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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended October 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 333-49821
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3323099
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
275 REX BOULEVARD, AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices) (Zip Code)
(248) 299-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes....X.... No.......
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MSX INTERNATIONAL, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements: Pages
Consolidated Balance Sheets as of October 1, 2000 (Unaudited) and
January 2, 2000........................................................................................2
Consolidated Statements of Income (Unaudited) for the Fiscal Quarters and Fiscal Nine Months
Ended October 1, 2000 and October 3, 1999..............................................................3
Consolidated Statements of Cash Flows (Unaudited) for the Fiscal Nine Months
Ended October 1, 2000 and October 3, 1999..............................................................4
Notes to Consolidated Financial Statements (Unaudited).....................................................5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................16
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...................................................................19
SIGNATURE............................................................................................................20
EXHIBIT INDEX........................................................................................................21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MSX INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
as of October 1, 2000 and January 2, 2000
OCTOBER 1,
2000 JANUARY 2,
(Unaudited) 2000
----------------- ----------------
(dollars in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 3,835 $ 6,879
Accounts receivable, net (Note 3) 311,057 306,978
Inventory 3,837 4,133
Prepaid expenses and other assets 11,182 8,502
Deferred income taxes, net 2,164 2,425
----------------- ----------------
Total current assets 332,075 328,917
Property and equipment, net 39,581 41,597
Goodwill and other intangibles, net of accumulated amortization
of $10,120 and $5,693, respectively 158,020 122,766
Other assets 17,668 22,416
Deferred income taxes, net 3,812 8,494
----------------- ----------------
Total assets $ 551,156 $ 524,190
================= ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt (Note 4) $16,054 $13,290
Accounts payable and drafts 165,187 161,973
Accrued payroll and benefits 30,059 25,500
Other accrued liabilities 49,705 63,889
----------------- ----------------
Total current liabilities 261,005 264,652
Long-term debt (Note 4) 257,788 232,556
Long-term deferred compensation liabilities and other 12,341 11,275
----------------- ----------------
Total liabilities 531,134 508,483
----------------- ----------------
Minority interests 1,123 286
----------------- ----------------
Redeemable Series A Preferred Stock (Note 5) 36,000 36,000
----------------- ----------------
Shareholders' deficit:
Common Stock, $.01 par value, 2,000,000 aggregate shares of
Class A and Class B Common Stock authorized; 102,003 and 99,003 shares of
Class A Common Stock issued and outstanding, respectively 1 1
Additional paid-in-capital (21,705) (24,705)
Note receivable from officer (Note 6) (3,000) -
Accumulated other comprehensive loss (14,425) (5,867)
Retained earnings 22,028 9,992
----------------- ----------------
Total shareholders' deficit (17,101) (20,579)
----------------- ----------------
Total liabilities and shareholders' deficit $ 551,156 $ 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 (UNAUDITED)
for the fiscal quarters and fiscal nine months ended October 1, 2000 and
October 3, 1999
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
------------------------------------- -------------------------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------------- ---------------- ---------------- -----------------
(in thousands)
Net sales $256,732 $195,474 $774,209 $569,942
Cost of sales 220,294 168,783 664,012 492,660
---------------- ---------------- ---------------- -----------------
Gross profit 36,438 26,691 110,197 77,282
Selling, general and administrative expenses 20,208 15,203 61,937 45,510
Amortization of goodwill and other intangibles 1,563 805 4,063 2,151
---------------- ---------------- ---------------- -----------------
Operating income 14,667 10,683 44,197 29,621
Interest expense, net 7,706 5,643 22,276 15,349
---------------- ---------------- ---------------- -----------------
Income before income taxes, minority
interests, and equity in net losses of
affiliates 6,961 5,040 21,921 14,272
Income tax provision 3,063 1,961 9,213 5,678
Less minority interests and equity in net losses
of affiliates, net of taxes 206 - 672 -
---------------- ---------------- ---------------- -----------------
Net income $ 3,692 $ 3,079 $ 12,036 $ 8,594
================ ================ ================ =================
The accompanying notes are an integral part of the consolidated financial
statements
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MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) for the fiscal nine months ended October 1,
2000 and October 3, 1999
FISCAL NINE MONTHS ENDED
-----------------------------
OCTOBER 1, OCTOBER 3,
2000 1999
-------------- -------------
(in thousands)
Cash flows from operating activities:
Net income $12,036 $ 8,594
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 12,881 10,113
Amortization 4,865 2,626
Deferred taxes 4,954 403
Gain on sale/disposal of property and equipment (204) -
(Increase) decrease in receivables, net 10,273 (27,989)
(Increase) decrease in inventory 254 236
(Increase) decrease in prepaid expenses and other assets (2,497) (4,291)
Increase (decrease) in current liabilities 1,985 31,208
Other, net 542 (551)
-------------- -------------
Net cash provided by operating activities 45,089 20,349
-------------- -------------
Cash flows from investing activities:
Capital expenditures (12,686) (11,691)
Acquisition of businesses, net of cash received (60,648) (44,991)
Proceeds from sale/disposal of property and equipment 2,299 15,814
Other investing, net 610 (1,156)
-------------- -------------
Net cash used for investing activities (70,425) (42,024)
-------------- -------------
Cash flows from financing activities:
Proceeds from issuance of debt 25,000 27,632
Repayment of debt (2,856) -
Debt issuance costs (243) -
Changes in revolving debt 3,799 15,047
Changes in book overdraft 3,055 771
Payment of contractual acquisition obligation - (15,000)
Sale of Common Stock - 120
-------------- -------------
Net cash provided by financing activities 28,755 28,570
-------------- -------------
Effect of foreign exchange rate changes on cash and cash equivalents (6,463) (2,018)
-------------- -------------
Cash and cash equivalents:
Increase (decrease) for the period (3,044) 4,877
Balance, beginning of period 6,879 4,248
-------------- -------------
Balance, end of period $ 3,835 $ 9,125
============== =============
The accompanying notes are an integral part of the consolidated financial
statements
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The accompanying financial statements present the consolidated assets
and liabilities and results of operations of MSX International, Inc. and its
majority owned subsidiaries ("MSXI"). MSXI is a leading global provider of
technology-driven business services that enable our customers to significantly
improve their competitive advantage. We utilize a 52-53 week fiscal year, which
ends on the Sunday nearest December 31.
