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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 3, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File number: 333-49821
MSX INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3323099
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
275 REX BOULEVARD, AUBURN HILLS, MICHIGAN 48326
(Address of principal executive offices) (Zip 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 3, 1999 (Unaudited) and
January 3, 1999........................................................................................1
Consolidated Statements of Income (Unaudited) for the Fiscal Quarters and Fiscal Nine Month Periods
Ended October 3, 1999 and September 27, 1998...........................................................2
Consolidated Statements of Cash Flows (Unaudited) for the Fiscal Nine Month Periods
Ended October 3, 1999 and September 27, 1998...........................................................3
Notes to Consolidated Financial Statements (Unaudited).....................................................4
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................15
PART II - OTHER INFORMATION
ITEM 5 - Other Information....................................................................................19
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 3, 1999 and January 3, 1999
OCTOBER 3, JANUARY 3,
1999 1999
----------- ----------
(unaudited)
ASSETS (dollars in thousands)
Current assets:
Cash and cash equivalents $ 9,125 $ 4,248
Receivables, net 242,555 208,451
Inventory 2,126 2,362
Prepaid expenses and other assets 10,253 5,559
Deferred income taxes 829 961
--------- ---------
Total current assets 264,888 221,581
Property and equipment, net of accumulated depreciation
of $59,161 and $51,863, respectively 38,013 35,265
Buildings held for sale -- 15,000
Goodwill and other intangibles, net of accumulated amortization
of $4,779 and $2,521, respectively 96,437 64,278
Other assets 15,480 8,064
Deferred income taxes 11,886 12,536
--------- ---------
Total assets $ 426,704 $ 356,724
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt $ 3,835 $ 4,581
Accounts payable and drafts 107,552 89,886
Accrued payroll and benefits 29,659 23,286
Other accrued liabilities 35,709 26,825
Contractual acquisition obligation -- 15,000
Deferred income taxes 1,813 2,192
--------- ---------
Total current liabilities 178,568 161,770
Long-term debt 227,171 180,356
Long-term deferred compensation liability and other 4,374 4,703
--------- ---------
Total liabilities 410,113 346,829
--------- ---------
Redeemable Series A Preferred Stock, 500,000 shares authorized; 360,000 shares
issued and outstanding; New Preferred Stock,
1,000,000 shares authorized, no shares issued or outstanding 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; 100,003 shares and 97,004 shares
of Class A Common Stock issued and outstanding, respectively 1 1
Additional paid-in capital (24,644) (24,764)
Accumulated other comprehensive loss (3,158) (1,140)
Retained earnings (accumulated deficit) 8,392 (202)
--------- ---------
Total shareholders' deficit (19,409) (26,105)
--------- ---------
Total liabilities and shareholders' deficit $ 426,704 $ 356,724
========= =========
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 month periods ended October 3, 1999 and
September 27, 1998
FISCAL QUARTERS ENDED FISCAL NINE MONTHS ENDED
----------------------------------- ----------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
---------- ---------- ---------- ----------
(in thousands)
Net sales $ 341,505 $ 273,383 $1,023,499 $ 783,749
Cost of sales 314,452 251,934 945,578 723,722
---------- ---------- ---------- ----------
Gross profit 27,053 21,449 77,921 60,027
Selling, general and administrative expenses 15,565 15,422 46,149 43,113
Amortization of goodwill and other intangibles 805 212 2,151 689
---------- ---------- ---------- ----------
Operating income 10,683 5,815 29,621 16,225
Interest expense, net 5,643 4,263 15,349 12,976
---------- ---------- ---------- ----------
Income before income taxes 5,040 1,552 14,272 3,249
Income tax provision 1,961 684 5,678 1,728
---------- ---------- ---------- ----------
Net income $ 3,079 $ 868 $ 8,594 $ 1,521
========== ========== ========== ==========
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 month periods ended October 3, 1999 and September 27, 1998
FISCAL NINE MONTHS ENDED
----------------------------------
OCTOBER 3, SEPTEMBER 27,
1999 1998
--------------- ---------------
(in thousands)
Cash flows from operating activities:
Net income $ 8,594 $ 1,521
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 10,113 10,431
Amortization 2,626 999
Deferred taxes 403 (1,331)
(Increase) decrease in receivables, net (27,989) 19,394
(Increase) decrease in inventory 236 (442)
(Increase) decrease in prepaid expenses and other assets (4,291) (4,129)
Increase (decrease) in current liabilities 31,208 (7,675)
Other, net (551) (614)
-------- --------
Net cash provided by operating activities 20,349 18,154
-------- --------
Cash flows from investing activities:
