##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 3, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission File Number: 333-49821
 MSX International, Inc.
  Delaware
    
    38-3323099(State or other jurisdiction
    
    (I.R.S. Employer Identification No.)of incorporation or organization)1950 Concept Drive, Warren, Michigan
    
    48091(Address of principal executive offices)
    
    (Zip Code)
 (248) 299-1000
 þ o
 o þ




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MSX INTERNATIONAL, INC.
INDEX
 PART I.
 PagesITEM 1.Financial Statements (unaudited):Consolidated Balance Sheets as of July 3, 2005 and January 2, 2005
    
    
    2Consolidated Statements of Operations for the fiscal quarters and fiscal six months ended July 3, 2005 and July 4, 2004
    
    
    3Consolidated Statements of Cash Flows for the fiscal six months ended July 3, 2005 and July 4, 2004
    
    
    4Notes to Consolidated Financial Statements
    
    
    5ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    26ITEM 4.Controls and Procedures
    
    
    31PART II.OTHER INFORMATIONITEM 1.Legal Proceedings
    
    
    32ITEM 4.Submission of Matters to a Vote of Security Holders
    
    
    32ITEM 6. Exhibits
    
    
    32SIGNATURE
    
    
    33Certification of Chief Executive Officer pursuant to rules 13a-15(e)/15d-15(e)Certification of Chief Financial Officer pursuant to rules 13a-15(e)/15d-15(e)Certification pursuant to 18 U.S.C. Section 1350Press Release
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 MSX INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS  as of July 3, 2005 and January 2, 2005
 July 3,
    
    
    January 2,2005
    
    
    2005(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    32,153
    
    
    $
    34,377Accounts receivable, net (Note 4)
    
    
    118,042
    
    
    
    158,640Inventory
    
    
    7,675
    
    
    
    12,160Prepaid expenses and other assets
    
    
    4,286
    
    
    
    3,402Assets held for sale (Note 2)
    
    
    27,488
    
    
    
    13,453Deferred income taxes, net
    
    
    1,711
    
    
    
    5,341Total current assets
    
    
    191,355
    
    
    
    227,373Property and equipment, net
    
    
    5,142
    
    
    
    11,195Goodwill, net (Note 5)
    
    
    116,403
    
    
    
    135,095Assets held for sale (Note 2)
    
    
    13,488
    
    
    
    2,618Other assets
    
    
    7,957
    
    
    
    9,463Deferred income taxes, net
    
    
    2,180
    
    
    
    Total assets
    
    $
    336,525
    
    
    $
    385,744LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Notes payable and current portion of long-term debt (Note 6)
    
    $
    2,663
    
    
    $
    10,995Accounts payable and drafts
    
    
    85,142
    
    
    
    117,251Accrued payroll and benefits
    
    
    20,031
    
    
    
    22,442Other accrued liabilities
    
    
    43,485
    
    
    
    45,002Liabilities held for sale (Note 2)
    
    
    31,212
    
    
    
    10,133Total current liabilities
    
    
    182,533
    
    
    
    205,823Long-term debt (Note 6)
    
    
    250,459
    
    
    
    249,869Long-term deferred compensation liabilities and other
    
    
    6,775
    
    
    
    18,496Liabilities held for sale (Note 2)
    
    
    8,458
    
    
    
    Deferred income taxes, net
    
    
    
    
    
    
    1,016Total liabilities
    
    
    448,225
    
    
    
    475,204Commitments and contingencies
    
    
    
    
    
    
    Redeemable Series A Preferred Stock (Note 7)
    
    
    96,776
    
    
    
    91,312Shareholders deficitCommon Stock, $.01 par value, 5,000,000 aggregate shares of each of
Class A and Class B Common Stock
authorized; 486,354 shares of
Class A Common Stock issued and outstanding
    
    
    5
    
    
    
    5Additional paid-in capital
    
    
    (24,881
    )
    
    
    (24,881
    )Common stock purchase warrants
    
    
    750
    
    
    
    750Accumulated other comprehensive loss
    
    
    (3,854
    )
    
    
    (894
    )Retained deficit
    
    
    (180,496
    )
    
    
    (155,752
    )Total shareholders deficit
    
    
    (208,476
    )
    
    
    (180,772
    )Total liabilities and shareholders deficit
    
    $
    336,525
    
    
    $
    385,744
 The accompanying notes are an integral part of the consolidated financial statements.
 2




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MSX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)  for the fiscal quarters and fiscal six months ended July 3, 2005 and July 4, 2004
 Fiscal Quarter Ended
    
    
    Fiscal Six Months EndedJuly 3,
    
    
    July 4,
    
    
    July 3,
    
    
    July 4,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Net sales
    
    $
    116,939
    
    
    $
    113,674
    
    
    $
    230,037
    
    
    $
    239,064Cost of sales
    
    
    98,180
    
    
    
    96,684
    
    
    
    194,990
    
    
    
    204,195Gross profit
    
    
    18,759
    
    
    
    16,990
    
    
    
    35,047
    
    
    
    34,869Selling, general and administrative expenses
    
    
    8,600
    
    
    
    8,623
    
    
    
    17,412
    
    
    
    17,977Restructuring and severance costs (Note 3)
    
    
    346
    
    
    
    521
    
    
    
    503
    
    
    
    521Income from continuing operations before
interest and income taxes
    
    
    9,813
    
    
    
    7,846
    
    
    
    17,132
    
    
    
    16,371Interest expense, net
    
    
    8,967
    
    
    
    8,216
    
    
    
    17,471
    
    
    
    15,772Income (loss) from continuing operations before
income taxes
    
    
    846
    
    
    
    (370
    )
    
    
    (339
    )
    
    
    599Income tax provision
    
    
    382
    
    
    
    69
    
    
    
    1,660
    
    
    
    989Income (loss) from continuing operations
    
    
    464
    
    
    
    (439
    )
    
    
    (1,999
    )
    
    
    (390
    )Income (loss) from discontinued operations, net
of taxes of $(1,706) and $(65), respectively (Note 2)
    
    
    (4,908
    )
    
    
    323
    
    
    
    (17,281
    )
    
    
    668Net income (loss)
    
    
    (4,444
    )
    
    
    (116
    )
    
    
    (19,280
    )
    
    
    278Accretion for redemption of preferred stock
    
    
    (2,732
    )
    
    
    (2,178
    )
    
    
    (5,464
    )
    
    
    (4,843
    )Net loss available to common shareholders
    
    $
    (7,176
    )
    
    $
    (2,294
    )
    
    $
    (24,744
    )
    
    $
    (4,565
    )
 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 six months ended July 3, 2005 and July 4, 2004
 Fiscal Six Months EndedJuly 3,
    
    
    July 4,2005
    
    
    2004(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (19,280
    )
    
    $
    278Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Net loss on sale of businesses
    
    
    3,998
    
    
    
    Depreciation
    
    
    3,516
    
    
    
    4,713Goodwill impairment charges
    
    
    7,131
    
    
    
    Amortization of debt issuance costs
    
    
    2,287
    
    
    
    2,182Deferred income taxes (benefits)
    
    
    434
    
    
    
    877(Gain) on sale/disposal of property and equipment
    
    
    (100
    )
    
    
    (50
    )(Increase) decrease in receivables, net
    
    
    21,001
    
    
    
    23,600(Increase) decrease in inventory
    
    
    1,680
    
    
    
    (688
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (924
    )
    
    
    (991
    )Increase (decrease) in current liabilities
    
    
    (5,424
    )
    
    
    (19,460
    )Other, net
    
    
    (1,694
    )
    
    
    (408
    )Net cash provided by operating activities
    
    
    12,625
    
    
    
    10,053Cash flows from investing activities:Capital expenditures
    
    
    (1,586
    )
    
    
    (1,117
    )Payments for contingent consideration
    
    
    (1,208
    )
    
    
    Proceeds from sale of businesses, net
    
    
    5,041
    
    
    
    Proceeds from sale/disposal of property and equipment
    
    
    202
    
    
    
    150Other, net
    
    
    
    
    
    
    307Net cash provided by (used for) investing activities
    
    
    2,449
    
    
    
    (660
    )Cash flows from financing activities:Debt issuance costs
    
    
    (19
    )
    
    
    (406
    )Changes in revolving debt, net
    
    
    (8,605
    )
    
    
    (147
    )Changes in book overdrafts, net
    
    
    (6,166
    )
    
    
    (12,417
    )Net cash used for financing activities
    
    
    (14,790
    )
    
    
    (12,970
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (1,567
    )
    
    
    (956
    )Cash and cash equivalents:Decrease for the period
    
    
    (1,283
    )
    
