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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended January 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 .
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Commission File Number: 333-49821
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3323099
(State or other jurisdiction (I.R.S. Employer Identification No.
of incorporation or organization)
275 REX BOULEVARD, AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices (Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
None of the registrant's common stock is held by non-affiliates of the
registrant.
Number of shares outstanding of each of the registrant's classes of common
stock at March 24, 2000:
102,003 shares of Class A Common Stock, $0.01 par value.
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TABLE OF CONTENTS
ITEM PAGE
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PART I
1. Business...........................................................................................2
2. Properties.........................................................................................7
3. Legal Proceedings..................................................................................7
4. Submission of Matters to a Vote of Security Holders................................................7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters..............................8
6. Selected Financial Data............................................................................9
7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............10
7A. Quantitative and Qualitative Disclosures about Market Risk........................................16
8. Financial Statements and Supplementary Data.......................................................17
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............n/a
PART III
10. Directors and Executive Officers of the Registrant................................................46
11. Executive Compensation............................................................................48
12. Security Ownership of Certain Beneficial Owners and Management....................................50
13. Certain Relationships and Related Transactions....................................................51
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................53
Signatures........................................................................................55
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PART I
ITEM 1. BUSINESS.
GENERAL
MSX International, Inc. ("MSXI") is a leading, global provider of
technology-driven engineering, business and specialized staffing services. Our
services enable customers to significantly improve their business performance by
adding value and helping them achieve a competitive advantage. Through internal
growth and acquisitions, we have become a single source provider of a broad
range of complementary outsourcing services provided at both our facilities and
those of our customers. Our services include technical and professional contract
staffing; product design and engineering services; production engineering
services; commercial and technical publishing; training services; digital
document and information storage and retrieval; web development and management
services; process improvement consulting; comprehensive marketing information
processing; teleservices; and purchasing support services, which include
processes to manage the procurement of staffing, training and other professional
services.
Since our formation, we have expanded through acquisitions and internal
growth, increasing our market share among existing customers and the global
automotive market and expanding further into non-automotive markets. As of
January 2, 2000, we deployed over 17,000 individuals at 85 operating facilities
in 23 countries.
FORMATION AND INITIAL ACQUISITIONS
MSXI is a holding company formed and owned by Citicorp Venture Capital,
Ltd., MascoTech, Inc., and certain members of management. MSXI was incorporated
under the laws of Delaware in late 1996 to pursue growth opportunities in
technology-driven engineering and business services. On January 3, 1997, we
acquired (the "TSG Acquisition") selected assets and operations of the former
engineering and technical business service units of MascoTech Automotive Systems
Group, Inc. ("MASG") and MascoTech, Inc. ("MascoTech"). Through the consummation
of the TSG Acquisition, we also acquired (the "APX Acquisition") the net assets
of APX International ("APX"), which previously had been acquired by MASG as of
November 6, 1996.
Effective August 31, 1997, we acquired (the "GRI Acquisition") all of
the issued and outstanding stock of Geometric Results Incorporated ("GRI") from
Ford Motor Company ("Ford"). In connection with this acquisition, we entered
into two five-year agreements with Ford to manage certain temporary staffing
procurement services for Ford (the "Ford Master Vendor Agreement") and to
continue providing certain general business services (the "Ford Master Supply
Agreement").
By adding GRI's capabilities to our traditional strength in technical
staffing and design and engineering services, we expanded our ability to sell a
broad range of complementary services to both existing and new customers within
and outside the automotive industry. We believe we are the only company
currently providing such a broad range of services to the automotive industry on
a worldwide basis.
ADDITIONAL ACQUISITIONS
Since the GRI Acquisition, we have completed a number of strategic
acquisitions and acquired two equity interests to expand our resources and
service offerings. These transactions have expanded our geographic coverage, our
service offerings, and our reach to customers outside the automotive industry.
As we pursue additional strategic acquisitions, we intend to continue to
rationalize our cost structure through the elimination of redundant back office
activities, operating facilities, management and administrative offices.
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The following table sets forth certain information about the businesses
acquired since January 1998. For additional information on acquisitions,
including pro forma financial results, see Note 3 to our consolidated financial
statements included under Item 8 of this report.
MONTH GEOGRAPHIC NUMBER OF
NAME ACQUIRED SERVICES COVERAGE MARKETS SITES
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Gold Arrow Contract Services, August Information United Kingdom, Automotive, financial 2
Ltd. 1998 technology and Northern Europe services and other
technical commercial markets
staffing
Lexstra International, Inc. October Information Mid-Atlantic Financial services and 4
1998 technology Region other commercial
staffing markets
Lexus Temporaries, Inc. October Network support Mid-Atlantic Telecommunications 4
1998 staffing Region
Pilot Computer Services, Inc. December Information California Government, health care 3
1998 technology and other commercial
staffing markets
MegaTech Engineering, Inc. December Technical Michigan Automotive original 1
1998 staffing and equipment
product manufacturers and
development suppliers
services
Rice Cohen International, Inc. April Permanent Mid-Atlantic Selected services 1
1999 staff Region markets
placement
Management Resources June Training Midwest Quality systems 1
International, Inc. 1999 services and
courseware in
quality systems
Chelsea Computer Consultants, September Information Mid-Atlantic Financial services, 4
Inc. 1999 technology Region telecommunications and
staffing manufacturing
Satiz S.r.l. December Commercial and Italy, Other Automotive and 15
1999 technical Europe, Brazil original equipment
publishing manufacturers and
suppliers
Intranational Computer February Information California Financial services and 4
Consultants 2000 technology non-automotive
consulting manufacturing
services
Programming Management & Systems February Information Missouri Financial services, 1
2000 technology telecommunications and
consulting non-automotive
services manufacturing
CMS Management Services February Information Mid-West Region Services and 5
2000 technology, non-automotive
accounting and manufacturing
technical
staffing
Ascend February Information Mid-West Region Financial and other 8
2000 technology services markets
staffing and
permanent
placement
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EQUITY INVESTMENTS
In addition to the above, during 1999 we acquired a 49% interest in
Cadform GmbH and a 30% interest in both Quandoccore S.r.l. and Quandoccore
Interinale S.p.A. Cadform is based in Homberg (Ohm), Germany and provides design
and tooling services to the automotive industry. The Quandoccore companies are
based in Turin, Italy and provide consulting and staffing services to various
industries. Quandoccore Interinale S.p.A. is one of a limited number of
companies licensed under recent Italian legislation to provide staffing
services.
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SERVICES LINES
MSXI is a leading, global provider of technology driven, engineering,
business and specialized staffing services. We offer a broad range of services
to meet our customers' needs and quality standards. We classify our services in
three categories: engineering services, staffing services, and business and
technology services. Our net sales are based principally on fees charged for
resources provided to support development, manufacturing and distribution of
customer products and services. Our customers are increasingly relying on third
parties to provide them with these and other essential services, allowing them
to improve operating efficiency by focusing on core competencies. The following
table sets forth, for the three fiscal years ended January 2, 2000, the net
sales of each of our service lines.
FISCAL YEAR ENDED
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DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
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(IN THOUSANDS)
Engineering Services $ 202,078 $ 220,639 $ 293,510
Staffing Services 111,211 155,627 308,489
Business & Technology Services 64,725 157,676 157,843
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Total net sales $ 378,014 $ 533,942 $ 759,842
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We have sales to more than 150 customers including the major United
States and European automotive original equipment manufacturers ("OEMs") and a
number of automotive suppliers. Ford, DaimlerChrysler Corporation
("DaimlerChrysler") and General Motors Corporation ("General Motors") accounted
for 42.6%, 15.2%, and 13.5% of our net sales for the fiscal year ended January
2, 2000. Sales for the three fiscal years ended January 2, 2000 do not include
revenues of Satiz S.r.l., which was acquired effective December 31, 1999 from
Fiat S.p.A. For its 1999 fiscal year about 92% of Satiz's sales were to Fiat
S.p.A. or related companies.
Engineering Services
We provide a complete range of vehicle engineering services covering
all phases of the product development cycle. These services, which are primarily
provided at our own facilities, include computer-aided design and engineering,
product and manufacturing engineering, assembly tooling, program management, and
specialty vehicle support for the marketing programs of OEMs and for
non-automotive vehicle applications. As of January 2000, about $221 million of
our engineering services sales are either "booked" or recurring based on
long-term relationships, compared to approximately $213 million in January 1999.
Staffing Services
We provide a multi-discipline information technology, technical and
professional staffing service with international delivery, recruiting and
training capability. We principally provide engineers, designers and
technicians, primarily to the automotive industry, and information technology
personnel to a variety of industries. We are a worldwide leader in automotive
technical staffing. Through internal growth and recent acquisitions, we have
also developed information technology staffing capabilities on the West Coast,
in the Midwest and Southwest, and in the mid-Atlantic states.
Business & Technology Services
We provide a broad range of technology-based business services,
including commercial and technical publishing, design and delivery of training
programs, digital document and information storage and retrieval, web
development and management services, comprehensive marketing information
processing, teleservices such as hotline and customer assistance, process
improvement implementation, purchasing support services and other services. Our
purchasing support services provide automated administrative support processes
to customers to manage the procurement of staffing, training, consulting and
other professional services. Sales from these services are reported net of
billings from sub-suppliers (including other MSXI business units) for their
services rendered.
Additional financial information concerning our geographical coverage
is set forth in Note 15 to our consolidated financial statements included under
Item 8 of this report.
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OTHER INFORMATION
We believe we have developed strong relationships with our customers
and have a reputation for quality, reliability and service that has been
recognized through Ford's Q1 and DaimlerChrysler's Pentastar awards. In
addition, most of our operations are certified to the ISO 9001 or 9002
international quality standards, which requires a determination by an
independent assessor that the operation is in compliance with a documented
quality management system.
A substantial portion of our sales to Ford were made pursuant to the
Ford Master Vendor Agreement and the Ford Master Supply Agreement, which were
entered into for five year terms when we acquired GRI in August 1997. These
agreements are subject to earlier termination in the event that we fail to
satisfy certain standards of performance and competitiveness. To date, we have
generally met or exceeded the standards of performance and competitiveness as
required by the agreements. Both Ford and MSXI have agreed to negotiate in good
faith to extend the term of the agreements for an additional five years beyond
the initial five-year terms. Ford and MSXI have also agreed to maintain an
advisory board comprised of executives from both companies to monitor and
enhance the relationship between the companies.
Our quarterly operating results are affected primarily by the number of
billing days in the period and the seasonality of our customers' businesses.
Demand for some of our services has historically been lower during the year-end
holidays.
Except as noted above, no material portion of our business is dependent
upon any one customer or is subject to renegotiation of prices. In general,
equipment and technologies required to support our service offerings are
obtainable from various sources in the quantities desired.
ENVIRONMENTAL
Compliance with foreign, federal, state and local environmental
protection laws and regulations is not expected to result in material capital
expenditures or have a material effect on our results of operations, cash flows
or competitive position.
INTERNATIONAL OPERATIONS
Our international presence is an important competitive advantage in
winning and retaining new business and meeting the global sourcing, quality and
engineering requirements of many of our customers. We currently have operations
located in 23 countries. Foreign operations are subject to political, monetary,
economic and other risks associated with international businesses. For the
fiscal year ended January 2, 2000, 27% of our net sales were generated outside
of the United States.
We expanded our UK staffing services capabilities in 1998 through the
acquisition of Gold Arrow Contract Services, Ltd. ("Gold Arrow"), an information
technology and technical staffing company headquartered in Basildon, Essex,
England. The Gold Arrow acquisition enhanced our ability to support UK customer
requirements for technical staffing in the automotive, financial services, and
other industries. Similarly, future joint engineering services projects with our
equity investee Cadform are expected to strengthen our positioning with German
automotive manufacturers and their suppliers.
We further expanded our presence in Europe during 1999 through the
acquisition of 75% of the outstanding common stock of Satiz S.r.l., effective
December 31, 1999, and our equity investments in Quandoccore S.r.l. and
Quandoccore Interinale S.p.A., in May 1999. The acquisition of Satiz is
complementary to several of our operating units and gives us a platform for
technical publishing services in Italy. Through these investments and our
existing operations, we are positioned to further expand our engineering and
staffing opportunities in Italy.
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COMPETITION
Our domestic and foreign markets are highly competitive. In some cases,
our global competitors include a number of other well-established vendors, as
well as customers with their own internal capabilities. Although a number of
companies of varying size compete with us, no single competitor is substantially
in competition with respect to all of our services.
We depend upon our ability to attract, retain and develop personnel,
particularly technical personnel, who possess the skills and experience
necessary to meet the needs of customers. Competition for individuals with
proven technical or professional skills is intense. We compete with other
staffing companies, as well as customers and other employers for qualified
personnel. We have always been committed to improving the professional
development of our employees. The acquisition of MegaTech Engineering, Inc.
reinforced this commitment. As part of the transaction, we acquired a training
academy that operates a degree-granting program in automotive design and
engineering in conjunction with Central Michigan University.
Competition among vendors of outsourced engineering services is based
on the types of individual and bundled services offered and by the location of
customers. The basis of competition includes the size of competing firms, global
capability, relevant experience, prior relationships with customers and price.
In the United States, we compete with Modern Engineering (a subsidiary of CDI),
Rapid Design Services, Inc., Roush Industries, Inc., and Defiance, among others.
European competition includes Bertrandt, Hawtal Whiting, Engineering & Design
AG, and Rucker.
We supply outsourced technical staffing based on our ability to
identify, match and provide high quality personnel on an efficient basis and at
a competitive price. We manage and compete with many companies in the temporary
staffing industry, which is highly competitive, fragmented, and has limited
barriers to entry. We use a variety of resources and techniques to support our
recruiting capability, including support of web-enabled recruiting databases,
internal training, international recruiting coordination, and competitive
benchmarking of compensation and benefits. Our competitors in staffing services
include Adecco International, CDI, Keane, kForce, iGate Capital, TechAid,
Manpower, Kelly Services Technical, Olsten, Randstad (in Europe only), Volt, and
numerous regional information technology staffing firms. Other indirect
competitors include Monster.com and other internet based staffing resources.
There is a high degree of competition among suppliers of the outsourced
business services we provide. In many cases, our principal competition is the
customer's in-house operations. For certain services, such as training,
marketing fulfillment and digital imaging services, there are numerous outside
competitors, many of whom presently have greater name recognition, marketing,
financial and other resources than we do. Currently, we primarily provide our
purchasing support services to Ford pursuant to the Ford Master Vendor Agreement
and Ford Master Supply Agreement, which expire in 2002. Both Ford and MSXI have
agreed to negotiate in good faith to extend our agreements beyond this initial
term. Our Ford business remains subject to maintaining standards of performance
and competitiveness.
PATENTS AND TRADEMARKS
We hold a number of United States and foreign patents, licenses,
copyrights, tradenames and trademarks. Although we regard our intellectual
property to be valuable, we do not believe that there is any reasonable
likelihood of the loss of any rights that would have a material effect on our
operating units, services or present business as a whole.
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EMPLOYEES
The following table sets forth certain information regarding our
employees by region as of January 2, 2000:
NUMBER OF
REGION EMPLOYEES
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North America............................... 7,050
United Kingdom.............................. 1,249
Italy....................................... 588
Germany..................................... 299
Rest of Europe ............................. 276
Other ...................................... 132
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Total ................................ 9,594
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Of our 9,594 employees, about 190 employees in the United States are
members of unions. We believe our current relations with our employees are good.
ITEM 2. PROPERTIES.
The following table sets forth the number of facilities operated by
region as of January 2, 2000. We believe that substantially all of our property
and equipment is in good condition and that we have sufficient capacity to meet
our current and projected operating needs. Our facilities are utilized to
provide all or any combination of our service offerings.
NUMBER OF
REGION FACILITIES
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North America............................... 47
United Kingdom.............................. 8
Italy....................................... 15
Germany..................................... 6
Rest of Europe ............................. 6
Other ...................................... 3
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Total ................................ 85
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As part of the MegaTech acquisition, we acquired a campus of five
buildings located in Warren, Michigan. During 1999, we completed a
sale-leaseback transaction related to this property. The proceeds were used to
satisfy a contractual obligation to Johnson Controls, Inc., from whom we
purchased MegaTech. Additional financial information regarding this obligation
is set forth in Note 3 and Note 5 to our consolidated financial statements
included under Item 8 of this report.
