##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 2, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission File Number: 333-49821
 MSX International, Inc.
  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
 Yes
o No
þ




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MSX INTERNATIONAL, INC.
INDEX
 PagesPART I.FINANCIAL INFORMATIONITEM 1.Financial Statements (unaudited):Consolidated Balance Sheets as of October 2, 2005 and January 2, 2005
    
    
    2Consolidated Statements of Operations for the fiscal quarters and fiscal nine months ended October 2, 2005 and October 3, 2004
    
    
    3Consolidated Statements of Cash Flows for the fiscal nine months ended October 2, 2005 and October 3, 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 to Rule 13a-15(e)/15d-15(e)Certification of Chief Financial Officer to Rule 13a-15(e)/15d-15(e)Certification pursuant to 18 U.S.C., Section 1350Press release announcing 3rd quarter results
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 MSX INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)  as of October 2, 2005 and January 2, 2005
 October 2,
    
    
    January 2,2005
    
    
    2005(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,899
    
    
    $
    34,377Accounts receivable, net (Note 4)
    
    
    105,358
    
    
    
    158,640Inventory
    
    
    7,302
    
    
    
    12,160Prepaid expenses and other assets
    
    
    5,397
    
    
    
    3,402Assets held for sale (Note 2)
    
    
    25,556
    
    
    
    13,453Deferred income taxes, net
    
    
    5,628
    
    
    
    5,341Total current assets
    
    
    173,140
    
    
    
    227,373Property and equipment, net
    
    
    4,562
    
    
    
    11,195Goodwill, net (Note 5)
    
    
    116,401
    
    
    
    135,095Assets held for sale (Note 2)
    
    
    14,092
    
    
    
    2,618Other assets
    
    
    7,434
    
    
    
    9,463Deferred income taxes, net
    
    
    318
    
    
    
    Total assets
    
    $
    315,947
    
    
    $
    385,744LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Notes payable and current portion of long-term debt (Note 6)
    
    $
    2,642
    
    
    $
    10,995Accounts payable and drafts
    
    
    73,398
    
    
    
    117,251Accrued payroll and benefits
    
    
    20,816
    
    
    
    22,442Other accrued liabilities
    
    
    36,161
    
    
    
    45,002Liabilities held for sale (Note 2)
    
    
    25,102
    
    
    
    10,133Total current liabilities
    
    
    158,119
    
    
    
    205,823Long-term debt (Note 6)
    
    
    251,067
    
    
    
    249,869Long-term deferred compensation liabilities and other
    
    
    6,196
    
    
    
    18,496Liabilities held for sale (Note 2)
    
    
    8,348
    
    
    
    Deferred income taxes, net
    
    
    
    
    
    
    1,016Total liabilities
    
    
    423,730
    
    
    
    475,204Commitments and contingencies
    
    
    
    
    
    
    Redeemable Series A Preferred Stock (Note 7)
    
    
    99,671
    
    
    
    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
    
    
    (2,446
    )
    
    
    (894
    )Retained deficit
    
    
    (180,882
    )
    
    
    (155,752
    )Total shareholders deficit
    
    
    (207,454
    )
    
    
    (180,772
    )Total liabilities and shareholders deficit
    
    $
    315,947
    
    
    $
    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 nine months ended October 2, 2005 and October 3, 2004
 Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands)Net sales
    
    $
    110,632
    
    
    $
    111,293
    
    
    $
    340,669
    
    
    $
    350,357Cost of sales
    
    
    95,068
    
    
    
    94,743
    
    
    
    290,058
    
    
    
    299,321Gross profit
    
    
    15,564
    
    
    
    16,550
    
    
    
    50,611
    
    
    
    51,036Selling, general and administrative expenses
    
    
    7,354
    
    
    
    8,532
    
    
    
    24,766
    
    
    
    26,509Restructuring and severance costs (Note 3)
    
    
    663
    
    
    
    9
    
    
    
    1,166
    
    
    
    147Income from continuing operations before
interest and income taxes
    
    
    7,547
    
    
    
    8,009
    
    
    
    24,679
    
    
    
    24,380Interest expense, net
    
    
    8,212
    
    
    
    7,910
    
    
    
    25,683
    
    
    
    23,682Income (loss) from continuing operations before
income taxes
    
    
    (665
    )
    
    
    99
    
    
    
    (1,004
    )
    
    
    698Income tax provision (benefit)
    
    
    (1,288
    )
    
    
    423
    
    
    
    372
    
    
    
    1,412Income (loss) from continuing operations
    
    
    623
    
    
    
    (324
    )
    
    
    (1,376
    )
    
    
    (714
    )Income (loss) from discontinued operations, net
of taxes (Note 2)
    
    
    1,889
    
    
    
    (860
    )
    
    
    (15,392
    )
    
    
    (192
    )Net income (loss)
    
    
    2,512
    
    
    
    (1,184
    )
    