    
    (4,533
    )Balance, beginning of period
    
    
    34,377
    
    
    
    36,650Balance, end of period (including $941 of cash held for sale
as of July 3, 2005)
    
    $
    33,094
    
    
    $
    32,117
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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)
 1. Organization and Basis of Presentation
    2. Discontinued Operations
    
  Gross sale price
    
    $
    7,872Less:Net assets sold
    
    
    7,803Reserves and expenses
    
    
    4,067Loss on sale, net
    
    $
    3,998
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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  Assets:Cash and cash equivalents
    
    $
    181Accounts receivable, net
    
    
    10,470Prepaid expenses
    
    
    975Total current assets held for sale
    
    
    11,626Property and equipment, net
    
    
    1,936Total assets sold
    
    
    13,562Liabilities:Accounts payable and drafts
    
    
    1,127Accrued payroll and benefits
    
    
    1,918Other accrued liabilities
    
    
    2,714Total liabilities sold
    
    
    5,759Net assets sold
    
    $
    7,803
  Fiscal Quarter Ended
    
    
    Fiscal Six Months EndedJuly 3,
    
    
    July 4,
    
    
    July 3,
    
    
    July 4,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    32,349
    
    
    $
    40,226
    
    
    $
    65,187
    
    
    $
    82,151Cost of sales
    
    
    30,095
    
    
    
    37,834
    
    
    
    61,054
    
    
    
    77,036Gross profit
    
    
    2,254
    
    
    
    2,392
    
    
    
    4,133
    
    
    
    5,115Selling, general and administrative expense
    
    
    1,908
    
    
    
    2,178
    
    
    
    3,682
    
    
    
    4,131Restructuring and severance
    
    
    
    
    
    
    
    
    
    
    6,602
    
    
    
    Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    Operating income (loss)
    
    
    346
    
    
    
    214
    
    
    
    (13,282
    )
    
    
    984Interest expense, net
    
    
    53
    
    
    
    131
    
    
    
    69
    
    
    
    381Net loss on sale of businesses
    
    
    3,998
    
    
    
    
    
    
    
    3,998
    
    
    
    Income (loss) before taxes, net
    
    
    (3,705
    )
    
    
    83
    
    
    
    (17,349
    )
    
    
    603Income tax
expense (benefit)
    
    
    1,203
    
    
    
    (240
    )
    
    
    (68
    )
    
    
    (65
    )Income (loss) from discontinued operations
    
    $
    (4,908
    )
    
    $
    323
    
    
    $
    (17,281
    )
    
    $
    668
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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  At July 3,
    
    
    At January 2,2005
    
    
    2005Assets:Cash and cash equivalents
    
    $
    941
    
    
    $
    Accounts receivable, net
    
    
    23,363
    
    
    
    12,140Inventory
    
    
    2,804
    
    
    
    Prepaid expenses
    
    
    380
    
    
    
    1,313Total current assets held for sale
    
    
    27,488
    
    
    
    13,453Property and equipment, net
    
    
    4,273
    
    
    
    2,259Goodwill, net
    
    
    9,215
    
    
    
    359Total assets held for sale
    
    
    40,976
    
    
    
    16,071Liabilities:Note payable and current portion of long-term debt
    
    
    310
    
    
    
    Accounts payable and drafts
    
    
    20,847
    
    
    
    2,880Accrued payroll and benefits
    
    
    8,656
    
    
    
    4,642Other accrued liabilities
    
    
    1,399
    
    
    
    2,611Total current liabilities held for sale
    
    
    31,212
    
    
    
    10,133Long-term deferred compensation liabilities and
other
    
    
    8,458
    
    
    
    Total liabilities held for sale
    
    
    39,670
    
    
    
    10,133Net assets held for sale
    
    $
    1,306
    
    
    $
    5,938
  3. Restructuring and Severance:
  OtherTermination
    
    
    Facility
    
    
    ContractualBenefits
    
    
    Consolidation
    
    
    Costs
    
    
    TotalReserve at January 2, 2005
    
    $
    573
    
    
    $
    562
    
    
    $
    199
    
    
    $
    1,334Charges from continuing operations through July 3, 2005
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    503Charges from discontinued operations through July 3, 2005
    
    
    5,198
    
    
    
    260
    
    
    
    1,144
    
    
    
    6,602Payments and reserve utilization through July 3, 2005
    
    
    (503
    )
    
    
    (562
    )
    
    
    (103
    )
    
    
    (1,168
    )Reserve through July 3, 2005
    
    $
    5,771
    
    
    $
    260
    
    
    $
    1,240
    
    
    $
    7,271
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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 4. Accounts Receivable:
  5. Goodwill, net:
  Business
    
    
    
    HumanOutsourcing
    
    
    Capital
    
    
    EngineeringServices
    
    
    Services
    
    
    Services
    
    
    TotalBalance at January 2, 2005
    
    $
    37,703
    
    
    $
    97,392
    
    
    $
    
    
    
    $
    135,095Transfer of business unit
    
    
    (1,809
    )
    
    
    1,809
    
    
    
    
    
    
    
    Goodwill classified as held
for sale during the fiscal
period
    
    
    (17,816
    )
    
    
    (69
    )
    
    
    
    
    
    
    (17,885
    )Translation changes and other
    
    
    (807
    )
    
    
    
    
    
    
    
    
    
    
    (807
    )Balance at July 3, 2005
    
    $
    17,271
    
    
    $
    99,132
    
    
    $
    
    
    
    $
    116,403
  6. Debt:
  Interest Rates at
    
    
    Outstanding atJuly 3,
    
    
    January 2,
    
    
    July 3,
    
    
    January 2,2005
    
    
    2005
    
    
    2005
    
    
    2005Senior credit facility
    
    
    6.25
    %
    
    
    5.50
    %
    
    $
    
    
    
    $
    590Senior secured notes, net of unamortized discount
    
    
    11.00
    %
    
    
    11.00
    %
    
    
    75,145
    
    
    
    75,063Mezzanine term notes, net of unamortized discount
    
    
    11.50
    %
    
    
    11.50
    %
    
    
    24,595
    
    
    
    24,506Fourth lien term notes
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    20,719
    
    
    
    19,710Senior subordinated notes
    
    
    11.375
    %
    
    
    11.375
    %
    
    
    130,000
    
    
    
    130,000Satiz facility
    
    
    
    
    
    
    4.455
    %
    
    
    
    
    
    
    8,065Other
    
    
    7.00
    %
    
    
    7.00
    %
    
    
    2,663
    
    
    
    2,930253,122
    
    
    
    260,864Less current portion
    
    
    
    
    
    
    
    
    
    
    2,663
    
    
    
    10,995Total long-term debt
    
    
    
    
    
    
    
    
    
    $
    250,459
    
    
    $
    249,869
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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 7. Redeemable Series A Preferred Stock:
  8. Comprehensive Loss:
  Fiscal Quarter Ended
    
    
    Fiscal Six Months EndedJuly 3,
    
    
    July 4,
    
    
    July 3,
    
    
    July 4,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    (4,444
    )
    
    $
    (116
    )
    
    $
    (19,280
    )
    
    $
    278Other comprehensive loss 
foreign currency translation adjustments
    
    
    (1,409
    )
    
    
    (162
    )
    
    
    (2,960
    )
    
    
    (1,476
    )Comprehensive loss
    
    $
    (5,853
    )
    
    $
    (278
    )
    
    $
    (22,240
    )
    
    $
    (1,198
    )
 9. Income Taxes:
  10. Segment Information:
   9




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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  Business
    
    
    HumanOutsourcing
    
    
    Capital
    
    
    EngineeringServices
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalQuarter Ended July 3, 2005Net sales  external
    
    $
    44,118
    
    
    $
    47,270
    
    
    $
    25,551
    
    
    $
    
    
    
    $
    116,939Net intercompany sales
    
    
    13
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    EBITA
    
    
    6,323
    
    
    
    4,156
    
    
    
    2,732
    
    
    
    
    
    
    
    13,211Quarter Ended July 4, 2004Net sales  external
    
    
    43,254
    
    
    
    48,439
    
    
    
    21,981
    
    
    
    
    
    
    
    113,674Net intercompany sales
    
    
    610
    
    
    
    7
    
    
    
    (282
    )
    
    
    (335
    )
    
    
    EBITA
    
    
    6,485
    
    
    
    2,547
    
    
    
    1,730
    
    
    
    
    
    
    
    10,762
 Business
    
    
    HumanOutsourcing
    
    
    Capital
    
    
    EngineeringServices
    
    
    Services
    
    
    Services
    
    
    Other
    
    
    TotalSix Months Ended July 3, 2005Net sales  external
    
    $
    87,287
    
    
    $
    94,011
    
    
    $
    48,739
    
    
    $
    
    
    