All intercompany transactions and balances between majority owned
subsidiaries of MSXI have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all
adjustments, consisting of only normal recurring items, which are necessary for
a fair presentation. The operating results for the fiscal quarters and fiscal
nine months ended October 1, 2000 and October 3, 1999 are not necessarily
indicative of the results of operations for the entire year. Reference should be
made to the consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the fiscal year ended January 2, 2000. Certain
prior year amounts have been reclassified to conform to the presentation adopted
in fiscal 2000.
2. ACQUISITIONS OF BUSINESSES:
Chelsea Acquisition. Effective September 17, 1999, we acquired 100% of
the outstanding common stock of Chelsea Computer Consultants, Inc. ("Chelsea")
from Staff Builders, Inc. The total purchase price of about $19.9 million at
closing was funded with borrowings under our credit facility. Chelsea is a
provider of information technology professionals in the areas of application
development, networking, database design, enterprise and data modeling and
hardware engineering with historical annual sales in excess of $30 million.
Chelsea is headquartered in New York, New York and provides consulting and
technical staff augmentation services to customers in the financial services,
communications and manufacturing industries in the United States. The
acquisition of Chelsea was accounted for under the purchase method resulting in
goodwill of $15.7 million at closing.
Satiz Acquisition. Effective December 31, 1999, we acquired 75% of the
outstanding common stock of Satiz S.r.l. ("Satiz"), a subsidiary of Fiat S.p.A.
Satiz is headquartered in Turin, Italy and specializes in commercial and
technical publishing including translation services, graphics, document systems,
warehouse and distribution services, and events. Satiz employs nearly 500 people
and has historical annual revenues in excess of $120 million. The total purchase
price, upon settlement of certain contractual matters, of about $10.0 million
was funded with borrowings under our credit facility. At closing, Satiz had
about $8.9 million of debt outstanding pursuant to the Satiz credit facility.
The remaining 25% of the outstanding common stock of Satiz is retained by Fiat
S.p.A. The acquisition of Satiz was accounted for under the purchase method
resulting in goodwill of $9.1 million.
Quandoccorre Acquisition. In May 1999, we purchased a 30% interest in
QR Quandoccorre S.r.l. and Quandoccorre Interinale S.p.A. ("QR/QI"), two
affiliated Italian companies with combined historical annual sales of about $18
million. QR Quandoccorre S.r.l. provides consulting services on a project basis
and Quandoccorre Interinale S.p.A. provides staffing services to various
industries. Effective January 3, 2000, we acquired the remaining 70% of the
outstanding common stock of both companies. The cumulative purchase price of
about $11.4 million was funded with a combination of borrowings under our credit
facility and borrowings under the Satiz credit facility. The acquisition was
accounted for under the purchase method resulting in goodwill of $10.5 million
upon closing of the 70% acquisition.
CSR Acquisition. On February 23, 2000 we acquired the professional
staffing operations of Corporate Staffing Resources, Inc. (the "CSR
Acquisition"). Specifically, we acquired 100% of the outstanding common stock of
Intranational Computer Consultants, Inc. and Programming Management and Systems,
Inc. and selected assets and liabilities of CMS Management Services and Ascend.
The total purchase price, upon settlement of certain contractual matters, of
about $31.8 million was funded with borrowings under our credit facility. These
companies provide information technology and technical professional staffing
services throughout the United States with combined historical annual revenues
in excess of $57 million. The CSR Acquisition was accounted for under the
purchase method resulting in goodwill of $26.9 million.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
Adjustments to the preliminary allocation of purchase price may occur
up to one year from the date of acquisition as a result of obtaining new or
revised information regarding the value of assets acquired and liabilities
assumed. Any such adjustments will change recorded goodwill and will be
amortized over the remaining goodwill amortization period. Management believes
the resolution of these matters will not have a material effect on the results
of operations, financial position or cash flows of MSXI.
The operating results of acquired companies have been included in our
consolidated operating results from the effective date of each acquisition. The
following pro forma financial information is presented to illustrate the
estimated effects of the acquisition of Chelsea, Satiz, QR/QI, and the CSR
businesses as if the transactions had occurred on January 3, 1999. The pro forma
results do not necessarily represent what our results would have been had the
transactions taken place on January 3, 1999, nor are they necessarily indicative
of future results.
FISCAL NINE MONTHS ENDED FISCAL NINE MONTHS ENDED
OCTOBER 1, 2000 OCTOBER 3, 1999
------------------------------- ---------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
-------------- ------------- -------------- ---------------
Net sales $774,209 $780,847 $569,942 $750,048
Income before income taxes, minority interests,
and equity in net losses of affiliates 21,921 21,603 14,272 19,409
Net income 12,036 11,845 8,594 10,245
In addition to the above, we completed certain other transactions
during fiscal 1999. The aggregate purchase price of these transactions was about
$16.6 million in cash and $3.3 million in contributed assets. Other transactions
were:
- The acquisition of Rice Cohen International, Inc. in April 1999, a
permanent placement staffing company based in Yardley,
Pennsylvania and Management Resources International, Inc. in June
1999, a provider of training services and courseware in quality
systems based in Ann Arbor, Michigan. Aggregate historical annual
sales for both companies approximated $9 million. The results of
Rice Cohen International, Inc. and Management Resources, Inc. are
not included in the pro forma financial information above as the
amounts would not be material to our pro forma results.