All but one of our facilities are leased. We believe that the
termination of any one lease would not have a material adverse affect on our
business.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in various proceedings incidental to the ordinary
conduct of our business. We believe that none of these proceedings will have a
material adverse effect on our financial condition, results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MSXI is privately owned and there is no current public trading market
for our equity securities. See "Item 12. Security Ownership of Certain
Beneficial Owners and Management". For further information related to ownership
aspects of our common stock, see the discussion under "Stockholders' Agreement"
contained under "Item 13. Certain Relationships and Related Transactions".
During 1998 and 1999, we completed offers to exchange new senior
subordinated notes that had been registered under the Securities Act of 1933 for
similar notes that had not been registered. We may not declare or pay any
dividends or other distributions with respect to any common stock or other class
or series of stock ranking junior to our Series A Preferred Stock without first
complying with restrictions specified in the Stockholders' Agreement. See Note
11 to our consolidated financial statements included under Item 8 of this
report.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected historical combined financial data as of and for the years
ended December 31, 1995 and 1996 have been derived from the audited historical
combined financial statements of TSG as of and for the periods then ended. The
selected historical consolidated financial data as of and for the fiscal years
ended December 28, 1997, January 3, 1999 and January 2, 2000 have been derived
from the audited historical financial statements of MSXI, as of and for the
fiscal years then ended. The selected financial and other data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in this Form 10-K.
Year Ended December 31, Fiscal Year Ended (A)
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December 28, January 3, January 2,
1995 1996 1997 1999 2000
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(dollars in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales $ 216,130 $ 228,260 $ 378,014 $ 533,942 $ 759,842
Cost of sales 178,760 192,510 327,487 449,914 653,542
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Gross profit 37,370 35,750 50,527 84,028 106,300
Selling, general and administrative
expenses 26,730 27,750 37,983 59,083 64,814
Amortization of goodwill and other intangibles -- -- 892 1,690 3,156
Restructuring costs -- -- 2,000 -- --
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Operating income 10,640 8,000 9,652 23,255 38,330
Interest expense, net 1,470 1,310 12,400 17,416 21,141
Other income (expense), net 1,070 (70) -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes 10,240 6,620 (2,748) 5,839 17,189
Income tax provision 3,820 2,800 225 3,068 6,995
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 6,420 $ 3,820 $ (2,973) $ 2,771 $ 10,194
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BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents $ 1,800 $ 7,070 $ 11,575 $ 4,248 $ 6,879
Receivables, net 60,190 58,860 178,938 208,451 305,473
Total assets 87,480 94,150 287,176 356,724 524,190
Total debt and capital lease
obligations 3,550 4,200 153,246 185,081 245,924
Redeemable Series A Preferred
Stock -- -- 36,000 36,000 36,000
Shareholders' equity (deficit) 63,650 69,450 (26,364) (26,105) (20,579)
OTHER DATA:
EBITDA (B) $ 16,680 $ 14,480 $ 22,379 $ 40,152 $ 60,803
Capital Expenditures 8,400 4,840 11,518 11,559 19,453
Depreciation and amortization 4,540 4,970 9,859 14,109 17,535
Ratio of earnings to fixed
charges (C) 3.4x 3.1x -- 1.2x 1.6x
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(A) Beginning in 1997, MSXI adopted a 52-53 week fiscal year, which ends on the
Sunday nearest December 31.
(B) EBITDA represents income (loss) before income taxes plus net interest
expense, depreciation, amortization, Michigan Single Business Tax and other
income (expense), net. EBITDA is presented as additional information
because management believes it to be a useful indicator of the company's
ability to meet debt service and capital expenditure requirements. It is
not, however, intended as an alternative measure of operating results or
cash flow from operations (as determined in accordance with generally
accepted accounting principles).
(C) For purposes of computing the ratio of earnings to fixed charges, earnings
represent net income (loss) before income taxes and fixed charges. Fixed
charges consist of interest expense, the interest component of operating
leases and amortization of deferred financing costs. For the fiscal year
ended December 28, 1997, earnings were inadequate to cover fixed charges by
approximately $2.7 million.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The following analysis of our results of operations and liquidity and
capital resources should be read in conjunction with our consolidated financial
statements and the related notes thereto included under Item 8 of this report.
The results of operations for the fiscal years ended January 2, 2000, January 3,
1999 and December 28, 1997 include the results of operations of acquired
companies from the date of their acquisition. As a result, our financial
performance for each fiscal year is not directly comparable without taking into
account the impact of acquisitions.
Effective in the fourth quarter of 1999, we began reporting sales and
cost of sales generated by certain of our business and technology services net
of billings from sub-suppliers. Historically, sales reported from these services
included the billings from sub-suppliers for staffing, training, consulting and
other professional services which were passed on to our customers. The change in
presentation resulted from certain clarifying guidance issued by the Securities
and Exchange Commission during the fourth quarter of 1999 and an analysis of the
current arrangements with our customers for these services. As a result of this
change, prior period results have been reclassified to conform to this
presentation. This change in presentation had no impact on the current or
historical gross profit, operating income or net income of MSXI.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 2, 2000 COMPARED WITH THE FISCAL YEAR ENDED
JANUARY 3, 1999
Net Sales. Consolidated net sales increased $225.9 million, or 42.3%,
from $533.9 million in fiscal 1998 to $759.8 million in fiscal 1999. The
increase in consolidated net sales resulted from both internal growth and
incremental sales from businesses acquired in 1998 and 1999. The total increase
in net sales is comprised of:
YEAR ENDED %
INCREASE FROM JANUARY 2, 2000 INCREASE
------------------- ----------- -----------
(dollars in thousands)
Internal growth $ 102,203 19.1%
Acquired businesses 123,697 23.2%
----------- -----------
Total $ 225,900 42.3%
=========== ===========
Internal growth from existing businesses primarily reflects improved
volumes in our engineering and staffing services during 1999. Sales of our
engineering services improved $63.0 million, before the impact of acquisitions,
due to increased demand for automotive design and engineering services in the
United States and United Kingdom. Sales of our staffing services improved $39.1
million, before the impact of acquisitions, due to the opening of new locations
and our customers' continued consolidation of their supplier base. The remaining
increase reflects marginal improvement in sales of our business and technology
services. As a result of our acquisitions, sales to non-automotive customers, as
a percent of total sales, increased to 11.3% for fiscal 1999 compared to only
1.5% for fiscal 1998.
Operating Income. Our consolidated operating income and changes in
operating income for the fiscal years ended January 2, 2000 and January 3, 1999
were:
FISCAL YEAR ENDED
----------------------------
JANUARY 2, JANUARY 3, INCREASE
----------------------
2000 1999 $ %
-------------- ------------ ----------- -----------
(dollars in thousands)
Operating income $ 38,330 $ 23,255 $ 15,075 64.8%
% of net sales 5.0% 4.4% n/a n/a
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Overall, operating income improved during fiscal 1999 due to improved
sales volumes of existing businesses, our efforts to reduce administrative costs
and the accretive impact of businesses acquired during 1998 and 1999. Gross
profit increased $22.3 million, or 26.5%, over fiscal 1998. Gross profit, as a
percentage of net sales, decreased from 15.7% in fiscal 1998 to 14.0% in fiscal
1999. The decrease in gross profit as a percentage of net sales reflects
unfavorable service mix during 1999 as compared to 1998. Selling, general and
administrative expenses as a percentage of net sales for the 1999 fiscal year
were 8.5% as compared to 11.1% for the fiscal year ended January 3, 1999. The
2.6% percentage point improvement, as a percentage of net sales, principally
related to the continued consolidation of administrative services, cost
reductions resulting from the successful integration of acquired businesses, and
the increase in sales volume during the period.
Net Income. Principally as a result of the foregoing and decreases in
our effective income tax rate, net income improved by $7.4 million for the
fiscal year ended January 2, 2000 compared to fiscal 1998. For the fiscal years
ended January 2, 2000 and January 3, 1999, the effective income tax rate was
40.7% and 52.5%, respectively. The decrease in our effective income tax rate
resulted from the increased ratio of earnings to non-deductible expenses and a
decrease in certain foreign statutory effective income tax rates. Improvements
in operating income and income taxes were partially offset by increased interest
expense related to incremental borrowings on our credit facility and the
issuance of $30 million in additional senior subordinated notes during 1999.
FISCAL YEAR ENDED JANUARY 3, 1999 COMPARED WITH THE FISCAL YEAR ENDED
DECEMBER 28, 1997
Net Sales. Consolidated net sales increased $155.9 million, or 41.2%,
to $533.9 million for fiscal 1998 from $378.0 million for fiscal 1997. The
increase in net sales reflects sales growth from businesses acquired during 1997
and 1998 and internal growth of existing businesses. The total increase in net
sales is comprised of:
YEAR ENDED %
INCREASE FROM JANUARY 3, 1999 INCREASE
------------------- ----------- ------------
(dollars in thousands)
Internal growth $ 49,087 13.0%
Acquired businesses 106,841 28.2%
----------- -----------
Total $ 155,928 41.2%
=========== ===========
Increased sales from acquired businesses primarily relate to the GRI
Acquisition in late 1997. A full year of operating results from businesses
acquired in the GRI Acquisition are included in fiscal 1998 versus four months
in fiscal 1997. Staffing services volume increased $44.4 million (which includes
$16.1 million from acquisitions of businesses in fiscal 1998) while engineering
services revenue increased by about $18.5 million. Business and technology
services volume improved by $2.3 million on a comparable basis. The increase in
staffing services volume is related to a combination of internal growth,
including the opening of new locations, and increased sales resulting from
customers' consolidation of their supplier base. Net sales from engineering
services increased primarily due to an increase in customer orders for
automotive design and engineering in the United Kingdom.
Operating Income. Our consolidated operating income and changes in
operating income for the fiscal years ended January 3, 1999 and December 28,
1997 were:
FISCAL YEAR ENDED
--------------------------------
JANUARY 3, DECEMBER 28, CHANGE
------------------
1999 1997 $ %
-------------- -------------- --------- --------
(dollars in thousands)
Operating income $23,255 $9,652 $13,603 140.9%
% of net sales 4.4% 2.6% n/a n/a
11
13
Overall, operating income improved due to the inclusion of a full year
of operations from the GRI Acquisition and improvements in selling, general and
administrative expenses. Gross profit for fiscal 1998 increased $33.5 million
(66.3%), from $50.5 million to $84.0 million, as compared to fiscal 1997. Gross
profit as a percentage of net sales for fiscal 1998 improved to 15.7% as
compared to 13.4% in fiscal 1997. The increase in gross margin as a percent of
sales reflects the impact of higher margins from business acquired in the GRI
Acquisition and improved volumes in our existing service lines.
Selling, general and administrative expenses in fiscal 1998 increased
$21.1 million (55.6%), from $38.0 million in fiscal 1997 to $59.1 million in
fiscal 1998. This increase resulted principally from the inclusion of a full
year of operations from the GRI Acquisition, increased investment in our human
resources and business systems to support acquisitions and internal growth, and
the implementation of a performance incentive plan. Selling, general and
administrative expenses as a percentage of net sales in fiscal 1998 were 11.1%
as compared to 10.0% in fiscal 1997 reflecting the items discussed above.
In fiscal 1997, there was a one-time, pre-tax charge of $2.0 million
for restructuring costs relating to the closure of two facilities.
Net Income. Net income improved by $5.7 million for the fiscal year
ended January 3, 1999. The increased net income reflects improvements in
operating income, as discussed above, partially offset by increased interest
expense. The increase in interest expense reflects the impact of incremental
borrowing required primarily to fund acquisitions. The effective income tax rate
was 52.5% for fiscal 1998. The effective rate was high in 1998 due to the ratio
of non-deductible expenses to pre-tax income and the impact of foreign income
that is taxed at a higher rate than U.S income.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
General. Our principal capital requirements are for the acquisition of
businesses, capital expenditures and working capital to support internal growth.
These requirements have been met through a combination of bank debt, the
issuance of senior subordinated notes and cash from operations. 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 was
$30.2 million in fiscal 1999 compared to $26.5 million in fiscal 1998, an
increase of $3.7 million. The improved cash flows primarily reflect improvements
in net income, net of non-cash charges for depreciation and amortization.
Changes in working capital generated $0.8 million in cash flows during fiscal
1999 due primarily to the timing of cash collections from customers versus
corresponding payments to suppliers. Net cash provided by operating activities
for fiscal 1998 increased $24.7 million from $1.8 million in fiscal 1997 to
$26.5 million in fiscal 1998. This increase was principally due to an increase
in net income of $5.7 million, the change in non-cash charges for depreciation
and amortization of $4.3 million, and the change in other items of $14.7
million, principally due to the timing of receipts and payments associated with
our purchasing support services as well as improved collections of accounts
receivable in the United Kingdom.
Investing Activities. Net cash used in investing activities was $57.9
million in fiscal 1999 compared to $53.3 million in fiscal 1998, an increase of
$4.6 million. Capital expenditures were $19.5 million in fiscal 1999, an
increase of $7.9 million. Cash used to acquire businesses was $54.7 million in
fiscal 1999, an increase of $11.8 million. Capital expenditures were used to
support new programs and our growth initiatives for operations primarily in
North America and Europe. See "Corporate Development" below for further
information on businesses acquired during 1999. The increased uses of cash were
partially offset by proceeds of $16.3 million from the sale of property and
equipment. During 1999 we entered into a sale-leaseback transaction related to
certain property acquired in the MegaTech Acquisition during fiscal 1998. The
sale proceeds of about $15 million were used to settle a contractual obligation
related to the acquisition of MegaTech. Net cash used for investing activities
for fiscal 1998 decreased $117.4 million from $170.7 million to $53.3 million,
as compared to fiscal
12
14
1997. Acquisitions in fiscal 1998 were not as large as in
fiscal 1997, which included the TSG Acquisition and the GRI Acquisition. Capital
expenditures for fiscal 1998 and fiscal 1997 were $11.6 million and $11.5
million, respectively. The majority of these capital expenditures were to
acquire equipment for specific customer projects, including computer systems and
improvements on leased facilities.
Financing Activities. Net cash provided by financing activities was
$35.1 million in fiscal 1999 compared to $19.5 million in fiscal 1998, an
increase of $15.6 million. Cash flows from financing activities are net of a $15
million contractual payment related to the acquisition of MegaTech in 1998. Cash
generated was used, along with cash from operations, to fund our growth
initiatives and reflects the issuance of $30 million in subordinated notes and
$50 million of additional term notes during 1999. See "Debt Arrangements and
Available Financing" for additional information. Net cash provided by financing
activities for fiscal 1998 decreased $162.1 million from the comparable prior
period. After the initial capitalization of MSXI, financing requirements
decreased commensurate with the declines in investing activities and the
improvement in cash flow from operating activities.
DEBT ARRANGEMENTS AND AVAILABLE FINANCING
Initial Capitalization. Shortly after our inception in late 1996, we
completed the TSG Acquisition at a purchase price of $145.6 million. The TSG
Acquisition was financed through $3.8 million of common equity, $36.0 million of
Redeemable Series A Preferred Stock, $40.0 million of bridge loans payable to
CVC and MascoTech, $30.0 million of senior subordinated debt and $35.8 million
of borrowings under credit facilities with Bank One Corporation, as agent, and
its affiliates. On August 31, 1997, we acquired GRI for $60.0 million, which was
financed with borrowings under our credit facility, offset in part by cash
balances acquired.
Senior Subordinated Notes. On January 22, 1998, we issued, in a private
placement, $100 million aggregate principal amount of 11-3/8% unsecured senior
subordinated notes maturing January 15, 2008 (the "Series A Notes"). The net
proceeds of $93.2 million were used to retire bridge loans to CVC and MascoTech,
retire the senior subordinated notes payable to MascoTech and repay a portion of
the amounts outstanding under our credit facility. On August 20, 1998, we
completed an offer to exchange 11-3/8% unsecured senior subordinated notes,
registered under the Securities Act of 1933, for any and all outstanding Series
A notes.
On May 18, 1999, we issued, in a private placement, an additional $30
million aggregate principal amount of 11-3/8% unsecured senior subordinated
notes maturing January 15, 2008 (the "Series B Notes"). The net proceeds of
$27.6 million were used to repay amounts previously outstanding under our credit
facility. On September 10, 1999, we completed an offer to exchange 11-3/8%
unsecured senior subordinated notes, registered under the Securities Act of
1933, for any and all outstanding Series B Notes.
