<PAGE> 1
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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 July 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-49821
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3323099
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
275 REX BOULEVARD, AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices) (Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
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.......
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<PAGE> 2
MSX INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. Financial Statements: Pages
<S> <C>
Consolidated Balance Sheets as of July 2, 2000 (Unaudited) and
January 2, 2000........................................................................................2
Consolidated Statements of Income (Unaudited) for the Fiscal Quarters and Fiscal Six Months
Ended July 2, 2000 and July 4, 1999....................................................................3
Consolidated Statements of Cash Flows (Unaudited) for the Fiscal Six Months
Ended July 2, 2000 and July 4, 1999....................................................................4
Notes to Consolidated Financial Statements (Unaudited).....................................................5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................16
PART II. OTHER INFORMATION
ITEM 5. Other Information..................................................................................19
ITEM 6. Exhibits and Reports on Form 8-K...................................................................19
SIGNATURE............................................................................................................20
EXHIBIT INDEX........................................................................................................21
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
as of July 2, 2000 and January 2, 2000
<TABLE>
<CAPTION>
JULY 2,
2000 JANUARY 2,
(Unaudited) 2000
----------- ----------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,637 $ 6,879
Accounts receivable, net (Note 3) 298,941 306,978
Inventory 4,213 4,133
Prepaid expenses and other assets 9,917 8,502
Deferred income taxes, net 1,817 2,425
-------- --------
Total current assets 321,525 328,917
Property and equipment, net 43,411 44,362
Goodwill and other intangibles, net of accumulated amortization
of $7,621 and $5,693, respectively 157,411 122,766
Other assets 15,736 19,651
Deferred income taxes, net 4,788 8,494
-------- --------
Total assets $542,871 $524,190
======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt (Note 4) $18,133 $13,290
Accounts payable and drafts 172,450 161,973
Accrued payroll and benefits 31,525 25,500
Other accrued liabilities 45,937 63,889
-------- --------
Total current liabilities 268,045 264,652
Long-term debt (Note 4) 243,380 232,556
Long-term deferred compensation liabilities and other 10,644 11,275
-------- --------
Total liabilities 522,069 508,483
-------- --------
Minority interests 1,023 286
-------- --------
Redeemable Series A Preferred Stock (Note 5) 36,000 36,000
-------- --------
Shareholders' deficit:
Common Stock, $.01 par value, 2,000,000 aggregate shares of
Class A and Class B Common Stock authorized; 102,003 and 99,003 shares of Class
A Common Stock issued and outstanding, respectively 1 1
Additional paid-in-capital (21,705) (24,705)
Note receivable from officer (Note 6) (3,000) -
Accumulated other comprehensive loss (9,853) (5,867)
Retained earnings 18,336 9,992
-------- --------
Total shareholders' deficit (16,221) (20,579)
-------- --------
Total liabilities and shareholders' deficit $542,871 $524,190
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
2
<PAGE> 4
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the fiscal quarters and fiscal six months ended
July 2, 2000 and July 4, 1999
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL SIX MONTHS ENDED
--------------------------- -------------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net sales $ 269,512 $ 191,499 $ 517,477 $ 374,468
Cost of sales 230,913 165,030 443,718 323,877
--------- --------- --------- ---------
Gross profit 38,599 26,469 73,759 50,591
Selling, general and administrative expenses 21,642 15,651 41,729 30,307
Amortization of goodwill and other intangibles 1,398 718 2,500 1,346
--------- --------- --------- ---------
Operating income 15,559 10,100 29,530 18,938
Interest expense, net 7,659 5,047 14,570 9,706
--------- --------- --------- ---------
Income before income taxes, minority
interests, and equity in earnings
(losses) of affiliates 7,900 5,053 14,960 9,232
Income tax provision 3,222 1,988 6,150 3,717
Minority interests and equity in earnings
(losses) of affiliates, net of taxes (548) -- (466) --
--------- --------- --------- ---------
Net income $ 4,130 $ 3,065 $ 8,344 $ 5,515
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
3
<PAGE> 5
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the fiscal six months ended July 2, 2000 and July 4, 1999
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED
-----------------------------
JULY 2, JULY 4,
2000 1999
---------- -----------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,344 $ 5,515
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 8,566 5,747
Amortization 3,032 1,644
Deferred taxes 4,326 196
Loss on sale/disposal of property and equipment 80 --
(Increase) decrease in receivables, net 22,388 (18,418)
(Increase) decrease in inventory (80) 660
(Increase) decrease in prepaid expenses and other assets (1,231) (3,488)
Increase (decrease) in current liabilities 8,826 8,368
Other, net (1,440) 356
-------- --------
Net cash provided by operating activities 52,811 580
-------- --------
Cash flows from investing activities:
Capital expenditures (9,251) (6,201)
Acquisition of businesses, net of cash received (57,747) (24,792)
Proceeds from sale/disposal of property and equipment 1,758 459
-------- --------
Net cash used for investing activities (65,240) (30,534)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt 25,000 27,632
Repayment of debt (1,917) --
Debt issuance costs (178) --
Changes in revolving debt (9,467) 422
Changes in book overdraft 1,369 18,452
Payment of contractual acquisition obligation -- (15,000)
Sale of Common Stock -- 120
Other, net -- (2)
-------- --------
Net cash provided by financing activities 14,807 31,624
-------- --------
Effect of foreign exchange rate changes on cash and cash equivalents (2,620) (2,186)
-------- --------
Cash and cash equivalents:
Decrease for the period (242) (516)
Balance, beginning of period 6,879 4,248
-------- --------
Balance, end of period $ 6,637 $ 3,732
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
4
<PAGE> 6
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars in thousands unless otherwise stated)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements represent the consolidated assets
and liabilities and results of operations of MSX International, Inc. and its
majority owned subsidiaries ("MSXI"). MSXI is a leading global provider of
technology-driven business services, which enable our customers to
significantly improve their competitive advantage. We utilize a 52-53 week
fiscal year, which ends on the Sunday nearest December 31.