    $
    230,037Net intercompany sales
    
    
    27
    
    
    
    
    
    
    
    2
    
    
    
    (29
    )
    
    
    EBITA
    
    
    11,884
    
    
    
    7,052
    
    
    
    4,754
    
    
    
    
    
    
    
    23,690Six Months Ended July 4, 2004Net sales  external
    
    
    88,948
    
    
    
    99,840
    
    
    
    50,276
    
    
    
    
    
    
    
    239,064Net intercompany sales
    
    
    915
    
    
    
    9
    
    
    
    (13
    )
    
    
    (911
    )
    
    
    EBITA
    
    
    12,674
    
    
    
    6,249
    
    
    
    4,274
    
    
    
    
    
    
    
    23,197
  Fiscal Quarter Ended
    
    
    Fiscal Six Months EndedJuly 3,
    
    
    July 4,
    
    
    July 3,
    
    
    July 4,2005
    
    
    2004
    
    
    2005
    
    
    2004Total segment EBITA
    
    $
    13,211
    
    
    $
    10,762
    
    
    $
    23,690
    
    
    $
    23,197Net costs not allocated to segments
    
    
    (2,870
    )
    
    
    (2,469
    )
    
    
    (5,507
    )
    
    
    (5,817
    )Interest expense
    
    
    (8,967
    )
    
    
    (8,216
    )
    
    
    (17,471
    )
    
    
    (15,772
    )Michigan single business tax and other similar taxes
    
    
    (528
    )
    
    
    (447
    )
    
    
    (1,051
    )
    
    
    (1,009
    )Consolidated income (loss) from continuing
operations before taxes
    
    $
    846
    
    
    $
    (370
    )
    
    $
    (339
    )
    
    $
    599
 10




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 11. Stock-Based Compensation:
  12. New Accounting Pronouncements:
 SFAS
No. 123-R,: Accounting for Stock-Based Compensation  Revised:
 11




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:
   
    
    MSXIthe parent company and issuer
    
    The guarantor subsidiaries
    
    The non-guarantor subsidiaries
    
    MSXI on a consolidated basis
  12




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of July 3, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,822
    
    
    $
    474
    
    
    $
    21,857
    
    
    $
    
    
    
    $
    32,153Accounts receivable, net
    
    
    
    
    
    
    76,543
    
    
    
    41,499
    
    
    
    
    
    
    
    118,042Inventory
    
    
    
    
    
    
    7,669
    
    
    
    6
    
    
    
    
    
    
    
    7,675Prepaid expenses and other assets
    
    
    
    
    
    
    2,672
    
    
    
    1,614
    
    
    
    
    
    
    
    4,286Assets held for sale
    
    
    
    
    
    
    
    
    
    
    27,488
    
    
    
    
    
    
    
    27,488Deferred income taxes, net
    
    
    
    
    
    
    2,208
    
    
    
    1,711
    
    
    
    (2,208
    )
    
    
    1,711Total current assets
    
    
    9,822
    
    
    
    89,566
    
    
    
    94,175
    
    
    
    (2,208
    )
    
    
    191,355Property and equipment, net
    
    
    
    
    
    
    3,496
    
    
    
    1,646
    
    
    
    
    
    
    
    5,142Goodwill, net
    
    
    
    
    
    
    116,302
    
    
    
    101
    
    
    
    
    
    
    
    116,403Investments in subsidiaries
    
    
    99,326
    
    
    
    4,490
    
    
    
    
    
    
    
    (103,816
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    13,488
    
    
    
    
    
    
    
    13,488Other assets
    
    
    4,736
    
    
    
    2,777
    
    
    
    444
    
    
    
    
    
    
    
    7,957Deferred income taxes, net
    
    
    2,587
    
    
    
    
    
    
    
    2,180
    
    
    
    (2,587
    )
    
    
    2,180Total assets
    
    $
    116,471
    
    
    $
    216,631
    
    
    $
    112,034
    
    
    $
    (108,611
    )
    
    $
    336,525LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    2,663
    
    
    $
    
    
    
    $
    2,663Accounts payable and drafts
    
    
    
    
    
    
    64,186
    
    
    
    20,956
    
    
    
    
    
    
    
    85,142Accrued liabilities
    
    
    11,753
    
    
    
    26,140
    
    
    
    25,623
    
    
    
    
    
    
    
    63,516Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    31,212
    
    
    
    
    
    
    
    31,212Deferred income taxes, net
    
    
    2,208
    
    
    
    
    
    
    
    
    
    
    
    (2,208
    )
    
    
    Total current liabilities
    
    
    13,961
    
    
    
    90,326
    
    
    
    80,454
    
    
    
    (2,208
    )
    
    
    182,533Long-term debt
    
    
    233,543
    
    
    
    
    
    
    
    16,916
    
    
    
    
    
    
    
    250,459Intercompany accounts
    
    
    (19,334
    )
    
    
    18,600
    
    
    
    734
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    5,792
    
    
    
    983
    
    
    
    
    
    
    
    6,775Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    8,458
    
    
    
    
    
    
    
    8,458Deferred income taxes, net
    
    
    
    
    
    
    2,587
    
    
    
    
    
    
    
    (2,587
    )
    
    
    Total liabilities
    
    
    228,170
    
    
    
    117,305
    
    
    
    107,545
    
    
    
    (4,795
    )
    
    
    448,225Redeemable Series A Preferred Stock
    
    
    96,776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,776Shareholders equity (deficit)
    
    
    (208,475
    )
    
    
    99,326
    
    
    
    4,489
    
    
    
    (103,816
    )
    
    
    (208,476
    )Total liabilities and
shareholders
equity (deficit)
    
    $
    116,471
    
    
    $
    216,631
    
    
    $
    112,034
    
    
    $
    (108,611
    )
    
    $
    336,525
 13




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,650
    
    
    $
    11,570
    
    
    $
    17,157
    
    
    $
    
    
    
    $
    34,377Accounts receivable, net
    
    
    
    
    
    
    68,099
    
    
    
    90,541
    
    
    
    
    
    
    
    158,640Inventory
    
    
    
    
    
    
    9,121
    
    
    
    3,039
    
    
    
    
    
    
    
    12,160Prepaid expenses and other assets
    
    
    
    
    
    
    2,736
    
    
    
    666
    
    
    
    
    
    
    
    3,402Assets held for sale
    
    
    
    
    
    
    
    
    
    
    13,453
    
    
    
    
    
    
    
    13,453Deferred income taxes, net
    
    
    
    
    
    
    2,569
    
    
    
    5,341
    
    
    
    (2,569
    )
    
    
    5,341Total current assets
    
    
    5,650
    
    
    
    94,095
    
    
    
    130,197
    
    
    
    (2,569
    )
    
    
    227,373Property and equipment, net
    
    
    
    
    
    
    4,367
    
    
    
    6,828
    
    
    
    
    
    
    
    11,195Goodwill, net
    
    
    
    
    
    
    116,302
    
    
    
    18,793
    
    
    
    
    
    
    
    135,095Investment in subsidiaries
    
    
    110,993
    
    
    
    23,829
    
    
    
    
    
    
    
    (134,822
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    2,618
    
    
    
    
    
    
    
    2,618Other assets
    
    
    5,767
    
    
    
    3,032
    
    
    
    664
    
    
    
    
    
    
    
    9,463Deferred income taxes, net
    
    
    1,257
    
    
    
    
    
    
    
    
    
    
    
    (1,257
    )
    
    
    Total assets
    
    $
    123,667
    
    
    $
    241,625
    
    
    $
    159,100
    
    
    $
    (138,648
    )
    
    $
    385,744LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    10,995
    
    
    $
    
    
    
    $
    10,995Accounts payable and drafts
    
    
    
    
    
    
    62,594
    
    
    
    54,657
    
    
    
    
    
    
    
    117,251Accrued liabilities
    
    
    10,998
    
    
    
    27,447
    
    
    
    28,999
    
    
    
    
    
    
    
    67,444Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    10,133
    
    
    
    
    
    
    
    10,133Deferred income taxes, net
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    (2,569
    )
    
    
    Total current liabilities
    
    
    13,567
    
    
    
    90,041
    
    
    
    104,784
    
    
    
    (2,569
    )
    
    
    205,823Long-term debt
    
    
    232,521
    
    
    
    
    
    
    
    17,348
    
    
    
    
    
    
    
    249,869Intercompany accounts
    
    
    (32,963
    )
    
    
    31,929
    
    
    