Capital expenditures (12,847) (8,748)
Acquisition of businesses, net of cash received (44,991) (3,783)
Proceeds from sale of property and equipment 15,814 686
-------- --------
Net cash used for investing activities (42,024) (11,845)
-------- --------
Cash flows from financing activities:
Net proceeds from long-term debt issues 27,632 99,377
Payment of long-term debt -- (91,548)
Changes in revolving debt 15,047 (24,895)
Payment of contractual acquisition obligation (15,000) --
Change in drafts 771 2,929
Sale of Common Stock 120 --
Other, net -- (233)
-------- --------
Net cash provided by (used for) financing activities 28,570 (14,370)
-------- --------
Effect of foreign exchange rate changes on cash and cash equivalents (2,018) 435
-------- --------
Cash and cash equivalents:
Increase (decrease) for the period 4,877 (7,626)
Balance, beginning of period 4,248 11,575
-------- --------
Balance, end of period $ 9,125 $ 3,949
======== ========
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 represent the consolidated assets
and liabilities and results of operations of MSX International, Inc. and its
majority owned subsidiaries ("MSXI"). We are principally engaged in the business
of providing technical support services, primarily to automobile manufacturers
and suppliers in the United States and Europe. We utilize a 52-53 week fiscal
year, which ends on the Sunday nearest December 31.
All intercompany transactions and balances between subsidiaries of MSXI
have been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of only
normal recurring items, which are necessary for a fair presentation. The
operating results for the fiscal quarters and fiscal nine-month periods ended
October 3, 1999 and September 27, 1998 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 3, 1999. Certain prior
year amounts have been reclassified to conform to the presentation adopted in
fiscal 1999.
2. ACQUISITIONS OF BUSINESSES:
Effective September 17, 1999, we acquired 100% of the outstanding
common stock of Chelsea Computer Consultants, Inc. ("Chelsea") from Staff
Builders, Inc. The acquisition 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 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
acquisition of Chelsea was accounted for as a purchase. Accordingly, the assets
purchased and liabilities assumed have been reflected in the accompanying
consolidated balance sheet. The operating results of Chelsea have been included
in our consolidated operating results from the date of acquisition.
The following pro forma financial information is presented to
illustrate the estimated effects of the acquisition of Chelsea, as if the
transaction had occurred on December 27, 1997. The pro forma results do not
necessarily represent what our results would have been had the transaction taken
place on December 27, 1997 nor are they necessarily indicative of future
results.
FISCAL NINE MONTHS ENDED FISCAL NINE MONTHS ENDED
OCTOBER 3, 1999 SEPTEMBER 27, 1998
------------------------------- ---------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
------------- -------------- -------------- --------------
Net sales $1,023,499 $1,046,961 $ 783,749 $ 804,819
Income before income taxes 14,272 13,821 3,249 3,676
Net income 8,594 7,928 (1) 1,521 1,955
(1) In anticipation of certain incremental business Chelsea began increasing
its number of consultants during late 1998. The incremental business did
not materialize and, as a result, consultant productivity was lower than
usual during the early months of 1999. During the spring of 1999, when it
became clear this incremental business would not materialize, Chelsea
terminated the employment of about 70 consultants on staff. Chelsea's
results of operations during 1999 were unfavorably impacted by the cost of
these consultants, which Chelsea's management estimated at about $2.3
million, or $1.3 million after taxes. This information is provided to
supplement the historical results of operations.
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
In addition to Chelsea, we completed several other acquisitions during
the fiscal nine-month period ended October 3, 1999. The aggregate purchase price
of 1999 acquisitions, including Chelsea, was about $45 million. Other
acquisitions were:
- The acquisition of Rice Cohen International, Inc. a permanent
placement staffing company based in Yardley, Pennsylvania and
Management Resources International, Inc. a provider of training
services and courseware in quality systems based in Ann Arbor,
Michigan. Aggregate annual sales for both companies approximated
$10 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.
- The purchase of an approximate 25% interest in Cadform
Engineering GmbH a German company that provides product design
and tooling services with sales of about $12 million.
- The purchase of a 30% interest in Quandoccorre Srl and
Quandoccorre Interinale SpA, two affiliated Italian companies
with combined sales of about $10 million. Quandoccorre Srl
provides consulting services on a project basis and Quandoccorre
Interinale SpA provides staffing services.