All intercompany transactions and balances between subsidiaries of MSXI
have been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only
normal recurring items, which are necessary for a fair presentation. The
operating results for the fiscal quarters and fiscal six months ended July 2,
2000 and July 4, 1999 are not necessarily indicative of the results of
operations for the entire year. Reference should be made to the consolidated
financial statements and notes thereto included in our Annual Report on Form
10-K for the fiscal year ended January 2, 2000. Certain prior year amounts have
been reclassified to conform to the presentation adopted in fiscal 2000.
2. ACQUISITIONS OF BUSINESSES:
Chelsea Acquisition. Effective September 17, 1999, we acquired 100% of
the outstanding common stock of Chelsea Computer Consultants, Inc. ("Chelsea")
from Staff Builders, Inc. The total purchase price of about $19.9 million at
closing was funded with borrowings under our credit facility. Chelsea is a
provider of information technology professionals in the areas of application
development, networking, database design, enterprise and data modeling and
hardware engineering with historical annual sales in excess of $30 million.
Chelsea is headquartered in New York, New York and provides consulting and
technical staff augmentation services to customers in the financial services,
communications and manufacturing industries in the United States. The
acquisition of Chelsea was accounted for under the purchase method resulting in
goodwill of $15.7 million at closing.
Satiz Acquisition. Effective December 31, 1999, we acquired 75% of the
outstanding common stock of Satiz S.r.l. ("Satiz"), a subsidiary of Fiat S.p.A.
Satiz is headquartered in Turin, Italy and specializes in commercial and
technical publishing including translation services, graphics, document systems,
warehouse and distribution services, and events. Satiz employs nearly 500 people
and has historical annual revenues in excess of $120 million. The purchase price
of about $9.7 million was funded with borrowings under our credit facility. At
closing, Satiz had about $8.9 million of debt outstanding pursuant to the Satiz
credit facility. The remaining 25% of the outstanding common stock of Satiz is
retained by Fiat S.p.A. The acquisition of Satiz was accounted for under the
purchase method resulting in goodwill of $8.8 million at closing.
CSR Acquisition. On February 23, 2000 we acquired the professional
staffing operations of Corporate Staffing Resources, Inc. (the "CSR
Acquisition"). Specifically, we acquired 100% of the outstanding common stock of
Intranational Computer Consultants, Inc. and Programming Management and Systems,
Inc. and selected assets and liabilities of CMS Management Services and Ascend.
The total purchase price of about $31.1 million at closing was funded with
borrowings under our credit facility. These companies provide information
technology and technical professional staffing services throughout the United
States with combined historical annual revenues in excess of $57 million. The
CSR Acquisition was accounted for under the purchase method resulting in
goodwill of $25.7 million at closing.
Quandoccorre Acquisition. In May 1999, we purchased a 30% interest in
QR Quandoccorre S.r.l. and Quandoccorre Interinale S.p.A. ("QR/QI"), two
affiliated Italian companies with combined historical annual sales of about $18
million. QR Quandoccorre S.r.l. provides consulting services on a project basis
and Quandoccorre Interinale S.p.A. provides staffing services to various
industries. Effective January 3, 2000, we acquired the remaining 70% of the
outstanding common stock of both companies. The cumulative purchase price of
about $11.4 million was funded with a combination of borrowings under our credit
facility and borrowings under the Satiz credit facility. The acquisition was
accounted for under the purchase method resulting in goodwill of $10.5 million
upon closing of the 70% acquisition.
5
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
For recent acquisitions, the preliminary allocation of purchase price
will be completed when certain contractual matters are concluded. Any
adjustments to purchase prices will change recorded goodwill and will be
amortized over the remaining goodwill amortization period. Management believes
the resolution of these matters will not have a material adverse effect on the
results of operations, financial position or cash flows of MSXI.
The operating results of acquired companies have been included in our
consolidated operating results from the effective date of each acquisition. The
following pro forma financial information is presented to illustrate the
estimated effects of the acquisition of Chelsea, Satiz, the CSR businesses, and
QR/QI as if the transactions had occurred on January 3, 1999. The pro forma
results do not necessarily represent what our results would have been had the
transactions taken place on January 3, 1999, nor are they necessarily indicative
of future results.
