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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 April 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)
<TABLE>
<S> <C>
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)
</TABLE>
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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MSX INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements: Pages
<S> <C>
Consolidated Balance Sheets as of April 2, 2000 (Unaudited) and
January 2, 2000.....................................................................2
Consolidated Statements of Income (Unaudited) for the Fiscal Quarters
Ended April 2, 2000 and April 4, 1999...............................................3
Consolidated Statements of Cash Flows (Unaudited) for the Fiscal Quarters
Ended April 2, 2000 and April 4, 1999...............................................4
Notes to Consolidated Financial Statements (Unaudited)..................................5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K................................................18
SIGNATURE.........................................................................................19
EXHIBIT INDEX.....................................................................................20
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
as of April 2, 2000 and January 2, 2000
<TABLE>
<CAPTION>
APRIL 2,
2000 JANUARY 2,
(Unaudited) 2000
----------------- ----------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,300 $6,879
Accounts receivable, net (Note 3) 315,911 305,473
Inventory 4,428 4,133
Prepaid expenses and other assets 12,680 10,007
Deferred income taxes, net 2,687 2,425
----------------- ----------------
Total current assets 343,006
Property and equipment, net 45,623 44,110
Goodwill and other intangibles, net of accumulated amortization
of $6,687 and $5,693, respectively 149,544 123,018
Other assets 19,581 19,651
Deferred income taxes, net 7,249 8,494
----------------- ----------------
Total assets $565,003 $524,190
================= ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt (Note 4) $7,757 $13,290
Accounts payable and drafts 166,895 161,973
Accrued payroll and benefits 28,092 25,500
Other accrued liabilities 64,317 63,889
----------------- ----------------
Total current liabilities 267,061 264,652
Long-term debt (Note 4) 268,637 232,556
Long-term deferred compensation liabilities and other 11,089 11,275
----------------- ----------------
Total liabilities 546,787 508,483
Minority Interest 283 286
----------------- ----------------
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 (7,569) (5,867)
Retained earnings 14,206 9,992
----------------- ----------------
Total shareholders' deficit (18,067) (20,579)
----------------- ----------------
Total liabilities and shareholders' deficit $565,003 $524,190
================= ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
2
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MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
for the fiscal quarters ended April 2, 2000 and April 4, 1999
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
---------------------------------------
APRIL 2, APRIL 4,
2000 1999
---------------- ----------------
(in thousands)
<S> <C> <C>
Net sales $247,965 $182,969
Cost of sales 212,805 158,848
---------------- ----------------
Gross profit 35,160 24,121
Selling, general and administrative expenses 20,087 14,655
Amortization of goodwill and other intangibles 1,102 628
---------------- ----------------
Operating income 13,971 8,838
Other income (expense):
Interest expense, net (6,911) (4,659)
Other income, net 82 -
---------------- ----------------
Other expense, net (6,829) (4,659)
---------------- ----------------
Income before income taxes 7,142 4,179
Income tax provision 2,928 1,729
---------------- ----------------
Net income $4,214 $2,450
================ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
3
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MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
for the fiscal quarters ended April 2, 2000 and April 4, 1999
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-----------------------------
APRIL 2, APRIL 4,
2000 1999
-------------- -------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $4,214 $2,450
Adjustments to reconcile net income
to net cash provided by (used for) operating activities:
Depreciation 3,864 2,731
Amortization 1,365 775
Deferred taxes 993 (177)
Loss on sale/disposal of property and equipment 19 -
(Increase) decrease in receivables, net (4,238) (22,454)
(Increase) decrease in inventory (295) 927
(Increase) decrease in prepaid expenses and other assets (2,472) (2,392)
Increase (decrease) in current liabilities 4,739 7,485
Other, net (226) (229)
-------------- -------------
Net cash provided by (used for) operating activities 7,963 (10,884)
-------------- -------------
Cash flows from investing activities:
Capital expenditures (5,127) (3,010)
Acquisition of businesses, net of cash received (32,613) (2,429)
Proceeds from sale/disposal of equipment 55 38
-------------- -------------
Net cash used for investing activities (37,685) (5,401)
-------------- -------------
Cash flows from financing activities:
Proceeds from issuance of debt 25,000 -
Repayment of debt (980) -
Debt issuance costs (160) -
Changes in revolving debt 6,485 18,503
Changes in book overdraft 1,056 (1,463)
Sale of Common Stock - 120
Other, net - (207)
-------------- -------------
Net cash provided by financing activities 31,401 16,953
-------------- -------------
Effect of foreign exchange rate changes on cash and cash equivalents (1,258) (1,274)
-------------- -------------
Cash and cash equivalents:
Increase (decrease) for the period 421 (606)
Balance, beginning of period 6,879 4,248
-------------- -------------
Balance, end of period $7,300 $3,642
============== =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements
4
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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"). We are principally engaged in the business
of providing engineering services, information technology ("IT") and
professional staffing services, and business and technology services primarily
to automobile manufacturers and suppliers in the United States and Europe. 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 ended April 2, 2000 and April 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. 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.