    
    (16,768
    )
    
    
    (906
    )Accretion for redemption of preferred stock
    
    
    (2,895
    )
    
    
    (2,329
    )
    
    
    (8,359
    )
    
    
    (7,171
    )Net loss available to common shareholders
    
    $
    (383
    )
    
    $
    (3,513
    )
    
    $
    (25,127
    )
    
    $
    (8,077
    )
 The accompanying notes are an integral part of the consolidated financial statements.
 3




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MSX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  for the fiscal nine months ended October 2, 2005 and October 3, 2004
 Fiscal Nine Months EndedOctober 2,
    
    
    October 3,2005
    
    
    2004(in thousands)Cash flows from operating activities:Net loss
    
    $
    (16,768
    )
    
    $
    (906
    )Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Net loss on sale of businesses
    
    
    4,031
    
    
    
    Depreciation
    
    
    3,859
    
    
    
    6,695Goodwill impairment charges
    
    
    7,131
    
    
    
    Amortization of debt issuance costs
    
    
    3,452
    
    
    
    3,268Deferred income taxes (benefits)
    
    
    (1,621
    )
    
    
    398Gain on sale/disposal of property and equipment
    
    
    (101
    )
    
    
    (79
    )(Increase) decrease in receivables, net
    
    
    33,664
    
    
    
    48,039(Increase) decrease in inventory
    
    
    2,083
    
    
    
    (618
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (2,023
    )
    
    
    (1,893
    )Increase (decrease) in current liabilities
    
    
    (41,567
    )
    
    
    (52,884
    )Other, net
    
    
    (1,782
    )
    
    
    302Net cash provided by (used for) operating activities
    
    
    (9,642
    )
    
    
    2,322Cash flows from investing activities:Capital expenditures
    
    
    (2,095
    )
    
    
    (1,907
    )Payments for contingent consideration
    
    
    (1,813
    )
    
    
    Proceeds from sale of businesses, net of related expenses
    
    
    5,088
    
    
    
    Proceeds from sale/disposal of property and equipment
    
    
    303
    
    
    
    304Other, net
    
    
    
    
    
    
    489Net cash provided by (used for) investing activities
    
    
    1,483
    
    
    
    (1,114
    )Cash flows from financing activities:Debt issuance costs
    
    
    (25
    )
    
    
    (398
    )Changes in revolving debt, net
    
    
    (8,003
    )
    
    
    (636
    )Changes in book overdrafts, net
    
    
    6,564
    
    
    
    (4,322
    )Net cash used for financing activities
    
    
    (1,464
    )
    
    
    (5,356
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (145
    )
    
    
    (448
    )Cash and cash equivalents:Decrease for the period
    
    
    (9,768
    )
    
    
    (4,596
    )Balance, beginning of period
    
    
    34,377
    
    
    
    36,650Balance, end of period (including $710 of cash held for sale
as of October 2, 2005)
    
    $
    24,609
    
    
    $
    32,054
 The accompanying notes are an integral part of the consolidated financial statements.
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MSX International, Inc.
 
 Notes to Consolidated Financial Statements (Unaudited)
  1.
    
    Organization and Basis of Presentation:
    2.
    
    Discontinued Operations
     Gross sale price
    
    $
    7,398Less:Net assets sold
    
    
    7,856Reserves and expenses
    
    
    3,573Loss on sale, net
    
    $
    4,031
 5




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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
    
    
    1,074Accrued payroll and benefits
    
    
    1,918Other accrued liabilities
    
    
    2,714Total liabilities sold
    
    
    5,706Net assets sold
    
    $
    7,856
  Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    15,305
    
    
    $
    36,034
    
    
    $
    80,492
    
    
    $
    118,185Cost of sales
    
    
    13,233
    
    
    
    34,024
    
    
    
    74,285
    
    
    
    111,060Gross profit
    
    
    2,072
    
    
    
    2,010
    
    
    
    6,207
    
    
    
    7,125Selling, general and administrative expense
    
    
    990
    
    
    
    2,154
    
    
    
    4,672
    
    
    
    6,285Restructuring and severance
    
    
    
    
    
    
    1,133
    
    
    
    6,604
    
    
    
    1,133Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    Operating income (loss)
    
    
    1,082
    
    
    
    (1,277
    )
    
    
    (12,200
    )
    
    
    (293
    )Interest (income) expense, net
    
    
    (16
    )
    
    
    159
    
    
    
    53
    
    
    
    540Net loss on sale of businesses
    
    
    33
    
    
    
    
    
    
    
    4,031
    
    
    
    Income (loss) before taxes, net
    
    
    1,065
    
    
    
    (1,436
    )
    
    
    (16,284
    )
    
    
    (833
    )Income tax benefit
    
    
    (824
    )
    
    
    (576
    )
    
    
    (892
    )
    
    
    (641
    )Income (loss) from discontinued operations
    
    $
    1,889
    
    
    $
    (860
    )
    