The terms of certain of our acquisition agreements provide for
additional contingent consideration to be paid if the acquired entity's future
operating results exceed targeted levels. Targeted levels are generally set
substantially above the historical results of the acquired entity at the time of
acquisition. Such additional consideration is recorded, when earned, as
additional purchase price. In this regard, we settled certain contingencies
during 1999, related to prior year acquisitions, which resulted in additional
goodwill capitalization.
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. The operating lease terms are substantially similar
to our existing operating leases.
3. DEBT:
Debt is comprised of the following:
INTEREST RATES AT OUTSTANDING AT
----------------------------- ---------------------------
OCTOBER 3, JANUARY 3, OCTOBER 3, JANUARY 3,
1999 1999 1999 1999
------------- ------------ ------------ ------------
Senior Subordinated Notes 11.375% 11.375% $ 130,000 $ 100,000
Credit Facilities:
Short-term revolving credit 3.83 - 6.58% 7.03 - 7.75% 51,155 26,238
Daily swingline borrowing 6.70% 6.75 - 7.81% 16,016 24,118
Term loan 6.89% 7.29% 30,000 30,000
Fleet Central Billing- Finance Facility 6.82% 8.69% 2,482 4,581
Chelsea Credit Facility 10.25% - 1,353 -
--------- ---------
231,006 184,937
Less current portion 3,835 4,581
--------- ---------
Total long-term debt $ 227,171 $ 180,356
========= =========
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
On May 18, 1999, we issued, in a private placement, $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. Recent developments in our
available financing sources are described in Note 7 of these financial
statements and additional information regarding our guarantor subsidiaries is
included in Note 8.
As of October 3, 1999, 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.
Borrowings under the arrangement are collateralized by a security interest in
Chelsea's accounts receivable.
As of October 3, 1999, $97.2 million was outstanding under 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.
4. REDEEMABLE SERIES A PREFERRED STOCK:
Dividends on preferred stock are payable in cash at a rate per annum
equal to 12 percent of the stated value plus an amount equal to any accrued and
unpaid dividends. As of October 3, 1999, we have not declared any dividends.
Accordingly, no dividends have been paid or accrued. Dividends accumulated but
not declared totaled about $13.6 million as of October 3, 1999.
5. COMPREHENSIVE INCOME:
Our comprehensive income was:
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
--------------------------- ----------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
---------- ------------- ---------- -------------
Net income $ 3,079 $ 868 $ 8,594 $ 1,521
Other comprehensive income / (loss) - foreign
currency translation adjustments, net of tax 168 888 (2,018) 435
------- ------- ------- -------
Comprehensive income $ 3,247 $ 1,756 $ 6,576 $ 1,956
======= ======= ======= =======
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
6. SEGMENT INFORMATION:
Summarized below is the segment information for the fiscal quarters and
the fiscal nine-month periods ended October 3, 1999 and September 27, 1998. The
segment data includes inter-segment sales as well as charges allocating
corporate selling, general and administrative expense to each of the operating
segments. We evaluate the performance of our operating segments based on
earnings before interest and taxes (EBIT). For purposes of EBIT calculations,
taxes include the Michigan Single Business Tax, which is included as a component
of selling, general and administrative expense.
FISCAL QUARTER ENDED FISCAL QUARTER ENDED
OCTOBER 3, 1999 SEPTEMBER 27, 1998
------------------------------------------------------------ ---------------------------------------------------------
PURCHASING PURCHASING
SUPPORT OUTSOURCING SUPPORT OUTSOURCING
SERVICES SERVICES OTHER (1) TOTAL SERVICES SERVICES OTHER (1) TOTAL
--------------- --------------- ------------ --------------- --------------- -------------- ------------- ------------
Sales $ 163,614 $ 191,042 $(13,151) $ 341,505 $ 153,387 $ 127,744 $ (7,748) $ 273,383
EBIT 1,357 10,836 - 12,193 1,180 5,625 - 6,805
FISCAL NINE MONTHS ENDED FISCAL NINE MONTHS ENDED
OCTOBER 3, 1999 SEPTEMBER 27, 1998
------------------------------------------------------------ ---------------------------------------------------------
PURCHASING PURCHASING
SUPPORT OUTSOURCING SUPPORT OUTSOURCING
SERVICES SERVICES OTHER (1) TOTAL SERVICES SERVICES OTHER (1) TOTAL
--------------- --------------- ------------ --------------- --------------- -------------- ------------- ------------
Sales $ 504,736 $ 556,207 $(37,444) $1,023,499 $ 438,005 $ 364,606 $(18,862) $ 783,749
EBIT 3,966 29,731 - 33,697 2,506 16,452 - 18,958
(1) Other represents the elimination of inter-segment sales that are
generated by our Purchasing Support Services segment.