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.
5
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
The operating results of acquired companies have been included in our
consolidated operating results from the date of acquisition. The following pro
forma financial information is presented to illustrate the estimated effects of
the acquisition of Chelsea, Satiz, and the CSR Acquisition 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 QUARTER ENDED FISCAL QUARTER ENDED
APRIL 2, 2000 APRIL 4, 1999
------------------------------- ---------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $247,965 $254,603 $182,969 $240,831
Income before income taxes 7,142 6,835 4,179 5,114
Net income 4,214 4,030 2,450 2,759
</TABLE>
In addition to the above, we completed several other transactions
during fiscal 1999. The aggregate purchase price of these transactions was about
$20.4 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
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 to about
49% by contributing certain assets of our German operations.
- In May 1999, we purchased a 30% interest in Quandoccorre S.r.l. and
Quandoccorre Interinale S.p.A., two affiliated Italian companies
with combined historical annual sales of about $18 million.
Quandoccorre S.r.l. provides consulting services on a project basis
and Quandoccorre Interinale S.p.A. provides staffing services.
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 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 $68.5 million as of April 2,
2000 and $66.2 million as of April 4, 1999. 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
------------------------------ ----------------------------------
APRIL 2, JANUARY 2, APRIL 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 8.41-10.00% 8.09% 12,665 9,703
Swingline notes 7.53-10.53% 5.53-10.03% 26,034 16,353
Term notes 8.95-9.78% 9.23-9.98% 104,063 80,000
Ford Motor Company Limited, line of credit n/a 7.14% - 862
Satiz Facility 4.49% 4.51% 3,632 8,928
---------------- ----------------
276,394 245,846
Less current portion 7,757 13,290
---------------- ----------------
Total long-term debt $268,637 $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 April 2, 2000, $38.7 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 April 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 April 2, 2000, we
have not declared or paid any dividends. Dividends accumulated but not declared
totaled about $16.6 million as of April 2, 2000.
6. NOTE RECEIVABLE FROM OFFICER:
As of April 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 $19 thousand during the first quarter of fiscal 2000.
7
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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
-------------------------------
APRIL 2, APRIL 4,
2000 1999
-------------- -------------
<S> <C> <C>
Net income $4,214 $2,450
Other comprehensive loss -
foreign currency translation adjustments (1,702) (1,274)
-------------- -------------
Comprehensive income $2,512 $1,176
============== =============
</TABLE>
8. SEGMENT INFORMATION:
MSXI is a 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
--------------------------------
APRIL 2, APRIL 4,
2000 1999
------------ ------------
<S> <C> <C>
Engineering Services $143,255 $124,687
IT and Professional Staffing Services 35,686 16,500
Business & Technology Services 69,024 41,782
------------ ------------
Total net sales $247,965 $182,969
============ ============
</TABLE>
We evaluate performance based on earnings before interest and taxes
(EBIT), including the Michigan Single Business Tax, as defined. A reconciliation
of consolidated EBIT to consolidated income before income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------
APRIL 2, APRIL 4,
2000 1999
-------------- ---------------
<S> <C> <C>
Total EBIT $15,413 $10,153
Interest expense (6,911) (4,659)
Other income, net 82 -
Michigan Single Business Tax (1,442) (1,315)
-------------- ---------------
Consolidated income before taxes $7,142 $4,179
============== ===============
</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 April 2, 2000
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 275 $ 7,025 $ -- $ 7,300
Accounts receivable, net 19 191,945 123,947 -- 315,911
Inventory -- 2,675 1,753 -- 4,428
Prepaid expenses and other assets 357 6,830 5,493 -- 12,680
Deferred income taxes, net -- 1,385 1,302 -- 2,687
--------- --------- --------- --------- ---------
Total current assets 376 203,110 139,520 -- 343,006
Property and equipment, net -- 25,155 20,468 -- 45,623
Goodwill and other intangibles, net -- 119,482 30,062 -- 149,544