    $
    (15,392
    )
    
    $
    (192
    )
   6




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  At October 2,
    
    
    At January 2,2005
    
    
    2005Assets:Cash and cash equivalents
    
    $
    710
    
    
    $
    Accounts receivable, net
    
    
    21,703
    
    
    
    12,140Inventory
    
    
    2,775
    
    
    
    Prepaid expenses
    
    
    368
    
    
    
    1,313Total current assets held for sale
    
    
    25,556
    
    
    
    13,453Property and equipment, net
    
    
    4,467
    
    
    
    2,259Goodwill, net
    
    
    9,625
    
    
    
    359Total assets held for sale
    
    
    39,648
    
    
    
    16,071Liabilities:Note payable and current portion of long-term debt
    
    
    931
    
    
    
    Accounts payable and drafts
    
    
    15,737
    
    
    
    2,880Accrued payroll and benefits
    
    
    7,367
    
    
    
    4,642Other accrued liabilities
    
    
    1,067
    
    
    
    2,611Total current liabilities held for sale
    
    
    25,102
    
    
    
    10,133Long-term deferred compensation liabilities and other
    
    
    8,348
    
    
    
    Total liabilities held for sale
    
    
    33,450
    
    
    
    10,133Net assets held for sale
    
    $
    6,198
    
    
    $
    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 October 2, 2005
    
    
    1,166
    
    
    
    
    
    
    
    
    
    
    
    1,166Charges from discontinued operations through October 2, 2005
    
    
    5,198
    
    
    
    260
    
    
    
    1,146
    
    
    
    6,604Payments and reserve utilization through October 2, 2005
    
    
    (1,239
    )
    
    
    (563
    )
    
    
    (201
    )
    
    
    (2,003
    )Reserve at October 2, 2005
    
    $
    5,698
    
    
    $
    259
    
    
    $
    1,144
    
    
    $
    7,101
 7




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##### Table of Contents



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
    
    
    (809
    )
    
    
    
    
    
    
    
    
    
    
    (809
    )Balance at October 2, 2005
    
    $
    17,269
    
    
    $
    99,132
    
    
    $
    
    
    
    $
    116,401
  6.
    
    Debt:
  Interest Rates at
    
    
    Outstanding atOctober 2,
    
    
    January 2,
    
    
    October 2,
    
    
    January 2,2005
    
    
    2005
    
    
    2005
    
    
    2005Senior credit facility
    
    
    6.75
    %
    
    
    5.50
    %
    
    $
    
    
    
    $
    590Senior secured notes, net of unamortized discount
    
    
    11.00
    %
    
    
    11.00
    %
    
    
    75,185
    
    
    
    75,063Mezzanine term notes, net of unamortized discount
    
    
    11.50
    %
    
    
    11.50
    %
    
    
    24,639
    
    
    
    24,506Fourth lien term notes
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    21,243
    
    
    
    19,710Senior subordinated notes
    
    
    11.375
    %
    
    
    11.375
    %
    
    
    130,000
    
    
    
    130,000Satiz facility
    
    
    
    
    
    
    4.455
    %
    
    
    
    
    
    
    8,065Other
    
    
    7.00
    %
    
    
    7.00
    %
    
    
    2,642
    
    
    
    2,930253,709
    
    
    
    260,864Less current portion
    
    
    
    
    
    
    
    
    
    
    2,642
    
    
    
    10,995Total long-term debt
    
    
    
    
    
    
    
    
    
    $
    251,067
    
    
    $
    249,869
 8




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 7.
    
    Commitments and Contingencies:
   8.
    
    Redeemable Series A Preferred Stock:
  9.
    
    Comprehensive Income (Loss):
  Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    2,512
    
    
    $
    (1,184
    )
    
    $
    (16,768
    )
    
    $
    (906
    )Other comprehensive income (loss) -
foreign currency translation adjustments
    
    
    1,408
    
    
    
    1,216
    
    
    
    (1,552
    )
    
    
    (260
    )Comprehensive income (loss)
    
    $
    3,920
    
    
    $
    32
    
    
    $
    (18,320
    )
    
    $
    (1,166
    )
 10.
    
    Income Taxes:
  9




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 11.
    