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED FISCAL SIX MONTHS ENDED
JULY 2, 2000 JULY 4, 1999
------------------------------- ---------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $517,477 $524,115 $374,468 $495,409
Income before income taxes, minority interests,
and equity in earnings (losses) of affiliates 14,960 14,653 9,232 11,827
Net income 8,344 8,160 5,515 6,613
</TABLE>
In addition to the above, we completed certain other transactions
during fiscal 1999. The aggregate purchase price of these transactions was about
$16.6 million in cash and $3.3 million in contributed assets. Other transactions
were:
- The acquisition of Rice Cohen International, Inc. in April 1999, a
permanent placement staffing company based in Yardley,
Pennsylvania and Management Resources International, Inc. in June
1999, a provider of training services and courseware in quality
systems based in Ann Arbor, Michigan. Aggregate historical annual
sales for both companies approximated $9 million. The results of
Rice Cohen International, Inc. and Management Resources, Inc. are
not included in the pro forma financial information above as the
amounts would not be material to our pro forma results.
- In January 1999, we purchased a 24.5% interest in CADFORM-MSX
Engineering GmbH (formerly Cadform Engineering GmbH), a German
company that provides product design and tooling services with
historical annual sales of about $12 million. In November 1999, we
increased our ownership of CADFORM-MSX Engineering GmbH to about
49% by contributing certain assets of our German operations.
The terms of certain of our acquisition agreements provide for
additional contingent consideration to be paid over a period of up to two years
if the acquired entity's future operating results exceed targeted levels.
Contingent consideration is earned when the acquired entity's financial
performance grows in excess of the targeted levels established at the time of
acquisition. Such additional consideration is generally recorded, when earned,
as additional purchase price. In this regard, we recorded certain contingencies
during 1999, related to prior year acquisitions, which resulted in additional
goodwill capitalization. Additional goodwill is amortized over the remaining
amortization period.
3. ACCOUNTS RECEIVABLE:
Accounts receivable include the portion of our billings for purchasing
support services attributable to services provided by our vendors which are
passed on to our customers. These amounts totaled $69.5 million as of July 2,
2000 and $62.5 million as of January 2, 2000. A corresponding liability to our
vendors for these amounts is recorded in accounts payable at the time the
receivable is recognized.
6
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
4. DEBT:
Debt is comprised of the following:
<TABLE>
<CAPTION>
INTEREST RATES AT OUTSTANDING AT
------------------------------ ----------------------------------
JULY 2, JANUARY 2, JULY 2, JANUARY 2,
2000 2000 2000 2000
-------------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Senior Subordinated Notes 11.375% 11.375% $130,000 $130,000
Credit Facility, as amended and restated:
Revolving line of credit notes 8.13% 8.09% 7,981 9,703
Swingline notes 7.53-11.03% 5.53-10.03% 6,774 16,353
Term notes 8.70-10.18% 9.23-9.98% 103,125 80,000
Ford Motor Company Limited, line of credit n/a 7.14% - 862
Satiz Facility 5.30% 4.51% 12,319 8,928
Other debt 6.50-7.20% n/a 1,314 -
-------- --------
261,513 245,846
Less current portion 18,133 13,290
-------- --------
Total long-term debt $243,380 $232,556
======== ========
</TABLE>
During the first quarter of 2000, the seven-year institutional term
note, with principal outstanding of $50 million as of January 2, 2000, was
increased to $75 million pursuant the terms of our amended and restated credit
facility. Upon completion of the syndication of the credit facility, our total
borrowing capacity increased to $205 million. Proceeds from the additional term
debt were used to repay amounts outstanding under the revolving credit portion
of the credit facility.
As of July 2, 2000, $14.8 million was outstanding under the revolving
and swingline portions of our credit facility and has been classified as
long-term debt as we have both the ability and intent to refinance such amounts
under the credit facility.
5. REDEEMABLE SERIES A PREFERRED STOCK:
We are authorized to issue up to 1,500,000 shares of Preferred Stock,
divided into two classes: 500,000 shares of Redeemable Series A Preferred Stock,
par value $0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01.
As of July 2, 2000 and January 2, 2000, 360,000 shares of our Redeemable Series
A Preferred Stock are issued and outstanding. 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 July 2, 2000, we have
not declared or paid any dividends. Dividends accumulated but not declared
totaled about $18.1 million as of July 2, 2000.
6. NOTE RECEIVABLE FROM OFFICER:
As of July 2, 2000, MSXI held a $3.0 million note receivable from an
officer of the company. The loan bears interest at 6.77% per year and matures on
February 28, 2015. Interest is payable annually with the principal amount due
upon maturity or the occurrence of certain events. The loan is secured by a
pledge to MSXI of shares of our Class A Common Stock. Interest income related to
this note was about $70 thousand during the first six months of fiscal 2000.
7
<PAGE> 9
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
7. COMPREHENSIVE INCOME:
Our comprehensive income was:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income $4,130 $3,065 $8,344 $5,515
Other comprehensive loss -
Foreign currency translation adjustments (2,284) (912) (3,986) (2,186)
-------------- ------------- ------------- -------------
Comprehensive income $1,846 $2,153 $4,358 $3,329
============== ============= ============= =============
</TABLE>
8. SEGMENT INFORMATION:
MSXI is a leading global provider of technology-driven business
services to the automotive and other industries. We group our services into
three service line categories: engineering services, information technology
("IT") and professional staffing services, and business and technology services.
