MSX International, Inc. Announces Financial Results for the Second Quarter of Fiscal 2006
WARREN, Mich., Aug. 11, 2006 -- MSX International, Inc., a global provider of technical business services posted net income of $3.0 million for the quarter ended July 2, 2006. For the first six months of fiscal 2006 the Company posted net income of $3.7 million.
Net sales from continuing operations totaling $87.2 million for the second quarter of fiscal 2006 compared to $104.6 million for the second quarter of fiscal 2005. Sales from continuing operations for the first six months of 2006 totaled $175.8 million compared to $205.7 million in 2005. 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 $7.8 million during the second quarter of 2006 and $30.4 million during the first six months of 2006.
The reduction in sales primarily related to our Human Capital Services segment. A significant portion of this decline was due to the exit of substantially all staffing programs delivered to a major automotive supplier that entered bankruptcy during 2005. In addition, revenues in all segments reflect additional spending reductions due to continued cost reduction initiatives at our customers.
Gross profit from continuing operations declined during both the second quarter and first six months of 2006 due to lower sales volumes compared to 2005. The impact of reduced volumes was largely offset in 2006 by improved program margins due to reductions in operating costs and displacement of lower margin programs. Expressed as a percentage of net sales, gross profit margins increased from 15.8% in the second quarter of 2005 to 17.8% in the recently completed fiscal quarter. Similar improvements were achieved during the first six months of fiscal 2006. Selling, general and administrative expenses were 2.5% lower in the second quarter of fiscal 2006 compared to the prior year and 12.1% lower for the first six months of 2006.
Income from continuing operations before interest and income taxes was $8.3 million for the second quarter of fiscal 2006. This compares to income of $9.1 million in the comparable period of fiscal 2005. Interest expense in the second quarter of fiscal 2006 totaled $7.3 million, a $1.7 million decrease from the comparable period of 2005. The change is primarily the result of foreign exchange rate movements. Compared to 2005, such exchange movements had a favorable impact on the recorded value of fixed-rate, U.S. dollar denominated debt issued by the Company's U.K. subsidiary. After an income tax provision of $1.8 million the Company posted a net loss from continuing operations of $0.8 million.
MSX International, Inc. posted net income of $3.0 million in the second fiscal quarter of 2006, including $3.8 million of income from discontinued operations, net of taxes. Income from discontinued operations includes a net gain on the sale of such operations totaling $3.6 million.
Before modest restructuring and severance costs that are reflected in the results of continuing operations, EBITDA was $9.6 million for the second quarter of fiscal 2006 compared to $11.0 million in the second quarter of the prior year. The attached supplemental financial information schedule shows a reconciliation of EBITDA to reported results.
We will host a conference call at 2:00 p.m. EDT on Tuesday, August 15, to review these results. To listen to the call, dial 877-612-5307 (Domestic) or 706-634-2392 (International) and provide conference code number 7930759. A replay of the call will be available beginning at 3:00 p.m. EDT Tuesday, August 15, at 800-642-1687 (Domestic) or 706-645-9291 (International), with the same conference code number.
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 4,000 employees in eighteen countries. Visit our Web site at http://www.msxi.com/ .
Certain of the statements made in this press release constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current management projections and expectations. They involve significant risks and uncertainties. As such, they are not guarantees of future performance. MSX International, Inc. disclaims any intent or obligation to update such statements.
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 important factors include: our substantial indebtedness and future liquidity; our reliance on major customers in the automotive industry, including the timing of their product development and other initiatives, and the value of our associated accounts receivable from them; the market demand for our technical business services in general; our ability to recruit and place qualified personnel; delays or unexpected costs associated with cost reduction efforts; risks associated with operating internationally, including economic, political and currency risks; and risks associated with our acquisition strategy. Additional information concerning these and other factors are discussed in the Company's filings with the U.S. Securities and Exchange Commission.
MSX INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
for the fiscal quarters and fiscal six months
ended July 2, 2006 and July 3, 2005
Fiscal Quarter Ended Fiscal Six Months Ended
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
(in thousands)
Net sales $87,160 $104,566 $175,780 $205,655
Cost of sales 71,636 88,020 144,498 172,614
Gross profit 15,524 16,546 31,282 33,041
Selling, general and
administrative expenses 6,960 7,139 13,760 15,653
Restructuring and severance
costs 232 324 415 450
Income from continuing
operations before
interest and income taxes 8,332 9,083 17,107 16,938
Interest expense, net 7,308 8,967 14,953 17,471
Income (loss) from
continuing operations
before income taxes 1,024 116 2,154 (533)
Income tax provision 1,846 323 3,497 1,563
Income (loss) from
continuing operations (822) (207) (1,343) (2,096)
Income (loss) from discontinued
operations, net of taxes 3,785 (4,237) 5,060 (17,184)
Net income (loss) 2,963 (4,444) 3,717 (19,280)
Accretion for redemption of
preferred stock (3,068) (2,732) (6,137) (5,464)
Net loss available to
common shareholders $(105) $(7,176) $(2,420) $(24,744)
MSX INTERNATIONAL, INC.
SUPPLEMENTAL FINANCIAL INFORMATION
for the fiscal quarters and fiscal six months
ended July 2, 2006 and July 3, 2005
Fiscal Quarter Fiscal Six Months
Ended Ended
July 2, July 3, July 2, July 3,
2006 2005 2006 2005
Net sales $87,160 $104,566 $175,780 $205,655
Reconciliation of EBITDA:
Operating income $8,332 $9,083 $17,107 $16,938
Michigan Single Business and
similar taxes 390 514 734 1,024
EBIT, as defined 8,722 9,597 17,841 17,962
Depreciation 669 1,120 1,408 2,321
Restructuring and severance costs 232 324 451 450
EBITDA before restructuring and
severance costs, as defined $9,623 $11,041 $19,700 $20,733
% of sales 11.0% 10.6% 11.2% 10.1%
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 MSXI. Results from discontinued operations have been excluded from the above.