (decrease) for the period (1,210) 604 -- (606)
Balance, beginning of period 1,690 2,558 -- 4,248
-------- ------- -------- --------
Balance, end of period $ 480 $ 3,162 $ -- $ 3,642
======== ======= ======== ========
</TABLE>
13
<PAGE> 16
MSX INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal quarter ended March 29, 1998
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR MSXI
SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ ------------ ------------
(dollars in thousands)
(unaudited)
<S> <C> <C> <C> <C>
Cash from (used for) operating activities:
Net income (loss) $ (72) $ 450 $ -- $ 378
Equity in earnings of subsidiaries 450 -- (450) --
Adjustments to reconcile net income (loss) to net cash
from (used for) operating activities:
Depreciation 2,158 1,329 -- 3,487
Amortization 352 -- -- 352
(Increase) decrease in receivables 9,051 (8,049) -- 1,002
(Increase) decrease in inventory 64 -- -- 64
(Increase) decrease in prepaid expenses and other assets (1,210) 2,176 -- 966
Increase (decrease) in current liabilities (13,772) 7,480 -- (6,292)
Other, net 199 (315) (49) (165)
-------- -------- -------- --------
Net cash from (used for) operating activities (2,780) 3,071 (499) (208)
-------- -------- -------- --------
Cash from (used for) investing activities:
Capital expenditures (895) (868) -- (1,763)
-------- -------- -------- --------
Net cash (used for) investing activities: (895) (868) -- (1,763)
-------- -------- -------- --------
Cash from (used for) financing activities:
Intercompany (1,564) 1,564 -- --
Investment in subsidiaries (210) 101 109 --
Equity in subsidiaries (450) -- 450 --
Proceeds from long-term debt issues 96,778 -- -- 96,778
Payment of long-term debt (70,000) -- -- (70,000)
Changes in revolving debt (24,552) 2,469 -- (22,083)
Changes in book overdraft 1,839 -- -- 1,839
Other, net (321) (3) -- (324)
-------- -------- -------- --------
Net cash from financing activities 1,520 4,131 559 6,210
-------- -------- -------- --------
Effect of foreign exchange rate changes on cash (18) (698) (60) (776)
-------- -------- -------- --------
Cash:
Increase (decrease) for the period (2,173) 5,636 -- 3,463
Balance, beginning of period 2,449 9,126 -- 11,575
-------- -------- -------- --------
Balance, end of period $ 276 $ 14,762 $ -- $ 15,038
======== ======== ======== ========
</TABLE>
14
<PAGE> 17
MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the quarter ended April 4, 1999 increased
$84.4 million (33.1%) from $255.1 million to $339.5 million, as compared to the
quarter ended March 29, 1998. The increase in net sales resulted from internal
growth of $54.4 million and sales from acquired businesses of approximately
$30.0 million.
Net sales of the Company's Purchasing Support Services segment for the
quarter ended April 4, 1999 was $170.3 million, an increase of $25.1 million
(17.3%), as compared to $145.2 million for the quarter ended March 29, 1998. The
increase in net sales resulted from greater demand for customer administrative
support services.
Net sales of the Company's Outsourcing Services segment for the quarter
ended April 4, 1999 was $178.4 million, an increase of $63.7 million (55.5%), as
compared to $114.7 million for the quarter ended March 29, 1998. The increase in
net sales is comprised of increased volume and approximately $30.0 million of
net sales from acquired businesses. In addition to the Company's acquisitions,
increased sales related to the opening of new locations, customers'
consolidation of their supplier base and increased demand for automotive design
and engineering services both in the United States and the United Kingdom.
GROSS PROFIT
Gross profit for the quarter ended April 4, 1999 increased $6.0 million
(32.5%) from $18.3 million to $24.3 million, as compared to the quarter ended
March 29, 1998. This increase resulted from improved sales volume and the
acquisition of businesses.
Gross profit as a percentage of net sales for the quarters ended April
4, 1999 and March 29, 1998 was 7.2% in each quarter. Improvements in the gross
profit margin from the Company's Outsourcing Services segment was offset from
increased sales volume in the Company's Purchasing Support Services segment that
are at lower gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses for the
quarter ended April 4, 1999 increased $1.6 million (13.2%) from $12.5 million to
$14.1 million, as compared to the quarter ended March 29, 1998. Selling, general
and administrative expenses as a percentage of net sales for the quarter ended
April 4, 1999 was 4.2% as compared to 4.9% for the prior year quarter ended
March 29, 1998. 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.
OPERATING INCOME
Principally as a result of the foregoing, offset by an increase in
Michigan Single Business Tax of $0.5 million, the Company's operating income for
the quarter ended April 4, 1999 increased $3.7 million (74.6%) from $5.1 million
to $8.8 million, as compared to the quarter ended March 29, 1998. Operating
income as a percentage of net sales for the quarter ended April 4, 1999
increased from 2.0% to 2.6%, as compared to the quarter ended March 29, 1998.
15
<PAGE> 18
MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (CONTINUED)
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
subordinated notes and cash from operations.
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 the Purchasing
Support Services segment, the Company collects related receivables at
approximately the same time it makes such payment to its suppliers.