    1,034
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    7,405
    
    
    
    11,091
    
    
    
    
    
    
    
    18,496Deferred income taxes, net
    
    
    
    
    
    
    1,257
    
    
    
    1,016
    
    
    
    (1,257
    )
    
    
    1,016Total liabilities
    
    
    213,125
    
    
    
    130,632
    
    
    
    135,273
    
    
    
    (3,826
    )
    
    
    475,204Redeemable Series A Preferred Stock
    
    
    91,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,312Shareholders equity (deficit)
    
    
    (180,770
    )
    
    
    110,993
    
    
    
    23,827
    
    
    
    (134,822
    )
    
    
    (180,772
    )Total liabilities and shareholders
equity (deficit)
    
    $
    123,667
    
    
    $
    241,625
    
    
    $
    159,100
    
    
    $
    (138,648
    )
    
    $
    385,744
 14




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended July 3, 2005 and July 4, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended July 3, 2005:Net sales
    
    $
    
    
    
    $
    82,653
    
    
    $
    34,300
    
    
    $
    (14
    )
    
    $
    116,939Cost of sales
    
    
    
    
    
    
    70,846
    
    
    
    27,348
    
    
    
    (14
    )
    
    
    98,180Gross profit
    
    
    
    
    
    
    11,807
    
    
    
    6,952
    
    
    
    
    
    
    
    18,759Selling, general and administrative expenses
    
    
    
    
    
    
    6,204
    
    
    
    2,396
    
    
    
    
    
    
    
    8,600Restructuring and severance costs
    
    
    
    
    
    
    274
    
    
    
    72
    
    
    
    
    
    
    
    346Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    5,329
    
    
    
    4,484
    
    
    
    
    
    
    
    9,813Interest expense, net
    
    
    6,663
    
    
    
    840
    
    
    
    1,464
    
    
    
    
    
    
    
    8,967Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,663
    )
    
    
    4,489
    
    
    
    3,020
    
    
    
    
    
    
    
    846Income tax provision (benefit)
    
    
    (1,535
    )
    
    
    1,556
    
    
    
    361
    
    
    
    
    
    
    
    382Equity in affiliates
    
    
    5,592
    
    
    
    2,659
    
    
    
    
    
    
    
    (8,251
    )
    
    
    Income from continuing operations
    
    
    464
    
    
    
    5,592
    
    
    
    2,659
    
    
    
    (8,251
    )
    
    
    464Loss from discontinued operations, net
    
    
    (4,908
    )
    
    
    (4,908
    )
    
    
    (4,783
    )
    
    
    9,691
    
    
    
    (4,908
    )Net income (loss)
    
    $
    (4,444
    )
    
    $
    684
    
    
    $
    (2,124
    )
    
    $
    1,440
    
    
    $
    (4,444
    )Fiscal Quarter Ended July 4, 2004:Net sales
    
    $
    
    
    
    $
    87,016
    
    
    $
    27,995
    
    
    $
    (1,337
    )
    
    $
    113,674Cost of sales
    
    
    
    
    
    
    75,713
    
    
    
    22,308
    
    
    
    (1,337
    )
    
    
    96,684Gross profit
    
    
    
    
    
    
    11,303
    
    
    
    5,687
    
    
    
    
    
    
    
    16,990Selling, general and administrative expenses
    
    
    
    
    
    
    6,548
    
    
    
    2,075
    
    
    
    
    
    
    
    8,623Restructuring and severance costs
    
    
    
    
    
    
    138
    
    
    
    383
    
    
    
    
    
    
    
    521Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    4,617
    
    
    
    3,229
    
    
    
    
    
    
    
    7,846Interest expense, net
    
    
    6,055
    
    
    
    1,163
    
    
    
    998
    
    
    
    
    
    
    
    8,216Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,055
    )
    
    
    3,454
    
    
    
    2,231
    
    
    
    
    
    
    
    (370
    )Income tax provision (benefit)
    
    
    (1,263
    )
    
    
    1,302
    
    
    
    30
    
    
    
    
    
    
    
    69Equity in affiliates
    
    
    4,353
    
    
    
    2,203
    
    
    
    
    
    
    
    (6,556
    )
    
    
    Income (loss) from continuing operations
    
    
    (439
    )
    
    
    4,355
    
    
    
    2,201
    
    
    
    (6,556
    )
    
    
    (439
    )Income from discontinued operations, net
    
    
    323
    
    
    
    323
    
    
    
    323
    
    
    
    (646
    )
    
    
    323Net income (loss)
    
    $
    (116
    )
    
    $
    4,678
    
    
    $
    2,524
    
    
    $
    (7,202
    )
    
    $
    (116
    )
 15




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal six months ended July 3, 2005 and July 4, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Six Months Ended July 3, 2005:Net sales
    
    $
    
    
    
    $
    163,522
    
    
    $
    66,557
    
    
    $
    (42
    )
    
    $
    230,037Cost of sales
    
    
    
    
    
    
    141,469
    
    
    
    53,563
    
    
    
    (42
    )
    
    
    194,990Gross profit
    
    
    
    
    
    
    22,053
    
    
    
    12,994
    
    
    
    
    
    
    
    35,047Selling, general and administrative expenses
    
    
    
    
    
    
    12,741
    
    
    
    4,671
    
    
    
    
    
    
    
    17,412Restructuring and severance costs
    
    
    
    
    
    
    406
    
    
    
    97
    
    
    
    
    
    
    
    503Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    8,906
    
    
    
    8,226
    
    
    
    
    
    
    
    17,132Interest expense, net
    
    
    12,916
    
    
    
    2,131
    
    
    
    2,424
    
    
    
    
    
    
    
    17,471Income
(loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (12,916
    )
    
    
    6,775
    
    
    
    5,802
    
    
    
    
    
    
    
    (339
    )Income tax provision (benefit)
    
    
    (2,343
    )
    
    
    2,383
    
    
    
    1,620
    
    
    
    
    
    
    
    1,660Equity in affiliates
    
    
    8,574
    
    
    
    4,182
    
    
    
    
    
    
    
    (12,756
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,999
    )
    
    
    8,574
    
    
    
    4,182
    
    
    
    (12,756
    )
    
    
    (1,999
    )Loss from discontinued operations, net
    
    
    (17,281
    )
    
    
    (17,281
    )
    
    
    (17,156
    )
    
    
    34,437
    
    
    
    (17,281
    )Net income (loss)
    
    $
    (19,280
    )
    
    $
    (8,707
    )
    
    $
    (12,974
    )
    
    $
    21,681
    
    
    $
    (19,280
    )Fiscal Six Months Ended July 3, 2004:Net sales
    
    $
    
    
    
    $
    184,415
    
    
    $
    56,562
    
    
    $
    (1,913
    )
    
    $
    239,064Cost of sales
    
    
    
    
    
    
    163,282
    
    
    
    42,826
    
    
    
    (1,913
    )
    
    
    204,195Gross profit
    
    
    
    
    
    
    21,133
    
    
    
    13,736
    
    
    
    
    
    
    
    34,869Selling, general and administrative expenses
    
    
    
    
    
    
    13,539
    
    
    
    4,438
    
    
    
    
    
    
    
    17,977Restructuring and severance costs
    
    
    
    
    
    
    138
    
    
    
    383
    
    
    
    
    
    
    
    521Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    7,456
    
    
    
    8,915
    
    
    
    
    
    
    
    16,371Interest expense, net
    
    
    12,722
    
    
    
    2,262
    
    
    
    788
    
    
    
    
    
    
    
    15,772Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (12,722
    )
    
    
    5,194
    
    
    
    8,127
    
    
    
    
    
    
    
    599Income tax provision (benefit)
    
    
    (1,884
    )
    
    
    1,738
    
    
    
    1,135
    
    
    
    
    
    
    
    989Equity in affiliates
    
    
    10,448
    
    
    
    6,992
    
    
    
    
    
    
    
    (17,440
    )
    
    
    Income (loss) from continuing operations
    
    
    (390
    )
    
    
    10,448
    
    
    
    6,992
    
    
    
    (17,440
    )
    
    
    (390
    )Income from discontinued operations, net
    
    
    668
    
    
    
    668
    
    
    
    668
    
    
    
    (1,336
    )
    
    
    668Net income (loss)
    
    $
    278
    
    
    $
    11,116
    
    
    $
    7,660
    
    
    $
    (18,776
    )
    
    $
    278
 16




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal six months ended July 3, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (19,280
    )
    
    $
    (8,707
    )
    
    $
    (12,974
    )
    
    $
    21,681
    
    
    $
    (19,280
    )Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued
operations
    
    
    8,707
    
    
    