- In January 1999, we purchased a 24.5% interest in CADFORM-MSX
Engineering GmbH (formerly Cadform Engineering GmbH), a German
company that provides product design and tooling services with
historical annual sales of about $12 million. In November 1999, we
increased our ownership of CADFORM-MSX Engineering GmbH to about
49% by contributing certain assets of our German operations.
The terms of certain of our acquisition agreements provide for
additional contingent consideration to be paid over a period of up to two years
if the acquired entity's future operating results exceed targeted levels.
Contingent consideration is earned when the acquired entity's financial
performance grows in excess of the targeted levels established at the time of
acquisition. Such additional consideration is generally recorded, when earned,
as additional purchase price. In this regard, we recorded certain contingent
consideration during the first nine months of fiscal 1999 and 2000, related to
prior year acquisitions, which resulted in additional goodwill capitalization.
Additional goodwill is amortized over the remaining amortization period.
3. ACCOUNTS RECEIVABLE:
Accounts receivable include the portion of our billings for purchasing
support services attributable to services provided by our vendors which are
passed on to our customers. These amounts totaled $78.9 million as of October 1,
2000 and $62.5 million as of January 2, 2000. A corresponding liability to our
vendors for these amounts is recorded in accounts payable at the time the
receivable is recognized.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
4. DEBT:
Debt is comprised of the following:
INTEREST RATES AT OUTSTANDING AT
------------------------------ -------------------------------
OCTOBER 1, JANUARY 2, OCTOBER 1, JANUARY 2,
2000 2000 2000 2000
-------------- -------------- ------------- -------------
Senior subordinated notes 11.375% 11.375% $130,000 $130,000
Credit facility, as amended and restated:
Revolving line of credit notes 7.56-8.18% 8.09% 18,225 9,703
Swingline notes 8.35% 5.53-10.03% 12,250 16,353
Term notes 8.68-9.93% 9.23-9.98% 102,188 80,000
Ford Motor Company Limited, line of credit n/a 7.14% - 862
Satiz facility 4.87% 4.51% 10,116 8,928
Other debt 6.50-8.25% n/a 1,063 -
------------- -------------
273,842 245,846
Less current portion 16,054 13,290
------------- -------------
Total long-term debt $257,788 $232,556
============= =============
During the first quarter of fiscal 2000, the seven-year institutional
term note, with principal outstanding of $50 million as of January 2, 2000, was
increased to $75 million pursuant the terms of our amended and restated credit
facility. Upon completion of the syndication of the credit facility, our total
borrowing capacity increased to $205 million. Proceeds from the additional term
debt were used to repay amounts outstanding under the revolving credit portion
of the credit facility.
As of October 1, 2000, $30.5 million was outstanding under the
revolving and swingline portions of our credit facility and has been classified
as long-term debt as we have both the ability and intent to refinance such
amounts under the credit facility.
5. REDEEMABLE SERIES A PREFERRED STOCK:
We are authorized to issue up to 1,500,000 shares of Preferred Stock,
divided into two classes: 500,000 shares of Redeemable Series A Preferred Stock,
par value $0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01.
As of October 1, 2000 and January 2, 2000, 360,000 shares of our Redeemable
Series A Preferred Stock are issued and outstanding with a stated value and
redemption value of $100 per share. Dividends on preferred stock are payable in
cash at a rate per annum equal to 12 percent of the stated value plus an amount
equal to any accrued and unpaid dividends. As of October 1, 2000, we have not
declared or paid any dividends. Dividends accumulated but not declared totaled
about $19.6 million as of October 1, 2000.
6. NOTE RECEIVABLE FROM OFFICER:
As of October 1, 2000, MSXI held a $3.0 million note receivable from an
officer of the company. The loan bears interest at 6.77% per year and matures on
February 28, 2015. Interest is payable annually with the principal amount due
upon maturity or the occurrence of certain events. The loan is secured by a
pledge to MSXI of shares of our Class A Common Stock. Interest income related to
this note was about $122 thousand during the first nine months of fiscal 2000.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
7. COMPREHENSIVE INCOME:
Our comprehensive income was:
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
------------------------------- -------------------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
Net income $3,692 $3,079 $12,036 $8,594
Other comprehensive loss -
foreign currency translation adjustments (4,572) 168 (8,558) (2,018)
-------------- ------------- ------------- -------------
Comprehensive income (loss) $ (880) $3,247 $ 3,478 $6,576
============== ============= ============= =============
8. SEGMENT INFORMATION:
MSXI is a leading, global provider of technology-driven business
services to the automotive and other industries. We group our services into
three service line categories: engineering services, information technology
("IT") and professional staffing services, and business and technology services.
