MSX International, Inc. Announces Financial Results for Fiscal 2005
WARREN, Mich., April 17 -- MSX International, Inc., a global provider of technical business services, reports net sales from continuing operations totaling $435.0 million for fiscal 2005 compared to $454.3 million for fiscal 2004. The results for each period exclude the net sales of businesses either sold or classified as held for sale. Net sales from businesses sold or held for sale were $108.8 million during fiscal 2005.
Fiscal 2005 results reflect one week less sales for selected businesses due to the additional week included in 2004 as a result of our fiscal calendar. Fiscal 2005 results were also impacted by unfavorable exchange rates on sales outside of the U.S. compared to fiscal 2004. Net of these items, year-over-year sales reflect nominal growth in warranty and retail improvement programs offset by declines in automotive staffing and other traditional programs.
Gross profit from continuing operations decreased 3.7% due to reduced sales volumes partially offset by indirect cost savings. Expressed as a percentage of net sales, gross profit margins increased modestly. The improvement in gross profit percentage reflects the favorable impact of lower indirect costs and displacement of lower margin programs as we continue to focus on higher return businesses.
Selling, general and administrative expenses were $3.7 million lower in fiscal 2005 than in the prior year, a 10.4% reduction. The decrease is the result of on-going cost reduction initiatives implemented during fiscal 2005. Such cost reductions resulted in restructuring and severance related costs of $2.8 million during fiscal 2005. Fiscal 2005 results include a non-cash goodwill impairment charge totaling $89.8 million related to selected staffing operations in the United States. The goodwill charge arose due to the sale of such operations during the first quarter of fiscal 2006. Fiscal 2005 results also include a gain on extinguishment of certain debt obligations in Germany totaling $0.7 million.
Income from continuing operations before interest and income taxes was a loss totaling $57.0 million. This compares to income of $33.6 million in fiscal 2004, or a $90.6 million decrease in profitability from continuing operations. The decrease reflects the goodwill impairment charge of $89.8 million and restructuring costs of $2.8 million discussed above. Before restructuring and severance costs that are reflected in the results of continuing operations, EBITDA was $40.7 million for fiscal 2005 compared to $41.8 million in fiscal 2004. The attached supplemental financial information schedule shows a reconciliation of EBITDA to reported results.
Interest expense in fiscal 2005 totaled $33.9 million, a $3.2 million increase from fiscal 2004 and is primarily the result of foreign exchange rate movements. Such movements had an adverse impact on the recorded value of U.S. dollar denominated debt issued by the Company's U.K. subsidiary in fiscal 2005 and a favorable impact in the comparable period in 2004. After a tax expense on continuing operations of $0.7 million, the Company posted a net loss from continuing operations of $91.6 million.
In accordance with SFAS No. 144, the financial performance of businesses sold or currently held for sale are shown separately in the Company's consolidated statements of operations. At January 1, 2006, these businesses had total assets of $41.8 million and related liabilities of $40.5 million. Formal divestiture processes continue for the businesses classified as held for sale.
Fiscal 2004 results have been restated for adjustments identified during the fiscal 2005 audit. The effects of the restatements on fiscal 2004 results, after giving effect to operations classified as discontinued during fiscal 2005, are detailed in the attached Restatement Reconciliation. Additional information on these restatements, including the impact on fiscal 2003 results, can be found in our Current Report on Form 8-K filed with the SEC on April 11, 2006. The Form 8-K can be found on the Securities and Exchange Commission website at http://www.sec.gov/ .
MSX International Inc., headquartered in Warren, Mich., is a global provider of technical business services. The Company combines innovative people, standardized processes and today's technologies to deliver a collaborative, competitive advantage. MSX International, Inc. has over 4,600 employees in eighteen countries. Visit our Web site at http://www.msxi.com/ .
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal quarter and fiscal year ended January 1, 2006
and January 2, 2005
Fiscal Year Ended
January 1, January 2,
2006 2005
(As Restated)
(in thousands)
Net sales $434,966 $454,305
Cost of sales 368,356 385,122
Gross profit 66,610 69,183
Selling, general and administrative
expenses 31,684 35,350
Goodwill impairment charges 89,828 -
Restructuring and severance costs 2,835 209
Gain on extinguishment of debt (704) -
Income (loss) from continuing
operations before
interest and income taxes (57,033) 33,624
Interest expense, net 33,875 30,741
Income (loss) from continuing
operations before income taxes (90,908) 2,883
Income tax provision (benefit) 707 1,776
Income (loss) from continuing
operations (91,615) 1,107
Income (loss) from discontinued
operations, net of taxes (22,795) 550
Net income (loss) (114,410) 1,657
Accretion for redemption of preferred
stock (11,254) (9,500)
Net loss available to common
shareholders $(125,664) $(7,843)
MSX INTERNATIONAL, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
for the fiscal quarter and fiscal year ended January 1, 2006
and January 2, 2005
Fiscal Year Ended
January 1, January 2,
2006 2005
(As Restated)
(in thousands)
Net sales from continuing operations $434,966 $454,305
Reconciliation of EBITDA:
Income from continuing operations
before interest and income taxes $(57,033) $33,624
Goodwill impairment charges 89,828 -
Gain on extinguishment of debt (704) -
Michigan Single Business and
similar taxes 1,737 1,988
EBIT, as defined 33,828 35,612
Depreciation 4,025 6,016
Restructuring and severance costs 2,835 209
EBITDA before restructuring and
severance costs and goodwill
impairment, as defined $40,688 $41,837
EBITDA is shown here because we use it for internal reporting purposes. We believe it is an indicative measure of operating performance, and it is used by investors and analysts to evaluate companies with capital structures similar to ours.
As defined here, EBITDA may not be comparable to similarly titled measures reported by other companies. EBITDA is not an alternative measure of operating results or cash flows from operations, as determined in accordance with accounting principles generally accepted in the United States. EBITDA should be considered in addition to, not as a substitute for, operating income (loss), net income (loss), cash flows and other measures of financial performance and liquidity reported in accordance with such accounting principles.
In accordance with SFAS No. 144, financial results of businesses reported as discontinued operations are eliminated from the continuing operations of MSX International, Inc. Results from discontinued operations have been excluded from the above.
MSX INTERNATIONAL, INC.
RESTATEMENT RECONCILIATION
for the fiscal quarter and fiscal year ended January 1, 2006
and January 2, 2005
The following is a summary of the effects of the restatements on fiscal 2004 results after giving effect to the classification of Satiz S.r.l. and Creative Technology Services LLC as discontinued operations:
Fiscal Year Ended
January 2, 2005
As Reported As Restated
Results of Operations: (in thousands)
Net sales $454,305 $454,305
Cost of Sales 384,662 385,122
Gross Profit 69,643 69,183
Selling, general & administrative
expense 35,350 35,350
Restructuring & severance costs 209 209
Income from continuing
operations before
interest and income taxes 34,084 33,624
Interest expense, net 30,741 30,741
Income from continuing
operations before income taxes 3,343 2,883
Income tax provision 1,776 1,776
Income from continuing
operations 1,567 1,107
Income from discontinued
operations, net 15 550
Net income (loss) 1,582 1,657
Accretion for redemption of
preferred stock 9,500 9,500
Net loss available to common
shareholders $(7,918) $(7,843)