    Segment Information:
    Business
    
    HumanOutsourcing
    
    Capital
    
    EngineeringServices
    
    Services
    
    Services
    
    Other
    
    TotalQuarter Ended October 2, 2005Net sales  external
    
    $
    41,486
    
    
    $
    43,964
    
    
    $
    25,182
    
    
    $
    
    
    
    $
    110,632Net intercompany sales
    
    
    13
    
    
    
    2
    
    
    
    28
    
    
    
    (43
    )
    
    
    EBITA
    
    
    5,186
    
    
    
    3,761
    
    
    
    2,158
    
    
    
    
    
    
    
    11,105Quarter Ended October 3, 2004Net sales  external
    
    
    41,385
    
    
    
    45,892
    
    
    
    24,016
    
    
    
    
    
    
    
    111,293Net intercompany sales
    
    
    1,062
    
    
    
    
    
    
    
    13
    
    
    
    (1,075
    )
    
    
    EBITA
    
    
    6,040
    
    
    
    2,567
    
    
    
    1,893
    
    
    
    
    
    
    
    10,500
 Business
    
    HumanOutsourcing
    
    Capital
    
    EngineeringServices
    
    Services
    
    Services
    
    Other
    
    TotalNine Months Ended October 2, 2005Net sales  external
    
    $
    128,773
    
    
    $
    137,975
    
    
    $
    73,921
    
    
    $
    
    
    
    $
    340,669Net intercompany sales
    
    
    40
    
    
    
    2
    
    
    
    30
    
    
    
    (72
    )
    
    
    EBITA
    
    
    17,070
    
    
    
    10,813
    
    
    
    6,912
    
    
    
    
    
    
    
    34,795Nine Months Ended October 3, 2004Net sales  external
    
    
    130,333
    
    
    
    145,732
    
    
    
    74,292
    
    
    
    
    
    
    
    350,357Net intercompany sales
    
    
    1,977
    
    
    
    9
    
    
    
    
    
    
    
    (1,986
    )
    
    
    EBITA
    
    
    18,714
    
    
    
    8,816
    
    
    
    6,167
    
    
    
    
    
    
    
    33,697
 10




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2005
    
    
    2004
    
    
    2005
    
    
    2004Total segment EBITA
    
    $
    11,105
    
    
    $
    10,500
    
    
    $
    34,795
    
    
    $
    33,697Net costs not allocated to segments
    
    
    (3,342
    )
    
    
    (2,054
    )
    
    
    (8,849
    )
    
    
    (7,871
    )Interest expense
    
    
    (8,212
    )
    
    
    (7,910
    )
    
    
    (25,683
    )
    
    
    (23,682
    )Michigan single business tax and other similar taxes
    
    
    (216
    )
    
    
    (437
    )
    
    
    (1,267
    )
    
    
    (1,446
    )Consolidated income (loss) from continuing operations before taxes
    
    $
    (665
    )
    
    $
    99
    
    
    $
    (1,004
    )
    
    $
    698
 12.
    
    Stock-Based Compensation:
  13.
    
    New Accounting Pronouncements:
 SFAS No. 123-R,: Accounting for Stock-Based Compensation- Revised:
 11




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. 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




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of October 2, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,713
    
    
    $
    1,429
    
    
    $
    11,757
    
    
    $
    
    
    
    $
    23,899Accounts receivable, net
    
    
    
    
    
    
    63,309
    
    
    
    42,049
    
    
    
    
    
    
    
    105,358Inventory
    
    
    
    
    
    
    7,296
    
    
    
    6
    
    
    
    
    
    
    
    7,302Prepaid expenses and other assets
    
    
    
    
    
    
    3,617
    
    
    
    1,780
    
    
    
    
    
    
    
    5,397Assets held for sale
    
    
    
    
    
    
    
    
    
    
    25,556
    
    
    
    
    
    
    
    25,556Deferred income taxes, net
    
    
    
    
    
    
    3,438
    
    
    
    4,203
    
    
    
    (2,013
    )
    
    
    5,628Total current assets
    
    
    10,713
    
    
    
    79,089
    
    
    
    85,351
    
    
    
    (2,013
    )
    
    
    173,140Property and equipment, net
    
    
    
    
    
    
    3,002
    
    
    
    1,560
    
    
    
    
    
    
    
    4,562Goodwill, net
    
    
    
    
    
    
    116,302
    
    
    
    99
    
    
    
    
    
    
    
    116,401Investments in subsidiaries
    
    
    108,792
    
    
    
    2,743
    
    
    
    
    
    
    
    (111,535
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    14,092
    
    
    
    
    
    
    
    14,092Other assets
    
    
    4,216
    
    
    
    2,801
    
    
    
    417
    
    
    
    
    
    
    
    7,434Deferred income taxes, net
    
    
    1,257
    
    
    
    
    
    
    
    1,619
    
    
    
    (2,558
    )
    
    
    318Total assets
    
    $
    124,978
    
    
    $
    203,937
    
    
    $
    103,138
    
    
    $
    (116,106
    )
    
    $
    315,947LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    2,642
    
    
    $
    
    
    
    $
    2,642Accounts payable and drafts
    
    
    
    
    
    
    52,396
    
    
    
    21,002
    
    
    
    
    
    
    
    73,398Accrued liabilities
    
    
    5,128
    
    
    
    27,532
    
    
    
    24,317
    
    
    
    
    
    
    
    56,977Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    25,102
    
    
    
    
    
    
    
    25,102Deferred income taxes, net
    
    
    2,013
    
    
    
    
    