Net cash used for operating activities decreased $10.7 million from
$ (0.2) million for the quarter ended March 29, 1998 as compared to $ (10.9)
million for the quarter ended April 4, 1999. This use of cash from operating
activities resulted from a change in receivables of $23.4 million during the
quarter ended April 4, 1999 as compared to the prior year quarter and other
items of $3.2 million offset by an increase in net income of $2.1 million and a
change in current liabilities of $13.8 million. The changes in receivables
relate to acquisition of businesses, increased sales volume and timing of
customer collections.
Net cash used for investing activities increased $3.6 million from $1.8
million for the quarter ended March 29, 1998, to $5.4 million for the quarter
ended April 4, 1999. This change relates to capital expenditures and an
investment in Cadform.
Net cash from financing activities increased $10.7 million from $6.2
million for the quarter ended March 29, 1998 to $16.9 for the quarter ended
April 4, 1999. Financing requirements during the quarter ended April 4, 1999
increased to support the net cash used for operating activities as noted above.
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 ("Series A 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 July 22, 1998.
Concurrent with the private placement, the Company entered into a $100
million credit facility with Bank One Corporation (the "Credit Facility") to
replace a previous credit facility. On April 14, 1998, the Company syndicated
the Credit Facility to add additional commercial lenders and amended and
restated the 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 Credit Facility. As of April 4, 1999, $98.7 million was outstanding under
the Credit Facility as amended and restated.
The Company's total indebtedness consists of Series A Notes and Series
B Notes (collectively the "Notes"), borrowings under the Credit Facility and
borrowings under various short-term arrangements. Additional information
regarding theses obligations is set forth in the Notes to the Company's
Condensed Consolidated Financials Statements included in Item 1 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.
16
<PAGE> 19
MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (CONTINUED)
OTHER MATTERS
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 Homberg (Ohm), 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
additional interest in Cadform.
SUBSEQUENT EVENTS
On May 18, 1999, the Company issued, in a private placement, $30
million aggregate principle amount of 11-3/8% unsecured subordinated notes
maturing January 15, 2008 (the "Series B Notes"). The Series B Notes were
issued, net of discount, at an aggregate amount of $29.4 million. These Series B
Notes are substantially identical to, and rank pari passu in right of payment
with, the $100 million aggregate principal amount of 11-3/8% unsecured
subordinated Series A Notes maturing January 15, 2008, issued by the Company on
January 22, 1998. These Series B Notes and the Series A Notes will trade as
separate securities prior to the consummation of an Exchange Offer relating to
the Series B Notes (an "Exchange Offer"). It is anticipated that an Exchange
Offer will be consummated pursuant to an effective registration statement within
210 days of the issuance of the Series B Notes. The net proceeds received from
the issuance of the Series B Notes were used to repay outstanding indebtedness
under the Company's Credit Facility.
In early April 1999, the Company acquired Rice Cohen International, a
permanent placement staffing company based in Yardley, Pennsylvania with annual
sales of approximately $5 million.
INFLATION
Although the Company cannot anticipate future inflation, it does not
believe that inflation has had, or is likely in the foreseeable future, to have
a material impact on its results of operations. While the Company's contracts
typically do not include inflation adjustments, the Company's Master Vendor
Agreement with Ford Motor Company does provide for inflation adjustments for
contract staffing 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 computers, computer programs and manufacturing and administrative
equipment that have date sensitive software may recognize a date having "00" as
the year 1900 rather than the year 2000. If any of Company's systems or
equipment use only two digits, systems 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.
17
<PAGE> 20
MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (CONTINUED)
YEAR 2000 - (CONTINUED)
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.
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. Five hundred applications have been identified, of which 88 are
considered critical. Substantially all critical applications are scheduled for
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.
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.
PCs and peripherals have been inventoried worldwide. All PC's were
upgraded to ensure hardware and software compliance by the end of the first
fiscal quarter of 1999. Substantially all network operations hardware and
software have been upgraded and are compliant as of the date of this Offering
Memorandum.
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 systems plans were 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 need 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 ("LAN's") 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's facility. The Company believes the risk may be
somewhat mitigated as the majority of the Company's revenue is generated from
the sale of business systems, systems technology and staffing services as
opposed to the delivery of manufactured product.
The Company's cost for Y2K compliance preparation in 1998 was
approximately $500,000. Y2K remediation costs for 1999 are expected to reach
$2.0 million, which include upgrades, repairs 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 cost 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.
18
<PAGE> 21
MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS - (CONTINUED)
EUROCURRENCY
On January 1, 1999, the member states of the European Economic and
Monetary Union 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 borrowings 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 pressure 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-Q 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 recruit and place qualified personnel, risks associated
with its acquisition strategy, and employment liability risk.
19
<PAGE> 22
MSX INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Change in Securities
On March 3, 1999, the Company issued 1,000 shares of Class A Common
Stock to John Risk, President, Product Development Services Division,
for an aggregate purchase price of $40,000.
On March 23, 1999, the Company issued 1,999 shares of Class A Common
Stock to Roger Fridholm, President, Business, Technology and Staffing
Services Division, for an aggregate purchase price of $80,000.