    12,974
    
    
    
    
    
    
    
    (21,681
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    3,998
    
    
    
    
    
    
    
    3,998Depreciation
    
    
    
    
    
    
    1,613
    
    
    
    1,903
    
    
    
    
    
    
    
    3,516Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    2,073
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    2,287Deferred taxes
    
    
    (1,691
    )
    
    
    1,691
    
    
    
    434
    
    
    
    
    
    
    
    434(Gain) Loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    (44
    )
    
    
    (56
    )
    
    
    
    
    
    
    (100
    )(Increase) decrease in receivables, net
    
    
    
    
    
    
    (8,444
    )
    
    
    29,445
    
    
    
    
    
    
    
    21,001(Increase) decrease in inventory
    
    
    
    
    
    
    1,452
    
    
    
    228
    
    
    
    
    
    
    
    1,680(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    65
    
    
    
    (989
    )
    
    
    
    
    
    
    (924
    )Increase (decrease) in current liabilities
    
    
    753
    
    
    
    6,452
    
    
    
    (12,629
    )
    
    
    
    
    
    
    (5,424
    )Other, net
    
    
    
    
    
    
    (151
    )
    
    
    (1,543
    )
    
    
    
    
    
    
    (1,694
    )Net cash provided by (used for) operating activities
    
    
    (9,438
    )
    
    
    6,901
    
    
    
    15,162
    
    
    
    
    
    
    
    12,625Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (752
    )
    
    
    (834
    )
    
    
    
    
    
    
    (1,586
    )Payments for contingent consideration
    
    
    
    
    
    
    (1,208
    )
    
    
    
    
    
    
    
    
    
    
    (1,208
    )Proceeds from sale of business
    
    
    
    
    
    
    
    
    
    
    5,041
    
    
    
    
    
    
    
    5,041Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    54
    
    
    
    148
    
    
    
    
    
    
    
    202Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (1,906
    )
    
    
    4,355
    
    
    
    
    
    
    
    2,449Cash flows from financing activities:Transactions with subsidiaries
    
    
    13,629
    
    
    
    (9,925
    )
    
    
    (3,704
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (8,605
    )
    
    
    
    
    
    
    (8,605
    )Change in book overdrafts
    
    
    
    
    
    
    (6,166
    )
    
    
    
    
    
    
    
    
    
    
    (6,166
    )Net cash provided by (used for) financing activities
    
    
    13,610
    
    
    
    (16,091
    )
    
    
    (12,309
    )
    
    
    
    
    
    
    (14,790
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (1,567
    )
    
    
    
    
    
    
    (1,567
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    4,172
    
    
    
    (11,096
    )
    
    
    5,641
    
    
    
    
    
    
    
    (1,283
    )Balance, beginning of period
    
    
    5,650
    
    
    
    11,570
    
    
    
    17,157
    
    
    
    
    
    
    
    34,377Balance, end of period (including $941 of cash held
for sale as of July 3, 2005)
    
    $
    9,822
    
    
    $
    474
    
    
    $
    22,798
    
    
    $
    
    
    
    $
    33,094
 17




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal six months ended July 4, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    278
    
    
    $
    11,116
    
    
    $
    7,660
    
    
    $
    (18,776
    )
    
    $
    278Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued
operations
    
    
    (11,116
    )
    
    
    (7,660
    )
    
    
    
    
    
    
    18,776
    
    
    
    Depreciation
    
    
    
    
    
    
    2,282
    
    
    
    2,431
    
    
    
    
    
    
    
    4,713Amortization of debt issuance costs and
non-cash interest
    
    
    2,018
    
    
    
    
    
    
    
    164
    
    
    
    
    
    
    
    2,182Deferred taxes
    
    
    (1,496
    )
    
    
    1,508
    
    
    
    865
    
    
    
    
    
    
    
    877(Gain) loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    20
    
    
    
    (70
    )
    
    
    
    
    
    
    (50
    )(Increase) decrease in receivables, net
    
    
    
    
    
    
    5,219
    
    
    
    18,381
    
    
    
    
    
    
    
    23,600(Increase) decrease in inventory
    
    
    
    
    
    
    (834
    )
    
    
    146
    
    
    
    
    
    
    
    (688
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (369
    )
    
    
    (622
    )
    
    
    
    
    
    
    (991
    )Increase (decrease) in current liabilities
    
    
    1,910
    
    
    
    5,770
    
    
    
    (27,140
    )
    
    
    
    
    
    
    (19,460
    )Other, net
    
    
    
    
    
    
    (292
    )
    
    
    (116
    )
    
    
    
    
    
    
    (408
    )Net cash provided by (used for) operating activities
    
    
    (8,406
    )
    
    
    16,760
    
    
    
    1,699
    
    
    
    
    
    
    
    10,053Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (275
    )
    
    
    (842
    )
    
    
    
    
    
    
    (1,117
    )Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    16
    
    
    
    134
    
    
    
    
    
    
    
    150Other, net
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    307Net cash provided by (used for) investing activities
    
    
    
    
    
    
    48
    
    
    
    (708
    )
    
    
    
    
    
    
    (660
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    6,692
    
    
    
    (1,455
    )
    
    
    (5,237
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (436
    )
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    (406
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (147
    )
    
    
    
    
    
    
    (147
    )Change in book overdrafts, net
    
    
    
    
    
    
    (14,652
    )
    
    
    2,235
    
    
    
    
    
    
    
    (12,417
    )Net cash provided by (used for) financing activities
    
    
    6,256
    
    
    
    (16,107
    )
    
    
    (3,119
    )
    
    
    
    
    
    
    (12,970
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (956
    )
    
    
    
    
    
    
    (956
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (2,150
    )
    
    
    701
    
    
    
    (3,084
    )
    
    
    
    
    
    
    (4,533
    )Balance, beginning of period
    
    
    18,600
    
    
    
    391
    
    
    
    17,659
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    16,450
    
    
    $
    1,092
    
    
    $
    14,575
    
    
    $
    
    
    
    $
    32,117
 18




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:
  
    
    MSXI  the parent company
    
    MSXI Limited  the issuer
    
    The guarantor subsidiaries
    
    The non-guarantor subsidiaries
    
    MSXI on a consolidated basis
  19




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of July 3, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,822
    
    
    $
    7,188
    
    
    $
    474
    
    
    $
    14,669
    
    
    $
    
    
    
    $
    32,153Accounts receivable, net
    
    
    
    
    
    
    11,899
    
    
    
    76,543
    
    
    
    29,600
    
    
    
    
    
    
    
    118,042Inventory
    
    
    
    
    
    
    
    
    
    
    7,669
    
    
    
    6
    
    
    
    
    
    
    
    7,675Prepaid expenses and other assets
    
    
    
    
    
    
    667
    
    
    
    2,672
    
    
    
    947
    
    
    
    
    
    
    
    4,286Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,488
    
    
    
    
    
    
    
    27,488Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    2,208
    
    
    
    1,969
    
    
    
    (2,466
    )
    
    
    1,711Total current assets
    
    
    9,822
    
    
    
    19,754
    
    
    
    89,566
    
    
    
    74,679
    
    
    
    (2,466
    )
    
    
    191,355Property and equipment, net
    
    
    
    
    
    
    405
    
    
    
    3,496
    
    
    
    1,241
    
    
    
    
    
    
    
    5,142Goodwill, net
    
    
    
    
    
    
    101
    
    
    
    116,302
    
    
    
    
    
    
    
    
    
    
    
    116,403Investments in subsidiaries
    
    
    99,326
    
    
    
    
    
    
    
    4,490
    
    
    
    9,823
    
    
    
    (113,639
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,488
    
    
    
    
    
    
    
    13,488Other assets
    
    
    4,736
    
    
    
    380
    
    
    
    2,777
    
    
    
    64
    
    
    
    
    
    
    
    7,957Deferred income taxes, net
    
    
    2,587
    
    
    
    258
    
    
    
    
    
    
    
    1,922
    
    
    
    (2,587
    )
    
    
    2,180Total assets
    
    $
    116,471
    
    
    $
    20,898
    
    
    $
    216,631
    
    
    $
    101,217
    
    
    $
    (118,692
    )
    
    $
    336,525LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,663
    
    
    $
    
    
    
    $
    2,663Accounts payable and drafts
    
    
    
    
    
    
    5,466
    
    
    
    64,186
    
    
    
    15,490
    
    
    
    
    
    
    
    85,142Accrued liabilities
    
    
    11,753
    
    
    
    7,881
    
    
    
    26,140
    
    
    
    17,742
    
    
    
    
    
    
    
    63,516Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,212
    
    
    
    
    
    
    