Due to the similar characteristics of our service lines, including the nature of
our service offerings, processes supporting the delivery of our services, our
customers, and our marketing and sales processes, our operations have been
aggregated following the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131 for segment reporting purposes. The following is a
summary of our net sales by service line:
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
------------------------------- -------------------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
Engineering Services $139,955 $130,735 $424,405 $382,783
IT and Professional Staffing Services 49,597 21,322 137,974 57,556
Business and Technology Services 67,180 43,417 211,830 129,603
-------------- ------------- ------------- -------------
Total net sales $256,732 $195,474 $774,209 $569,942
============== ============= ============= =============
We evaluate performance based on earnings before interest and taxes
(EBIT), including the Michigan Single Business Tax and other similar taxes, as
defined in our amended and restated credit facility. A reconciliation of
consolidated EBIT to consolidated income before income taxes, minority
interests, and equity in net losses of affiliates is as follows:
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
------------------------------- -------------------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
-------------- ------------- ------------- -------------
Total EBIT $16,114 $12,193 $48,422 $33,697
Interest expense (7,706) (5,643) (22,276) (15,349)
Michigan Single Business Tax and
other similar taxes (1,447) (1,510) (4,225) (4,076)
-------------- ------------- ------------- -------------
Consolidated income before income taxes,
minority interests, and equity in
net losses of affiliates $ 6,961 $ 5,040 $21,921 $14,272
============== ============= ============= =============
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
9. FOREIGN CURRENCY CONTRACT:
MSXI has significant operations outside of the United States that are
subject to foreign currency exchange risk. We may periodically hedge
transactions or obligations in non-functional currencies in order to mitigate
this risk. During the fiscal quarter ended October 1, 2000, we entered into a
forward foreign currency contract to hedge certain foreign currency financing
transactions. Unrealized gains/losses on the forward contract are recognized as
an adjustment to the gains/losses recognized on the underlying hedged
transaction to the extent they are correlated. The uncorrelated net loss of
about $67 thousand during the fiscal quarter ended October 1, 2000 is included
in selling, general and administrative expenses.
10. 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.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
10. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of October 1, 2000
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------------- ---------------- ---------------- ---------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ 240 $ 3,595 $ - $ 3,835
Accounts receivable, net 121 202,128 108,808 - 311,057
Inventory - 2,184 1,653 - 3,837
Prepaid expenses and other assets 293 6,285 4,604 - 11,182
Deferred income taxes, net - 1,942 222 - 2,164
-------------------- ---------------- ---------------- ---------------- ------------------
Total current assets 414 212,779 118,882 - 332,075
Property and equipment, net - 19,519 20,062 - 39,581
Goodwill and other intangibles, net - 119,029 38,991 - 158,020
Investment in subsidiaries 185,962 55,197 5,741 (241,007) 5,893
Other assets 6,837 4,449 489 - 11,775
Deferred income taxes, net - 959 2,853 - 3,812
-------------------- ---------------- ---------------- ---------------- ------------------
Total assets $ 193,213 $ 411,932 $ 187,018 $ (241,007) $ 551,156
==================== ================ ================ ================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 4,875 $ - $ 11,179 $ - $ 16,054
Accounts payable and drafts - 115,653 49,534 - 165,187
Accrued liabilities 2,370 50,448 26,946 - 79,764
-------------------- ---------------- ---------------- ---------------- ------------------
Total current liabilities 7,245 166,101 87,659 - 261,005
Long-term debt 241,367 10,196 6,225 - 257,788
Intercompany accounts (103,316) 54,603 48,713 - -
Long-term deferred compensation
liabilities and other - 5,728 6,613 - 12,341
-------------------- ---------------- ---------------- ---------------- ------------------
Total liabilities 145,296 236,628 149,210 - 531,134
Minority interests - - 1,123 - 1,123
Redeemable Series A Preferred Stock 36,000 - - - 36,000
Shareholders' equity (deficit) 11,917 175,304 36,685 (241,007) (17,101)
-------------------- ---------------- ---------------- ---------------- ------------------
Total liabilities and
shareholders' equity (deficit) $ 193,213 $ 411,932 $ 187,018 $ (241,007) $ 551,156
==================== ================ ================ ================ ==================
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
10. 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
------------- ---------------- ---------------- ---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ 873 $ 6,006 $ - $ 6,879
Accounts receivable, net - 182,380 124,598 - 306,978
Inventory - 2,237 1,896 - 4,133
Prepaid expenses and other assets 389 4,493 3,620 - 8,502
Deferred income taxes, net - 1,112 1,313 - 2,425
------------- ---------------- ---------------- ---------------- ----------------
Total current assets 389 191,095 137,433 - 328,917
Property and equipment, net - 22,126 19,471 - 41,597
Goodwill and other intangibles, net - 101,912 20,854 - 122,766
Investment in subsidiaries 169,110 34,727 9,485 (203,837) 9,485
Other assets 7,397 4,997 537 - 12,931
Deferred income taxes, net - 5,779 2,715 - 8,494
------------- ---------------- ---------------- ---------------- ----------------
Total assets $176,896 $360,636 $190,495 $(203,837) $ 524,190
============= ================ ================ ================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion
of long-term debt $ 3,500 $ - $ 9,790 $ - $ 13,290
Accounts payable and drafts - 93,374 68,599 - 161,973
Accrued liabilities (4,716) 74,954 19,184 (33) 89,389
------------- ---------------- ---------------- ---------------- ----------------
Total current liabilities (1,216) 168,328 97,573 (33) 264,652
Long-term debt 217,750 - 14,806 - 232,556
Intercompany accounts (84,076) 39,020 45,056 - -
Long-term deferred compensation
liabilities and other - 4,402 6,873 - 11,275