Credit Facility. In December 1999, we closed on an amended and
restated credit facility with commercial banks and institutional lenders led by
Bank One Corporation. The amended and restated credit facility replaced our
existing credit facility. The revolving credit portion of the agreement expires
December 7, 2004. The credit facility, as amended and restated, provides for
revolving credit up to $100 million and five and seven year term loans up to
$105 million under terms specified in the agreement. Upon closing, we borrowed
$80 million under the term loan portion of the credit facility and increased the
term loan syndication to $105 million, under the terms of the agreement, in
early 2000. As of January 2, 2000, $71.5 million was available for future
borrowing under the revolving credit portion of our amended and restated credit
facility.
Other Facilities. Chelsea Computer Consultants, Inc., which was
acquired in September 1999, maintains a financing arrangement that provides for
lines of credit up to 90% of its eligible accounts receivable, not to exceed a
maximum line of credit of $6 million. The arrangement expires in March 2000, at
which time we expect to refinance any amounts outstanding with borrowings under
our credit facility.
Satiz S.r.l., which was acquired effective December 31, 1999, maintains
a financing arrangement that provides for lines of credit up to 100% of its
eligible accounts receivable, as defined in the agreement. As of January 2,
2000, $6.5 million was available for borrowing under this arrangement. The
arrangement expires on December 12, 2001, but can be extended for one-year
periods after the initial term by mutual agreement.
13
15
Our total indebtedness consists of our senior subordinated notes,
borrowings under our credit facilities and borrowings under various short-term
arrangements. Additional information regarding these obligations is set forth in
Note 8 and Note 17 to our consolidated financial statements included under Item
8 of this report. Our ability to meet debt service obligations will be dependent
upon the future performance of MSXI, which will be impacted by general economic
conditions and other factors, which may be outside of our control.
CORPORATE DEVELOPMENT
BUSINESSES ACQUIRED
Since the GRI Acquisition, we completed several strategic acquisitions
that have expanded our geographic coverage, increased our service offerings and
increased our reach to customers within and outside the automotive industry.
On August 4, 1998, we acquired Gold Arrow Contract Services, Ltd., a
technical and information technology staffing services company located in the
United Kingdom with historical annual sales of approximately $20 million.
The transaction was funded with borrowings under our credit facility.
Effective October 31, 1998, we acquired Lexstra International, Inc. and
Lexus Temporaries, Inc., providers of contract computer consultants, systems
analysts and network support personnel. The companies are headquartered in New
York, New York and have offices in Boston, Massachusetts, Red Banks, New Jersey
and Silver Spring, Maryland. The companies had combined historical annual sales
of approximately $50 million. The purchase price of $24 million at closing was
funded with borrowings under our credit facility.
On December 18, 1998, we acquired Pilot Computer Services, Inc. This
Concord, California-based company provides computer professionals experienced in
systems development, systems enhancement and project management.
Effective December 26, 1998, we acquired MegaTech Engineering, Inc.
from Johnson Controls, Inc. ("JCI"). MegaTech offers technical staffing and
product development support services with historical annual sales of about $44
million. The total purchase price was $30 million, of which $15 million was paid
at the closing using borrowings under our credit facility. The balance of the
purchase price was paid in 1999 with the proceeds from the sale of real property
acquired in the transaction. As part of the transaction, we significantly
enhanced our opportunity to provide services to JCI. We also strengthened our
training resources by acquiring a training academy that operates a
degree-granting program in automotive design and engineering in conjunction with
Central Michigan University.
In early April 1999, we acquired Rice Cohen International, Inc. a
permanent placement staffing company based in Yardley, Pennsylvania with
historical annual sales of approximately $5.0 million.
On June 21, 1999, we acquired Management Resources International, Inc.,
a provider of training services and courseware quality systems with historical
annual sales of about $3.5 million.
Effective September 17, 1999, we acquired 100% of the outstanding
common stock of Chelsea Computer Consultants, Inc. from Staff Builders, Inc.
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 throughout North America.
The purchase price was about $19.9 million at closing and was funded with
borrowings under our credit facility.
Effective December 31, 1999, we acquired 75% of the outstanding common
stock of Satiz S.r.l., 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 at
closing was funded with borrowings under our credit facility. Satiz had about
$8.9 million of debt outstanding at closing. The remaining 25% of the
outstanding common stock of Satiz were retained by Fiat.
14
16
On February 23, 2000, we acquired the professional staffing operations
of Corporate Staffing Resources of South Bend, Indiana. Specifically, we
acquired 100% of the outstanding common stock of Intranational Computer
Consultants and Programming Management and Systems and selected assets and
liabilities of CMS Management Services and Ascend. These companies provide
information technology and technical professional staffing throughout the United
States with combined historical annual revenues over $57 million.
EQUITY INVESTMENTS
On January 8, 1999, we acquired a 24.5% interest in Cadform GmbH, a
German company with historical annual sales of approximately $12 million that
provides product design and tooling services to the automotive industry. Based
in Homberg (Ohm), Germany, Cadform specializes in automotive interior systems
and cast aluminum products. In November 1999 we acquired an additional 24.5%
interest in Cadform by contributing selected assets of our German operations.
MSXI and Cadform are engaging in joint projects to leverage our combined product
development capabilities. We also have an option to acquire additional interests
in Cadform in the future.
On May 28, 1999, we acquired a 30% interest in Quandoccore S.r.l. and
Quandoccore Interinale S.p.A., two affiliated Italian companies with combined
sales of approximately $18 million. Quandoccore S.r.l. provides consulting
services on a project basis. Quandoccore Interinale S.p.A. is one of a limited
number of companies licensed under new Italian legislation to provide staffing
services. Through these investments we are pursuing complementary opportunities
for growth in Italy, including expansion of our engineering and staffing
capabilities. If the two companies achieve specific performance targets for
1999, we anticipate that we will acquire the remaining interests in the
companies during 2000.
INFLATION
Although we cannot anticipate future inflation, we do not believe that
inflation has had, or is likely in the foreseeable future to have, a material
impact on our results of operations. While our contracts typically do not
include automatic adjustments for inflation, the Ford Master Vendor Agreement
does provide for automatic adjustments for inflation for services provided under
the Master Vendor Program.
SEASONALITY
Our quarterly operating results are affected primarily by the number of
billing days in the period and the seasonality of our customers' businesses.
Demand for our services has historically been lower during the year-end
holidays.
EUROCURRENCY
On January 1, 1999, the member states of the European Economic and
Monetary Union agreed to adopt the Euro as their common legal currency. The
existing member state currencies are scheduled to remain legal tender as
denominations of the Euro until at least January 1, 2002 but not later than July
1, 2002. During this transition period, monetary transactions may be settled
using either the Euro or the existing member state currencies.
We have both operating divisions and customers located in European
countries adopting the Euro. In 1999, combined revenues from operations that are
adopting the Euro were approximately 7% of total net sales. We have operations
in substantially all European Economic and Monetary Union participating
countries, as well as in the United Kingdom, which has elected not to
participate in the Euro conversion at this time. The affected operations plan to
make the Euro the functional currency sometime during the transition period,
although certain of our European operations have already entered into Euro-based
transactions, such as bank borrowing and collection of accounts receivable.
We have not experienced any significant operational disruptions to date
and do not expect the continued implementation of the Euro to cause any
significant operational disruptions. In addition, we have not incurred and do
not expect to incur any significant cost from the continued implementation of
the Euro, including any currency risk, which could affect our liquidity or
capital resources.
15
17
FORWARD LOOKING STATEMENTS
This report on Form 10-K contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Such forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties. Actual results may vary materially
from those in the forward-looking statements as a result of any number of
factors, many of which are beyond the control of management. These factors
include, but are not limited to, the Company's leverage, its reliance on major
customers in the automotive industry, the degree and nature of competition, our
ability to recruit and place qualified personnel, risks associated with our
acquisition strategy, and employment liability risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain market risks, including interest rates and
currency exchange rates. Risk exposures relating to these market risks are
summarized below. This information should be read in connection with the
consolidated financial statements and the related notes thereto included
elsewhere in this Form 10-K.
CURRENCY RATE MANAGEMENT
For fiscal 1999, approximately 27% of our net sales were from markets
outside of the United States. To date, we have been able to minimize our
currency exposure by receiving foreign revenues in local currency. Because the
corresponding costs are usually in the same currency, the majority of our
exposure is naturally hedged. We do not engage in any other currency hedging
transactions. For the fiscal year ended January 2, 2000, adjustments from the
translation of our foreign operations reduced equity by about $4.7 million.
INTEREST RATE MANAGEMENT
We manage interest cost using a combination of fixed and variable rate
debt. As of January 2, 2000, we had $130 million of senior subordinated notes
outstanding at a fixed interest rate of 11-3/8%. In addition, we have a $205
million credit facility at variable rates of interest. As of January 2, 2000,
$106 million was outstanding under our credit facility at interest rates ranging
from 5.53% to 10.03%. A 1% increase in the credit facility's applicable interest
rate would result in additional interest expense of approximately $1.1 million
per year.
As of January 2, 2000 the fair value of the senior subordinated notes
was $120.9 million compared to its carrying value of $130 million.
SALES WITH MAJOR CUSTOMERS
Ford, DaimlerChrysler and General Motors accounted for approximately
42.6%, 15.2% and 13.5% of consolidated net sales for fiscal 1999.
16
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of MSX International, Inc.
In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) present fairly, in all material respects, the financial position
of MSX International, Inc. and its subsidiaries at January 3, 1999 and January
2, 2000, and the results of their operations and their cash flows for each of
the three years in the period ended January 2, 2000, in conformity with
accounting principles generally accepted in the United States. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 14(a)(2) presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Detroit, Michigan
February 25, 2000
17
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MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 3, 1999 AND JANUARY 2, 2000
JANUARY 3, JANUARY 2,
1999 2000
--------------- --------------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 4,248 $ 6,879
Accounts receivable, net (Note 4) 208,451 305,473
Inventory 2,362 4,133
Prepaid expenses and other assets 5,559 10,007
Deferred income taxes, net (Note 14) 961 2,425
--------------- --------------
Total current assets 221,581 328,917
Property and equipment, net (Note 5) 35,265 44,110
Buildings held for sale (Note 5) 15,000 -
Goodwill and other intangibles, net of accumulated amortization
of $2,521 and $5,693, respectively (Note 3) 64,278 123,018
Other assets 8,064 19,651
Deferred income taxes, net (Note 14) 12,536 8,494
--------------- --------------
Total assets $356,724 $524,190
=============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt (Note 8) $ 4,581 $ 13,290
Accounts payable and drafts (Note 9) 89,886 161,973
Accrued payroll and benefits 23,286 25,500
Other accrued liabilities (Note 6) 26,825 63,889
Contractual acquisition obligation (Note 5) 15,000 -
Deferred income taxes, net (Note 14) 2,192 -
--------------- --------------
Total current liabilities 161,770 264,652
Long-term debt (Note 8) 180,356 232,556
Long-term deferred compensation liabilities and other (Note 13) 4,703 11,275
--------------- --------------
Total liabilities 346,829 508,483
Commitments and contingencies (Note 10) - -
Minority Interest - 286
--------------- --------------
Redeemable Series A Preferred Stock (Note 11) 36,000 36,000
--------------- --------------
Shareholders' deficit (Note 12):
Common Stock, $.01 par value, 2,000,000 aggregate shares of
Class A and Class B Common Stock authorized; 97,004 and 99,003 shares of
Class A Common Stock issued and outstanding, respectively 1 1
Additional paid-in-capital (24,764) (24,705)
Accumulated other comprehensive loss (1,140) (5,867)
Retained earnings (accumulated deficit) (202) 9,992
--------------- --------------
Total shareholders' deficit (26,105) (20,579)
--------------- --------------
Total liabilities and shareholders' deficit $356,724 $524,190
=============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
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MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE FISCAL YEARS ENDED JANUARY 2, 2000
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
-------------- --------------- ----------------
(IN THOUSANDS)
Net sales (Note 15) $378,014 $533,942 $ 759,842
Cost of sales 327,487 449,914 653,542
-------------- --------------- ----------------
Gross profit 50,527 84,028 106,300
Selling, general and administrative expenses 37,983 59,083 64,814
Amortization of goodwill and other intangibles 892 1,690 3,156
Restructuring costs (Note 7) 2,000 - -
-------------- --------------- ----------------
Operating income 9,652 23,255 38,330
Interest expense, net (Note 8) 12,400 17,416 21,141
-------------- --------------- ----------------
Income (loss) before income taxes (2,748) 5,839 17,189
Income tax provision (Note 14) 225 3,068 6,995
-------------- --------------- ----------------
Net income (loss) $ (2,973) $ 2,771 $ 10,194
============== =============== ================
The accompanying notes are an integral part of the
consolidated financial statements.
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21
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED JANUARY 2, 2000
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
--------------- --------------- ---------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) $(2,973) $ 2,771 $ 10,194
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 8,967 11,908 13,683
Amortization 892 2,201 3,852
Deferred taxes - 1,038 386
Loss on sale/disposal of property and equipment - 162 1,271
(Increase) decrease in receivables, net (36,343) (11,829) (32,397)
(Increase) decrease in inventory (309) (36) 103
(Increase) decrease in prepaid expenses and other assets (1,513) 367 (2,329)
Increase (decrease) in current liabilities 30,487 19,902 35,600
Other, net 2,576 (14) (179)
--------------- --------------- ---------------
Net cash provided by operating activities 1,784 26,470 30,184
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures (11,518) (11,559) (19,453)
Acquisition of businesses, net of cash received (159,137) (42,940) (54,735)
Proceeds from buildings held for sale and disposal of equipment - 1,231 16,264
Other, net (5) - -
--------------- --------------- ----------------
Net cash used for investing activities (170,660) (53,268) (57,924)
--------------- --------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of debt 70,000 130,000 79,404
Debt issuance costs - (4,637) (3,292)
Payment of Senior Subordinated Notes and Bridge Loans - (70,000) -
Changes in revolving debt 73,399 (28,221) (28,954)
Changes in book overdraft (669) (7,963) 2,881
Payment of contractual acquisition obligation - - (15,000)
Sale of Redeemable Preferred Stock 36,000 - -
Sale of Common Stock 3,800 80 59
Other, net (938) 213 -
--------------- --------------- ---------------
Net cash provided by financing activities 181,592 19,472 35,098
--------------- --------------- ---------------
Effect of foreign exchange rate changes on cash and cash equivalents (1,141) (1) (4,727)
--------------- --------------- ---------------
Cash and cash equivalents:
Increase (decrease) for the period 11,575 (7,327) 2,631
Balance, beginning of period - 11,575 4,248
--------------- --------------- ---------------
Balance, end of period $11,575 $ 4,248 $ 6,879
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 7,400 $16,800 $ 21,621
Cash paid for income taxes 1,600 800 1,963
Non-cash investing and financing activities:
Contractual acquisition obligation - 15,000 -
Equity investment in Cadform GmbH (Note 3) - - 3,306
The accompanying notes are an integral part of the
consolidated financial statements.