Investment in subsidiaries 175,240 55,372 9,816 (230,610) 9,818
Other assets 7,293 2,284 186 -- 9,763
Deferred income taxes, net -- 4,841 2,408 -- 7,249
--------- --------- --------- --------- ---------
Total assets $ 182,909 $ 410,244 $ 202,460 $(230,610) $ 565,003
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 4,125 $ -- $ 3,632 $ -- $ 7,757
Accounts payable and drafts -- 96,142 70,753 -- 166,895
Accrued liabilities 6,259 63,369 22,781 -- 92,409
--------- --------- --------- --------- ---------
Total current liabilities 10,384 159,511 97,166 -- 267,061
Long-term debt 256,537 -- 12,100 -- 268,637
Intercompany accounts (130,962) 81,733 49,229 -- --
Long-term deferred compensation liabilities
and other -- 4,417 6,672 -- 11,089
--------- --------- --------- --------- ---------
Total liabilities 135,959 245,661 165,167 -- 546,787
Minority Interest -- -- 283 -- 283
Redeemable Series A Preferred Stock 36,000 -- -- -- 36,000
Shareholders' equity (deficit) 10,950 164,583 37,010 (230,610) (18,067)
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 182,909 $ 410,244 $ 202,460 $(230,610) $ 565,003
========= ========= ========= ========= =========
</TABLE>
10
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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 January 2, 2000
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-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 -- 182,380 123,093 -- 305,473
Inventory -- 2,237 1,896 -- 4,133
Prepaid expenses and other assets 389 4,493 5,125 -- 10,007
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 19,219 -- 44,110
Goodwill and other intangibles, net -- 101,912 21,106 -- 123,018
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 Interest -- -- 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
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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 STATEMENTS OF INCOME
For the fiscal quarters ended April 2, 2000 and April 4, 1999
<TABLE>
<CAPTION>
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
FISCAL QUARTER ENDED APRIL 2, 2000:
Net sales $ -- $ 157,125 $ 94,486 $ (3,646) $ 247,965
Cost of sales -- 132,297 84,154 (3,646) 212,805
--------- --------- --------- --------- ---------
Gross profit -- 24,828 10,332 -- 35,160
Selling, general and administrative expenses -- 14,108 5,979 -- 20,087
Amortization of goodwill and other intangibles -- 865 237 -- 1,102
--------- --------- --------- --------- ---------
Operating income -- 9,855 4,116 -- 13,971
Interest income (expense), net (6,508) 409 (812) -- (6,911)
Equity in subsidiary earnings & other 8,350 1,912 82 (10,262) 82
--------- --------- --------- --------- ---------
Income before income taxes 1,842 12,176 3,386 (10,262) 7,142
Income tax provision (benefit) (2,372) 3,826 1,474 -- 2,928
--------- --------- --------- --------- ---------
Net income $ 4,214 $ 8,350 $ 1,912 $ (10,262) $ 4,214
========= ========= ========= ========= =========
FISCAL QUARTER ENDED APRIL 4, 1999:
Net sales $ -- $ 131,336 $ 51,633 $ -- $ 182,969
Cost of sales -- 114,868 43,980 -- 158,848
--------- --------- --------- --------- ---------
Gross profit -- 16,468 7,653 -- 24,121
Selling, general and administrative expenses -- 9,595 5,060 -- 14,655
Amortization of goodwill and other intangibles -- 582 46 -- 628
--------- --------- --------- --------- ---------
Operating income -- 6,291 2,547 -- 8,838
Interest income (expense), net (4,321) 261 (599) -- (4,659)
Equity in subsidiary earnings 5,358 1,246 -- (6,604) --
--------- --------- --------- --------- ---------
Income before income taxes 1,037 7,798 1,948 (6,604) 4,179
Income tax provision (benefit) (1,413) 2,440 702 -- 1,729
--------- --------- --------- --------- ---------
Net income $ 2,450 $ 5,358 $ 1,246 $ (6,604) $ 2,450
========= ========= ========= ========= =========
</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 STATEMENT OF CASH FLOWS
for the fiscal quarter ended April 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) $ (4,136) $ 6,438 $ 1,912 $ -- $ 4,214
Equity in earnings of subsidiaries 8,350 1,912 -- (10,262) --
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation -- 2,450 1,414 -- 3,864
Amortization 263 865 237 -- 1,365
Deferred taxes -- 664 329 -- 993
Loss on sale/disposal of property and
equipment -- 1 18 -- 19
(Increase) decrease in receivables, net (20) (9,074) 4,856 -- (4,238)
(Increase) decrease in inventory -- (438) 143 -- (295)
(Increase) decrease in prepaid expenses
and other assets 32 (2,260) (244) -- (2,472)
Increase (decrease) in current liabilities 10,976 (12,726) 6,456 33 4,739
Other, net -- (153) (73) -- (226)