Due to the similar characteristics of our service lines, including the nature of
our service offerings, processes supporting the delivery of our services, our
customers, and our marketing and sales processes, our operations have been
aggregated following the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131 for segment reporting purposes.
The following is a summary of our net sales by service line:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Engineering Services $141,195 $127,361 $284,450 $252,048
IT and Professional Staffing Services 52,692 19,734 88,377 36,234
Business and Technology Services 75,625 44,404 144,650 86,186
-------------- ------------- ------------- -------------
Total net sales $269,512 $191,499 $517,477 $374,468
============== ============= ============= =============
</TABLE>
We evaluate performance based on earnings before interest and taxes
(EBIT), including the Michigan Single Business Tax and other similar taxes, as
defined in our credit facility, as amended and restated. A reconciliation of
consolidated EBIT to consolidated income before income taxes, minority
interests, and equity in earnings (losses) of affiliates is as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL SIX MONTHS ENDED
------------------------------- -------------------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total EBIT $16,895 $11,351 $ 32,308 $21,504
Interest Expense (7,659) (5,047) (14,570) (9,706)
Michigan Single Business Tax and
other similar taxes (1,336) (1,251) (2,778) (2,566)
-------------- ------------- ------------- -------------
Consolidated income before taxes,
minority interests, and equity in
earnings (losses) of affiliates $ 7,900 $ 5,053 $ 14,960 $ 9,232
============== ============= ============= =============
</TABLE>
8
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES:
In connection with our $130 million of senior subordinated notes
outstanding, each of our significant domestic restricted subsidiaries, as
defined in the related bond indenture (the "Guarantor Subsidiaries"),
irrevocably and unconditionally guarantee MSXI's performance as primary obligor.
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 senior subordinated 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
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of July 2, 2000
<TABLE>
<CAPTION>
NON-
MSXI GUARANTOR GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 736 $ 5,901 $ -- $ 6,637
Accounts receivable, net 70 184,341 114,530 -- 298,941
Inventory -- 2,721 1,492 -- 4,213
Prepaid expenses and other assets 325 5,033 4,559 -- 9,917
Deferred income taxes, net -- 1,632 185 -- 1,817
--------- --------- --------- --------- ---------
Total current assets 395 194,463 126,667 -- 321,525
Property and equipment, net -- 22,542 20,869 -- 43,411
Goodwill and other intangibles, net -- 118,599 38,812 -- 157,411
Investment in subsidiaries 182,303 54,605 5,866 (236,906) 5,868
Other assets 7,042 2,298 528 -- 9,868
Deferred income taxes, net -- 2,102 2,686 -- 4,788
--------- --------- --------- --------- ---------
Total assets $ 189,740 $ 394,609 $ 195,428 $(236,906) $ 542,871
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 4,500 $ -- $ 13,633 $ -- $ 18,133
Accounts payable and drafts -- 118,341 54,109 -- 172,450
Accrued liabilities 6,409 47,340 23,713 -- 77,462
--------- --------- --------- --------- ---------
Total current liabilities 10,909 165,681 91,455 -- 268,045
Long-term debt 219,929 10,196 13,255 -- 243,380
Intercompany accounts (89,894) 42,722 47,172 -- --
Long-term deferred compensation
liabilities and other -- 4,364 6,280 -- 10,644
--------- --------- --------- --------- ---------
Total liabilities 140,944 222,963 158,162 -- 522,069
Minority interests -- -- 1,023 -- 1,023
Redeemable Series A Preferred Stock 36,000 -- -- -- 36,000
Shareholders' equity (deficit) 12,796 171,646 36,243 (236,906) (16,221)
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity (deficit) $ 189,740 $ 394,609 $ 195,428 $(236,906) $ 542,871
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 12
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2000
<TABLE>
<CAPTION>
NON-
MSXI GUARANTOR GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 873 $ 6,006 $ -- $ 6,879
Accounts receivable, net -- 182,380 124,598 -- 306,978
Inventory -- 2,237 1,896 -- 4,133
Prepaid expenses and other assets 389 4,493 3,620 -- 8,502
Deferred income taxes, net -- 1,112 1,313 -- 2,425
--------- --------- --------- --------- ---------
Total current assets 389 191,095 137,433 -- 328,917
Property and equipment, net -- 24,891 19,471 -- 44,362
Goodwill and other intangibles, net -- 101,912 20,854 -- 122,766
Investment in subsidiaries 169,110 34,727 9,485 (203,837) 9,485
Other assets 7,397 2,232 537 -- 10,166
Deferred income taxes, net -- 5,779 2,715 -- 8,494
--------- --------- --------- --------- ---------
Total assets $ 176,896 $ 360,636 $ 190,495 $(203,837) $ 524,190
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 3,500 $ -- $ 9,790 $ -- $ 13,290
Accounts payable and drafts -- 93,374 68,599 -- 161,973
Accrued liabilities (4,716) 74,954 19,184 (33) 89,389
--------- --------- --------- --------- ---------
Total current liabilities (1,216) 168,328 97,573 (33) 264,652
Long-term debt 217,750 -- 14,806 -- 232,556
Intercompany accounts (84,076) 39,020 45,056 -- --