------------- ---------------- ---------------- ---------------- ----------------
Total liabilities 132,458 211,750 164,308 (33) 508,483
Minority interests - - 286 - 286
Redeemable Series A Preferred Stock 36,000 - - - 36,000
Shareholders' equity (deficit) 8,438 148,886 25,901 (203,804) (20,579)
------------- ---------------- ---------------- ---------------- ----------------
Total liabilities and
shareholders'
equity (deficit) $176,896 $360,636 $190,495 $(203,837) $ 524,190
============= ================ ================ ================ ================
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
10. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal quarters ended October 1, 2000 and October 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- --------------- --------------- --------------- ----------------
FISCAL QUARTER ENDED OCTOBER 1, 2000:
Net sales $ - $ 160,986 $ 100,049 $ (4,303) $ 256,732
Cost of sales - 136,624 87,973 (4,303) 220,294
------------- --------------- --------------- --------------- ----------------
Gross profit - 24,362 12,076 - 36,438
Selling, general and administrative expenses - 14,404 5,804 - 20,208
Amortization of goodwill and other intangibles - 1,114 449 - 1,563
------------- --------------- --------------- --------------- ----------------
Operating income - 8,844 5,823 - 14,667
Interest income (expense), net (7,330) 548 (924) - (7,706)
------------- --------------- --------------- --------------- ----------------
Income (loss) before income taxes,
minority interests, and equity in net
losses of affiliates (7,330) 9,392 4,899 - 6,961
Income tax provision (benefit) (2,792) 4,396 1,459 - 3,063
Minority interests and equity in net
losses of affiliates, net of taxes 8,230 3,234 (206) (11,464) (206)
------------- --------------- --------------- --------------- ----------------
Net income $ 3,692 $ 8,230 $ 3,234 $(11,464) $ 3,692
============= =============== =============== =============== ================
FISCAL QUARTER ENDED OCTOBER 3, 1999:
Net sales $ - $ 145,890 $ 55,512 $ (5,928) $ 195,474
Cost of sales - 125,620 49,091 (5,928) 168,783
------------- --------------- --------------- --------------- ----------------
Gross profit - 20,270 6,421 - 26,691
Selling, general and administrative expenses - 9,961 5,242 - 15,203
Amortization of goodwill and other intangibles - 753 52 - 805
------------- --------------- --------------- --------------- ----------------
Operating income - 9,556 1,127 - 10,683
Interest income (expense), net (5,200) 230 (673) - (5,643)
------------- --------------- --------------- --------------- ----------------
Income (loss) before income taxes,
minority interests, and equity in net
losses of affiliates (5,200) 9,786 454 - 5,040
Income tax provision (benefit) (1,968) 3,596 333 - 1,961
Minority interests and equity in net
losses of affiliates, net of taxes 6,311 121 - (6,432) -
------------- --------------- --------------- --------------- ----------------
Net income $ 3,079 $ 6,311 $ 121 $ (6,432) $ 3,079
============= =============== =============== =============== ================
12
14
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
10. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
For the fiscal nine months ended October 1, 2000 and October 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- --------------- --------------- ---------------- ---------------
FISCAL NINE MONTHS ENDED OCTOBER 1, 2000:
Net sales $ - $492,515 $293,787 $(12,093) $774,209
Cost of sales - 417,558 258,547 (12,093) 664,012
-------------- --------------- --------------- ---------------- ---------------
Gross profit - 74,957 35,240 - 110,197
Selling, general and administrative expenses - 43,310 18,627 - 61,937
Amortization of goodwill and other intangibles - 3,094 969 - 4,063
-------------- --------------- --------------- ---------------- ---------------
Operating income - 28,553 15,644 - 44,197
Interest income (expense), net (21,092) 1,382 (2,566) - (22,276)
-------------- --------------- --------------- ---------------- ---------------
Income (loss) before income taxes,
minority interests, and equity in net
losses of affiliates (21,092) 29,935 13,078 - 21,921
Income tax provision (benefit) (7,719) 12,189 4,743 - 9,213
Minority interests and equity in net
losses of affiliates, net of taxes 25,409 7,663 (672) (33,072) (672)
-------------- --------------- --------------- ---------------- ---------------
Net income $12,036 $ 25,409 $ 7,663 $(33,072) $ 12,036
============== =============== =============== ================ ===============
FISCAL NINE MONTHS ENDED OCTOBER 3, 1999:
Net sales $ - $415,234 $164,336 $ (9,628) $569,942
Cost of sales - 359,605 142,683 (9,628) 492,660
-------------- --------------- --------------- ---------------- ---------------
Gross profit - 55,629 21,653 - 77,282
Selling, general and administrative expenses - 30,379 15,131 - 45,510
Amortization of goodwill and other intangibles - 2,044 107 - 2,151
-------------- --------------- --------------- ---------------- ---------------
Operating income - 23,206 6,415 - 29,621
Interest income (expense), net (14,361) 746 (1,734) - (15,349)
-------------- --------------- --------------- ---------------- ---------------
Income (loss) before income taxes,
minority interests, and equity in net
losses of affiliates (14,361) 23,952 4,681 - 14,272
Income tax provision (benefit) (5,024) 8,782 1,920 - 5,678
Minority interests and equity in net
losses of affiliates, net of taxes 17,931 2,761 - (20,692) -
-------------- --------------- --------------- ---------------- ---------------
Net income $ 8,594 $ 17,931 $ 2,761 $(20,692) $ 8,594
============== =============== =============== ================ ===============
13
15
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
10. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine months ended October 1, 2000
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $(13,373) $17,746 $7,663 $ - $12,036
Equity in earnings of wholly-owned
subsidiaries 25,409 7,663 - (33,072) -
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 7,297 5,584 - 12,881
Amortization 802 3,094 969 - 4,865
Deferred taxes - 3,990 964 - 4,954
(Gain) loss on sale/disposal of property
and equipment - (213) 9 - (204)
(Increase) decrease in receivables, net (121) (17,148) 27,542 - 10,273
(Increase) decrease in inventory - 11 243 - 254
(Increase) decrease in prepaid expenses
and other assets 95 (1,610) (982) - (2,497)
Increase (decrease) in current liabilities 7,087 9,102 (14,237) 33 1,985
Other, net - 755 (213) - 542