A reconciliation of total segment EBIT to consolidated income before
income taxes is as follows:
FISCAL QUARTER ENDED FISCAL NINE MONTHS ENDED
---------------------------------- --------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
-------------- ----------------- ------------- ----------------
Total EBIT $ 12,193 $ 6,805 $ 33,697 $ 18,958
Interest expense (5,643) (4,263) (15,349) (12,976)
Michigan Single Business Tax (1,510) (990) (4,076) (2,733)
-------------- ----------------- ------------- ----------------
Consolidated income before income taxes $ 5,040 $ 1,552 $ 14,272 $ 3,249
============== ================= ============= ================
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise stated)
7. SUBSEQUENT EVENTS:
Subsequent to October 3, 1999, we signed a commitment letter with Bank
One Corporation to provide additional funding, on a best efforts basis, under an
amended and restated credit facility. We anticipate closing on the new facility
in the next few weeks. The amended and restated credit facility will replace
our existing credit facility and will expire 5 years from the date of closing.
Terms of the revolving credit portion of the amended and restated facility will
be substantially similar to terms under the old facility. The $30 million term
loan portion of our credit facility, as amended and restated, will mature in
2004 with principal payments due quarterly, on a graduated basis, until
maturity.
An additional $50 million seven year senior secured institutional term
loan will be included in the amended and restated credit facility. The $50
million term loan may be increased to as much as $75 million on the same terms.
Principal payments of 1% of the institutional term loan commitment will be
payable quarterly in years one through six with the balance payable in year
seven. Interest will be payable quarterly and accrue at an annual floating rate,
as defined in the agreement. The proceeds from the $50 million term loan will be
used to repay amounts outstanding under the revolving credit portion of our
credit facility.
8. 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 our performance as primary obligors.
The following condensed consolidating financial data provides information
regarding the financial position, results of operations and cash flows of the
Guarantor Subsidiaries as set forth below. Separate financial statements of the
Guarantor Subsidiaries are not presented because management has determined that
those financial statements would not be material to the holders of the senior
subordinated notes.
The Guarantor Subsidiaries account for their investments in
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 noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of October 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 4,879 $ 4,246 $ -- $ 9,125
Receivables, net -- 178,177 64,378 -- 242,555
Inventory -- 2,088 38 -- 2,126
Prepaid expenses and other assets 439 5,580 4,234 -- 10,253
Deferred income taxes -- 381 448 -- 829
--------- --------- --------- --------- ---------
Total current assets 439 191,105 73,344 -- 264,888
Property and equipment, net -- 23,281 14,732 -- 38,013
Goowill and other intangibles, net -- 92,931 3,506 -- 96,437
Investment in subsidiaries 166,708 39,142 6,372 (205,850) 6,372
Other assets 6,220 2,213 675 -- 9,108
Deferred income taxes 1,071 7,194 3,621 -- 11,886
--------- --------- --------- --------- ---------
Total assets $ 174,438 $ 355,866 $ 102,250 $(205,850) $ 426,704
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of long-term debt $ -- $ 1,353 $ 2,482 $ -- $ 3,835
Accounts payable and drafts -- 91,959 15,593 -- 107,552
Accrued liabilities (5,680) 53,277 17,803 (32) 65,368
Deferred income taxes -- 1,813 -- -- 1,813
--------- --------- --------- --------- ---------
Total current liabilities (5,680) 148,402 35,878 (32) 178,568
Long-term debt 209,250 -- 17,921 -- 227,171
Intercompany accounts (74,680) 47,044 27,636 -- --
Long-term deferred compensation liability and other -- 4,374 -- -- 4,374
--------- --------- --------- --------- ---------
Total liabilities 128,890 199,820 81,435 (32) 410,113
--------- --------- --------- --------- ---------
Redeemable Series A Preferred Stock 36,000 -- -- -- 36,000
--------- --------- --------- --------- ---------
Shareholders' equity (deficit) 9,548 156,046 20,815 (205,818) (19,409)
--------- --------- --------- --------- ---------
Total liabilities and shareholders' equity (deficit) $ 174,438 $ 355,866 $ 102,250 $(205,850) $ 426,704
========= ========= ========= ========= =========
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING BALANCE SHEET
as of January 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 1,690 $ 2,558 $ -- $ 4,248
Receivables, net -- 145,715 62,736 -- 208,451
Inventory -- 2,315 47 -- 2,362
Prepaid expenses and other assets 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
========= ========= ========= ========= =========
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
for the fiscal quarters ended October 3, 1999 and September 27, 1998.