    31,212Deferred income taxes, net
    
    
    2,208
    
    
    
    258
    
    
    
    
    
    
    
    
    
    
    
    (2,466
    )
    
    
    Total current liabilities
    
    
    13,961
    
    
    
    13,605
    
    
    
    90,326
    
    
    
    67,107
    
    
    
    (2,466
    )
    
    
    182,533Long-term debt
    
    
    233,543
    
    
    
    16,916
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,459Intercompany accounts
    
    
    (19,334
    )
    
    
    (19,829
    )
    
    
    18,600
    
    
    
    20,563
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    382
    
    
    
    5,792
    
    
    
    601
    
    
    
    
    
    
    
    6,775Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,458
    
    
    
    
    
    
    
    8,458Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    2,587
    
    
    
    
    
    
    
    (2,587
    )
    
    
    Total liabilities
    
    
    228,170
    
    
    
    11,074
    
    
    
    117,305
    
    
    
    96,729
    
    
    
    (5,053
    )
    
    
    448,225Redeemable Series A Preferred Stock
    
    
    96,776
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,776Shareholders equity (deficit)
    
    
    (208,475
    )
    
    
    9,824
    
    
    
    99,326
    
    
    
    4,488
    
    
    
    (113,639
    )
    
    
    (208,476
    )Total liabilities and shareholders
equity (deficit)
    
    $
    116,471
    
    
    $
    20,898
    
    
    $
    216,631
    
    
    $
    101,217
    
    
    $
    (118,692
    )
    
    $
    336,525
 20




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,650
    
    
    $
    18
    
    
    $
    11,570
    
    
    $
    17,139
    
    
    $
    
    
    
    $
    34,377Accounts receivable, net
    
    
    
    
    
    
    12,867
    
    
    
    68,099
    
    
    
    77,674
    
    
    
    
    
    
    
    158,640Inventory
    
    
    
    
    
    
    
    
    
    
    9,121
    
    
    
    3,039
    
    
    
    
    
    
    
    12,160Prepaid expenses and other assets
    
    
    
    
    
    
    188
    
    
    
    2,736
    
    
    
    478
    
    
    
    
    
    
    
    3,402Assets held for sale
    
    
    
    
    
    
    7,420
    
    
    
    
    
    
    
    6,033
    
    
    
    
    
    
    
    13,453Deferred income taxes, net
    
    
    
    
    
    
    350
    
    
    
    2,569
    
    
    
    4,991
    
    
    
    (2,569
    )
    
    
    5,341Total current assets
    
    
    5,650
    
    
    
    20,843
    
    
    
    94,095
    
    
    
    109,354
    
    
    
    (2,569
    )
    
    
    227,373Property and equipment, net
    
    
    
    
    
    
    1,084
    
    
    
    4,367
    
    
    
    5,744
    
    
    
    
    
    
    
    11,195Goodwill, net
    
    
    
    
    
    
    108
    
    
    
    116,302
    
    
    
    18,685
    
    
    
    
    
    
    
    135,095Investment in subsidiaries
    
    
    110,993
    
    
    
    
    
    
    
    23,829
    
    
    
    10,102
    
    
    
    (144,924
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    526
    
    
    
    
    
    
    
    2,092
    
    
    
    
    
    
    
    2,618Other assets
    
    
    5,767
    
    
    
    493
    
    
    
    3,032
    
    
    
    171
    
    
    
    
    
    
    
    9,463Deferred income taxes, net
    
    
    1,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,257
    )
    
    
    Total assets
    
    $
    123,667
    
    
    $
    23,054
    
    
    $
    241,625
    
    
    $
    146,148
    
    
    $
    (148,750
    )
    
    $
    385,744LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    590
    
    
    $
    
    
    
    $
    10,405
    
    
    $
    
    
    
    $
    10,995Accounts payable and drafts
    
    
    
    
    
    
    6,538
    
    
    
    62,594
    
    
    
    48,119
    
    
    
    
    
    
    
    117,251Accrued liabilities
    
    
    10,998
    
    
    
    4,548
    
    
    
    27,447
    
    
    
    24,451
    
    
    
    
    
    
    
    67,444Liabilities held for sale
    
    
    
    
    
    
    5,542
    
    
    
    
    
    
    
    4,591
    
    
    
    
    
    
    
    10,133Deferred income taxes, net
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,569
    )
    
    
    Total current liabilities
    
    
    13,567
    
    
    
    17,218
    
    
    
    90,041
    
    
    
    87,566
    
    
    
    (2,569
    )
    
    
    205,823Long-term debt
    
    
    232,521
    
    
    
    16,758
    
    
    
    
    
    
    
    590
    
    
    
    
    
    
    
    249,869Intercompany accounts
    
    
    (32,963
    )
    
    
    (21,753
    )
    
    
    31,929
    
    
    
    22,787
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    378
    
    
    
    7,405
    
    
    
    10,713
    
    
    
    
    
    
    
    18,496Deferred income taxes, net
    
    
    
    
    
    
    349
    
    
    
    1,257
    
    
    
    667
    
    
    
    (1,257
    )
    
    
    1,016Total liabilities
    
    
    213,125
    
    
    
    12,950
    
    
    
    130,632
    
    
    
    122,323
    
    
    
    (3,826
    )
    
    
    475,204Redeemable Series A Preferred Stock
    
    
    91,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91,312Shareholders equity (deficit)
    
    
    (180,770
    )
    
    
    10,104
    
    
    
    110,993
    
    
    
    23,825
    
    
    
    (144,924
    )
    
    
    (180,772
    )Total liabilities and shareholders
equity (deficit)
    
    $
    123,667
    
    
    $
    23,054
    
    
    $
    241,625
    
    
    $
    146,148
    
    
    $
    (148,750
    )
    
    $
    385,744
 21




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended July 3, 2005 and July 4, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended July 3, 2005:Net sales
    
    $
    
    
    
    $
    6,655
    
    
    $
    82,653
    
    
    $
    27,645
    
    
    $
    (14
    )
    
    $
    116,939Cost of sales
    
    
    
    
    
    
    4,453
    
    
    
    70,846
    
    
    
    22,895
    
    
    
    (14
    )
    
    
    98,180Gross profit
    
    
    
    
    
    
    2,202
    
    
    
    11,807
    
    
    
    4,750
    
    
    
    
    
    
    
    18,759Selling, general and administrative expenses
    
    
    
    
    
    
    723
    
    
    
    6,204
    
    
    
    1,673
    
    
    
    
    
    
    
    8,600Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    72
    
    
    
    
    
    
    
    346Income from continuing operations
before interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    1,479
    
    
    
    5,329
    
    
    
    3,005
    
    
    
    
    
    
    
    9,813Interest expense (income), net
    
    
    6,663
    
    
    
    1,238
    
    
    
    840
    
    
    
    226
    
    
    
    
    
    
    
    8,967Income (loss) from continuing operations
before income taxes, and equity in
affiliates
    
    
    (6,663
    )
    
    
    241
    
    
    
    4,489
    
    
    
    2,779
    
    
    
    
    
    
    
    846Income tax provision (benefit)
    
    
    (1,535
    )
    
    
    
    
    
    
    1,556
    
    
    
    361
    
    
    
    
    
    
    
    382Equity in affiliates
    
    
    5,592
    
    
    
    
    
    
    
    2,659
    
    
    
    241
    
    
    
    (8,492
    )
    
    
    Income from continuing operations
    
    
    464
    
    
    
    241
    
    
    
    5,592
    
    
    
    2,659
    
    
    
    (8,492
    )
    
    
    464Income (loss) from discontinued operations, net
    
    
    (4,908
    )
    
    
    845
    
    
    
    (4,908
    )
    
    
    (4,783
    )
    
    
    8,846
    
    
    
    (4,908
    )Net income (loss)
    
    $
    (4,444
    )
    
    $
    1,086
    
    
    $
    684
    
    
    $
    (2,124
    )
    
    $
    354
    
    
    $
    (4,444
    )Fiscal Quarter Ended July 4, 2004:Net sales
    
    $
    
    
    
    $
    5,194
    
    
    $
    87,016
    
    
    $
    22,801
    
    
    $
    (1,337
    )
    
    $
    113,674Cost of sales
    
    
    
    
    
    
    3,891
    
    
    
    75,713
    
    
    
    18,417
    
    
    
    (1,337
    )
    
    
    96,684Gross profit
    
    
    
    
    
    
    1,303
    
    
    
    11,303
    
    
    
    4,384
    
    
    
    
    
    
    
    16,990Selling, general and administrative expenses
    
    
    
    
    
    
    1,106
    
    
    
    6,548
    
    
    