-------------- -------------- -------------- --------------- --------------
Net cash provided by operating activities 19,899 30,687 27,542 (33,039) 45,089
-------------- -------------- -------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures - (5,036) (7,650) - (12,686)
Acquisition of businesses, net of cash
received - (41,589) (19,059) - (60,648)
Proceeds from sale/disposal of property and
equipment - 2,191 108 - 2,299
Other investing, net - 610 - - 610
-------------- -------------- -------------- --------------- --------------
Net cash used for investing activities - (43,824) (26,601) - (70,425)
-------------- -------------- -------------- --------------- --------------
Cash flows from financing activities:
Intercompany (19,239) 15,601 3,638 - -
Investment in subsidiaries (16,851) (10,902) 10,587 17,166 -
Proceeds from issuance of debt 25,000 - - - 25,000
Repayment of debt (2,812) (44) - - (2,856)
Debt issuance costs (243) - - - (243)
Changes in revolving debt 2,804 10,196 (9,201) - 3,799
Changes in book overdraft - 6,211 (3,156) - 3,055
-------------- -------------- -------------- --------------- --------------
Net cash provided by (used for) financing
activities (11,341) 21,062 1,868 17,166 28,755
-------------- -------------- -------------- --------------- --------------
Effect of foreign exchange rate changes on cash
and cash equivalents (8,558) (8,558) (5,220) 15,873 (6,463)
-------------- -------------- -------------- --------------- --------------
Cash and cash equivalents:
Decrease for the period - (633) (2,411) - (3,044)
Balance, beginning of period - 873 6,006 - 6,879
-------------- -------------- -------------- --------------- --------------
Balance, end of period $ - $ 240 $ 3,595 $ - $ 3,835
============== ============== ============== =============== ==============
14
16
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(DOLLARS IN THOUSANDS UNLESS OTHERWISE STATED)
10. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine months ended October 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- -------------- -------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ (9,337) $ 15,170 $ 2,761 $ - $ 8,594
Equity in earnings of wholly-owned
subsidiaries 17,931 2,761 - (20,692) -
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation - 6,767 3,346 - 10,113
Amortization 475 2,044 107 - 2,626
Deferred taxes (161) 2,109 (1,545) - 403
Loss on sale/disposal of property and
equipment - - - - -
(Increase) decrease in receivables, net - (26,510) (1,479) - (27,989)
(Increase) decrease in inventory - 227 9 - 236
(Increase) decrease in prepaid expenses
and other assets 91 (1,687) (2,695) - (4,291)
Increase (decrease) in current liabilities (6,374) 26,402 11,180 - 31,208
Other, net - (134) (386) (31) (551)
-------------- -------------- -------------- --------------- --------------
Net cash provided by operating activities 2,625 27,149 11,298 (20,723) 20,349
-------------- -------------- -------------- --------------- --------------
Cash flows from investing activities:
Capital expenditures - (5,643) (6,048) - (11,691)
Acquisition of businesses, net of cash
received - (38,695) (6,296) - (44,991)
Proceeds from sale/disposal of property and
equipment - 15,627 187 - 15,814
Other investing, net - (1,156) - - (1,156)
-------------- -------------- -------------- --------------- --------------
Net cash used for investing activities - (29,867) (12,157) - (42,024)
-------------- -------------- -------------- --------------- --------------
Cash flows from financing activities:
Intercompany (18,933) 21,284 (2,382) 31 -
Investment in subsidiaries (14,878) (1,172) 42 16,008 -
Proceeds from issuance of debt 27,632 - - - 27,632
Debt issuance costs - - - - -
Changes in revolving debt 6,486 (142) 8,703 - 15,047
Changes in book overdraft - 2,572 (1,801) - 771
Payment of contractual acquisition obligation - (15,000) - - (15,000)
Sale of Common Stock 120 - - - 120
-------------- -------------- -------------- --------------- --------------
Net cash provided by financing activities 427 7,542 4,562 16,039 28,570
-------------- -------------- -------------- --------------- --------------
Effect of foreign exchange rate changes on cash
and cash equivalents (3,052) (1,635) (2,015) 4,684 (2,018)
-------------- -------------- -------------- --------------- --------------
Cash and cash equivalents:
Increase for the period - 3,189 1,688 - 4,877
Balance, beginning of period - 1,690 2,558 - 4,248
-------------- -------------- -------------- --------------- --------------
Balance, end of period $ - $ 4,879 $ 4,246 $ - $ 9,125
============== ============== ============== =============== ==============
15
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales increased $61.2 million, or 31.3%, from $195.5
million for the third quarter of fiscal 1999 to $256.7 million for the third
quarter of fiscal 2000. For the first nine months of fiscal 2000, sales totaled
$774.2 million compared to $569.9 million in fiscal 1999, an increase of $204.3
million, or 35.8%. The increase in consolidated net sales resulted from both
internal growth from existing businesses (businesses owned by MSXI during all
periods presented) and incremental sales from acquired businesses. The increases
in net sales are comprised of:
QUARTER NINE MONTHS
ENDED % ENDED %
INCREASE FROM OCTOBER 1, 2000 INCREASEE OCTOBER 1, 2000 INCREASE
------------------- ----------------- ----------- ----------------- ----------
(dollars in thousands)
Internal growth $12,693 6.5% $54,870 9.6%
Acquired businesses 48,565 24.8% 149,397 26.2%
---------------- ----------- --------------- ----------
Total $61,258 31.3% $204,267 35.8%
================ =========== =============== ==========
All of our service lines continued to grow sales volume of existing
businesses while generating incremental sales from businesses acquired during
1999 and 2000. Overall, sales generated by existing businesses were negatively
impacted by the softening of foreign currency exchange rates in many of the
countries in which we operate. The net impact of foreign currency exchange
fluctuations during the third quarter of fiscal 2000 was to reduce net sales by
about $4.6 million, or 2.4% compared to 1999. The year-to-date impact of foreign
currency exchange fluctuations during fiscal 2000 was to reduce net sales by
about $9.7 million, or 1.7% compared to 1999. Before the impact of foreign
exchange fluctuations, net sales from existing businesses increased about 8.9%
for the third quarter of fiscal 2000 and 11.3% for the first nine months of
fiscal 2000 compared to 1999.