ITEM 3. Defaults Upon Senior Securities
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable.
ITEM 5. Other Information
On May 18, 1999, the Company issued, in a private placement, $30
million aggregate principle amount of 11-3/8% unsecured subordinated
notes maturing January 15, 2008 (the "Series B Notes"). The Series B
Notes were issued, net of discount, at an aggregate amount of $29.4
million. These Series B Notes are substantially identical to, and rank
pari passu in right of payment with, the $100 million aggregate
principal amount of 11-3/8% unsecured subordinated notes (the "Series
A Notes") maturing January 15, 2008, issued by the Company on January
22, 1998. These Series B Notes and the Series A Notes will trade as
separate securities prior to the consummation of an Exchange Offer
relating to the Series B Notes (an "Exchange Offer"). It is
anticipated that an Exchange Offer will be consummated pursuant to an
effective registration statement within 210 days of the issuance of
the notes. The net proceeds received from the issuance of the Series
B Notes were used to repay outstanding indebtedness under the
Company's Credit Facility.
In early April 1999, the Company acquired Rice Cohen International, a
permanent placement staffing company based in Yardley, Pennsylvania
with annual sales of approximately $5 million.
20
<PAGE> 23
MSX INTERNATIONAL, INC.
PART II. OTHER INFORMATION - (CONTINUED)
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
(1) A Current Report on Form 8-K was filed by MSX International,
Inc. during the quarter ending April 4, 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).
(2) A Current Report on Form 8-K was filed by MSX International,
Inc. during the quarter ending April 4, 1999 reporting under
Item 5 "Other Events", the acquisition of Megatech
Engineering, Inc. Included under Item 7 of such report was
the following exhibit:
(i) MSX International Press Release of December 23, 1998
announcing the acquisition of Megatech Engineering,
Inc.
21
<PAGE> 24
MSX INTERNATIONAL, INC.
PART II. OTHER INFORMATION - (CONTINUED)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 19, 1999
MSX INTERNATIONAL, INC.
(Registrant)
By:/s/ Frederick K. Minturn
----------------------------
Frederick K. Minturn
Executive Vice President and
Chief Financial Officer
(Chief accounting officer
and authorized signatory)
22
<PAGE> 25
MSX INTERNATIONAL, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page No.
- ------- -------------------
<S> <C>
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 24
Exhibit 27 - Financial Data Schedule 25
</TABLE>
23
<PAGE> 1
EXHIBIT 12
MSX INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARES
Computation of Ratio of Earnings to Fixed Charges
(dollars in thousands)
<TABLE>
<CAPTION>
PREDECESSOR FISCAL FISCAL FISCAL
--------------------------------- YEAR YEAR QUARTER
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED
--------------------------------- DECEMBER 28, JANUARY 3, APRIL 4,
1994 1995 1996 1997 1999 1999
------- ------- ------- -------- ------- -------
(unaudited)
<S> <C> <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 $ 4,179
Add interest on indebtedness, net 920 1,470 1,310 12,400 16,906 4,659
Add amortization of debt expense -- -- -- -- 510 147
Add estimated interest factor
for rentals 1,800 2,733 1,800 5,867 7,442 1,466
------- ------- ------- -------- ------- -------
Earnings before income taxes and
fixed charges $11,260 $14,443 $ 9,730 $ 15,519 $30,697 10,451
======= ======= ======= ======== ======= =======
Fixed charges:
Interest on indebtedness $ 920 $ 1,470 $ 1,310 $ 12,400 $16,906 $ 4,659
Amortization of debt expense -- -- -- -- 510 147
Estimated interest factor for rentals 1,800 2,733 1,800 5,867 7,442 1,466
------- ------- ------- -------- ------- -------
$ 2,720 $ 4,203 $ 3,110 $ 18,267 $24,858 6,272
======= ======= ======= ======== ======= =======
Ratio of earnings to fixed charges 4.1 3.4 3.1 (a) 1.2 1.7
</TABLE>
(a) Earnings were insufficient to cover fixed charges by $2.7 million for the
fiscal year ended December 28, 1997.
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
APRIL 4, 1999 MSX INTERNATIONAL, INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> APR-04-1999
<CASH> 3,642
<SECURITIES> 0
<RECEIVABLES> 230,905
<ALLOWANCES> 0
<INVENTORY> 1,435
<CURRENT-ASSETS> 244,833
<PP&E> 90,013
<DEPRECIATION> (54,513)
<TOTAL-ASSETS> 381,665
<CURRENT-LIABILITIES> 167,326
<BONDS> 198,754
36,000
0
<COMMON> 1
<OTHER-SE> (24,810)
<TOTAL-LIABILITY-AND-EQUITY> 381,665
<SALES> 399,488
<TOTAL-REVENUES> 399,488
<CGS> 315,184
<TOTAL-COSTS> 315,184
<OTHER-EXPENSES> 15,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,659
<INCOME-PRETAX> 4,179
<INCOME-TAX> 1,729
<INCOME-CONTINUING> 2,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,450
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