FISCAL QUARTER ENDED OCTOBER 3, 1999
---------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
Net sales $ -- $ 291,921 $ 55,512 $ (5,928) $ 341,505
Cost of sales -- 271,289 49,091 (5,928) 314,452
--------- --------- --------- --------- ---------
Gross profit -- 20,632 6,421 -- 27,053
Selling, general and administrative expenses -- 10,323 5,242 -- 15,565
Amortization of goodwill and other intangibles -- 753 52 -- 805
--------- --------- --------- --------- ---------
Operating income -- 9,556 1,127 -- 10,683
Interest expense (income), net 5,200 (230) 673 -- 5,643
Equity in subsidiary earnings 6,311 121 -- (6,432) --
--------- --------- --------- --------- ---------
Income before income taxes 1,111 9,907 454 (6,432) 5,040
Income tax provision (benefit) (1,968) 3,596 333 -- 1,961
--------- --------- --------- --------- ---------
Net income $ 3,079 $ 6,311 $ 121 $ (6,432) $ 3,079
========= ========= ========= ========= =========
FISCAL QUARTER ENDED SEPTEMBER 27, 1998
---------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
Net sales $ -- $ 228,262 $ 45,121 $ -- $ 273,383
Cost of sales -- 213,176 38,758 -- 251,934
--------- --------- --------- --------- ---------
Gross profit -- 15,086 6,363 -- 21,449
Selling, general and administrative expenses 9 11,009 4,404 -- 15,422
Amortization of goodwill and other intangibles -- 188 24 -- 212
--------- --------- --------- --------- ---------
Operating income (loss) (9) 3,889 1,935 -- 5,815
Interest expense (income), net 4,657 (1,378) 984 -- 4,263
Equity in subsidiary earnings 3,947 515 -- (4,462) --
--------- --------- --------- --------- ---------
Income (loss) before income taxes (719) 5,782 951 (4,462) 1,552
Income tax provision (benefit) (1,587) 1,835 436 -- 684
--------- --------- --------- --------- ---------
Net income $ 868 $ 3,947 $ 515 $ (4,462) $ 868
========= ========= ========= ========= =========
11
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MSX INERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
for the fiscal nine month periods ended October 3,1999 and September 27, 1998
FISCAL NINE MONTHS ENDED OCTOBER 3, 1999
-------------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
Net sales $ -- $ 868,791 $ 164,336 $ (9,628) $1,023,499
Cost of sales -- 812,523 142,683 (9,628) 945,578
---------- ---------- ---------- ---------- ----------
Gross profit -- 56,268 21,653 -- 77,921
Selling, general and administrative expenses -- 31,018 15,131 -- 46,149
Amortization of goodwill and other intangibles -- 2,044 107 -- 2,151
---------- ---------- ---------- ---------- ----------
Operating income -- 23,206 6,415 -- 29,621
Interest expense (income), net 14,361 (746) 1,734 -- 15,349
Equity in subsidiary earnings 17,931 2,761 -- (20,692) --
---------- ---------- ---------- ---------- ----------
Income before income taxes 3,570 26,713 4,681 (20,692) 14,272
Income tax provision (benefit) (5,024) 8,782 1,920 -- 5,678
---------- ---------- ---------- ---------- ----------
Net income $ 8,594 $ 17,931 $ 2,761 $ (20,692) $ 8,594
========== ========== ========== ========== ==========
FISCAL NINE MONTHS ENDED SEPTEMBER 27, 1998
---------------------------------------------------------------------
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------- ------------- ------------ ------------
Net sales $ -- $ 663,802 $ 119,947 $ -- $ 783,749
Cost of sales -- 621,523 102,199 -- 723,722
---------- --------- ---------- ---------- ----------
Gross profit -- 42,279 17,748 -- 60,027
Selling, general and administrative expenses 11 30,271 12,831 -- 43,113
Amortization of goodwill and other intangibles -- 665 24 -- 689
---------- --------- ---------- ---------- ----------
Operating income (loss) (11) 11,343 4,893 -- 16,225
Interest expense (income), net 11,688 (1,450) 2,738 -- 12,976
Equity in subsidiary earnings 9,242 868 -- (10,110) --
---------- --------- ---------- ---------- ----------
Income (loss) before income taxes (2,457) 13,661 2,155 (10,110) 3,249
Income tax provision (benefit) (3,978) 4,419 1,287 -- 1,728
---------- --------- ---------- ---------- ----------
Net income (loss) $ 1,521 $ 9,242 $ 868 $ (10,110) $ 1,521
========== ========= ========== ========== ==========
12
15
MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - CONTINUED
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine month period ended October 3, 1999
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
Cash flows from operating activities:
Net income (loss) before equity in earnings of subsidiaries $ (9,337) $ 15,170 $ 2,761 $ -- $ 8,594
Equity in earnings of subsidiaries 17,931 2,761 -- (20,692) --
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation -- 6,767 3,346 -- 10,113