Sales of our engineering services for the third quarter of fiscal 2000
increased $7.9 million, or 6.0%, before the impact of acquisitions, compared to
the third quarter of 1999. For the first nine months of 2000, sales of our
engineering services increased $40.3 million, or 10.5%, before the impact of
acquisitions, compared to 1999. The improvements primarily reflect increased
demand for design and engineering services in North America. Sales of our IT and
professional staffing services for the third quarter of fiscal 2000 increased
$4.6 million, or 21.4%, before the impact of acquisitions, compared to the third
quarter of 1999. For the first nine months of 2000, sales of our IT and
professional staffing services increased $9.6 million, or 16.7%, before the
impact of acquisitions, compared to 1999. The internal growth reflects improved
IT staffing volumes with non-automotive customers in North America. Sales of our
business and technology services for the third quarter of 2000 improved $0.2
million, or 0.6%, before the impact of acquisitions, compared to 1999. For the
first nine months of 2000, sales of our business and technology services
increased $5.0 million, or 3.8%, before the impact of acquisitions, compared to
1999. As a result of our acquisitions and growth of existing businesses, sales
to non-automotive customers increased to 20.3% of total sales for the first nine
months of fiscal 2000, compared to 10.8% for the first nine months of fiscal
1999. This increase reflects our continued efforts to diversify our customer
base.
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18
OPERATING INCOME
Our consolidated operating income and increases in operating income
for the periods presented were:
OCTOBER 1, OCTOBER 3, INCREASE
-----------------------
2000 1999 $ %
------------- -------------- ----------- -----------
(dollars in thousands)
Fiscal Quarter:
Operating income $14,667 $10,683 $3,984 37.3%
% of net sales 5.7% 5.5% n/a n/a
Fiscal Nine Months:
Operating income $44,197 $29,621 $14,576 49.2%
% of net sales 5.7% 5.2% n/a n/a
Overall, operating income increased during the third quarter of fiscal
2000 due to the improved performance of our existing businesses and the
accretive impact of businesses acquired during 1999 and the first nine months of
2000. Operating income generated by existing businesses during 2000 increased
$1.8 million, or 17.2%, for the third quarter and $6.6 million, or 22.3%, for
the first nine months compared to 1999. Declines in foreign currency exchange
rates during fiscal 2000, caused a net reduction in operating income of about
$0.3 million for both the quarter and nine months ended October 1, 2000 compared
to fiscal 1999. Gross profit, as a percentage of sales, was 14.2% for both the
quarter and nine months ended October 1, 2000, compared to 13.7% and 13.6% for
the quarter and nine months ended October 3, 1999, respectively. The improvement
in gross profit reflects increased sales volumes by existing businesses in North
America and the impact of cost reduction efforts in our European operations.
Selling, general and administrative expenses, as a percentage of net sales, were
7.9% for the third quarter of fiscal 2000, compared to 7.8% for the third
quarter of fiscal 1999. On a year-to-date basis, selling, general and
administrative costs were 8.0% of net sales during both 1999 and 2000.
INTEREST EXPENSE
Interest expense increased from $5.6 million during the third quarter
of fiscal 1999 to $7.7 million for the third quarter of 2000. For the first nine
months of fiscal 2000, interest expense was $22.3 million compared to $15.3
million in 1999, an increase of $7.0 million. The increases reflect the impact
of incremental average borrowings outstanding during fiscal 2000 to fund
acquisitions and increases in the floating rates of interest on a portion of our
debt outstanding.
NET INCOME
For the third quarter of fiscal 2000, net income increased $0.6
million, or 19.9%, from $3.1 million in 1999, to $3.7 million in 2000. Net
income for the first nine months of 2000 increased $3.4 million, or 40.1%, from
$8.6 million in 1999 to $12.0 million in 2000. Improvements in operating income
during the third quarter of 2000 were partially offset by increased interest
expense, minority interest, and equity in net losses of affiliates. Minority
interest and equity in net losses of affiliates primarily represent the portion
of Satiz S.r.1. earnings, which was acquired on December 31, 1999, attributable
to the minority owner and equity in the net losses of CADFORM-MSX Engineering
GmbH. For the third quarter of 2000, our effective tax rate was 44.0%, compared
to 38.9% in the third quarter of 1999. For the first nine months of 2000, our
effective tax rate was 42.0%, compared to 39.8% in the first nine months of
1999. The year-to-date increase in our effective income tax rate reflects an
increase in the ratio of non-deductible expenses to pretax income primarily
related to acquisition activity.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
General. Our principal capital requirements are for the acquisition of
businesses, capital expenditures, and working capital to support growth. These
requirements have been met through a combination of bank debt, issuance of
subordinated notes and cash from operations. Cash balances in excess of amounts
required to fund daily operations are used to pay down amounts outstanding under
the revolving credit portion of our credit facility.
17
19
We typically pay our employees on a weekly basis and receive payment
from our customers within invoicing terms, which is generally a 60-day period
after the invoice date. However, in connection with our purchasing support
services, we collect related receivables at approximately the same time we make
payment to suppliers.