    
    
    
    
    
    
    (2,013
    )
    
    
    Total current liabilities
    
    
    7,141
    
    
    
    79,928
    
    
    
    73,063
    
    
    
    (2,013
    )
    
    
    158,119Long-term debt
    
    
    234,071
    
    
    
    
    
    
    
    16,996
    
    
    
    
    
    
    
    251,067Intercompany accounts
    
    
    (8,451
    )
    
    
    7,610
    
    
    
    841
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    5,049
    
    
    
    1,147
    
    
    
    
    
    
    
    6,196Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    8,348
    
    
    
    
    
    
    
    8,348Deferred income taxes, net
    
    
    
    
    
    
    2,558
    
    
    
    
    
    
    
    (2,558
    )
    
    
    Total liabilities
    
    
    232,761
    
    
    
    95,145
    
    
    
    100,395
    
    
    
    (4,571
    )
    
    
    423,730Redeemable Series A Preferred Stock
    
    
    99,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,671Shareholders equity (deficit)
    
    
    (207,454
    )
    
    
    108,792
    
    
    
    2,743
    
    
    
    (111,535
    )
    
    
    (207,454
    )Total liabilities and shareholders
equity (deficit)
    
    $
    124,978
    
    
    $
    203,937
    
    
    $
    103,138
    
    
    $
    (116,106
    )
    
    $
    315,947
 13




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. 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
 14. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.- continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended October 2, 2005 and October 3, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    76,720
    
    
    $
    33,926
    
    
    $
    (14
    )
    
    $
    110,632Cost of sales
    
    
    
    
    
    
    67,817
    
    
    
    27,265
    
    
    
    (14
    )
    
    
    95,068Gross profit
    
    
    
    
    
    
    8,903
    
    
    
    6,661
    
    
    
    
    
    
    
    15,564Selling, general and administrative expenses
    
    
    
    
    
    
    5,158
    
    
    
    2,196
    
    
    
    
    
    
    
    7,354Restructuring and severance costs
    
    
    
    
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    663Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    3,082
    
    
    
    4,465
    
    
    
    
    
    
    
    7,547Interest expense, net
    
    
    6,948
    
    
    
    568
    
    
    
    696
    
    
    
    
    
    
    
    8,212Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,948
    )
    
    
    2,514
    
    
    
    3,769
    
    
    
    
    
    
    
    (665
    )Income tax provision (benefit)
    
    
    (1,400
    )
    
    
    1,302
    
    
    
    (1,190
    )
    
    
    
    
    
    
    (1,288
    )Equity in affiliates
    
    
    6,171
    
    
    
    4,959
    
    
    
    
    
    
    
    (11,130
    )
    
    
    Income from continuing operations
    
    
    623
    
    
    
    6,171
    
    
    
    4,959
    
    
    
    (11,130
    )
    
    
    623Income from discontinued operations, net
    
    
    1,889
    
    
    
    1,889
    
    
    
    1,889
    
    
    
    (3,778
    )
    
    
    1,889Net income (loss)
    
    $
    2,512
    
    
    $
    8,060
    
    
    $
    6,848
    
    
    $
    (14,908
    )
    
    $
    2,512Fiscal Quarter Ended October 3, 2004:Net sales
    
    $
    
    
    
    $
    82,449
    
    
    $
    28,943
    
    
    $
    (99
    )
    
    $
    111,293Cost of sales
    
    
    
    
    
    
    71,025
    
    
    
    23,817
    
    
    
    (99
    )
    
    
    94,743Gross profit
    
    
    
    
    
    
    11,424
    
    
    
    5,126
    
    
    
    
    
    
    
    16,550Selling, general and administrative expenses
    
    
    
    
    
    
    6,542
    
    
    
    1,990
    
    
    
    
    
    
    
    8,532Restructuring and severance costs
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    4,873
    
    
    
    3,136
    
    
    
    
    
    
    
    8,009Interest expense, net
    
    
    6,272
    
    
    
    1,025
    
    
    
    613
    
    
    
    
    
    
    
    7,910Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,272
    )
    
    
    3,848
    
    
    
    2,523
    
    
    
    
    
    
    
    99Income tax provision (benefit)
    
    
    (1,180
    )
    
    
    1,277
    
    
    
    326
    
    
    
    
    
    
    
    423Equity in affiliates
    
    
    4,768
    
    
    
    2,197
    
    
    
    
    
    
    
    (6,965
    )
    
    
    Income (loss) from continuing operations
    
    
    (324
    )
    
    
    4,768
    
    
    
    2,197
    
    
    
    (6,965
    )
    
    
    (324
    )Loss from discontinued operations, net
    
    
    (860
    )
    
    
    (860
    )
    
    
    (860
    )
    
    
    1,720
    
    
    
    (860
    )Net income (loss)
    
    $
    (1,184
    )
    
    $
    3,908
    
    
    $
    1,337
    
    
    $
    (5,245
    )
    