Long-term deferred compensation
liabilities and other -- 4,402 6,873 -- 11,275
--------- --------- --------- --------- ---------
Total liabilities 132,458 211,750 164,308 (33) 508,483
Minority interests -- -- 286 -- 286
Redeemable Series A Preferred Stock 36,000 -- -- -- 36,000
Shareholders' equity (deficit) 8,438 148,886 25,901 (203,804) (20,579)
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 176,896 $ 360,636 $ 190,495 $(203,837) $ 524,190
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 13
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal quarters ended July 2, 2000 and July 4, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
FISCAL QUARTER ENDED JULY 2, 2000:
Net sales $ - $174,404 $99,252 $(4,144) $269,512
Cost of sales - 148,637 86,420 (4,144) 230,913
------------- --------------- -------------- --------------- --------------
Gross profit - 25,767 12,832 - 38,599
Selling, general and administrative expenses - 14,798 6,844 - 21,642
Amortization of goodwill and other intangibles - 1,115 283 - 1,398
------------- --------------- -------------- --------------- --------------
Operating income - 9,854 5,705 - 15,559
Interest income (expense), net (7,254) 425 (830) - (7,659)
------------- --------------- -------------- --------------- --------------
Income (loss) before income taxes,
minority interests, and equity in
earnings (losses) of affiliates (7,254)
10,279 4,875 - 7,900
Income tax provision (benefit) (2,555) 3,967 1,810 - 3,222
Minority interests and equity in earnings
(losses) of affiliates, net of taxes 8,829 2,517 (548) (11,346) (548)
------------- --------------- -------------- --------------- --------------
Net income $4,130 $8,829 $2,517 $(11,346) $4,130
============= =============== ============== =============== ==============
FISCAL QUARTER ENDED JULY 4, 1999:
Net sales $ - $141,708 $53,491 $(3,700) $191,499
Cost of sales - 122,818 45,912 (3,700) 165,030
------------- --------------- -------------- --------------- --------------
Gross profit - 18,890 7,579 - 26,469
Selling, general and administrative expenses - 10,822 4,829 - 15,651
Amortization of goodwill and other intangibles - 709 9 - 718
------------- --------------- -------------- --------------- --------------
Operating income - 7,359 2,741 - 10,100
Interest income (expense), net (4,840) 255 (462) - (5,047)
------------- --------------- -------------- --------------- --------------
Income before income taxes, minority
interests, and equity in earnings
(losses) of affiliates (4,840) 7,614 2,279 - 5,053
Income tax provision (benefit) (1,643) 2,746 885 - 1,988
Minority interests and equity in earnings
(losses) of affiliates, net of taxes 6,262 1,394 - (7,656) -
------------- --------------- -------------- --------------- --------------
Net income $3,065 $6,262 $1,394 $(7,656) $3,065
============= =============== ============== =============== ==============
</TABLE>
12
<PAGE> 14
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
for the fiscal six months ended July 2, 2000 and July 4, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
FISCAL SIX MONTHS ENDED JULY 2, 2000:
Net sales $ - $331,529 $193,738 $ (7,790) $517,477
Cost of sales - 280,934 170,574 (7,790) 443,718
-------------- --------------- --------------- --------------- --------------
Gross profit - 50,595 23,164 - 73,759
Selling, general and administrative expenses - 28,906 12,823 - 41,729
Amortization of goodwill and other intangibles - 1,980 520 - 2,500
-------------- --------------- --------------- --------------- --------------
Operating income - 19,709 9,821 - 29,530
Interest income (expense), net (13,762) 834 (1,642) - (14,570)
-------------- --------------- --------------- --------------- --------------
Income (loss) before income taxes,
minority interests, and equity in
earnings (losses) of affiliates (13,762)
20,543 8,179 - 14,960
Income tax provision (benefit) (4,927) 7,793 3,284 - 6,150
Minority interests and equity in earnings
(losses) of affiliates, net of taxes 17,179 4,429 (466) (21,608) (466)
-------------- --------------- --------------- --------------- --------------
Net income $ 8,344 $ 17,179 $ 4,429 $(21,608) $ 8,344
============== =============== =============== =============== ==============
FISCAL SIX MONTHS ENDED JULY 4, 1999:
Net sales $ - $273,044 $105,124 $ (3,700) $374,468
Cost of sales - 237,685 89,892 (3,700) 323,877
-------------- --------------- --------------- --------------- --------------
Gross profit - 35,359 15,232 - 50,591
Selling, general and administrative expenses - 20,418 9,889 - 30,307
Amortization of goodwill and other intangibles - 1,291 55 - 1,346
-------------- --------------- --------------- --------------- --------------
Operating income - 13,650 5,288 - 18,938
Interest income (expense), net (9,161) 516 (1,061) - (9,706)
-------------- --------------- --------------- --------------- --------------
Income (loss) before income taxes,
minority interests, and equity in
earnings (losses) of affiliates (9,161) 14,166 4,227 - 9,232
Income tax provision (benefit) (3,056) 5,186 1,587 - 3,717
Minority interests and equity in earnings
(losses) of affiliates, net of taxes 11,620 2,640 - (14,260) -
-------------- --------------- --------------- --------------- --------------
Net income $ 5,515 $ 11,620 $ 2,640 $(14,260) $ 5,515