Operating Activities. Cash generated from operating activities was
$45.1 million during the first nine months of fiscal 2000. This compares to cash
provided by operating activities of $20.3 million for the first nine months of
fiscal 1999. Cash from operations during the first nine months of fiscal 2000
includes significant improvement in accounts receivable collections resulting
from the transition of Satiz S.r.l. into our cash management system. This
reduction in Satiz accounts receivable resulted in a one-time improvement in
cash from operations of about $12 million during the first nine months of fiscal
2000. Excluding the one-time Satiz improvement, cash provided by operations was
about $33.1 million for the first nine months of 2000, which represents a 63%
increase over the comparable period in 1999. The increase in cash from
operations reflects improvements in our managed working capital along with
increased earnings before depreciation and amortization.
Investing Activities. Net cash used for investing activities increased
$28.4 million, from $42.0 million for the first nine months of fiscal 1999, to
$70.4 million for the first nine months of fiscal 2000. This included an
increase in cash used for business acquisitions of $15.7 million and an increase
of $1.0 million in capital expenditures. Cash used to acquire businesses
primarily relates to the acquisition of the professional staffing operations of
Corporate Staffing Resources, Inc. during February 2000, the acquisition of the
remaining 70% interest in QR Quandoccorre S.r.1. and Quandoccorre Interinale
S.p.A. effective January 3, 2000, and the payment of contingent consideration
related to certain prior acquisitions. For additional information on these
acquisitions, see Note 2 of our consolidated financial statements. Capital
expenditures increased due to the increased volume of engineering services and
other contracts which required initial investments during the first nine months
of 2000 and the impact of acquired businesses.
Proceeds from the sale/disposal of property include a sale-leaseback
transaction during fiscal 1999 and the sale of certain non-core business assets
during fiscal 2000. During the third quarter of fiscal 1999, we entered into a
sale-leaseback transaction related to property and facilities acquired as part
of the MegaTech Engineering, Inc. acquisition in December 1998. The sale
proceeds of $15 million were used to settle a contractual obligation related to
the acquisition of MegaTech. During the third quarter of fiscal 2000, we sold
certain non-core assets, primarily real estate and equipment, associated with
our offset printing businesses.
Financing Activities. Net cash provided by financing activities
increased $0.2 million from $28.6 million for the first nine months of fiscal
1999, to $28.8 million for the first nine months of fiscal 2000. Our increased
financing requirements were primarily met with strong operating cash flows
generated during the first nine months of fiscal 2000. Additional borrowings
were used to support the acquisition of businesses and included the issuance of
an additional $25 million in term notes as discussed below. Cash provided by
financing activities during 1999 included the payment of a $15 million
contractual acquisition obligation related to the December 1998 MegaTech
acquisition as discussed above.
AVAILABLE FINANCING SOURCES
During the first quarter of 2000, the seven-year institutional term
note, with principal outstanding of $50 million as of January 2, 2000, was
increased to $75 million pursuant the terms of our amended and restated credit
facility. Upon completion of the syndication of the credit facility, our total
borrowing capacity increased to $205 million. Proceeds from the additional term
debt were used to repay amounts outstanding under the revolving credit portion
of our credit facility. As of October 1, 2000, $66.5 million was available for
potential future borrowings under the revolving credit portion of our amended
and restated credit facility.
As of January 2, 2000, Chelsea Computer Consultants, Inc. ("Chelsea"),
which was acquired in September 1999, maintained a financing arrangement that
provided for borrowings up to $6 million. This agreement expired in 2000 and
Chelsea was added as a guarantor subsidiary under our amended and restated
credit facility. At the time of expiration, no amounts were outstanding under
the Chelsea credit facility.
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20
QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK
MSXI has significant operations outside of the United States that are
subject to foreign currency exchange risks. To date, the majority of our
exposure has been naturally hedged since our foreign operation's revenues and
operating costs are typically denominated in the same currency. We may
periodically hedge specific transactions or obligations in non-functional
currencies in order to mitigate any additional risk. However, we will not enter
into financial instruments for trading or speculative purposes.
RECENT DEVELOPMENTS
On July 31, 2000, we entered into an agreement to acquire a substantial
equity interest in Prototipo Holding B.V., subject to certain closing
conditions. The agreement was subsequently modified due to Prototipo's inability
to meet certain conditions required by the original agreement. The modified
agreements, upon execution, will result in a small minority investment in
Prototipo and a technical cooperation agreement. As a result, an amendment to
our credit facility, which was expected to be effective concurrent with the
original closing, did not become effective. Prototipo has operations in Europe
and Brazil and provides testing, prototyping, styling and other development
services for transportation and industrial manufacturing customers, including
automotive, truck, and tire manufacturers.
FORWARD - LOOKING STATEMENTS
This quarterly report on Form 10-Q contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Such forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties. Actual results may vary materially
from those in the forward-looking statements as a result of any number of
factors, many of which are beyond the control of management. These factors
include, but are not limited to, MSXI's leverage, its reliance on major
customers in the automotive industry, the degree and nature of competition,
MSXI's ability to recruit and place qualified personnel, risks associated
with its acquisition strategy, and employment liability risk.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
19
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 2000
MSX INTERNATIONAL, INC.
(Registrant)
By: /s/ Frederick K. Minturn
------------------------
Frederick K. Minturn
Executive Vice President and
Chief Financial Officer
(Chief accounting officer
and authorized signatory)
20
22
EXHIBIT INDEX
Exhibit Sequential Page No.
- ------- -------------------
Exhibit 27 - Financial Data Schedule 22
21