    $
    (1,184
    )
 15




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal nine months ended October 2, 2005 and October 3, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Nine Months Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    240,242
    
    
    $
    100,483
    
    
    $
    (56
    )
    
    $
    340,669Cost of sales
    
    
    
    
    
    
    209,286
    
    
    
    80,828
    
    
    
    (56
    )
    
    
    290,058Gross profit
    
    
    
    
    
    
    30,956
    
    
    
    19,655
    
    
    
    
    
    
    
    50,611Selling, general and administrative expenses
    
    
    
    
    
    
    17,899
    
    
    
    6,867
    
    
    
    
    
    
    
    24,766Restructuring and severance costs
    
    
    
    
    
    
    1,069
    
    
    
    97
    
    
    
    
    
    
    
    1,166Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    11,988
    
    
    
    12,691
    
    
    
    
    
    
    
    24,679Interest expense, net
    
    
    19,864
    
    
    
    2,699
    
    
    
    3,120
    
    
    
    
    
    
    
    25,683Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (19,864
    )
    
    
    9,289
    
    
    
    9,571
    
    
    
    
    
    
    
    (1,004
    )Income tax provision (benefit)
    
    
    (3,743
    )
    
    
    3,685
    
    
    
    430
    
    
    
    
    
    
    
    372Equity in affiliates
    
    
    14,745
    
    
    
    9,141
    
    
    
    
    
    
    
    (23,886
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,376
    )
    
    
    14,745
    
    
    
    9,141
    
    
    
    (23,886
    )
    
    
    (1,376
    )Loss from discontinued operations, net
    
    
    (15,392
    )
    
    
    (15,392
    )
    
    
    (15,267
    )
    
    
    30,659
    
    
    
    (15,392
    )Net income (loss)
    
    $
    (16,768
    )
    
    $
    (647
    )
    
    $
    (6,126
    )
    
    $
    6,773
    
    
    $
    (16,768
    )Fiscal Nine Months Ended October 3, 2004Net sales
    
    $
    
    
    
    $
    266,864
    
    
    $
    85,505
    
    
    $
    (2,012
    )
    
    $
    350,357Cost of sales
    
    
    
    
    
    
    234,307
    
    
    
    67,026
    
    
    
    (2,012
    )
    
    
    299,321Gross profit
    
    
    
    
    
    
    32,557
    
    
    
    18,479
    
    
    
    
    
    
    
    51,036Selling, general and administrative expenses
    
    
    
    
    
    
    20,081
    
    
    
    6,428
    
    
    
    
    
    
    
    26,509Restructuring and severance costs
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    147Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    12,329
    
    
    
    12,051
    
    
    
    
    
    
    
    24,380Interest expense, net
    
    
    18,994
    
    
    
    3,287
    
    
    
    1,401
    
    
    
    
    
    
    
    23,682Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (18,994
    )
    
    
    9,042
    
    
    
    10,650
    
    
    
    
    
    
    
    698Income tax provision (benefit)
    
    
    (3,064
    )
    
    
    3,015
    
    
    
    1,461
    
    
    
    
    
    
    
    1,412Equity in affiliates
    
    
    15,216
    
    
    
    9,189
    
    
    
    
    
    
    
    (24,405
    )
    
    
    Income (loss) from continuing operations
    
    
    (714
    )
    
    
    15,216
    
    
    
    9,189
    
    
    
    (24,405
    )
    
    
    (714
    )Loss from discontinued operations, net
    
    
    (192
    )
    
    
    (192
    )
    
    
    (192
    )
    
    
    384
    
    
    
    (192
    )Net income (loss)
    
    $
    (906
    )
    
    $
    15,024
    
    
    $
    8,997
    
    
    $
    (24,021
    )
    
    $
    (906
    )
 16




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal nine months ended October 2, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (16,768
    )
    
    $
    (647
    )
    
    $
    (6,126
    )
    
    $
    6,773
    
    
    $
    (16,768
    )Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued operations
    
    
    647
    
    
    
    6,126
    
    
    
    
    
    
    
    (6,773
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    
    
    
    
    4,031
    
    
    
    
    
    
    
    4,031Depreciation
    
    
    
    
    
    
    2,291
    
    
    
    1,568
    
    
    
    
    
    
    
    3,859Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    3,126
    
    
    
    
    
    
    
    326
    
    
    
    
    
    
    
    3,452Deferred taxes
    
    
    (556
    )
    
    
    432
    
    
    
    (1,497
    )
    
    
    
    
    
    
    (1,621
    )(Gain) Loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    (45
    )
    
    
    (56
    )
    
    
    
    
    
    
    (101
    )(Increase) decrease in receivables, net
    
    
    
    
    
    
    4,790
    
    
    
    28,874
    
    
    
    
    
    
    
    33,664(Increase) decrease in inventory
    
    
    
    
    
    
    1,825
    
    
    