============== =============== =============== =============== ==============
</TABLE>
13
<PAGE> 15
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal six months ended July 2, 2000
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,835) $ 12,750 $ 4,429 $ - $ 8,344
Equity in earnings of wholly-owned
subsidiaries 17,179 4,429 - (21,608) -
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 5,070 3,496 - 8,566
Amortization 532 1,980 520 - 3,032
Deferred taxes - 3,157 1,169 - 4,326
Loss on sale/disposal of property and
equipment - 71 9 - 80
(Increase) decrease in receivables, net (70) 638 21,820 - 22,388
(Increase) decrease in inventory - (484) 404 - (80)
(Increase) decrease in prepaid expenses
and other assets 64 (358) (937) - (1,231)
Increase (decrease) in current liabilities 11,126 10,771 (13,104) 33 8,826
Other, net - (436) (1,004) - (1,440)
-------------- -------------- -------------- --------------- --------------
Net cash provided by operating activities 19,996 37,588 16,802 (21,575) 52,811
-------------- -------------- -------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures - (3,626) (5,625) - (9,251)
Acquisition of businesses, net of cash
received - (39,660) (18,087) - (57,747)
Proceeds from sale/disposal of property and
equipment - 1,667 91 - 1,758
-------------- -------------- -------------- --------------- --------------
Net cash used for investing activities - (41,619) (23,621) - (65,240)
-------------- -------------- -------------- --------------- --------------
Cash flows from financing activities:
Intercompany (5,818) 3,721 2,097 - -
Investment in subsidiaries (13,193) (10,310) 10,437 13,066 -
Proceeds from issuance of debt 25,000 - - - 25,000
Repayment of debt (1,875) (42) - - (1,917)
Debt issuance costs (178) - - - (178)
Changes in revolving debt (19,946) 10,196 283 - (9,467)
Changes in book overdraft - 4,315 (2,946) - 1,369
-------------- -------------- -------------- --------------- --------------
Net cash provided by (used for) financing
activities (16,010) 7,880 9,871 13,066 14,807
-------------- -------------- -------------- --------------- --------------
Effect of foreign exchange rate changes on cash
and cash equivalents (3,986) (3,986) (3,157) 8,509 (2,620)
-------------- -------------- -------------- --------------- --------------
Cash and cash equivalents:
Decrease for the period - (137) (105) - (242)
Balance, beginning of period - 873 6,006 - 6,879
-------------- -------------- -------------- --------------- --------------
Balance, end of period $ - $ 736 $ 5,901 $ - $ 6,637
============== ============== ============== =============== ==============
</TABLE>
14
<PAGE> 16
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal six months ended July 4, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,105) $8,980 $2,640 $ - $5,515
Equity in earnings of wholly-owned
subsidiaries 11,620 2,640 - (14,260) -
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 4,545 1,202 - 5,747
Amortization 298 1,291 55 - 1,644
Deferred taxes (161) 942 (585) - 196
Loss on sale/disposal of property and
equipment - - - - -
(Increase) decrease in receivables, net - (12,394) (6,024) - (18,418)
(Increase) decrease in inventory - 657 3 - 660
(Increase) decrease in prepaid expenses
and other assets 65 (1,475) (2,078) - (3,488)
Increase (decrease) in current liabilities (715) 4,348 4,735 - 8,368
Other, net - 282 74 - 356
-------------- -------------- -------------- --------------- --------------
Net cash provided by operating activities 5,002 9,816 22 (14,260) 580
-------------- -------------- -------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures - (3,472) (2,729) - (6,201)
Acquisition of businesses, net of cash
received - (18,691) (6,101) - (24,792)
Proceeds from sale/disposal of property and
equipment - 309 150 - 459
-------------- -------------- -------------- --------------- --------------
Net cash used for investing activities - (21,854) (8,680) - (30,534)
-------------- -------------- -------------- --------------- --------------
Cash flows from financing activities:
Intercompany (9,950) 10,281 (331) - -
Investment in subsidiaries (8,399) (754) (88) 9,241 -
Proceeds from issuance of debt 27,632 - - - 27,632
Debt issuance costs - - - - -
Changes in revolving debt (11,185) (63) 11,670 - 422
Changes in book overdraft - 18,577 (125) - 18,452
Payment of contractual acquisition obligation - (15,000) - - (15,000)
Sale of Common Stock 120 - - - 120
Other, net - (1) (1) - (2)
-------------- -------------- -------------- --------------- --------------
Net cash provided by (used for) financing
activities (1,782) 13,040 11,125 9,241 31,624
-------------- -------------- -------------- --------------- --------------
Effect of foreign exchange rate changes on cash
and cash equivalents (3,220) (1,803) (2,182) 5,019 (2,186)
-------------- -------------- -------------- --------------- --------------
Cash and cash equivalents:
Increase (decrease) for the period - (801) 285 - (516)
Balance, beginning of period - 1,690 2,558 - 4,248
-------------- -------------- -------------- --------------- --------------
Balance, end of period $ - $889 $2,843 $ - $3,732
============== ============== ============== =============== ==============
</TABLE>
15