-------- -------- -------- -------- --------
Net cash provided by (used for) operating
activities 15,465 (12,321) 15,048 (10,229) 7,963
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures -- (2,168) (2,959) -- (5,127)
Acquisition of businesses, net of cash
received -- (21,227) (11,386) -- (32,613)
Proceeds from sale/disposal of equipment -- 45 10 -- 55
-------- -------- -------- -------- --------
Net cash used for investing activities -- (23,350) (14,335) -- (37,685)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Intercompany (46,886) 43,223 3,663 -- --
Investment in subsidiaries (6,130) (11,068) 10,439 6,759 --
Proceeds from issuance of debt 25,000 -- -- -- 25,000
Repayment of debt (937) (43) -- -- (980)
Debt issuance costs (160) -- -- -- (160)
Changes in revolving debt 15,350 674 (9,539) -- 6,485
Changes in book overdraft -- 3,989 (2,933) -- 1,056
-------- -------- -------- -------- --------
Net cash provided by (used for) financing
activities (13,763) 36,775 1,630 6,759 31,401
-------- -------- -------- -------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents (1,702) (1,702) (1,324) 3,470 (1,258)
-------- -------- -------- -------- --------
Cash and cash equivalents:
Increase (decrease) for the period -- (598) 1,019 -- 421
Balance, beginning of period -- 873 6,006 -- 6,879
-------- -------- -------- -------- --------
Balance, end of period $ -- $ 275 $ 7,025 $ -- $ 7,300
======== ======== ======== ======== ========
</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 quarter ended April 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) $ (2,909) $ 4,113 $ 1,246 $ -- $ 2,450
Equity in earnings of subsidiaries 5,359 1,246 -- (6,605) --
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation -- 2,218 513 -- 2,731
Amortization 147 582 46 -- 775
Deferred taxes (161) 372 (388) -- (177)
Loss on sale/disposal of property and
equipment -- -- -- -- --
(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 39 (1,517) (914) -- (2,392)
Increase (decrease) in current liabilities (3,892) 10,267 1,110 -- 7,485
Other, net -- (259) 176 (146) (229)
-------- -------- -------- -------- --------
Net cash provided by (used for) operating
activities (1,417) (6,437) 3,721 (6,751) (10,884)
-------- -------- -------- -------- --------
Cash flows from 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/disposal of equipment -- -- 38 -- 38
-------- -------- -------- -------- --------
Net cash used for investing activities -- (1,807) (3,594) -- (5,401)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Intercompany (6,556) 7,963 (1,407) -- --
Investment in subsidiaries (5,359) (139) (351) 5,849 --
Proceeds from issuance of debt -- -- -- -- --
Debt issuance costs -- -- -- -- --
Changes in revolving debt 13,212 113 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 provided by financing activities 1,417 7,936 1,751 5,849 16,953
-------- -------- -------- -------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents -- (902) (1,274) 902 (1,274)
-------- -------- -------- -------- --------
Cash and cash equivalents:
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>
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales increased $65.0 million, or 35.5% from $183.0
million for the first quarter of fiscal 1999 to $248.0 million for the first
quarter of fiscal 2000. The increase in consolidated net sales resulted from
internal growth and incremental sales from acquired businesses. The increases in
net sales is comprised of:
<TABLE>
<CAPTION>
QUARTER ENDED %
INCREASE FROM APRIL 2, 2000 INCREASE
---------------------------- ------------------- ------------
(dollars in thousands)
<S> <C> <C>
Internal growth $24,932 13.6%
Acquired businesses 40,064 21.9%
------------------- ------------
Total $64,996 35.5%
=================== ============
</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 increased $18.6 million, or 14.9%, due primarily to
increased demand for design and engineering services in the United States. Sales
of our IT and professional staffing services increased $3.1 million, or 18.7%,
before the impact of acquisitions, reflecting growth in our non-automotive
information technology services in the United States. Sales of our business and
technology services improved $3.3 million, or 7.8%, before the impact of
acquisitions. As a result of our acquisitions and growth of existing business,
sales to non-automotive customers increased to 15.2% of total sales for the
first quarter of fiscal 2000 compared to 9.0% for the first quarter of fiscal
1999. This increase reflects our continued efforts to diversify our customer
base.