Amortization 475 2,044 107 -- 2,626
Deferred taxes (161) 2,109 (1,545) -- 403
(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 -- (6,799) (6,048) -- (12,847)
Acquisition of businesses, net of cash received -- (38,695) (6,296) -- (44,991)
Proceeds from sale of property and equipment -- 15,627 187 -- 15,814
-------- -------- -------- -------- --------
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 (25,448) 10,903 (9,589) 24,134 --
Equity in subsidiaries 10,570 (12,075) 9,631 (8,126) --
Changes in debt 34,118 (142) 8,703 -- 42,679
Payment of contractual acquisition obligation -- (15,000) -- -- (15,000)
Changes in drafts -- 2,572 (1,801) -- 771
Sale of Common Stock 120 -- -- -- 120
Other, net -- -- -- -- --
-------- -------- -------- -------- --------
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
======== ======== ======== ======== ========
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MSX INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED) - (CONTINUED)
(dollars in thousands unless otherwise noted)
8. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES: - (CONTINUED)
MSX INTERNATIONAL, INC.
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine month period ended September 27, 1998
MSXI GUARANTOR NON-GUARANTOR MSXI
(ISSUER) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) before equity in earnings of subsidiariies $ (7,721) $ 8,374 $ 868 $ -- $ 1,521
Equity in earnings of subsidiaries 9,242 868 -- (10,110) --
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation -- 5,880 4,551 -- 10,431
Amortization 310 665 24 -- 999
Deferred taxes (2,784) 1,478 (25) -- (1,331)
(Increase) decrease in receivables -- 25,120 (5,726) -- 19,394
(Increase) decrease in inventory -- (442) -- -- (442)
(Increase) decrease in prepaid expenses and other assets (5,150) 3,312 (2,291) -- (4,129)
Increase (decrease) in current liabilities 147 (14,667) 6,845 -- (7,675)
Other, net -- (611) (46) 43 (614)
-------- -------- -------- -------- --------
Net cash provided by (used for) operating activities (5,956) 29,977 4,200 (10,067) 18,154
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures -- (3,677) (5,071) -- (8,748)
Acquisition of business, net if cash received -- -- (3,783) -- (3,783)
Proceeds from sale of property and equipment -- 274 412 -- 686
-------- -------- -------- -------- --------
Net cash used for investing activities: -- (3,403) (8,442) -- (11,845)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Intercompany 21,870 (28,013) 6,143 -- --
Investment in subsidiaries -- 602 4,661 (5,263) --
Equity in subsidiaries (9,242) (1,019) (3,697) 13,958 --
Net proceeds from long-term debt issues 99,161 216 -- -- 99,377
Payment of long-term debt (81,444) -- (10,104) -- (91,548)
Changes in revolving debt (24,389) (163) (343) -- (24,895)
Changes in drafts -- 1,184 1,745 -- 2,929
Other, net -- (300) 36 31 (233)
-------- -------- -------- -------- --------
Net cash provided by (used for) financing activities 5,956 (27,493) (1,559) 8,726 (14,370)
-------- -------- -------- -------- --------
Effect of foreign exchange rate changes on cash
and cash equivalents -- (1,350) 444 1,341 435
-------- -------- -------- -------- --------
Cash and cash equivalents:
Decrease for the period -- (2,269) (5,357) -- (7,626)
Balance, beginning of period -- 2,449 9,126 -- 11,575
-------- -------- -------- -------- --------
Balance, end of period $ -- $ 180 $ 3,769 $ -- $ 3,949
======== ======== ======== ======== ========
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MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales and changes in net sales by segment for the
fiscal quarters and fiscal nine months ended October 3, 1999 and September 27,
1998 were:
CHANGE
OCTOBER 3, SEPTEMBER 27, -------------------
1999 1998 $ %
------------------ --------------- -------------- ----
(dollars in thousands)
FISCAL QUARTER:
Purchasing Support Services $ 163,614 $ 153,387 $ 10,227 6.7%
Outsourcing Services 191,042 127,744 63,298 49.6%
Eliminations (13,151) (7,748) (5,403) n/a
----------------------------------------------------------
Consolidated net sales $ 341,505 $ 273,383 $ 68,122 24.9%
==========================================================
FISCAL NINE MONTHS:
Purchasing Support Services $ 504,736 $ 438,005 $ 66,731 15.2%
Outsourcing Services 556,207 364,606 191,601 52.6%
Eliminations (37,444) (18,862) (18,582) n/a
----------------------------------------------------------
Consolidated net sales $1,023,499 $ 783,749 $239,750 30.6%
==========================================================
The increase in consolidated net sales resulted from internal growth
and incremental sales from acquired businesses. Incremental sales from acquired