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales increased $78.0 million, or 40.7%, from $191.5
million for the second quarter of fiscal 1999 to $269.5 million for the second
quarter of fiscal 2000. For the first six months of fiscal 2000, sales totaled
$517.5 million compared to $374.5 million in fiscal 1999, an increase of $143.0
million, or 38.2%. The increase in consolidated net sales resulted from both
internal growth from existing businesses (businesses owned by MSXI during all
periods presented) and incremental sales from acquired businesses. The increases
in net sales are comprised of:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED % ENDED %
INCREASE FROM JULY 2, 2000 INCREASE JULY 2, 2000 INCREASE
------------------------ --------------- ----------- --------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Internal growth $17,245 9.0% $42,177 11.3%
Acquired businesses 60,768 31.7% 100,832 26.9%
--------------- ----------- --------------- -----------
Total $78,013 40.7% $143,009 38.2%
=============== =========== =============== ===========
</TABLE>
Internal growth from existing businesses reflects improved sales volume
in all of our service lines, while growth from acquisitions impacted our IT and
professional staffing services and business and technology services. Sales of
our engineering services for the second quarter of fiscal 2000 increased $13.8
million, or 10.9%, compared to the second quarter of 1999. For the first six
months of 2000, sales of our engineering services increased $32.4 million, or
12.9%, compared to 1999. The improvements primarily reflect increased demand for
design and engineering services in North America. Sales of our IT and
professional staffing services for the second quarter of fiscal 2000 increased
$2.0 million, or 9.9%, before the impact of acquisitions, compared to the second
quarter of 1999. For the first six months of 2000, sales of our IT and
professional staffing services increased $5.1 million, or 13.9%, before the
impact of acquisitions, compared to 1999. The internal growth reflects improved
IT staffing volumes with non-automotive customers in North America. Sales of our
business and technology services for the second quarter of 2000 improved $1.5
million, or 3.3%, before the impact of acquisitions compared to 1999. For the
first six months of 2000, sales of our business and technology services
increased $4.7 million, or 5.5%, before the impact of acquisitions, compared to
1999. As a result of our acquisitions and growth of existing businesses, sales
to non-automotive customers increased to 17.1% of total sales for the first six
months of fiscal 2000, compared to 9.4% for the first six months of fiscal 1999.
This increase reflects our continued efforts to diversify our customer base.
OPERATING INCOME
Our consolidated operating income and increases in operating income
for the periods presented were:
<TABLE>
<CAPTION>
INCREASE
JULY 2, JULY 4, ----------------------
2000 1999 $ %
-------------- -------------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Fiscal Quarter:
Operating income $15,559 $10,100 $5,459 54.0%
% of net sales 5.8% 5.3% n/a n/a
Fiscal Six Months:
Operating income $29,530 $18,938 $10,592 55.9%
% of net sales 5.7% 5.1% n/a n/a
</TABLE>
16
<PAGE> 18
Overall, operating income increased during the second quarter of
fiscal 2000 due to the improved performance of our existing businesses and the
accretive impact of businesses acquired during 1999 and the first six months of
2000. Operating income generated by existing businesses during 2000 increased
$1.7 million, or 16.5%, for the second quarter and $4.8 million, or 25.2%, for
the first six months compared to 1999. Gross profit, as a percentage of sales,
was 14.3% for both the quarter and six months ended July 2, 2000, compared to
13.8% and 13.5% for the quarter and six months ended July 4, 1999, respectively.
The improvement in gross profit reflects increased sales volumes by existing
businesses in North America and the impact of cost reduction efforts in our
European operations. Selling, general and administrative expenses, as a
percentage of net sales, were 8.0% for the second quarter of fiscal 2000,
compared to 8.2% for the second quarter of fiscal 1999. On a year-to-date basis,
selling, general and administrative costs were 8.1% of net sales for the first
six months of both fiscal 1999 and 2000.
INTEREST EXPENSE
Interest expense increased from $5.0 million during the second quarter
of fiscal 1999 to $7.7 million for the second quarter of 2000. For the first six
months of fiscal 2000, interest expense was $14.6 million compared to $9.7
million in 1999, an increase of $4.9 million. The increases reflect the impact
of incremental average borrowings outstanding during fiscal 2000 to fund
acquisitions and increases in the floating rates of interest on a portion of our
debt outstanding.
NET INCOME
For the second quarter of fiscal 2000, net income increased $1.0
million, or 34.7%, from $3.1 million in 1999, to $4.1 million in 2000. Net
income for the first six months of 2000 increased $2.8 million, or 51.3%, from
$5.5 million in 1999 to $8.3 million in 2000. Improvements in operating income
during the second quarter of 2000 were partially offset by increased interest
expense, minority interest expense, and equity in net losses of affiliates.