    258
    
    
    
    
    
    
    
    2,083(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (880
    )
    
    
    (1,143
    )
    
    
    
    
    
    
    (2,023
    )Increase (decrease) in current liabilities
    
    
    (5,873
    )
    
    
    (16,675
    )
    
    
    (19,019
    )
    
    
    
    
    
    
    (41,567
    )Other, net
    
    
    
    
    
    
    (311
    )
    
    
    (1,471
    )
    
    
    
    
    
    
    (1,782
    )Net cash provided by (used for) operating activities
    
    
    (19,424
    )
    
    
    (3,094
    )
    
    
    12,876
    
    
    
    
    
    
    
    (9,642
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (938
    )
    
    
    (1,157
    )
    
    
    
    
    
    
    (2,095
    )Payments for contingent consideration
    
    
    
    
    
    
    (1,813
    )
    
    
    
    
    
    
    
    
    
    
    (1,813
    )Proceeds from sale of business
    
    
    
    
    
    
    
    
    
    
    5,088
    
    
    
    
    
    
    
    5,088Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    55
    
    
    
    248
    
    
    
    
    
    
    
    303Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (2,696
    )
    
    
    4,179
    
    
    
    
    
    
    
    1,483Cash flows from financing activities:Transactions with subsidiaries
    
    
    24,512
    
    
    
    (10,915
    )
    
    
    (13,597
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (8,003
    )
    
    
    
    
    
    
    (8,003
    )Change in book overdrafts
    
    
    
    
    
    
    6,564
    
    
    
    
    
    
    
    
    
    
    
    6,564Net cash provided by (used for) financing activities
    
    
    24,487
    
    
    
    (4,351
    )
    
    
    (21,600
    )
    
    
    
    
    
    
    (1,464
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (145
    )
    
    
    
    
    
    
    (145
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    5,063
    
    
    
    (10,141
    )
    
    
    (4,690
    )
    
    
    
    
    
    
    (9,768
    )Balance, beginning of period
    
    
    5,650
    
    
    
    11,570
    
    
    
    17,157
    
    
    
    
    
    
    
    34,377Balance, end of period (including $710 of cash held
for sale as of October 2, 2005)
    
    $
    10,713
    
    
    $
    1,429
    
    
    $
    12,467
    
    
    $
    
    
    
    $
    24,609
 17




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 14. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal nine months ended October 3, 2004
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (906
    )
    
    $
    15,024
    
    
    $
    8,997
    
    
    $
    (24,021
    )
    
    $
    (906
    )Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued operations
    
    
    (15,024
    )
    
    
    (8,997
    )
    
    
    
    
    
    
    24,021
    
    
    
    Depreciation
    
    
    
    
    
    
    3,358
    
    
    
    3,337
    
    
    
    
    
    
    
    6,695Amortization of debt issuance costs and
non-cash interest
    
    
    3,024
    
    
    
    
    
    
    
    244
    
    
    
    
    
    
    
    3,268Deferred taxes
    
    
    (2,957
    )
    
    
    2,997
    
    
    
    358
    
    
    
    
    
    
    
    398(Gain) loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    3
    
    
    
    (82
    )
    
    
    
    
    
    
    (79
    )(Increase) decrease in receivables, net
    
    
    
    
    
    
    13,812
    
    
    
    34,227
    
    
    
    
    
    
    
    48,039(Increase) decrease in inventory
    
    
    
    
    
    
    (699
    )
    
    
    81
    
    
    
    
    
    
    
    (618
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (1,274
    )
    
    
    (619
    )
    
    
    
    
    
    
    (1,893
    )Increase (decrease) in current liabilities
    
    
    (4,265
    )
    
    
    (10,252
    )
    
    
    (38,367
    )
    
    
    
    
    
    
    (52,884
    )Other, net
    
    
    
    
    
    
    (103
    )
    
    
    405
    
    
    
    
    
    
    
    302Net cash provided by (used for) operating activities
    
    
    (20,128
    )
    
    
    13,869
    
    
    
    8,581
    
    
    
    
    
    
    
    2,322Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (395
    )
    
    
    (1,512
    )
    
    
    
    
    
    
    (1,907
    )Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    22
    
    
    
    282
    
    
    
    
    
    
    
    304Other, net
    
    
    
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    489Net cash provided by (used for) investing activities
    
    
    
    
    
    
    116
    
    
    
    (1,230
    )
    
    
    
    
    
    
    (1,114
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    19,220
    
    
    
    (7,891
    )
    
    
    (11,329
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (462
    )
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    (398
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    (636
    )
    
    
    
    
    
    
    (636
    )Change in book overdrafts, net
    
    
    
    
    
    
    (4,322
    )
    
    
    
    
    
    
    
    
    
    
    (4,322
    )Net cash provided by (used for) financing activities
    
    
    18,758
    
    
    
    (12,213
    )
    
    
    (11,901
    )
    