businesses primarily impacted our Outsourcing Services segment. The increases in
net sales of our Purchasing Support Services segment resulted from greater
demand for customer administrative support services. The increases in net sales
of our Outsourcing Services segment are comprised of:
QUARTER ENDED % OF NINE MONTHS ENDED % OF
INCREASE FROM OCTOBER 3, 1999 INCREASE OCTOBER 3, 1999 INCREASE
- ------------- --------------- -------- --------------- --------
(dollars in thousands)
Internal growth $ 31,584 49.9% $102,415 53.5%
Acquired business 31,714 50.1% 89,186 46.5%
-------- ----- -------- -----
Total $ 63,298 100.0% $191,601 100.0%
======== ===== ======== =====
Increased sales from existing businesses primarily resulted from the
opening of new locations, customers' consolidation of their supplier base and
increased demand for automotive design and engineering services both in the
United States and the United Kingdom.
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MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
OPERATING INCOME
Our consolidated operating income and changes in operating income for
the periods presented were:
CHANGE
OCTOBER 3, SEPTEMBER 27, ---------------------------
1999 1998 $ %
------------------ --------------- -------------- ------------
(dollars in thousands)
FISCAL QUARTER:
Operating income $ 10,683 $ 5,815 $ 4,868 83.7%
% of sales 3.1% 2.1% n/a n/a
FISCAL NINE MONTHS:
Operating income $ 29,621 $ 16,225 $ 13,396 82.6%
% of sales 2.9% 2.1% n/a n/a
Overall, operating income improved during both periods 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, as a percentage of sales, remained consistent during the fiscal quarter
and nine month periods. Selling, general and administrative expenses as a
percentage of net sales for the fiscal quarter ended October 3, 1999 were 4.6%
as compared to 5.6% for the quarter ended September 27, 1998. Selling, general
and administrative expenses as a percentage of net sales for the fiscal nine
months ended October 3, 1999 were 4.5% as compared to 5.5% for the fiscal nine
months ended September 27, 1998. The 1% improvement as a percentage of net sales
principally related to the continued consolidation of centralized administrative
services, cost reduction efforts and the increase in net sales volume during the
periods.
NET INCOME
Principally as a result of the foregoing and decreases in our
effective income tax rate, net income improved by $2.2 million for the fiscal
quarter and by $7.1 million for the fiscal nine months ended October 3, 1999
compared to 1998. For the fiscal nine-month periods ended October 3, 1999 and
September 27, 1998, the effective income tax rate was 39.8% and 53.2%,
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
subordinated notes during 1999.
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 were unusually high
as of October 3, 1999 due primarily to the timing of cash receipts and the
payment of related obligations. 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.
In connection with its Outsourcing Services segment, the Company
typically pays its employees on a weekly basis and is reimbursed by its
customers within invoicing terms, which is generally a 60-day period after it
makes such payment. In connection with the Purchasing Support Services segment,
the Company is reimbursed by its customers at approximately the same time it
makes payment to suppliers.
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MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Operating Activities. Net cash provided by operating activities
increased $2.2 million to $20.4 million for the fiscal nine months ended October
3, 1999 as compared to $18.2 million for the fiscal nine months ended September
27, 1998. Cash generated during 1999 reflects improved earnings and the timing
of collection of receivables and payments of accounts payable and accrued
expenses. Increases in accounts receivable due to timing during 1999 were more
than offset by increases in current liabilities.
Investing Activities. Net cash used for investing activities increased
$30.2 million from $11.8 million for the fiscal nine months ended September 27,
1998, to $42 million for the fiscal nine months ended October 3, 1999. This
included an increase in cash used for business acquisitions of $41.2 million and
an increase in capital expenditures. See Note 2 of our consolidated financial
statements for additional information on businesses acquired during 1999.
Increases in cash used for business acquisitions and capital expenditures were
partially offset by proceeds from sales of property and equipment. 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.