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22
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE THREE FISCAL YEARS ENDED JANUARY 2, 2000
ACCUMULATED RETAINED
MASCOTECH, INC. OTHER EARNINGS TOTAL
NET INVESTMENT COMMON ADDITIONAL COMPREHENSIVE (ACCUMULATED SHAREHOLDERS'
AND ADVANCES STOCK PAID-IN CAPITAL INCOME (LOSS) DEFICIT) EQUITY (DEFICIT)
---------------- --------- ----------------- --------------- ------------ -----------------
(DOLLARS IN THOUSANDS)
Balance at December 31, 1996 $ 72,240 $ - $ - $(2,790) $ - $ 69,450
Comprehensive loss:
Net loss (2,973) (2,973)
Foreign currency translation (1,141) (1,141)
-----------------
Total comprehensive loss (4,114)
Payment to MascoTech, Inc. for
book value of TSG (72,240) 2,790 (69,450)
Payment to MascoTech, Inc. in
excess of book value of TSG
(Note 12) (26,050) (26,050)
Sale of Common Stock 1 3,799 3,800
---------------- --------- ------------- --------------- ----------- -----------------
Balance at December 28, 1997 - 1 (22,251) (1,141) (2,973) (26,364)
Comprehensive income:
Net income 2,771 2,771
Foreign currency translation 1 1
-----------------
Total comprehensive income 2,772
Adjustment due to the final
allocation of taxable
temporary differences
established with the TSG
Acquisition (Note 12) (2,593) (2,593)
Sale of Common Stock 80 80
---------------- --------- ------------- --------------- ----------- -----------------
Balance at January 3, 1999 - 1 (24,764) (1,140) (202) (26,105)
Comprehensive income:
Net income 10,194 10,194
Foreign currency translation (4,727) (4,727)
-----------------
Total comprehensive income 5,467
Sale of Common Stock 59 59
---------------- --------- ------------- --------------- ----------- -----------------
Balance at January 2, 2000 $ - $ 1 $(24,705) $(5,867) $ 9,992 $(20,579)
================ ========= ============= =============== =========== =================
The accompanying notes are an integral part of the
consolidated financial statements.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements present the assets, liabilities
and results of operations of MSX International, Inc. and its consolidated
subsidiaries ("MSXI"). MSXI is a holding company formed and owned by Citicorp
Venture Capital, Ltd. ("CVC"), MascoTech, Inc. ("MascoTech") and certain members
of management. MSXI was formed to consummate the acquisition of selected assets
and operations of the Technical Services Group ("TSG") owned by MascoTech and
MascoTech Automotive Systems Group ("MASG"), as well as the net assets of APX
International ("APX"), a design and engineering services provider, which had
been acquired by MASG effective November 6, 1996 (the "TSG Acquisition"). The
TSG Acquisition was effective on January 3, 1997. Effective August 31, 1997,
MSXI acquired certain service-providing operations of Ford Motor Company
("Ford") through the acquisition of Geometric Results Incorporated ("GRI"), a
wholly-owned subsidiary of Ford. Since these initial transactions we have
completed numerous additional acquisitions as disclosed in Note 3. The results
of operations of APX, GRI and our other acquisitions have been included in the
results of operations of MSXI from the effective date of each transaction. Our
financial statements for each fiscal year are not directly comparable without
taking into account the impact of acquisitions.
We are principally engaged in providing engineering services, staffing
services, and business and technology services primarily to automobile
manufacturers and suppliers in North America and Europe.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation: The accompanying financial statements
include the accounts of MSXI and all majority owned subsidiaries. Significant
intercompany transactions have been eliminated. Companies that are 20 to 50
percent owned by MSXI or its wholly owned subsidiaries are accounted for by the
equity method of accounting. Beginning in 1997, we use a 52-53 week fiscal year
that ends on the Sunday nearest December 31.
b. Cash and Cash Equivalents: All highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents.
c. Receivables: Receivables are presented net of aggregate allowances
for doubtful accounts of $3.4 million (including $2.0 million of allowance
accounts for accounts receivable excluded from certain business combinations) at
January 3, 1999 and $2.0 million at January 2, 2000.
d. Inventory: Inventory is comprised of raw materials, parts and
supplies which are stated at the lower of cost or net realizable value, with
cost determined using the first-in, first-out method.
e. Property and Equipment: Property and equipment, including
significant betterments to existing facilities, are recorded at cost. Upon
retirement or disposal of property and equipment, the cost and accumulated
depreciation are removed from the accounts, and any gain or loss is included in
income. Maintenance and repair costs are charged to expense as incurred.
f. Goodwill and Other Intangibles: The excess of the purchase price,
including direct costs of acquisition, over the estimated fair value of acquired
assets and assumed liabilities is being amortized using the straight-line method
over the period estimated to be benefited, ranging from 20 to 30 years.
22
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
Management evaluates the carrying value of goodwill when events or
circumstances warrant such a review. When required, an evaluation is performed
comparing anticipated undiscounted future cash flows from operating activities
with the carrying amount of the excess of cost over net assets of acquired
companies. The factors considered by management in performing this assessment
include current operating results, business prospects, market trends,
competitive activities and other economic factors. To date, there have been no
permanent impairments related to goodwill.
g. Fair Value of Financial Instruments: The estimated fair value of
cash and cash equivalents, accounts receivable, accounts payable, and short-term
debt approximate their carrying amounts. The estimated fair value and carrying
amounts of long-term debt borrowings are reported in Note 8.
h. Foreign Currency Translation: Net assets of operations outside of
the United States are translated into U.S. dollars using current exchange rates
with the effects of translation adjustments included in Shareholders' Deficit as
a separate component of comprehensive income (loss). Revenues and expenses of
operations outside of the United States are translated at the average rates of
exchange during the period.
i. Revenue Recognition: Our revenue is primarily comprised of revenue
from fixed price contracts and time and material contracts. Revenues from fixed
price contracts are recognized using the percentage of completion method,
measured by comparing the percentage of labor costs incurred to date to the
estimated total labor costs for each contract. Revenues from time and material
contracts are valued at selling price based on contractual billing rates. Net
revenues from purchasing support services are recorded at the completion of each
individual service.
Contract costs include all direct material and labor costs and indirect
costs such as indirect labor, supplies, tools and repairs. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in fixed price contracts may result in revisions
to estimates of costs and revenues and are recognized in the period in which the
revisions are determined.
j. Depreciation: Depreciation is computed using the straight-line
method over the estimated useful lives of assets as follows:
Useful Lives
In Years
--------
Buildings and improvements...............................5-40
Machinery and equipment..................................3-12
Computers, peripherals and software...................... 2-5
Automobiles and trucks................................... 3-5
Leasehold improvements are amortized on a straight-line basis over
their estimated useful lives or the term of the lease, whichever is shorter.
k. Income Taxes: Deferred income taxes are recorded to reflect the
differences between the tax basis and financial reporting basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
l. Reclassifications: Effective in the fourth quarter of 1999, we began
reporting sales and cost of sales generated by certain of our business and
technology services net of billings from sub-suppliers. Historically, sales
reported from these services included the billings from sub-suppliers for
staffing, training, consulting and other professional services which were passed
on to our customers. The change in presentation resulted from certain clarifying
guidance issued by the Securities and Exchange Commission during the fourth
quarter of 1999 and an analysis of the current arrangements with our customers
for these services. As a result of this change, prior period results have been
reclassified to conform to this presentation. This change in presentation had no
impact on the current or historical gross profit, operating
23
25
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
income or net income of MSXI. In addition, certain other prior year amounts have
been reclassified to conform to current year presentation.
m. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenues and expenses during the reporting periods. Actual
results may differ from such estimates and assumptions.
n. Recently Issued Accounting Pronouncements: In June 1998, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires recognition of all derivative
financial instruments as either assets or liabilities at fair value and
determines the method(s) of gain/loss recognition. The FASB issued SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133" in June 1999 to defer
the effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. We will adopt SFAS No. 133 in fiscal 2001 and do not expect the adoption
to have any material impact on our consolidated financial statements.
3. ACQUISITIONS OF BUSINESSES:
TSG Acquisition. On January 3, 1997, we acquired selected assets and
operations of the former engineering and technical business service units of
MASG and MascoTech, as well as the net assets of APX, a design and engineering
services provider which had been acquired by MASG effective November 6, 1996.
The purchase price and sources of funding for the TSG Acquisition were as
follows:
SOURCES OF FINANCING (SEE NOTE 8): AMOUNT
------------------------------------- -------------
(IN MILLIONS)
Common Stock issued $3.8
Redeemable Preferred Stock issued 36.0
CVC bridge loan 20.0
MascoTech bridge loan 20.0
Senior subordinated note payable to MascoTech 30.0
Borrowings under credit facilities 35.8
------------
Total purchase price $145.6
============
The acquisition of TSG was accounted for using the purchase method of
accounting at carryover basis as no change in control resulted from the
acquisition. The amount paid in excess of book value for TSG of $28.6 million,
after finalization of deferred tax allocations, was recorded as a reduction of
additional paid-in-capital. The acquisition of APX was accounted for using the
purchase method of accounting and, accordingly, the purchase price was allocated
to the acquired assets and assumed liabilities based upon the estimated fair
value as of the closing of the acquisition. The excess of purchase price over
the acquired net assets of APX, after finalization of certain contractual
matters, resulted in goodwill of $19.8 million.
GRI Acquisition. We acquired certain service-providing operations of
Ford through the acquisition of GRI, a wholly owned subsidiary of Ford, pursuant
to a stock purchase agreement dated August 31, 1997. As part of Ford, GRI used
automated processes to manage the procurement of staffing, training and other
professional services for Ford. The purchase price of $60 million was financed
with borrowings under our credit facilities, offset in part by substantial cash
balances acquired. The acquisition of GRI was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
acquired assets and assumed liabilities based upon the estimated fair values as
of the closing of the acquisition. The excess of purchase price over the
acquired net assets of GRI, after finalization of certain contractual matters,
resulted in goodwill of $13.3 million.
24
26
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
Lexus/Lexstra Acquisition. Effective October 31, 1998, we consummated
the acquisition of Lexstra International, Inc. and Lexus Temporaries, Inc. (the
"Lexus Acquisition") pursuant to an asset purchase agreement dated October 23,
1998. These companies are providers of contract computer consultants, systems
analysts, and network support personnel with historical annual sales of about
$50 million. Under the asset purchase agreement, we purchased substantially all
of the assets and assumed substantially all of the operating liabilities of
Lexstra International, Inc. and Lexus Temporaries, Inc., excluding any bank
debt. The purchase price for these net assets of $24 million at the closing was
funded with borrowings under our credit facility. The acquisition was accounted
for under the purchase method of accounting, resulting in goodwill of $15.1
million at closing.
MegaTech Acquisition. Effective December 26, 1998, we consummated the
acquisition of MegaTech Engineering, Inc. from Johnson Controls, Inc. ("JCI")
pursuant to a stock purchase agreement dated as of December 22, 1998. MegaTech
offers technical staffing and product development services specializing in
vehicle interiors, HVAC and electrical design with historical annual sales of
about $44 million. Under the stock purchase agreement, we purchased 100% of the
outstanding shares of MegaTech from Becker Group, Inc., a wholly owned
subsidiary of JCI (the "MegaTech Acquisition"). We did not assume any bank debt
in this transaction. The total purchase price for the stock of MegaTech was $30
million of which $15 million was paid at the closing using borrowings under our
credit facility. The remaining $15 million was paid to JCI (without interest)
upon completion of a sale-leaseback transaction during 1999 related to property
and facilities acquired in the MegaTech Acquisition. The sale-leaseback proceeds
were $15 million and lease terms are substantially similar to our existing
operating lease terms. Such real property was presented as buildings held for
sale and the related amount due to JCI was presented as a contractual
acquisition obligation at January 3, 1999. The acquisition was accounted for
under the purchase method of accounting, resulting in goodwill of $5.4 million
at closing.
Pilot and Gold Arrow Acquisitions. Also during 1998, we acquired Pilot
Computer Services, Inc. (the "Pilot Acquisition") and Gold Arrow Contract
Services, Ltd. (the "Gold Arrow Acquisition") for an aggregate purchase price of
$9.4 million. The acquisitions were funded with borrowings under our credit
facility. Pilot Computer Services, Inc. is a provider of computer professionals
experienced in all aspects of systems development, systems enhancement and
project management, which is headquartered in Concord, California. Gold Arrow
Contract Services, Ltd. is an information technology and technical staffing
company, which is headquartered in Basildon, Essex, England with historical
annual sales of about $20 million. The Pilot and Gold Arrow Acquisitions were
accounted for under the purchase method of accounting resulting in goodwill of
$7.9 million at closing.
Rice Cohen and Management Resources Acquisitions. During 1999 we
acquired Rice Cohen International, Inc., a permanent placement staffing company
based in Yardley, Pennsylvania with historical annual sales of about $5.0
million and Management Resources International, Inc. a provider of training
services and courseware in quality systems based in Ann Arbor, Michigan with
historical annual sales of about $3.5 million. The Rice Cohen and Management
Resources Acquisitions were accounted for under the purchase method of
accounting.
Chelsea Acquisition. Effective September 17, 1999 we acquired 100% of
the outstanding common stock of Chelsea Computer Consultants, Inc. from Staff
Builders, Inc. (the "Chelsea Acquisition"). 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 area 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 as a purchase 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
25
27
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
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
are retained by Fiat. The acquisition of Satiz was accounted for as a purchase
resulting in goodwill of $8.8 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 to expense over the remaining goodwill amortization period. Management
believes the resolution of these matters will not have material adverse effect
on the results of operations, financial position or cash flows of MSXI.
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 of about $21.9 million. Additional goodwill is amortized
to expense over the remaining amortization period.
Pro Forma Results. The following unaudited pro forma condensed
financial data are presented as if the above acquisitions had been made at the
beginning of the earliest period presented. The unaudited pro forma information
is not necessarily indicative of either the results of operations that would
have occurred had the acquisitions been made during the period presented or the
future results of the combined operations.
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- -------------- --------------
Net sales $640,048 $796,158 $918,712
Income before income taxes 4,743 19,365 22,808
Net income 811 9,070 11,871
In addition to the above, we completed several equity investment
transactions during fiscal 1999. The aggregate purchase price of these
investments was about $6.6 million in cash and $3.3 million of contributed
assets. The investments were:
- In January 1999, we purchased a 24.5% interest in Cadform
Engineering GmbH, a German company that provides product design and
tooling services with sales of about $12 million. Cadform
specializes in automotive interior systems and cast aluminum
products. In November 1999, we increased our ownership of Cadform
to about 49% by contributing certain assets of our German
operations. We are currently engaging in joint projects with
Cadform and have the option to acquire additional interests in the
company in the future.
26
28
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
- In May 1999, we purchased a 30% interest in Quandoccore S.r.l. and
Quandoccore Interinale S.p.A., two affiliated Italian companies
with combined historical annual sales of about $18 million.
Quandoccore S.r.l. provides consulting services on a project basis
and Quandoccore Interinale S.p.A. provides staffing services. If
these two companies achieve specific performance targets, we
anticipate that we will acquire a majority position in the
companies in 2000.
4. ACCOUNTS RECEIVABLE, NET:
The primary users of our services are manufacturers in the automotive
industry. Sales to significant automotive customers, as a percent of total
sales, were:
PERCENT OF TOTAL SALES
-----------------------------------
SALES TO: 1997 1998 1999
---------------- ----------- ----------- ----------
Ford 35.5% 48.8% 42.6%
DaimlerChrysler 20.5% 16.4% 15.2%
General Motors 19.9% 15.7% 13.5%
---------- ----------- ---------
Total 75.9% 80.9% 71.3%
========== =========== =========
Receivables arise from services provided pursuant to contracts or
agreements with customers for such services. At December 28, 1997, January 3,
1999 and January 2, 2000, the foregoing three customers accounted for
approximately 69%, 67% and 42%, respectively, of the billed accounts receivable
balance. As a result of the acquisition of Satiz effective December 31, 1999,
Fiat accounted for 21% of the January 2, 2000 billed accounts receivable
balance.
Accounts receivable includes both billed and unbilled receivables.
Unbilled receivables amounted to $82.2 million and $122.7 million at January 3,
1999 and January 2, 2000, respectively. All such billings are expected to be
collected within the ensuing year. Accounts receivable also 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 $58.0 million as of January 3, 1999 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 revenue is recognized.
27
29
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
5. PROPERTY AND EQUIPMENT, NET:
AT JANUARY 3, AT JANUARY 2,
1999 2000
---------------- ---------------
Cost:
Land and improvements $ 100 $ 100
Buildings and improvements 10,304 12,545
Machinery and equipment 48,389 54,134
Computers, peripherals and software 26,514 30,485
Automobiles and trucks 1,821 1,902
-------- --------
87,128 99,166
Less accumulated depreciation (51,863) (55,056)
-------- --------
Property and equipment, net $ 35,265
$ 44,110
======== ========
Buildings held for sale $ 15,000 $ --
======== ========
Buildings held for sale as of January 3, 1999 represented the estimated
fair value (based on appraisals in December 1998) of the buildings acquired in
the purchase of MegaTech less the estimated selling costs. During the third
quarter of 1999, we entered into a sale-leaseback transaction related to this
property. The sale proceeds of $15 million were used to settle a contractual
obligation related to the acquisition of MegaTech.