    969
    
    
    
    
    
    
    
    8,623Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    383
    
    
    
    
    
    
    
    521Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    197
    
    
    
    4,617
    
    
    
    3,032
    
    
    
    
    
    
    
    7,846Interest expense (income), net
    
    
    6,055
    
    
    
    854
    
    
    
    1,163
    
    
    
    144
    
    
    
    
    
    
    
    8,216Income (loss) from continuing operations
before income taxes, and equity in
affiliates
    
    
    (6,055
    )
    
    
    (657
    )
    
    
    3,454
    
    
    
    2,888
    
    
    
    
    
    
    
    (370
    )Income tax provision (benefit)
    
    
    (1,263
    )
    
    
    (370
    )
    
    
    1,302
    
    
    
    400
    
    
    
    
    
    
    
    69Equity in affiliates
    
    
    4,353
    
    
    
    
    
    
    
    2,203
    
    
    
    (287
    )
    
    
    (6,269
    )
    
    
    Income (loss) from continuing operations
    
    
    (439
    )
    
    
    (287
    )
    
    
    4,355
    
    
    
    2,201
    
    
    
    (6,269
    )
    
    
    (439
    )Income from discontinued operations
    
    
    323
    
    
    
    116
    
    
    
    323
    
    
    
    323
    
    
    
    (762
    )
    
    
    323Net income (loss)
    
    $
    (116
    )
    
    $
    (171
    )
    
    $
    4,678
    
    
    $
    2,524
    
    
    $
    (7,031
    )
    
    $
    (116
    )
 22




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal six months ended July 3, 2005 and July 4, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Six Months Ended July 3, 2005:Net sales
    
    $
    
    
    
    $
    12,640
    
    
    $
    163,522
    
    
    $
    53,917
    
    
    $
    (42
    )
    
    $
    230,037Cost of sales
    
    
    
    
    
    
    8,990
    
    
    
    141,469
    
    
    
    44,573
    
    
    
    (42
    )
    
    
    194,990Gross profit
    
    
    
    
    
    
    3,650
    
    
    
    22,053
    
    
    
    9,344
    
    
    
    
    
    
    
    35,047Selling, general and administrative expenses
    
    
    
    
    
    
    1,270
    
    
    
    12,741
    
    
    
    3,401
    
    
    
    
    
    
    
    17,412Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    406
    
    
    
    97
    
    
    
    
    
    
    
    503Income from continuing operations
before interest, income taxes,
and equity in
affiliates
    
    
    
    
    
    
    2,380
    
    
    
    8,906
    
    
    
    5,846
    
    
    
    
    
    
    
    17,132Interest expense (income), net
    
    
    12,916
    
    
    
    1,975
    
    
    
    2,131
    
    
    
    449
    
    
    
    
    
    
    
    17,471Income (loss) from continuing operations
before income taxes, and equity
in affiliates
    
    
    (12,916
    )
    
    
    405
    
    
    
    6,775
    
    
    
    5,397
    
    
    
    
    
    
    
    (339
    )Income tax provision (benefit)
    
    
    (2,343
    )
    
    
    
    
    
    
    2,383
    
    
    
    1,620
    
    
    
    
    
    
    
    1,660Equity in affiliates
    
    
    8,574
    
    
    
    
    
    
    
    4,182
    
    
    
    405
    
    
    
    (13,161
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,999
    )
    
    
    405
    
    
    
    8,574
    
    
    
    4,182
    
    
    
    (13,161
    )
    
    
    (1,999
    )Income (loss) from discontinued operations, net
    
    
    (17,281
    )
    
    
    1,043
    
    
    
    (17,281
    )
    
    
    (17,156
    )
    
    
    33,394
    
    
    
    (17,281
    )Net income (loss)
    
    $
    (19,280
    )
    
    $
    1,448
    
    
    $
    (8,707
    )
    
    $
    (12,974
    )
    
    $
    20,233
    
    
    $
    (19,280
    )Fiscal Six Months Ended July 4, 2004:Net sales
    
    $
    
    
    
    $
    11,037
    
    
    $
    184,415
    
    
    $
    45,525
    
    
    $
    (1,913
    )
    
    $
    239,064Cost of sales
    
    
    
    
    
    
    8,168
    
    
    
    163,282
    
    
    
    34,658
    
    
    
    (1,913
    )
    
    
    204,195Gross profit
    
    
    
    
    
    
    2,869
    
    
    
    21,133
    
    
    
    10,867
    
    
    
    
    
    
    
    34,869Selling, general and administrative expenses
    
    
    
    
    
    
    2,099
    
    
    
    13,539
    
    
    
    2,339
    
    
    
    
    
    
    
    17,977Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    138
    
    
    
    383
    
    
    
    
    
    
    
    521Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    770
    
    
    
    7,456
    
    
    
    8,145
    
    
    
    
    
    
    
    16,371Interest expense (income), net
    
    
    12,722
    
    
    
    638
    
    
    
    2,262
    
    
    
    150
    
    
    
    
    
    
    
    15,772Income (loss) from continuing operations
before income taxes, and equity
in affiliates
    
    
    (12,722
    )
    
    
    132
    
    
    
    5,194
    
    
    
    7,995
    
    
    
    
    
    
    
    599Income tax provision (benefit)
    
    
    (1,884
    )
    
    
    52
    
    
    
    1,738
    
    
    
    1,083
    
    
    
    
    
    
    
    989Equity in affiliates
    
    
    10,448
    
    
    
    
    
    
    
    6,992
    
    
    
    80
    
    
    
    (17,520
    )
    
    
    Income (loss) from continuing operations
    
    
    (390
    )
    
    
    80
    
    
    
    10,448
    
    
    
    6,992
    
    
    
    (17,520
    )
    
    
    (390
    )Income from discontinued operations
    
    
    668
    
    
    
    718
    
    
    
    668
    
    
    
    668
    
    
    
    (2,054
    )
    
    
    668Net income (loss)
    
    $
    278
    
    
    $
    798
    
    
    $
    11,116
    
    
    $
    7,660
    
    
    $
    (19,574
    )
    
    $
    278
 23




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal six months ended July 3, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (19,280
    )
    
    $
    1,448
    
    
    $
    (8,707
    )
    
    $
    (12,974
    )
    
    $
    20,233
    
    
    $
    (19,280
    )Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates, including discontinued
operations
    
    
    8,707
    
    
    
    
    
    
    
    12,974
    
    
    
    (1,448
    )
    
    
    (20,233
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    (607
    )
    
    
    
    
    
    
    4,605
    
    
    
    
    
    
    
    3,998Depreciation
    
    
    
    
    
    
    519
    
    
    
    1,613
    
    
    
    1,384
    
    
    
    
    
    
    
    3,516Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    2,073
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,287Deferred taxes
    
    
    (1,691
    )
    
    
    
    
    
    
    1,691
    
    
    
    434
    
    
    
    
    
    
    
    434(Gain) on sale/disposal of property
and equipment
    
    
    
    
    
    
    (1
    )
    
    
    (44
    )
    
    
    (55
    )
    
    
    
    
    
    
    (100
    )(Increase) decrease in receivable, net
    
    
    
    
    
    
    2,209
    
    
    
    (8,444
    )
    
    
    27,236
    
    
    
    
    
    
    
    21,001(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    1,452
    
    
    
    228
    
    
    
    
    
    
    
    1,680(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (355
    )
    
    
    65
    
    
    
    (634
    )
    
    
    
    
    
    
    (924
    )Increase (decrease) in current liabilities
    
    
    753
    
    
    
    (903
    )
    
    
    6,452
    
    
    
    (11,726
    )
    
    
    
    
    
    
    (5,424
    )Other, net
    
    
    
    
    
    
    7
    
    
    
    (151
    )
    
    
    (1,550
    )
    
    
    
    
    
    
    (1,694
    )Net cash provided by (used for) operating activities
    
    
    (9,438
    )
    
    
    2,531
    
    
    
    6,901
    
    
    
    12,631
    
    
    
    
    
    
    
    12,625Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (165
    )
    
    
    (752
    )
    
    
    (669
    )
    
    
    
    
    
    
    (1,586
    )Payments for contingent consideration
    
    
    
    
    
    
    
    
    
    
    (1,208
    )
    
    
    
    
    
    
    
    
    
    
    (1,208
    )Proceeds from sale of business
    
    
    
    
    
    
    5,041
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,041Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    13
    
    
    
    54
    
    
    
    135
    
    
    
    
    
    
    
    202Net cash provided by (used for) investing activities
    
    
    
    
    
    
    4,889
    
    
    
    (1,906
    )
    
    
    (534
    )
    
    
    
    
    