Financing Activities. Net cash provided by financing activities
increased $42.9 million from cash used of $14.3 million for the fiscal nine
months ended September 27, 1998 to cash generated of $28.6 million for the
fiscal nine month period ended October 3, 1999. Financing requirements during
the fiscal nine months ended October 3, 1999 increased primarily to support the
acquisition of businesses and capital expenditures, as noted above under
investing activities, and included the payment of a $15 million contractual
acquisition obligation relating to the December 1998 MegaTech Engineering, Inc.
acquisition.
AVAILABLE FINANCING SOURCES
On May 18, 1999, we issued, in a private placement, $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.
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 any
outstanding amounts are expected to be refinanced with borrowings under our
credit facility.
In the next few weeks we anticipate closing on an amended and restated
credit facility with Bank One Corporation. The amended and restated facility
will provide for an additional $50 million seven year senior secured
institutional term loan which may be increased to as much as $75 million on the
same terms. Proceeds from the $50 million term loan will be used to repay
amounts outstanding under the revolving credit portion of our credit facility.
See Note 7 of our unaudited consolidated financial statements for additional
information.
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MSX INTERNATIONAL, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
YEAR 2000 ("Y2K") MATTERS
Our overall plan to address the Y2K issue is described more fully in
our Annual Report on Form 10-K for the fiscal year ended January 3, 1999. The
following represents an update to the information included therein:
Applications. Remediation and testing have been completed for substantially
all applications which are considered critical. We are continuing our
remediation and testing of non-critical systems on a prioritized basis and
will continue to do so throughout 1999.
Facility Systems. Our business units have replaced, retired or repaired
facility systems (e.g., HVAC, security, telephones, etc.) as necessary.
PCs and Peripherals. All PCs and network operations hardware and software
have been upgraded and are compliant.
Third Party Providers. Significant third party providers and key suppliers
have been contacted with a letter requesting their Y2K status. Based upon
responses received, we have developed contingency plans if required. For
unresponsive suppliers, we have taken additional actions necessary to
assess their readiness. We believe our reliance on third party suppliers is
limited due to the nature of our business.
Acquired Businesses. As part of our due diligence procedures we evaluated
the Y2K status of acquired companies. Based upon our evaluations,
remediation and testing of critical systems of acquired companies have been
completed. The Y2K exposure to recently acquired companies is limited due
to the nature of the businesses.
We expect our total Y2K related spending to reach $2 million during
1999. The cost of our Y2K remediation is being expensed as incurred with the
exception of capitalizable replacement hardware and computer software costs
developed for internal use.
We believe the most significant risks with respect to Y2K problems are
lost revenue and damaged relations with our customers resulting from a delay in
the delivery of goods and services and the effect of shutting down production or
a customer's facility. Although we do not currently anticipate significant
disruptions of our business as a result of the Y2K issue, some problems may not
be identified or corrected in time to prevent material adverse consequences or
business interruptions to the Company.
FORWARD - LOOKING STATEMENTS
This report on Form 10-Q contains statements that constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Such forward-looking statements are not guarantees of future performance and
involve significant risks and uncertainties. Actual results may vary materially
from those in the forward-looking statements as a result of any number of
factors, many of which are beyond the control of management. These factors
include, but are not limited to, the Company's leverage, its reliance on major
customers in the automotive industry, the degree and nature of competition, the
Company's ability to recruit and place qualified personnel, risks associated
with its acquisition strategy, and employment liability risk.
18
21
MSX INTERNATIONAL, INC.
PART II. - OTHER INFORMATION
ITEM 5. Other Information
Attached, as Exhibit 99 to this Form 10-Q, is our press release dated
November 11, 1999 regarding recent developments in our equity
investment in Cadform Engineering GmbH.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Cadform press release
(b) Reports on Form 8-K:
A current report on Form 8-K was filed on September 27, 1999
reporting the acquisition of Chelsea Computer Consultants, Inc.
under Item 5. Other Events
19
22
MSX INTERNATIONAL, INC.
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 16, 1999
MSX INTERNATIONAL, INC.
(Registrant)
By: /s/ Frederick K. Minturn
------------------------
Frederick K. Minturn
Executive Vice President and
Chief Financial Officer
(Chief accounting officer
and authorized signatory)
20
23
EXHIBIT INDEX
Exhibit Sequential Page No.
- ------- -------------------
Exhibit 12 - Computation of Ratio of Earnings to Fixed Charges 22
Exhibit 27 - Financial Data Schedule 23
Exhibit 99 - Press release dated November 11, 1999 regarding Cadform 24
21