6. OTHER ACCRUED LIABILITIES:
AT JANUARY 3, AT JANUARY 2,
1999 2000
---------------- ----------------
Income and other taxes (including VAT taxes) $ 1,283 $ 7,777
Restructuring costs 1,272 342
Deferred income 11,224 18,126
Contingent consideration liabilities -- 17,860
Interest 5,639 7,602
Other 7,407 12,182
------------- -----------
$ 26,825 $ 63,889
============= ===========
7. RESTRUCTURING ACTIONS:
During fiscal 1997, restructuring costs aggregated $6.7 million. These
costs were comprised of $2.7 million of severance pay for certain employees of
an acquired business, facility closure costs of $2.0 million which were
primarily remaining operating lease obligations of acquired facilities closed
subsequent to the acquisition, and $2.0 million of remaining lease obligations
and other costs related to the closure of MSXI facilities. Restructuring costs
accounted for in the purchase of the related businesses and costs charged to
operations were $4.7 million and $2.0 million, respectively. Restructuring
charges were accounted for in accordance with approved management plans.
Remaining accrued restructuring costs totaled $0.3 million as of January 2, 2000
and are expected to be paid in fiscal 2000.
28
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
8. DEBT:
Debt is comprised of the following:
OUTSTANDING AT
INTEREST RATES AT ----------------------------------
JANUARY 2, JANUARY 3, JANUARY 2,
2000 1999 2000
------------------- ---------------- ----------------
Senior Subordinated Notes 11.375 % $100,000 $130,000
Credit Facility, as amended and restated:
Revolving line of credit notes 8.09% 26,238 9,703
Swingline notes 5.53-10.03% 24,118 16,353
Term notes 9.23-9.98% 30,000 80,000
Ford Motor Company Limited, line of credit 7.14% 4,581 862
Chelsea Credit Facility n/a - -
Satiz Facility 4.51% - 8,928
---------------- ----------------
184,937 245,846
Less current portion 4,581 13,290
---------------- ----------------
Total long-term debt $180,356 $232,556
================ ================
Senior Subordinated Notes
On January 22, 1998, we issued, in a private placement, $100 million
aggregate principal amount of 11-3/8% unsecured senior subordinated notes
maturing January 15, 2008 (the "Series A Notes"). The net proceeds were used to
retire bridge loans to CVC and MascoTech, retire senior subordinated notes
payable to MascoTech and repay amounts outstanding under our credit facility.
The fiscal years ended December 28, 1997 and January 3, 1999 included related
party interest expense to CVC and MascoTech of about $8.0 and $0.6 million,
respectively. On August 20, 1998, we completed an offer to exchange 11-3/8%
unsecured senior subordinated notes, registered under the Securities Act of 1933
for any and all outstanding Series A Notes. Interest on the notes is payable
semi-annually at 11-3/8% per annum and commenced July 15, 1998. The notes may be
redeemed subsequent to January 15, 2003 at premiums that begin at 105.6875% and
decline each year to face for redemptions taking place after January 15, 2006.
In addition, at any time prior to January 15, 2001, we may redeem up to 35% of
the original aggregate principal amount of the notes with the proceeds of one or
more public equity offerings at a redemption price of 111.375% plus accrued and
unpaid interest, if any. Also, upon the occurrence of a Change of Control, as
defined in the Indenture (the "Indenture"), the notes may be redeemed at the
option of the noteholders at a premium of one percent, plus accrued and unpaid
interest, if any. The notes contain covenants which, among others, limit the
incurrence of additional indebtedness and restrict capital transactions,
distributions and asset dispositions of certain subsidiaries.
On May 18, 1999, we issued, in a private placement, an additional $30
million aggregate principal amount of 11-3/8% unsecured senior subordinated
notes maturing January 15, 2008 (the "Series B Notes"). The Series B Notes are
substantially identical to, and rank equally in right of payment with, our $100
million aggregate principal amount of 11-3/8% unsecured senior subordinated
notes issued during 1998. The net proceeds from the issuance of the Series B
Notes were used to repay amounts previously outstanding under our credit
facility. On September 10, 1999, we completed an offer to exchange 11-3/8%
unsecured senior subordinated notes, registered under the Securities Act of
1933, for any and all outstanding Series B Notes.
In connection with the $130 million of senior subordinated notes, each
of our significant domestic restricted subsidiaries, as defined in the Indenture
(the "Guarantor Subsidiaries"), irrevocably and unconditionally guarantees
MSXI's performance under the notes as primary obligors. See Note 17 for
additional information.
29
31
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
Credit Facility
On November 30, 1999, we entered into an amended and restated credit
facility with commercial banks and institutional lenders led by Bank One
Corporation, as agent. At the effective date of December 7, 1999, the facility
provided borrowing capacity on a senior-secured basis of up to $180 million, as
defined, to replace our prior credit facility, which provided borrowing capacity
of $130 million. The new credit facility includes an amended and restated $30
million five-year term loan, an amended and restated $100 million five-year
revolving credit facility and an additional $50 million seven-year institutional
term loan that may be increased to as much as $75 million on the same terms. See
Note 16 for recent developments related to our credit facility. Term loan
borrowings are subject to satisfaction of the same borrowing base requirements
and financial reporting and operating covenants as are other borrowings under
the new credit facility. The revolving credit portion of the facility provides
for borrowings as revolving credit loans, letters of credit and swingline loans.
The revolving credit portion of the new facility expires December 7, 2004.
Revolving credit loans, swingline loans and letters of credit (collectively
"Revolving Debt") are payable on demand. Interest on loans under the new credit
facility is payable quarterly or, if earlier, at the end of each interest period
and accrues at an annual rate equal to a floating rate, as defined, except for
swingline loans which accrue at an annual rate equal to a fixed or floating rate
as negotiated at the time of borrowing.
The $30 million term loan, as amended and restated, matures on
December 7, 2004 with principal payments due quarterly, on a graduated basis,
until maturity. The additional $50 million senior secured institutional term
loan matures on December 7, 2006. Principal payments of .25% of the
institutional term loan are payable quarterly in years one through six with the
balance payable in year seven. The maturities of term loans, as of January 2,
2000, during the next five years are:
YEAR AMOUNT
---- ------
2000 $3,500
2001 5,000
2002 6,500
2003 8,000
2004 9,500
Each of our significant domestic subsidiaries and selected other
subsidiaries guarantees all obligations of MSXI under the new credit facility.
In addition, MSXI has pledged the stock of such domestic subsidiaries and 65% of
the stock of significant foreign subsidiaries. Additionally, a first lien exists
on substantially all assets of such domestic subsidiaries. Pursuant to the
agreement, we are also finalizing documents to provide a first lien on the
assets of our UK subsidiaries. The obligations of MSXI under the new credit
facility rank senior to all other indebtedness, including the senior
subordinated notes.
The new credit facility contains certain reporting covenants, customary
affirmative covenants and various negative covenants including, but not limited
to, certain limitations on mergers, sales of assets, acquisitions, liens,
investments, indebtedness, contingent obligations, dividends, subsidiaries'
ability to agree to dividend restrictions, affiliate transactions and changes of
business. The new credit facility also contains certain covenants with respect
to employee benefit arrangements and environmental matters and certain financial
covenants including, but not limited to, a ratio of total debt to EBITDA, a
ratio of senior debt to EBITDA, a fixed charge coverage ratio and a minimum net
worth requirement, each as defined.
As of January 2, 2000, $26.1 million was outstanding under the
revolving credit portion 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.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
Chelsea Credit Facility
As of January 2, 2000, Chelsea Computer Consultants, Inc., which was
acquired in September 1999, maintains a financing arrangement that provides for
lines of credit up to 90% of its eligible accounts receivable, not to exceed a
maximum line of credit of $6 million. The arrangement, which bears interest at
the prevailing prime lending rate plus 2 percent, expires on March 31, 2000 at
which time any outstanding amounts are expected to be refinanced with borrowings
under our credit facility. Borrowings under the arrangement are collateralized
by a security interest in Chelsea's account receivable.
Satiz Credit Facility
As of December 31, 1999, Satiz S.r.l., which was acquired on December
31, 1999, maintained a financing arrangement with Fidis S.p.A. that provides for
borrowings up to 100% of its eligible accounts receivable, as defined in the
agreement. Borrowings under the arrangement bear interest at the Euribor rate
plus 0.975% and are collateralized by the underlying accounts receivable. The
agreement expires on December 12, 2001 and will be automatically renewed for
additional 12-month periods unless terminated by either party. Fidis S.p.A. is a
subsidiary of Fiat S.p.A. who owns a minority interest in Satiz.
Fair Value of Debt
The estimated fair values and carrying amounts of debt borrowings are
as follows:
AT JANUARY 3, 1999 AT JANUARY 2, 2000
----------------------------------- ---------------------------------
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
---------------- ---------------- ----------------- ------------
Senior Subordinated Notes $97,500 $100,000 $120,900 $130,000
Credit Facilities 84,937 84,937 115,846 115,846
================ ================ ================= ============
Total $182,437 $184,937 $236,746 $245,846
================ ================ ================= ============
The fair value of senior subordinated notes was determined based on
quoted market prices. The fair values of amounts outstanding under the credit
facilities approximate their carrying amounts as the variable rates inherent in
the related financial instruments reflect changes in the overall market interest
rates.
9. BOOK OVERDRAFTS:
Book overdrafts represent checks drawn on zero balance accounts that
have not yet been presented to our banks for funding. Such overdrafts are funded
when the related checks are presented and are not subject to finance charges.
There were aggregate book overdrafts of $14.3 million and $17.2 million at
January 3, 1999 and January 2, 2000, respectively. Such balances are included in
accounts payable and drafts in the consolidated balance sheets.
31
33
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
10. COMMITMENTS AND CONTINGENCIES:
MSXI is from time to time subject to various legal actions and claims
incidental to our business. Litigation is subject to many uncertainties and
the outcome of individual litigated matters is not predictable with assurance.
It is the opinion of management that the outcome of such matters will not have
a material adverse impact on the consolidated financial position, results of
operations or cash flows of MSXI.
MSXI and its subsidiaries have leases for real estate and equipment
utilized in its business. In most cases, management expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Future minimum rental payments required under leases that have an initial or
remaining non-cancelable lease term in excess of one year are as follows:
TOTAL
----------
Fiscal year ended:
2000 $ 25,714
2001 19,751
2002 11,645
2003 10,497
2004 10,467
Thereafter 39,160
----------
$117,234
==========
Rental expense was about $17.6 million, $22.3 million and $25.8
million in each of fiscal 1997, 1998, and 1999, respectively.
11. REDEEMABLE SERIES A PREFERRED STOCK:
In connection with the TSG Acquisition, we issued 360,000 shares of 12%
Series A Cumulative Redeemable Preferred Stock (the "Preferred Stock") with a
stated value and redemption value of $100 per share or $36 million in total. 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.
Dividends on the Preferred Stock are payable in cash at the rate per
annum equal to 12% of the stated value plus an amount equal to any accrued and
unpaid dividends. As of January 2, 2000, we have not declared any dividends.
Accordingly, no dividends have been paid or accrued. Dividends accumulated, but
not declared, aggregate approximately $15.0 million as of January 2, 2000. We
may not declare or pay any dividends or other distribution with respect to any
common stock or other class or series of stock ranking junior to the Preferred
Stock without first complying with restrictions specified in the Stockholders'
Agreement. The Preferred Stock, which has no voting rights, is mandatorily
redeemable at the earlier of December 31, 2008 or the date on which a sale
transaction, as defined, occurs. We may redeem any or all of the Preferred Stock
at our election prior to December 31, 2008. We may also elect to acquire shares
of the Preferred Stock from time to time without redeeming or otherwise
acquiring all or any other issued shares of the Preferred Stock pursuant to the
terms of the Stockholders' Agreement. As of January 2, 2000, we have not
redeemed or acquired any Preferred Stock.
32
34
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
12. SHAREHOLDERS' DEFICIT:
The common stock at par value resulted from the initial capitalization
of MSXI by MascoTech, CVC and certain members of management. The additional
paid-in capital amount at December 28, 1997 of approximately $(22.3) million
represented amounts received from the issuance of common stock in excess of par
value of $3.8 million, reduced by amounts paid to MascoTech for the acquisition
of TSG in excess of book value as of December 31, 1996 of $(26.1) million. As
the acquisition of TSG did not involve a change in control, the acquisition was
recorded at carryover basis. In accordance with FAS 109, "Accounting for Income
Taxes," we established deferred taxes related to the TSG Acquisition by
recording an increase in additional paid-in capital in the amount of $10.4
million. In 1998, in connection with preparing our initial tax returns, which
incorporated the opening balance sheet of TSG, certain adjustments to the
estimated tax assets and liabilities acquired were identified when the final
allocation of taxable temporary differences related to the acquisition was
completed. These adjustments have been reflected as a change in additional
paid-in capital.
13. EMPLOYEE BENEFIT PLANS:
We maintain a qualified cash or deferred compensation plan under
Section 401(k) of the Internal Revenue Code. Participation in this plan is
available to substantially all salaried employees and to certain groups of
hourly employees. Under the plan, employees may elect to defer up to 20 percent
of their annual wages, subject to the limitations of the Internal Revenue Code.
Effective in fiscal 1999, MSXI contributes matching contributions, at varying
rates, for all participating employees. The annual cost to administer the plan
and fund matching contributions was $0.1 million in fiscal 1998 and $0.7 million
in fiscal 1999. The cost of the plan was not significant in fiscal 1997.
Contributions to union-sponsored, multi-employer pension plans were
approximately $0.7 million in 1997, $0.7 million in 1998 and $0.6 million in
1999. These plans are not administered by MSXI and contributions are determined
in accordance with provisions of negotiated labor contracts. MSXI has no present
intention of withdrawing from any of these plans, nor has MSXI been informed
that there is any intention to terminate such plans.
We also have an unfunded deferred compensation plan for certain
salaried employees. Individual participants make pre-tax contributions to the
plan and MSXI matches up to 5 percent of the individual's annual salary. MSXI
contributions vest over a period of time. Individuals may elect to receive a
lump sum or defined payments of vested balances upon retirement or termination.
The deferred compensation plan liability was $3.4 million at both January 3,
1999 and January 2, 2000. This deferred compensation plan liability is an
unfunded and unsecured obligation of MSXI. However, MSXI has, through deposits
to a grantor trust, restricted certain corporate assets having a fair value of
$1.6 million and $1.3 million at January 3, 1999 and January 2, 2000,
respectively, that are intended to be used to settle a portion of the
obligation.
Included in deferred compensation liabilities as of January 2, 2000 is
$6.9 million of deferred employee termination indemnities. The accrued
indemnities are obligations of Satiz, which was acquired effective December 31,
1999. Under Italian labor laws and regulations all employees are entitled to an
indemnity upon termination of their employment relationship. The benefit accrues
to the employees on a pro-rata basis during their employment period and is based
upon individual salaries. The vested benefit payable accrues interest, and
employees can receive advances thereof, in certain specified situations, all
defined in the applicable labor contract regulations. The liability as of
January 2, 2000 reflects the total amount of the indemnities, net of any
advances taken, that applicable employees would be entitled to receive if
termination were to occur as of that date.
33
35
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
With the APX Acquisition, we acquired certain obligations with respect
to a frozen defined benefit pension plan. The plan was frozen in 1988 and covers
certain union and non-union employees who were formerly employed by Autodynamics
Corporation of America, Inc., a company acquired previously by one of the
companies that comprised APX. This plan is not administered by MSXI.
Contributions are determined in accordance with provisions of the plan. This
plan is not material to our financial position or results of operations.
14. INCOME TAXES:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
--------------- -------------- --------------
Income (loss) before income taxes for U.S. and
foreign operations was:
Domestic $3,236 $2,898 $16,539
Foreign (5,984) 2,941 650
--------------- -------------- --------------
$(2,748) $5,839 $17,189
=============== ============== ==============
The provision for income taxes (benefit) was:
Currently payable:
Federal $1,049 $ (573) $2,513
Foreign (640) 2,178 3,026
State - 104 280
Deferred:
Federal 315 1,871 3,628
Foreign (499) (512) (2,452)
--------------- -------------- --------------
$225 $3,068 $6,995
=============== ============== ==============
Deferred tax assets (liabilities) included:
Amortizable goodwill $ 9,111 $7,890 $4,003
Accrued interest expense 2,023 1,019 1,537
Accrued liabilities and deferred compensation 863 (1,662) 1,114
Net operating losses 360 3,604 2,391
German tax benefit 332 - -
Depreciation 1,937 1,264 3,168
Accounts receivable (984) (587) (606)
Valuation allowance (535) (736) (920)
Unrealized foreign gain - 181 (569)
Other, net 641 332 801
--------------- -------------- --------------
Net deferred tax asset $ 13,748 $11,305 $10,919
=============== ============== ==============
The valuation allowance has been provided for specific items where
management has determined that the likelihood of realization is not sufficient
to allow for recognition of the asset. The utilization of these attributes is
subject to various limitations as provided within current tax laws. Net
operating losses can be used to offset income of certain foreign subsidiaries
and can be carried forward indefinitely.