    
    2,449Cash flows from financing activities:Transactions with subsidiaries
    
    
    13,629
    
    
    
    1,897
    
    
    
    (9,925
    )
    
    
    (5,601
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (19
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Changes in revolving debt, net
    
    
    
    
    
    
    (583
    )
    
    
    
    
    
    
    (8,022
    )
    
    
    
    
    
    
    (8,605
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (6,166
    )
    
    
    
    
    
    
    
    
    
    
    (6,166
    )Net cash provided by (used for) financing activities
    
    
    13,610
    
    
    
    1,314
    
    
    
    (16,091
    )
    
    
    (13,623
    )
    
    
    
    
    
    
    (14,790
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (1,564
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (1,567
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    4,172
    
    
    
    7,170
    
    
    
    (11,096
    )
    
    
    (1,529
    )
    
    
    
    
    
    
    (1,283
    )Balance, beginning of period
    
    
    5,650
    
    
    
    18
    
    
    
    11,570
    
    
    
    17,139
    
    
    
    
    
    
    
    34,377Balance, end of period (including $941 of cash
held for sale as of July 3, 2005)
    
    $
    9,822
    
    
    $
    7,188
    
    
    $
    474
    
    
    $
    15,610
    
    
    $
    
    
    
    $
    33,094
 24




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal six months ended July 4, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    278
    
    
    $
    798
    
    
    $
    11,116
    
    
    $
    7,660
    
    
    $
    (19,574
    )
    
    $
    278Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates, including discontinued
operations
    
    
    (11,116
    )
    
    
    
    
    
    
    (7,660
    )
    
    
    (798
    )
    
    
    19,574
    
    
    
    Depreciation
    
    
    
    
    
    
    810
    
    
    
    2,282
    
    
    
    1,621
    
    
    
    
    
    
    
    4,713Amortization of debt issuance costs
    
    
    2,018
    
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,182Deferred taxes
    
    
    (1,496
    )
    
    
    
    
    
    
    1,508
    
    
    
    865
    
    
    
    
    
    
    
    877(Gain) loss on sale/disposal of property and
equipment
    
    
    
    
    
    
    (70
    )
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    (50
    )(Increase) decrease in receivable, net
    
    
    
    
    
    
    4,132
    
    
    
    5,219
    
    
    
    14,249
    
    
    
    
    
    
    
    23,600(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    (834
    )
    
    
    146
    
    
    
    
    
    
    
    (688
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (405
    )
    
    
    (369
    )
    
    
    (217
    )
    
    
    
    
    
    
    (991
    )Increase (decrease) in current liabilities
    
    
    1,910
    
    
    
    (12,769
    )
    
    
    5,770
    
    
    
    (14,371
    )
    
    
    
    
    
    
    (19,460
    )Other, net
    
    
    
    
    
    
    63
    
    
    
    (292
    )
    
    
    (179
    )
    
    
    
    
    
    
    (408
    )Net cash provided by (used for) operating activities
    
    
    (8,406
    )
    
    
    (7,277
    )
    
    
    16,760
    
    
    
    8,976
    
    
    
    
    
    
    
    10,053Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (106
    )
    
    
    (275
    )
    
    
    (736
    )
    
    
    
    
    
    
    (1,117
    )Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    74
    
    
    
    16
    
    
    
    60
    
    
    
    
    
    
    
    150Other, net
    
    
    
    
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    307Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (32
    )
    
    
    48
    
    
    
    (676
    )
    
    
    
    
    
    
    (660
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    6,692
    
    
    
    6
    
    
    
    (1,455
    )
    
    
    (5,243
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (436
    )
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (406
    )Changes in revolving debt, net
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (144
    )
    
    
    
    
    
    
    (147
    )Changes in book overdrafts, net
    
    
    
    
    
    
    2,235
    
    
    
    (14,652
    )
    
    
    
    
    
    
    
    
    
    
    (12,417
    )Net cash provided by (used for) financing activities
    
    
    6,256
    
    
    
    2,268
    
    
    
    (16,107
    )
    
    
    (5,387
    )
    
    
    
    
    
    
    (12,970
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (582
    )
    
    
    
    
    
    
    (374
    )
    
    
    
    
    
    
    (956
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (2,150
    )
    
    
    (5,623
    )
    
    
    701
    
    
    
    2,539
    
    
    
    
    
    
    
    (4,533
    )Balance, beginning of period
    
    
    18,600
    
    
    
    5,639
    
    
    
    391
    
    
    
    12,020
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    16,450
    
    
    $
    16
    
    
    $
    1,092
    
    
    $
    14,559
    
    
    $
    
    
    
    $
    32,117
 25




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Results of Operations
 Outlook
    Net Sales
  Inc / (Dec) vs. 20042005
    
    
    2004
    
    
    $
    
    
    %(dollars in thousands)Fiscal Quarter:Business Outsourcing Services
    
    $
    44,118
    
    
    $
    43,254
    
    
    $
    864
    
    
    
    2.0
    %Human Capital Services
    
    
    47,270
    
    
    
    48,439
    
    
    
    (1,169
    )
    
    
    (2.4
    %)Engineering Services
    
    
    25,551
    
    
    
    21,981
    
    
    
    3,570
    
    
    
    16.2
    %Total net sales
    
    $
    116,939
    
    
    $
    113,674
    
    
    $
    3,265
    
    
    
    2.9
    %Fiscal Six Months:Business Outsourcing Services
    
    $
    87,287
    
    
    $
    88,948
    
    
    $
    (1,661
    )
    
    
    (1.9
    %)Human Capital Services
    
    
    94,011
    
    
    
    99,840
    
    
    
    (5,829
    )
    
    
    (5.8
    %)Engineering Services
    
    
    48,739
    
    
    
    50,276
    
    
    
    (1,537
    )
    
    
    (3.1
    %)Total net sales
    
    $
    230,037
    
    
    $
    239,064
    
    
    $
    (9,027
    )
    
    
    (3.8
    %)
  26




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   Operating Profit
  Inc / (Dec) vs. 20042005
    
    
    2004
    
    
    $
    
    
    %(dollars in thousands)Fiscal Quarter:Gross profit
    
    $
    18,759
    
    
    $
    16,990
    
    
    $
    1,769
    
    
    
    10.4
    %% of net sales
    
    
    16.0
    %
    
    
    14.9
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    8,600
    
    
    $
    8,623
    
    
    $
    (23
    )
    
    
    (0.3
    %)% of net sales
    
    
    7.4
    %
    
    
    7.6
    %
    
    
    n/a
    
    
    
    n/aOperating income (loss)
    
    $
    846
    
    
    $
    (370
    )
    
    $
    1,216
    
    
    
    328.6
    %% of net sales
    
    
    0.7
    %
    
    
    (0.3
    %)
    
    
    n/a
    
    
    
    n/aFiscal Six Months:Gross profit
    
    $
    35,047
    
    
    $
    34,869
    
    
    $
    178
    
    
    
    0.5
    %% of net sales
    
    
    15.2
    %
    
    
    14.6
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    17,412
    
    
    $
    17,977
    
    
    $
    (565
    )
    
    
    (3.1
    %)% of net sales
    
    
    7.6
    %
    
    
    7.5
    %
    
    
    n/a
    
    
    
    n/aOperating income (loss)
    
    $
    (339
    )
    
    $
    599
    
    
    $
    (938
    )
    
    
    (156.6
    %)% of net sales
    
    
    (0.1
    %)
    
    
    0.3
    %
    
    
    n/a
    
    
    
    n/a
  Interest expense
  Income taxes
  27




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Discontinued Operations
    
   Liquidity and Capital Resources
 Cash Flows
 General.
  28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Operating Activities
 Investing Activities.
 Financing Activities
 Liquidity and Available Financings
     New Accounting Pronouncements
 SFAS No. 123-R,: Accounting for Stock-Based Compensation  Revised:
 29




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Forward  Looking Statements
   30




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
   31




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 6.
    
    EXHIBITS
  31.1
    
    Certification of Chief Financial Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.
 31.2
    
    Certification of Chief Executive Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.
 32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes  Oxley Act of 2002.
 99.1
    
    Press release announcing 2nd quarter results.
 32




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##### Table of Contents



SIGNATURE
   MSX INTERNATIONAL, INC.
 By:
    
    /s/ Frederick K. Minturn
Frederick K. Minturn
Executive Vice President and
Chief Financial Officer
 
 33




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NUMBER
    
    DESCRIPTION31.1
    
    Certification of Chief Executive Officer pursuant to rules 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer pursuant to rules 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes  Oxley Act of 2002.99.1
    
    Press release announcing 2nd quarter results.
 34