OPERATING INCOME
Our consolidated operating income and changes in operating income for
the periods presented were:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
--------------------------------- CHANGE
APRIL 2, APRIL 4, -----------------------
2000 1999 $ %
-------------- -------------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Operating income $13,971 $8,838 $5,133 58.1%
% of net sales 5.6% 4.8% n/a n/a
</TABLE>
Overall, operating income increased during the first 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 quarter of
2000. Operating income generated by existing businesses increased $3.1 million,
or 35.1%, over the first quarter of fiscal 1999. Gross profit, as a percentage
of sales, increased to 14.2% for the first quarter of fiscal 2000 compared to
13.2% in 1999. The improvement in gross profit reflects increased sales volumes
of 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 8.1% for the fiscal quarter ended April 2, 2000
compared to 8.0% for the quarter ended April 4, 1999.
15
<PAGE> 17
NET INCOME
Principally as a result of the foregoing, net income for the first
quarter improved by $1.8 million, from $2.4 million in fiscal 1999 to $4.2
million in fiscal 2000. Our effective income tax rate improved slightly from
41.4% in 1999 to 41.0% in 2000. Improvements in operating income were partially
offset by increased interest expense related to incremental borrowings on our
credit facility and the issuance of $30 million in subordinated notes in May
1999. Incremental borrowings were used to fund our acquisitions and other growth
initiatives.
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. Net cash provided by operating activities
increased $18.9 million to $8.0 million for the fiscal three months ended April
2, 2000 compared to cash used of $10.9 million for the fiscal three months ended
April 4, 1999. Cash generated during 2000 reflects improvements in net income
and working capital compared to 1999. Increases in accounts receivable related
primarily to increased sales volume and were more than offset by increases in
current liabilities.
Investing Activities. Net cash used for investing activities increased
$32.3 million from $5.4 million for the fiscal three months ended April 4, 1999,
to $37.7 million for the fiscal three months ended April 2, 2000. This included
an increase in cash used for business acquisitions of $30.2 million and an
increase of $2.1 million in capital expenditures. Cash used to acquire
businesses primarily relates to the acquisition of four companies from Corporate
Staffing Resources, Inc. during February as detailed in Note 2 of our
consolidated financial statements. Capital expenditures increased commensurate
with the increased volume of engineering services and other contracts which
required initial investments during the first quarter of 2000.
Financing Activities. Net cash provided by financing activities
increased $14.4 million from $17.0 million for the fiscal three months ended
April 4, 1999 to $31.4 for the fiscal three month period ended April 2, 2000.
Financing requirements during the fiscal three months ended April 2, 2000
increased primarily to support the acquisition of businesses and capital
expenditures, as noted above under investing activities. Financing activities
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 the credit facility. As of April 2, 2000, $61.3 million was available for
potential future borrowing 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. On March 31, 2000, this agreement
expired and Chelsea was added as a guarantor subsidiary under our amended and
restated credit facility. As of March 31, 2000, no amounts were outstanding
under the Chelsea credit facility.
16
<PAGE> 18
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.
17
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed during the
quarter ended April 2, 2000:
February 29, 2000 - Reporting that MSX International, Inc. had
issued a press release announcing earnings for the fourth
quarter of fiscal 1999 under Item 5. Other Events
March 14, 2000 - Reporting the acquisition of Satiz S.r.l. under
Item 2. Acquisition or Disposition of Assets. Included under
Item 7 of such report were the following:
i. Audited financial statements of Satiz S.r.l. as of
December 31, 1999 and 1998 and for the three years
ended December 31, 1999.
ii. Pro forma financial data of MSX International, Inc. for
the fiscal year ended January 2, 2000.
iii. Stock purchase agreement.
18
<PAGE> 20
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 17, 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)
19
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential Page No.
- ------- -------------------
<S> <C>
Exhibit 27 - Financial Data Schedule 21
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MSX
INTERNATIONAL, INC. FORM 10-Q FOR THE PERIOD ENDED APRIL 2, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-02-2000
<CASH> 7,300
<SECURITIES> 0
<RECEIVABLES> 315,911
<ALLOWANCES> 0
<INVENTORY> 4,428
<CURRENT-ASSETS> 343,006
<PP&E> 102,684
<DEPRECIATION> (57,061)
<TOTAL-ASSETS> 565,003
<CURRENT-LIABILITIES> 267,061
<BONDS> 268,637
36,000
0
<COMMON> 1
<OTHER-SE> (18,068)
<TOTAL-LIABILITY-AND-EQUITY> 565,003
<SALES> 247,965
<TOTAL-REVENUES> 247,965
<CGS> 212,805
<TOTAL-COSTS> 212,805
<OTHER-EXPENSES> 21,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,911
<INCOME-PRETAX> 7,142
<INCOME-TAX> 2,928
<INCOME-CONTINUING> 4,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,214
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