34
36
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
The following is a reconciliation of taxes at the U.S. federal
statutory rate to the provision for income taxes:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---------------- ---------------- ----------------
U.S statutory rate 35% 35% 35%
--- --- ---
Tax at U.S. statutory rate $(961) $2,043 $6,016
Valuation allowance 535 201 184
Higher effective foreign tax rate 351 367 161
Other, net 300 457 634
---------------- ---------------- ----------------
$225 $3,068 $6,995
================ ================ ================
As of December 28, 1997, January 3, 1999 and January 2, 2000, a
provision had not been made for United States or additional foreign taxes on
approximately $1.4 million, $2.3 million and $0.6 million, respectively, of
undistributed earnings of foreign subsidiaries, as those earnings were intended
to be permanently reinvested. Generally, such earnings become taxable upon the
remittance of dividends and under certain other circumstances. It was not
practicable to estimate the amount of deferred tax liability on such
undistributed earnings.
15. SEGMENT INFORMATION:
MSXI is a global provider of complementary outsourcing services to the
automotive and other industries. We group our services into three categories:
engineering services; 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 SFAS No. 131 for segment reporting
purposes.
The following is a summary of our net sales by service line:
FISCAL YEAR ENDED
---------------------------------------------------
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
---------------- -------------- -------------
Engineering Services $ 202,078 $ 220,639 $ 293,510
Staffing Services 111,211 155,627 308,489
Business & Technology Services 64,725 157,676 157,843
---------------- -------------- -------------
Total net sales $ 378,014 $ 533,942 $ 759,842
================ ============== =============
35
37
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
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 (loss) before income taxes is as
follows:
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000
----------------- ----------------- -----------------
Total EBIT $12,520 $26,771 $43,964
Interest expense (12,400) (17,416) (21,141)
Michigan Single Business Tax (2,868) (3,516) (5,634)
----------------- ----------------- -----------------
Consolidated income (loss) before taxes $(2,748) $5,839 $17,189
================= ================= =================
Sales and long-lived asset information by geographic area are as
follows:
SALES LONG-LIVED ASSETS
------------------------------------------------ ---------------------------------------------
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED AS OF AS OF AS OF
DECEMBER 28, JANUARY 3, JANUARY 2, DECEMBER 28, JANUARY 3, JANUARY 2,
1997 1999 2000 1997 1999 2000
-------------- --------------- --------------- --------------- ------------- -------------
United States $276,610 $362,704 $552,142 $63,436 $106,580 $153,744
Foreign:
United Kingdom 72,105 110,362 138,614 7,593 12,144 12,408
Other Foreign(1) 29,299 60,876 69,086 4,025 3,883 20,627
-------------- --------------- --------------- --------------- ------------- -------------
Total $378,014 $533,942 $759,842 $75,054 $122,607 $186,779
============== =============== =============== =============== ============= =============
(1) Other Foreign long-lived assets at January 2, 2000 include
$10 million of assets Acquired in the Satiz Acquisition
effective December 31, 1999.
16. SUBSEQUENT EVENT:
On February 23, 2000 we acquired the professional staffing operations
of Corporate Staffing Resources of South Bend, Indiana. Specifically, we
acquired 100% of the outstanding common stock of Intranational Computer
Consultants and Programming Management and Systems and selected assets and
liabilities of CMS Management Services and Ascend. These companies provide
information technology and technical professional staffing throughout the United
States with combined historical annual revenues over $57 million.
In early 2000, the seven-year institutional term loan, 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. See Note 8 for further information.
36
38
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS UNLESS STATED OTHERWISE)
17. 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.
GRI is a guarantor subsidiary. The statements of operations and cash
flows for the eight months ended August 31, 1997 are separately included below
on a consolidated basis with its subsidiaries. The results of GRI are included
in the consolidated results of MSXI from September 1, 1997 forward.
37
39
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 1,690 $ 2,558 $ -- $ 4,248
Accounts receivable, net -- 145,715 62,736 -- 208,451
Inventory -- 2,315 47 -- 2,362
Prepaid expenses and other assets 530 3,499 1,530 -- 5,559
Deferred income taxes -- -- 961 -- 961
--------- --------- --------- --------- ---------
Total current assets 530 153,219 67,832 -- 221,581
Property and equipment, net -- 23,255 12,010 -- 35,265
Buildings held for sale -- 15,000 -- -- 15,000
Goodwill and other intangibles, net -- 60,620 3,658 -- 64,278
Investment in subsidiaries 157,918 33,703 -- (191,621) --
Other assets 4,801 2,904 359 -- 8,064
Deferred income taxes 911 8,800 2,825 -- 12,536
--------- --------- --------- --------- ---------
Total assets $ 164,160 $ 297,501 $ 86,684 $(191,621) $ 356,724
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ -- $ -- $ 4,581 $ -- $ 4,581
Accounts payable and drafts -- 74,705 15,181 -- 89,886
Accrued liabilities 695 40,362 9,086 (32) 50,111
Contractual acquisition obligation -- 15,000 -- -- 15,000
Deferred income taxes -- 930 1,262 -- 2,192
--------- --------- --------- --------- ---------
Total current liabilities 695 130,997 30,110 (32) 161,770
Long-term debt 173,238 -- 7,118 -- 180,356
Intercompany accounts (55,748) 26,916 28,832 -- --
Long-term deferred compensation liability
and other -- 4,629 74 -- 4,703
--------- --------- --------- --------- ---------
Total liabilities 118,185 162,542 66,134 (32) 346,829
Redeemable Series A Preferred Stock 36,000 -- -- -- 36,000
Shareholders' equity (deficit) 9,975 134,959 20,550 (191,589) (26,105)
--------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity (deficit) $ 164,160 $ 297,501 $ 86,684 $(191,621) $ 356,724
========= ========= ========= ========= =========
38
40
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 2, 2000
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
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 -- 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 -- 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
Deferred income taxes -- -- -- -- --
--------- --------- --------- --------- ---------
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
========= ========= ========= ========= =========
39
41
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
FOR THE THREE FISCAL YEARS ENDED JANUARY 2, 2000
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
FISCAL YEAR ENDED DECEMBER 28, 1997
Net sales $ -- $ 276,609 $ 101,405 $ -- $ 378,014
Cost of sales -- 234,467 93,020 -- 327,487
--------- --------- --------- --------- ---------
Gross profit -- 42,142 8,385 -- 50,527
Selling, general and administrative expenses -- 26,548 11,435 -- 37,983
Amortization of goodwill and other intangibles -- 892 -- -- 892
Restructuring costs -- 2,000 -- -- 2,000
--------- --------- --------- --------- ---------
Operating income (loss) -- 12,702 (3,050) -- 9,652
Interest income (expense), net (9,542) 76 (2,934) -- (12,400)
Equity in subsidiary earnings (loss) 3,324 (4,845) -- 1,521 --
--------- --------- --------- --------- ---------
Income (loss) before income taxes (6,218) 7,933 (5,984) 1,521 (2,748)
Income tax provision (benefit) (3,245) 4,609 (1,139) -- 225
--------- --------- --------- --------- ---------
Net income (loss) $ (2,973) $ 3,324 $ (4,845) $ 1,521 (2,973)
========= ========= ========= ========= =========
FISCAL YEAR ENDED JANUARY 3, 1999
Net sales $ -- $ 362,703 $ 171,239 $ -- $ 533,942
Cost of sales -- 303,759 146,155 -- 449,914
--------- --------- --------- --------- ---------
Gross profit -- 58,944 25,084 -- 84,028
Selling, general and administrative expenses -- 40,473 18,610 -- 59,083
Amortization of goodwill and other intangibles -- 1,583 107 -- 1,690
--------- --------- --------- --------- ---------
Operating income -- 16,888 6,367 -- 23,255
Interest income (expense), net (16,064) 2,074 (3,426) -- (17,416)
Equity in subsidiary earnings 13,334 1,274 -- (14,608) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes (2,730) 20,236 2,941 (14,608) 5,839
Income tax provision (benefit) (5,501) 6,902 1,667 -- 3,068
--------- --------- --------- --------- ---------
Net income $ 2,771 $ 13,334 $ 1,274 $ (14,608) $ 2,771
========= ========= ========= ========= =========
FISCAL YEAR ENDED JANUARY 2, 2000
Net sales $ -- $ 540,886 $ 231,102 $ (12,146) $ 759,842
Cost of sales -- 460,554 205,134 (12,146) 653,542
--------- --------- --------- --------- ---------
Gross profit -- 80,332 25,968 -- 106,300
Selling, general and administrative expenses -- 42,760 22,054 -- 64,814
Amortization of goodwill and other intangibles -- 2,767 389 -- 3,156
--------- --------- --------- --------- ---------
Operating income -- 34,805 3,525 -- 38,330
Interest income (expense), net (19,934) 1,412 (2,619) -- (21,141)
Equity in subsidiary earnings 23,002 168 -- (23,170) --
--------- --------- --------- --------- ---------
Income before income taxes 3,068 36,385 906 (23,170) 17,189
Income tax provision (benefit) (7,126) 13,383 738 -- 6,995
--------- --------- --------- --------- ---------
Net income $ 10,194 $ 23,002 $ 168 $ (23,170) $ 10,194
========= ========= ========= ========= =========
40
42
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1997
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) $ (6,297) $ 8,169 $ (4,845) $ -- $ (2,973)
Equity in earnings of subsidiaries 3,324 (4,845) -- 1,521 --
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:
Depreciation -- 5,523 3,444 -- 8,967
Amortization -- 892 -- -- 892
(Increase) decrease in receivables, net -- (28,394) (7,949) -- (36,343)
(Increase) decrease in inventory -- (310) 1 -- (309)
(Increase) decrease in prepaid expenses
and other assets -- (828) (685) -- (1,513)
Increase (decrease) in current
liabilities 4,144 28,414 (2,071) -- 30,487
Other, net -- 2,861 (285) -- 2,576
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 1,171 11,482 (12,390) 1,521 1,784
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures -- (7,433) (4,085) -- (11,518)
Acquisition of businesses, net of cash received (141,260) 18,454 (30,327) (6,004) (159,137)
Investment in foreign subsidiaries -- (24,378) -- 24,378 --
Other, net -- (8) 3 -- (5)
--------- --------- --------- --------- ---------
Net cash used for investing activities (141,260) (13,365) (34,409) 18,374 (170,660)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Intercompany (32,662) 2,052 30,610 -- --
Investment in subsidiaries -- 8 19,385 (19,393) --
Equity of subsidiaries (3,324) 3,794 -- (470) --
Proceeds from issuance of debt 70,000 -- -- -- 70,000
Changes in revolving debt 66,275 -- 7,124 -- 73,399
Changes in book overdraft -- (669) -- -- (669)
Sale of Redeemable Preferred Stock 36,000 -- -- -- 36,000
Sale of Common Stock 3,800 -- -- -- 3,800
Other, net -- (830) (76) (32) (938)
--------- --------- --------- --------- ---------
Net cash provided by financing activities 140,089 4,355 57,043 (19,895) 181,592
--------- --------- --------- --------- ---------
Effect of foreign exchange rate changes on
cash and cash equivalents -- (23) (1,118) -- (1,141)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
Increase for the period -- 2,449 9,126 -- 11,575
Balance, beginning of period -- -- -- -- --
--------- --------- --------- --------- ---------
Balance, end of period $ -- $ 2,449 $ 9,126 $ -- $ 11,575
========= ========= ========= ========= =========
41
43
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 3, 1999
NON-
MSXI GUARANTOR GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------- ------------- ------------ -------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss) $ (10,563) $ 12,060 $ 1,274 $ - $ 2,771
Equity in earnings of subsidiaries 13,334 1,274 - (14,608) -
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation - 7,607 4,301 - 11,908
Amortization 511 1,583 107 - 2,201
Deferred taxes (911) 3,217 (1,268) - 1,038
(Gain) loss on sale of property and
equipment - 194 (32) - 162
(Increase) decrease in receivables, net - 1,249 (13,078) - (11,829)
(Increase) decrease in inventory - (25) (11) - (36)
(Increase) decrease in prepaid expenses
and other assets (530) (1,264) 2,161 - 367
Increase (decrease) in current liabilities 695 13,155 6,052 - 19,902
Other, net (676) 1,039 2,470 (2,847) (14)
--------- --------- --------- --------- ---------
Net cash provided by operating activities 1,860 40,089 1,976 (17,455) 26,470
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures - (6,025) (5,534) - (11,559)
Acquisition of businesses, net of cash
received - (38,460) (4,480) - (42,940)
Proceeds from disposal of property and
equipment - 764 467 - 1,231
--------- --------- --------- --------- ---------
Net cash used for investing activities - (43,721) (9,547) - (53,268)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Intercompany (20,933) 23,524 (2,591) - -
Investment in subsidiaries - (15,970) 10,645 5,325 -
Equity of subsidiaries (13,334) 6,780 (4,174) 10,728 -
Proceeds from issuance of debt 122,883 - 7,117 - 130,000
Debt issuance costs (4,637) - - - (4,637)
Payment of Senior Subordinated Notes and
Bridge Loans (70,000) - - - (70,000)
Changes in revolving debt (15,919) (234) (12,068) - (28,221)
Changes in book overdraft - (9,762) 1,799 - (7,963)
Sale of Common Stock 80 - - - 80
Other, net - 1 212 - 213
--------- --------- --------- --------- ---------
Net cash provided by financing activities (1,860) 4,339 940 16,053 19,472
--------- --------- --------- --------- ---------
Effect of foreign exchange rate changes on cash
and cash equivalents - (1,466) 63 1,402 (1)
--------- --------- --------- --------- ---------
Cash and cash equivalents:
Decrease for the period - (759) (6,568) - (7,327)
Balance, beginning of period - 2,449 9,126 - 11,575
--------- --------- --------- --------- ---------
Balance, end of period $ - $ 1,690 $ 2,558 $ - $ 4,248
========= ========= ========= ========= =========
42
44
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED JANUARY 2, 2000
NON-
MSXI GUARANTOR GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------ ------------
Cash flows from operating activities: (IN THOUSANDS)
Net income (loss) $(12,808) $ 22,834 $ 168 $ - $ 10,194
Equity in earnings of subsidiaries 23,002 168 - (23,170) -
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 9,154 4,529 - 13,683
Amortization 695 2,767 390 - 3,852
Deferred taxes 911 1,165 (1,690) - 386
Loss on sale of property and
equipment - 530 741 - 1,271
(Increase) decrease in receivables, net - (32,605) 208 - (32,397)
(Increase) decrease in inventory - 78 25 - 103
(Increase) decrease in prepaid expenses
and other assets 141 (626) (1,844) - (2,329)
Increase (decrease) in current liabilities (5,411) 33,282 7,729 - 35,600
Other, net - (372) 267 (74) (179)
-------- -------- -------- -------- --------
Net cash provided by operating activities 6,530 36,375 10,523 (23,244) 30,184
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures - (11,272) (8,181) - (19,453)
Acquisition of businesses, net of cash
received - (34,342) (20,393) - (54,735)
Proceeds from buildings held for sale and
disposal of equipment - 15,693 571 - 16,264
-------- -------- -------- -------- --------
Net cash used for investing activities - (29,921) (28,003) - (57,924)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Intercompany (28,329) 13,467 14,788 74 -
Investment in subsidiaries (27,850) 10,702 2,083 15,065 -
Equity of subsidiaries 10,587 (12,071) 3,491 (2,007) -
Proceeds from issuance of debt 79,415 (11) - - 79,404
Debt issuance costs (3,292) - - - (3,292)
Changes in revolving debt (31,403) (1,520) 3,969 - (28,954)
Changes in book overdraft - 1,462 1,419 - 2,881
Payment of contractual acquisition obligation - (15,000) - - (15,000)
Sale of Common Stock 59 - - - 59
-------- -------- -------- -------- --------
Net cash provided by (used for) financing
activities (813) (2,971) 25,750 13,132 35,098
-------- -------- -------- -------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents (5,717) (4,300) (4,822) 10,112 (4,727)
-------- -------- -------- -------- --------
Cash and cash equivalents:
Increase (decrease) for the period - (817) 3,448 - 2,631
Balance, beginning of period - 1,690 2,558 - 4,248
-------- -------- -------- -------- --------
Balance, end of period $ - $ 873 $ 6,006 $ - $ 6,879
======== ======== ======== ======== ========
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45
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
GEOMETRIC RESULTS INCORPORATED- SERVICES
(A FORMER BUSINESS UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT STATEMENT OF OPERATIONS
FOR THE EIGHT MONTH PERIOD ENDED AUGUST 31, 1997
FOR THE
EIGHT MONTH
PERIOD ENDED
AUGUST 31,
1997
---------------
(DOLLARS IN
THOUSANDS)
Net sales $431,134
Cost of sales 411,518
---------------
Gross profit 19,616
Selling, general and administrative expenses 13,636
Michigan Single Business Tax 239
---------------
Operating income 5,741
Other income, net 1,136
---------------
Income before income taxes 6,877
Income tax provision 2,908
---------------
Net income $3,969
===============
44
46
17. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
GEOMETRIC RESULTS INCORPORATED - SERVICES
(A FORMER UNIT OF GEOMETRIC RESULTS INCORPORATED AND SUBSIDIARIES)
CONDENSED CONSOLIDATED CARVE-OUT STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTH PERIOD ENDED AUGUST 31, 1997
FOR THE
EIGHT MONTH
PERIOD ENDED
AUGUST 31,
1997
--------------
(DOLLARS IN
THOUSANDS)
Cash from (used for):
Operating activities:
Net income $3,969
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 3,960
Loss on disposal of assets 8
Provision for doubtful accounts (2)
Deferred income taxes 262
(Increase) decrease in receivables 39,865
(Increase) decrease in prepaid expenses and other assets (1,071)
Increase (decrease) in accounts payable (10,750)
Increase (decrease) in accrued payroll and benefits (1,962)
Increase (decrease) in income taxes due to parent 2,192
Increase (decrease) in accrued expenses (248)
-------------
Net cash from operating activities 36,223
-------------
Investing activities:
Proceeds from sale of assets -
Capital expenditures (4,047)
-------------
Net cash used for investing activities (4,047)
-------------
Financing activities:
Net borrowings on lines of credit from parent 2,135
Divisional equity transfer 1,007
Increase in cash overdraft 4,221
-------------
Net cash from financing activities 7,363
-------------
Effect of exchange rate changes on cash (441)
-------------
Cash and cash investments:
Increase for the period 39,098
At January 1 17,280
-------------
At end of period $56,378
=============
45
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information with respect to our
directors and executive officers as of January 2, 2000.