Minority interest and equity in earnings (losses) of affiliates primarily
represent the portion of Satiz S.r.1. earnings, which was acquired on December
31, 1999, attributable to the minority owner and equity in the net losses of
CADFORM-MSX Engineering GmbH. For the second quarter of 2000, our effective tax
rate was 40.8%, compared to 39.3% in the second quarter of 1999. For the first
six months of 2000, our effective tax rate was 41.1%, compared to 40.3% in the
first six months of 1999. The year-to-date increase in our effective income tax
rate reflects an increase in the ratio of non-deductible expenses to pretax
income primarily related to acquisition activity.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
General. Our 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. Cash balances in excess of amounts
required to fund daily operations are used to pay down amounts outstanding under
the revolving credit portion of our credit facility.
We typically pay our employees on a weekly basis and receive payment
from our customers within invoicing terms, which is generally a 60-day period
after the invoice date. However, in connection with our purchasing support
services, we collect related receivables at approximately the same time we make
payment to suppliers.
Operating Activities. Cash generated from operating activities was
unusually high at $52.8 million during the first six months of fiscal 2000. This
compares to cash provided by operating activities of $0.6 million for the first
six months of fiscal 1999. Cash from operations for the first six months of
fiscal 2000 includes $20.8 million due to the timing of certain pass-through
payments to vendors which were made after July 2, 2000. In addition, cash from
operations includes significant improvement in accounts receivable collections
resulting from the transition of Satiz S.r.l. into our cash management system.
This reduction in Satiz accounts receivable resulted in a one-time improvement
in cash from operations of about $12 million during the first six months of
fiscal 2000. Excluding the pass through payments and one-time Satiz
improvements, cash provided by operations was about $20.0 million for the first
six months of 2000 reflecting significant improvements in working capital and
increases in net income, before non-cash expenses.
17
<PAGE> 19
Investing Activities. Net cash used for investing activities increased
$34.7 million from $30.5 million for the first six months of fiscal 1999, to
$65.2 million for the first six months of fiscal 2000. This included an increase
in cash used for business acquisitions of $33.0 million and an increase of $3.1
million in capital expenditures. Cash used to acquire businesses primarily
relates to the acquisition of the professional staffing operations of Corporate
Staffing Resources, Inc. during February 2000, the acquisition of the remaining
70% interest in QR Quandoccorre S.r.1. and Quandoccorre Interinale S.p.A.,
effective January 3, 2000, and the payment of contingent consideration related
to certain prior acquisitions. For additional information on these acquisitions,
see Note 2 of our consolidated financial statements. Capital expenditures
increased due to the increased volume of engineering services and other
contracts which required initial investments during the first six months of 2000
and the impact of acquired businesses.
Financing Activities. Net cash provided by financing activities
decreased $16.8 million from $31.6 million for the first six months of fiscal
1999, to $14.8 million for the first six months of fiscal 2000. Financing
requirements decreased in response to the strong operating cash flows generated
during the first six months of fiscal 2000. Additional borrowings were used to
support the acquisition of businesses and included the issuance of an additional
$25 million in term notes as discussed below.
AVAILABLE FINANCING SOURCES
During the first quarter of 2000, the seven-year institutional term
note, with principal outstanding of $50 million as of January 2, 2000, was
increased to $75 million pursuant the terms of our amended and restated credit
facility. Upon completion of the syndication of the credit facility, our total
borrowing capacity increased to $205 million. Proceeds from the additional term
debt were used to repay amounts outstanding under the revolving credit portion
of our credit facility. As of July 2, 2000, $81.9 million was available for
potential future borrowings under the revolving credit portion of our amended
and restated credit facility.
As of January 2, 2000, Chelsea Computer Consultants, Inc. ("Chelsea"),
which was acquired in September 1999, maintained a financing arrangement that
provided for borrowings up to $6 million. This agreement expired in 2000 and
Chelsea was added as a guarantor subsidiary under our amended and restated
credit facility. At the time of expiration, no amounts were outstanding under
the Chelsea credit facility.
RECENT DEVELOPMENTS
On July 31, 2000, we entered into an agreement to acquire a substantial
equity interest in Prototipo Holding B.V., subject to certain closing
conditions. Prototipo has operations in Europe and Brazil and provides testing,
prototyping, styling and other development services for transportation and
industrial manufacturing customers, including automotive, truck, and tire
manufacturers. In anticipation of closing the Prototipo transaction, we executed
an amendment to our credit facility, which is effective in August 2000, to
increase certain limitations, including limits on foreign acquisitions.
FORWARD - LOOKING STATEMENTS
This quarterly 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.
18
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 5. Other Information
Attached, as Exhibit 99 to this Form 10-Q, is our press release dated
August 9, 2000 regarding our recent agreement with Prototipo
Holding B.V.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
19
<PAGE> 21
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: August 15, 2000
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)
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page No.
------- -------------------
<S> <C> <C>
Exhibit 27 - Financial Data Schedule 22
Exhibit 99 - Press Release dated August 9, 2000 23
</TABLE>
21