NAME AGE POSITION
---- --- --------
Erwin H. Billig........................... 73 Chairman of the Board of Directors (Chief
Executive Officer until January 2000)
Thomas T. Stallkamp.................... 53 Vice Chairman and Chief Executive Officer
(effective January 2000)
Frederick K. Minturn.................... 43 Executive Vice President and Chief Financial
Officer
Roger Fridholm........................... 59 President, Business, Technology and Staffing
Services Division
John Risk.................................. 61 President, Engineering Services Division
Richard M. Cashin, Jr................... 46 Director
David E. Cole............................ 62 Director
Michael A. Delaney..................... 45 Director
Lee Gardner.............................. 52 Director
Richard A. Manoogian.................. 63 Director
Erwin H. Billig served as Chief Executive Officer from April 28, 1998
until January 2000 and Chairman of the Board of Directors since January 3, 1997.
He served as Vice Chairman of MascoTech from 1994 to 1997 and was President and
Chief Operating Officer of MascoTech from 1986 to 1994. He is also the Chairman
of the Board of Directors of Titan Wheel International, Inc., a director of OEA,
Inc. and a director and Vice Chairman of Delco Remy International, Inc.
Thomas T. Stallkamp was appointed Vice Chairman and Chief Executive
Officer of MSX International effective January 2000. He also serves on the Board
of Directors for Kmart Corporation, PickupTruck.com and Baxter International.
Prior to joining MSX International, Mr. Stallkamp was Vice Chairman for
DaimlerChrysler Corporation and also served as President of Chrysler Corporation
in 1998. Prior to becoming President, Mr. Stallkamp served in various executive
level positions during his 20-year career with Chrysler Corporation.
Frederick K. Minturn has been Executive Vice President and Chief
Financial Officer since January 3, 1997. Mr. Minturn was Group Controller of
MascoTech's Automotive Operations from 1991 through December 1996 and was a Vice
President of such group from 1994 through December 1996.
Roger Fridholm has been President of the Business, Technology and
Staffing Services Division since May 26, 1998. Mr. Fridholm has also served as
President of St. Clair Group, Inc., a private investment company, since 1991 and
President of IPG Services Corporation since 1996, and as President of Ad Hoc,
Inc. since 1997, all of which are staffing service companies. Mr. Fridholm is a
director of The Stroh Companies, Inc., MascoTech, Inc., MCN Energy Group and
Comerica Bank.
John Risk has been President of the Engineering Services Division since
May 11, 1998. Mr. Risk retired from Ford Motor Company in 1997 where, during his
33-year career, he made major contributions to the company in a variety of key
appointments. Prior to joining MSXI, Mr. Risk was Director of the B-Car Vehicle
Line at Ford. In this capacity, he was responsible for all aspects of the Small
Car Program activities (including the Ka minicar) in both Europe and the U.S.
46
48
Richard M. Cashin, Jr. has been a director since January 3, 1997. Mr.
Cashin has been president of CVC since 1994. Mr. Cashin is also a director of
Levitz Furniture Inc., Delco Remy International, Inc., LifeStyle Furnishings
International Ltd., Fairchild Semiconductor Corporation, FFC Holding, Inc.,
Cable Systems International, Euramax International, Plc, Titan Wheel
International, Inc., Hoover Group Inc., Thermal Engineering, Gerber
Childrenswear Inc., JAC Holding Corporation, GVC Holdings, Ballantrae
Corporation and Delta Commodities, Inc.
David E. Cole has been a director since January 3, 1997. Mr. Cole has
been the Director of the Office for the Study of Automotive Transportation
(OSAT) at the University of Michigan's Transportation Research Institute since
1978. Mr. Cole is a director of Mechanical Dynamics Inc., Thyssen Krupp, U.S.,
Saturn Electronics & Engineering, Inc., and Plastech Inc. Mr. Cole is also a
director of the Automotive Hall of Fame and is on the Board of Trustees of Hope
College.
Michael A. Delaney has been a director since January 3, 1997. Mr.
Delaney has been a Vice President of CVC since 1989. Mr. Delaney is also a
director of Allied Digital Technologies, Inc., GVC Holdings, JAC Holding
Corporation, ChipPAC Corporation, Palomar Technologies Corporation, Great Lakes
Dock & Dredge Corporation, SC Processing, Inc., Triumph Group, Inc., CLARK
Material Handling Inc., International Knife and Saw, Inc., Paper Pak Products,
Inc., AmeriSource Health Corporation and Delco Remy International, Inc.
Lee M. Gardner has been a director since January 3, 1997. Mr. Gardner
has served as President and Chief Operating Officer of MascoTech since 1992.
Richard A. Manoogian has been a director since January 3, 1997. Mr.
Manoogian served as Chairman, Chief Executive Officer and a director of
MascoTech from 1984 to 1998 and continues to serve as Chairman and as a
director. Mr. Manoogian is also Chairman of the Board and Chief Executive
Officer of Masco Corporation and a director of Bank One Corporation, Detroit
Renaissance and The American Business Conference.
Each of our directors holds office until a successor is elected and
qualified or until such director's earlier resignation or removal.
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49
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following Summary Compensation Table sets forth certain information
with respect to all compensation paid or earned for services rendered to MSXI
for the last two fiscal years (except for bonus amounts, which are compensation
for services rendered in the immediately preceding year) of (i) those persons
who served as our Chief Executive Officer during fiscal 1999 and (ii) our
executive officers other than the Chief Executive Officer who were serving as
executive officers of MSXI at the end of fiscal 1999 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------------------------------------
OTHER ANNUAL
FISCAL YEAR COMPENSATION
NAME AND PRINCIPAL POSITION ENDED SALARY ($) BONUS ($) ($)
---------------------------
------------- ------------ ------------- -----------------
Erwin H. Billig............................ 1/3/99 240,000 -- --
Chief Executive Officer and 1/2/00 246,666 120,000 --
Chairman of the Board of Directors
Frederick K. Minturn....................... 1/3/99 212,500 20,000 105,128(1)
Executive Vice President and Chief 1/2/00 237,500 148,162 89,075(1)
Financial Officer
Roger Fridholm............................. 1/3/99 152,700 -- --
President, Business, Technology, and 1/2/00 261,998 79,200 --
Staffing Services Division
John Risk.................................. 1/3/99 174,667 -- --
President, Engineering Services 1/2/00 276,000 121,764 13,800(2)
Division
- -------------------------
(1) Company match of amounts of employee salary deferrals pursuant to our
Deferred Compensation Plan totaling $10,625 in fiscal 1998 and $11,875 in
fiscal 1999, combined with the value on the date of vesting of shares of
common stock of MascoTech granted pursuant to MascoTech's 1991 Stock
Incentive Plan, being compensation for services prior to 1997.
(2) Company match of amounts of employee salary deferrals pursuant to our
Deferred Compensation Plan.
Pursuant to our Deferred Compensation Plan, certain of our management
employees have the option of deferring salary and bonus amounts up to a maximum
amount of 10% of salary. In addition, deferred discretionary bonuses may be
awarded to participants in the Deferred Compensation Plan. Such deferred amounts
and Company matches are credited to an account on the books of MSXI, which is
credited annually with earnings. In 1997 and 1998, we matched five percent of
the amount of salary deferred by participants in the Deferred Compensation Plan.
DIRECTOR COMPENSATION
Outside directors, who are not affiliated with MSXI, MascoTech or CVC,
are entitled to receive $10,000 in annual compensation and $500 per meeting
attended. As of the date of this Report, Mr. Cole is the only outside director.
48
50
EMPLOYMENT AGREEMENTS
Frederick K. Minturn. Effective as of January 3, 1997, the Company
entered into an employment agreement with Mr. Minturn to serve as Executive Vice
President and Chief Financial Officer for an initial term of two years. The
agreement automatically renews for successive one-year terms unless otherwise
terminated in writing by either the Company or Mr. Minturn. Mr. Minturn is
entitled to an annual performance bonus pursuant to the Performance Incentive
Plan described below. Mr. Minturn is also entitled to all other employee
benefits maintained for officers and employees of the Company. The Company may
terminate his employment upon death or disability. Either the Company or Mr.
Minturn may terminate the agreement, with or without cause (as defined therein).
If the agreement is terminated without cause by the Company or with good reason
(as defined therein) by Mr. Minturn, the Company will pay to Mr. Minturn the
full base salary for the remainder of the term then in effect. The agreement
also provides that, during the term of his employment, and thereafter for the
greater of twelve months or the remainder of the then current term, Mr. Minturn
will not, directly or indirectly, engage in certain activities competitive with
the business of the Company.
Roger Fridholm. Mr. Fridholm's services have been provided to the
Company pursuant to an Agreement with St. Clair Group, Inc. ("St. Clair Group").
Annual compensation paid to St. Clair Group for Mr. Fridholm's services is
$250,000, subject to increase upon approval of the Board of Directors. The
agreement also provides that the Company will pay to St. Clair Group a
discretionary annual performance bonus for Mr. Fridholm's services.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee are Messrs. Billig, Delaney
and Gardner. Messrs. Billig and Delaney also serve on the compensation committee
of Delco Remy International, Inc. The compensation committee recommended
adoption of our Performance Incentive Plan to reflect the Company's compensation
policy.
PERFORMANCE INCENTIVE PLAN
We introduced the Performance Incentive Plan ("PIP") in April 1998. All
of our salaried employees, including executive officers, are eligible to receive
payments under PIP. PIP offers target awards based on a percentage of an
employee's annual base salary. Actual awards are based on individual as well as
corporate and business unit performance. Under PIP, each of Mr. Minturn and Mr.
Risk may receive a discretionary annual performance bonus of up to 87.5% of his
annual base salary, depending on the degree to which MSXI meets or exceeds its
target performance.
Mr. Billig is eligible to receive discretionary annual bonuses as
determined by the Board of Directors.
49
51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table provides certain information regarding the
beneficial ownership, as defined in Rule 13d-3 of the Securities Exchange Act of
1934 (the "Exchange Act"), of MSXI's common stock as of March 24, 2000 by (i)
each stockholder known to us to be the beneficial owner of 5% or more of any
class of MSXI's voting securities, (ii) each of our directors and executive
officers and (iii) all directors and executive officers as a group. So far as is
known to us, the persons named in the tables below as beneficially owning the
shares set forth therein have sole voting power and sole investment power with
respect to such shares, unless otherwise indicated.
AMOUNT
BENEFICIALLY OWNED PERCENT OF CLASS
------------------ ----------------
CLASS SERIES A CLASS SERIES A
A PREFERRED A PREFERRED
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK
- ---------------------------------------- ------ ----- ------ -----
MascoTech, Inc.................................. 43,752* 180,000 42.9% 50.0%
21001 Van Born Road
Taylor, Michigan 48180
Citicorp Venture Capital, Ltd.................. 32,041* 131,826 31.4% 36.6%
399 Park Avenue, 14th Floor
New York, New York 10043
CCT Partners IV, L.P............................ 5,468* 22,495 5.4% 6.2%
399 Park Avenue, 14th Floor
New York, New York 10043
Richard M. Cashin, Jr........................... 1,084* 4,466 1.1% 1.2%
399 Park Avenue, 14th Floor
New York, New York 10043
Michael A. Delaney.............................. 332* 1,367 0.3% 0.4%
399 Park Avenue, 14th Floor
New York, New York 10043
Thomas T. Stallkamp.......................... 3,000* -- 2.9% --
275 Rex Blvd.
Auburn Hills, MI 48326
Erwin H. Billig(1)........................... 3,000* -- 2.9% --
275 Rex Blvd.
Auburn Hills, MI 48326
Frederick K. Minturn......................... 1,500* -- 1.5% --
275 Rex Blvd.
Auburn Hills, MI 48326
Roger Fridholm................................... 1,999* -- 2.0% --
275 Rex Blvd.
Auburn Hills, MI 48326
John Risk.......................................... 1,000* -- 1.0% --
275 Rex Blvd.
Auburn Hills, MI 48326
All directors and executive officers as a
group.............................................. 11,915 5,833 11.7% 1.6%
- -------------------------
* Consists of an equal number of shares of each of Series A-1 Common
Stock, Series A-2 Common Stock, Series A-3 Common Stock and Series
A-4 Common Stock (collectively, the "Class A Common Stock")
(1) In name of Billig Family Limited Partnership.
50
52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
STOCKHOLDERS' AGREEMENT
On January 3, 1997, in connection with the ownership of certain capital
shares of MSXI, we entered into a stockholders' agreement (the "Stockholders'
Agreement") with MascoTech, CVC and certain executive officers and directors of
MSXI (the "Management Stockholders" and, together with MascoTech and CVC, the
"Stockholders"). The Stockholders' Agreement imposes certain restrictions on,
and rights with respect to, the transfer of shares of MSXI's Common Stock (as
defined) and Series A Preferred Stock held by MascoTech, CVC and the Management
Stockholders. The Stockholders' Agreement also entitles the Stockholders to
certain rights regarding corporate governance of MSXI, and to CVC and MascoTech
the right to purchase their pro rata share in connection with the issuance of
any new shares of Common Stock.
The Stockholders' Agreement sets forth conditions under which the
parties may transfer their shares. The Stockholders' Agreement provides for a
right of first refusal in favor of MSXI in the event that any Stockholder (the
"Selling Stockholder") desires to transfer its shares of Common Stock pursuant
to a bona fide third party offer or an involuntary transfer (as defined in the
Stockholders' Agreement). To the extent that we elect to purchase fewer than all
of the shares proposed to be sold by such Selling Stockholder, the Stockholders'
Agreement provides for rights of first refusal on a pro rata basis in favor of
the other Stockholders. Pursuant to an Amendment to the Stockholders' Agreement
dated as of August 10, 1998, as a result of the sale by CVC of 1,867 shares to a
former employee of MSXI, CVC has the right of first refusal with respect to such
shares, up to an amount necessary to bring CVC back to its original ownership
level. In the case of a bona fide third party offer, without the consent of the
Selling Stockholders, neither MSXI nor the other Stockholders may purchase any
of the shares pursuant to the right of first refusal unless all such shares are
purchased. If such Selling Stockholder is MascoTech or CVC, and such Selling
Stockholder proposes to sell shares representing more than 5% of the outstanding
shares of Common Stock on a fully-diluted basis or if any Selling Stockholder
proposes to transfer shares of Series A Preferred Stock, then such Selling
Stockholder must also cause the buyer to give the other Stockholders an option
to sell a pro rata number of their respective shares of the same class and on
the same terms and conditions as the Selling Stockholder.
In the event that a Management Stockholder's shares of capital stock
are subject to an involuntary transfer (such as a seizure pursuant to a judgment
lien or in connection with any voluntary or involuntary bankruptcy proceeding),
the Stockholders' Agreement grants similar rights to purchase such shares first
to MSXI and then to MascoTech and CVC, pro rata.
Subject to certain restrictions, following the fifth anniversary of the
date of the Stockholders' Agreement and for as long as CVC or MascoTech, as the
case may be, or any of their permitted successors and assigns, shall hold more
than 60% of the Common Stock of MSXI originally issued to them, the
Stockholders' Agreement grants each of MascoTech and CVC certain "drag-along
rights." The drag-along rights require the other Stockholders to sell all of
their capital stock upon the same terms and conditions as MascoTech and CVC in
connection with the sale of all of the shares of MascoTech or CVC, as the case
may be, to a third party. In addition, if MascoTech or CVC propose the transfer
or sale of all or substantially all of the assets or business of MSXI to any
third party, MascoTech or CVC, as the case may be, may require the other Selling
Stockholders to take all action necessary to cause MSXI to approve such
transaction.
The Stockholders' Agreement provides that the Board of Directors (the
"Board") of MSXI shall consist of seven members consisting of two nominees of
CVC, two nominees of MascoTech, one nominee of the Management Stockholders and
two disinterested directors. Voting on the Board is weighted so as to provide
each MascoTech designate with 17.5%, each CVC designate with 17.5%, the
Management designate with 10%, and each disinterested director with 10%,
respectively, of the voting power on the Board.
51
53
REGISTRATION RIGHTS AGREEMENT
On January 3, 1997, we entered into a registration rights agreement
(the "MSXI Registration Rights Agreement") with the CVC, MascoTech and the
Management Stockholders. The MSXI Registration Rights Agreement provides that
CVC and MascoTech shall be entitled, at any time, to request that we effect an
underwritten primary or secondary public offering, which raises aggregate net
proceeds to MSXI of at least $50,000,000 or, after June 3, 1998, to request that
we effect an underwritten primary or secondary public offering of at least 25%
of MSXI's Common Stock on a fully diluted basis; and in connection with any such
public offering we are required to use reasonable efforts to include in such
offering all other shares, subject to certain exceptions, that the stockholders
request for inclusion therein. In addition, at any time following an initial
public offering of MSXI shares, the MSXI Registration Rights Agreement provides
that, subject to certain limitations, each of CVC and MascoTech shall be
entitled to request three long-form registrations using SEC Form S-1 or S-2 and
request unlimited short-form registrations using Form S-3 (any registration
effected in accordance with this or the preceding sentence, a "Demand
Registration"). If (i) MSXI's Board determines that a Demand Registration must
be postponed to avoid the disclosure of material non-public information or (ii)
as a result of a pending material financing or acquisition, then we may require
CVC or MascoTech, as the case may be, to withdraw its Demand Registration and
not submit another Demand Registration for up to sixty days. Whenever we decide
to register any of MSXI's shares (other than on Forms S-4 and S-8), the CVC,
MascoTech and Management Stockholders have the right to register (or
"piggyback") their shares on the same terms as the Company. We are obligated to
pay all reasonable fees, costs and expenses in connection with any initial,
demand or piggyback registration.
Notwithstanding such demand registration rights, we shall not be
obligated to effect a Demand Registration statement if, within 90 days of such
request, a registration statement in which CVC or MascoTech was entitled to
participate, pursuant to their demand or piggyback registration rights, was
filed. In addition, MSXI and each Stockholder shall be precluded from effecting
any public sale or distribution of the shares for a certain period prior to and
following the effective date of any initial public offering or any demand or
piggyback registration. In each demand registration, holders of registerable
securities other than the holders initiating such registration may include their
securities in such registration, subject to certain restrictions. The MSXI
Registration Rights Agreement contains indemnity and contribution provisions
between MSXI and any selling stockholders for losses arising out of any
registration effected pursuant to the MSXI Registration Rights Agreement.
OTHER
On February 28, 2000, Mr. Stallkamp borrowed $3,000,000 from MSXI. The
loan has a 15-year term and bears interest at a rate of 6.77% per year. The loan
requires the payment of interest each year, with the principal due at maturity
or the occurrence of certain events. The loan is secured by a pledge to MSXI of
shares of our Class A Common Stock purchased by Mr. Stallkamp.
The services of Mr. Fridholm are provided to MSXI through his
employer, St. Clair Group, a company owned by Mr. Fridholm's spouse. See
"Executive Compensation."
52
54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Listing of Documents.
(1) Financial Statements. The Company's Consolidated Financial
Statements included under Item 8 hereof, as required for the
three fiscal years ended January 2, 2000, consist of the
following:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity (Deficit)
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
(i) Financial Statement Schedule appended hereto, as
required for the fiscal years ended December 28, 1997,
January 3, 1999 and January 2, 2000 consist of the
following:
II. Valuation and Qualifying Accounts
(3) Exhibits.
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 Amended and Restated By-laws of the Company.(1)
4.1 Indenture dated as of January 15, 1998 by and between the
Company, the Subsidiary Guarantors and IBJ Schroder Bank &
Trust Company, as trustee, in respect of the 11-3/8% Senior
Subordinated Notes due 2008.(1)
4.2 Form of Exchange Notes.(1)
4.3 Registration Agreement dated as of January 16, 1998 by and
among the Company, the Subsidiary Guarantors and Salomon
Brothers Inc, Lehman Brothers Inc. and First Chicago Capital
Markets, Inc.(1)
10.1 Stockholders' Agreement dated as of January 3, 1997 among
the Company, MascoTech, Inc. ("MascoTech"), Citicorp Venture
Capital, Ltd. ("CVC") and certain executive officers and
directors of the Company (1) and Amendment to Stockholders'
Agreement dated August 10, 1998.
10.2 Registration Rights Agreement dated as of January 3, 1997
among the Company, CVC, MascoTech and certain executive
officers and directors of the Company.(1)
10.3 Master Vendor Agreement dated as of August 31, 1997 between
the Company and Ford Motor Company ("Ford").(1)
10.4 Master Supply Agreement dated as of August 31, 1997 between
the Company and Ford.(1)
10.5 MascoTech Subscription Agreement dated as of January 3, 1997
between the Company and MascoTech.(1)
10.6 CVC Subscription Agreement dated as of January 3, 1997
between the Company and CVC.(1)
10.7 Management Subscription Agreement dated as of January 3,
1997 between the Company and certain executive officers of
the Company.(1)
10.8 Deferred Compensation Plan.(1)
53
55
10.9 Employment Agreement dated as of January 3, 1997 between the
Company and Frederick K. Minturn.(1)
10.10 Services Agreement dated as of May 21, 1998 between MSX
International, Inc., and St. Clair Group, Inc.(6)
10.11 Stock Purchase Agreement dated as of July 25, 1997 between
MSX International (Holdings), Inc. and Ford.(1)
10.12 Acquisition Agreement dated as of November 12, 1996 among
the Company, MascoTech and ASG Holdings Inc. (1)
10.13 Asset Purchase Agreement dated as of October 23, 1998,
between MSX International Engineering Services, Inc. and
Lexstra International, Inc. and Lexus Temporaries, Inc.(2)
10.14 Stock Purchase Agreement dated as of December 22, 1998
between MSX Engineering Services, Inc. and MegaTech
Engineering, Inc. (3)
10.15 Stock Purchase Agreement dated as of September 17, 1999
between MSX Engineering Services, Inc. and Chelsea Computer
Consultants, Inc.(4)
10.16 Amended and Restated Credit Agreement dated as of November
30, 1999 between MSX International, Inc., the Borrowing
Subsidiaries, and Bank One NA.
10.17 Stock Purchase Agreement dated as of August 6, 1999 between
MSX International Holding Ltd. and Satiz S.p.A.
12.1 Statement re: Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Company.
27 Financial Data Schedule.
- --------------------------
(1) Incorporated by reference to the Exhibits filed with MSX
International's Registration Statement on Form S-4 filed
July 21, 1998 (Amendment No. 3).
(2) Incorporated by reference to the Exhibits filed with MSX
International's Quarterly Report on Form 10-Q filed November
11, 1998.
(3) Incorporated by reference to the Exhibits filled with MSX
International's Current Report on Form 8-K filed June 30,
1999.
(4) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed October 26,
1999.
(5) Incorporated by reference to the Exhibits filed with MSX
International's Current Report on Form 8-K filed March 13,
2000.
(6) Incorporated by reference to the Exhibits filed with MSX
International's Annual Report on Form 10-K filed April 1,
1999.
(b) Reports on Form 8-K.
A current Report on Form 8-K was filed on October 26, 1999 reporting
the acquisition of Chelsea Computer Consultants, Inc. under Item 2.
Acquisition or Disposition of Assets. Included under Item 7 of such
report were the following exhibits:
i. Audited Financial Statements of Chelsea Computer Consultants,
Inc. as of and for the year ended June 30, 1998
ii. Unaudited Financial Statements of Chelsea Computer Consultants,
Inc as of and for the year ended June 30, 1999
iii. Pro forma financial data of MSX International, Inc.
54
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MSX INTERNATIONAL, INC.
By: /s/ FREDERICK K. MINTURN
---------------------------------------------------
Frederick K. Minturn
Executive Vice President and Chief Financial Officer
MARCH 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of March 23, 2000.
/s/ THOMAS T. STALLKAMP
- ------------------------- Vice Chairman and
THOMAS T. STALLKAMP Chief Executive Officer
(Principal Executive Officer)
/s/ FREDERICK K. MINTURN
- ------------------------- Executive Vice President
FREDERICK K. MINTURN and Chief Financial Officer
(Principal Financial Officer)
/s/ ERWIN H. BILLIG
- ------------------------- Chairman of the Board of
Directors
ERWIN H. BILLIG
/s/ RICHARD M. CASHIN, JR
- ------------------------- Director
RICHARD M. CASHIN, JR
/s/ DAVID E. COLE Director
- -------------------------
DAVID E. COLE
/s/ MICHAEL A. DELANEY Director
- -------------------------
MICHAEL A. DELANEY
/s/ LEE GARDNER Director
- -------------------------
LEE GARDNER
/s/ RICHARD A. MANOOGIAN
- ------------------------- Director
RICHARD A. MANOOGIAN
57
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(A)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED JANUARY 2, 2000
Schedules, as required for the three fiscal years ended January 2, 2000:
PAGE
----
II. Valuation and Qualifying Accounts F-2
F-1
58
MSX INTERNATIONAL, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED JANUARY 2, 2000
Column A Column B Column C Column D Column E
------------ ------------ ------------------------------ ----------- ------------
Additions
------------------------------
Charged Charged
Balance at (Credited) (Credited) Balance at
Beginning of to costs to Other End of
Description Period and Expenses Accounts Deductions Period
----------- ------ ------------ -------- ---------- ------
(A) (B)
Allowance for doubtful accounts
deducted from accounts receivable
in the balance:
1999 $ 3,475,556 $ 964,494 $ 319,975 $ 2,728,868 $ 2,031,157
=========== ========= =========== =========== ===========
1998 $ 1,218,075 $ 662,289 $ 2,016,206 $ 421,004 $ 3,475,556
=========== ========= =========== =========== ===========
1997 $ - $ 445,124 $ 1,441,729 $ 668,778 $ 1,218,075
=========== ========= =========== =========== ===========
(A) Allowances of companies acquired in fiscal 1997, 1998 and 1999, including
TSG, MSXI's predecessor for accounting purposes.
(B) Doubtful accounts charged off, net of recoveries. Deductions for fiscal 1999
include $2.1 million of reserves for receivables which were not acquired in
certain 1997 and 1998 business combinations.
F-2
59
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 Amended and Restated By-laws of the Company.(1)
4.1 Indenture dated as of January 15, 1998 by and between the Company, the
Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as
trustee, in respect of the 11-3/8% Senior Subordinated Notes due
2008.(1)
4.2 Form of Exchange Notes.(1)
4.3 Registration Agreement dated as of January 16, 1998 by and among the
Company, the Subsidiary Guarantors and Salomon Brothers Inc, Lehman
Brothers Inc. and First Chicago Capital Markets, Inc.(1)
10.1 Stockholders' Agreement dated as of January 3, 1997 among the Company,
MascoTech, Inc. ("MascoTech"), Citicorp Venture Capital, Ltd. ("CVC")
and certain executive officers and directors of the Company (1) and
Amendment to Stockholders' Agreement dated August 10, 1998.
10.2 Registration Rights Agreement dated as of January 3, 1997 among the
Company, CVC, MascoTech and certain executive officers and directors of
the Company.(1)
10.3 Master Vendor Agreement dated as of August 31, 1997 between the Company
and Ford Motor Company ("Ford").(1)
10.4 Master Supply Agreement dated as of August 31, 1997 between the Company
and Ford.(1)
10.5 MascoTech Subscription Agreement dated as of January 3, 1997 between the
Company and MascoTech.(1)
10.6 CVC Subscription Agreement dated as of January 3, 1997 between the
Company and CVC.(1)
10.7 Management Subscription Agreement dated as of January 3, 1997 between
the Company and certain executive officers of the Company.(1)
10.8 Deferred Compensation Plan.(1)
10.9 Employment Agreement dated as of January 3, 1997 between the Company and
Frederick K. Minturn.(1)
10.10 Services Agreement dated as of May 21, 1998 between MSX International, Inc.,
and St. Clair Group, Inc.(6)
10.11 Stock Purchase Agreement dated as of July 25, 1997 between MSX International
(Holdings), Inc. and Ford.(1)
10.12 Acquisition Agreement dated as of November 12, 1996 among the Company,
MascoTech and ASG Holdings Inc.(1)
10.13 Asset Purchase Agreement dated as of October 23, 1998, between MSX
International Engineering Services, Inc. and Lexstra International, Inc.
and Lexus Temporaries, Inc.(2)
10.14 Stock Purchase Agreement dated as of December 22, 1998 between MSX
Engineering Services, Inc. and MegaTech Engineering, Inc.(3)
10.15 Stock Purchase Agreement dated as of September 17, 1999 between MSX
Engineering Services, Inc. and Chelsea Computer Consultants, Inc.(4)
10.16 Amended and Restated Credit Agreement dated as of November 30, 1999
between MSX International, Inc., the Borrowing Subsidiaries, and Bank One NA.
10.17 Stock Purchase Agreement dated as of August 6, 1999 between MSX International
Holding Ltd. and Satiz S.p.A.
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of the Company.
27 Financial Data Schedule.
- ---------------------
(1) Incorporated by reference to the Exhibits filed with MSX International's
Registration Statement on Form S-4 filed July 21, 1998 (Amendment No. 3).
(2) Incorporated by reference to the Exhibits filed with MSX International's
Quarterly Report on Form 10-Q filed November 11, 1998.
(3) Incorporated by reference to the Exhibits filed with MSX International's
Current Report on Form 8-K filed June 30, 1999.
(4) Incorporated by reference to the Exhibits filed with MSX International's
Current Report on Form 8-K filed October 26, 1999.
(5) Incorporated by reference to the Exhibits filed with MSX International's
Current Report on Form 8-K filed March 13, 2000.
(6) Incorporated by reference to the Exhibits filed with MSX International's
Annual Report on Form 10-K filed April 1, 1999.