    
    
    
    
    
    (5,356
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (448
    )
    
    
    
    
    
    
    (448
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (1,370
    )
    
    
    1,772
    
    
    
    (4,998
    )
    
    
    
    
    
    
    (4,596
    )Balance, beginning of period
    
    
    18,600
    
    
    
    390
    
    
    
    17,660
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    17,230
    
    
    $
    2,162
    
    
    $
    12,662
    
    
    $
    
    
    
    $
    32,054
 18




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. 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




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of October 2, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,713
    
    
    $
    1,406
    
    
    $
    1,429
    
    
    $
    10,351
    
    
    $
    
    
    
    $
    23,899Accounts receivable, net
    
    
    
    
    
    
    10,060
    
    
    
    63,309
    
    
    
    31,989
    
    
    
    
    
    
    
    105,358Inventory
    
    
    
    
    
    
    
    
    
    
    7,296
    
    
    
    6
    
    
    
    
    
    
    
    7,302Prepaid expenses and other assets
    
    
    
    
    
    
    596
    
    
    
    3,617
    
    
    
    1,184
    
    
    
    
    
    
    
    5,397Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,556
    
    
    
    
    
    
    
    25,556Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,438
    
    
    
    4,716
    
    
    
    (2,526
    )
    
    
    5,628Total current assets
    
    
    10,713
    
    
    
    12,062
    
    
    
    79,089
    
    
    
    73,802
    
    
    
    (2,526
    )
    
    
    173,140Property and equipment, net
    
    
    
    
    
    
    347
    
    
    
    3,002
    
    
    
    1,213
    
    
    
    
    
    
    
    4,562Goodwill, net
    
    
    
    
    
    
    99
    
    
    
    116,302
    
    
    
    
    
    
    
    
    
    
    
    116,401Investments in subsidiaries
    
    
    108,792
    
    
    
    
    
    
    
    2,743
    
    
    
    10,650
    
    
    
    (122,185
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,092
    
    
    
    
    
    
    
    14,092Other assets
    
    
    4,216
    
    
    
    334
    
    
    
    2,801
    
    
    
    83
    
    
    
    
    
    
    
    7,434Deferred income taxes, net
    
    
    1,257
    
    
    
    513
    
    
    
    
    
    
    
    1,106
    
    
    
    (2,558
    )
    
    
    318Total assets
    
    $
    124,978
    
    
    $
    13,355
    
    
    $
    203,937
    
    
    $
    100,946
    
    
    $
    (127,269
    )
    
    $
    315,947LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,642
    
    
    $
    
    
    
    $
    2,642Accounts payable and drafts
    
    
    
    
    
    
    6,345
    
    
    
    52,396
    
    
    
    14,657
    
    
    
    
    
    
    
    73,398Accrued liabilities
    
    
    5,128
    
    
    
    5,970
    
    
    
    27,532
    
    
    
    18,347
    
    
    
    
    
    
    
    56,977Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,102
    
    
    
    
    
    
    
    25,102Deferred income taxes, net
    
    
    2,013
    
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    (2,526
    )
    
    
    Total current liabilities
    
    
    7,141
    
    
    
    12,828
    
    
    
    79,928
    
    
    
    60,748
    
    
    
    (2,526
    )
    
    
    158,119Long-term debt
    
    
    234,071
    
    
    
    16,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,067Intercompany accounts
    
    
    (8,451
    )
    
    
    (27,495
    )
    
    
    7,610
    
    
    
    28,336
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    376
    
    
    
    5,049
    
    
    
    771
    
    
    
    
    
    
    
    6,196Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,348
    
    
    
    
    
    
    
    8,348Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    2,558
    
    
    
    
    
    
    
    (2,558
    )
    
    
    Total liabilities
    
    
    232,761
    
    
    
    2,705
    
    
    
    95,145
    
    
    
    98,203
    
    
    
    (5,084
    )
    
    
    423,730Redeemable Series A Preferred Stock
    
    
    99,671
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,671Shareholders equity (deficit)
    
    
    (207,454
    )
    
    
    10,650
    
    
    
    108,792
    
    
    
    2,743
    
    
    
    (122,185
    )
    
    
    (207,454
    )Total liabilities and shareholders
equity (deficit)
    
    $
    124,978
    
    
    $
    13,355
    
    
    $
    203,937
    
    
    $
    100,946
    
    
    $
    (127,269
    )
    
    $
    315,947
 20




---



##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. 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




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended October 2, 2005 and October 3, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    6,129
    
    
    $
    76,720
    
    
    $
    27,797
    
    
    $
    (14
    )
    
    $
    110,632Cost of sales
    
    
    
    
    
    
    3,926
    
    
    
    67,817
    
    
    
    23,339
    
    
    
    (14
    )
    
    
    95,068Gross profit
    
    
    
    
    
    
    2,203
    
    
    
    8,903
    
    
    
    4,458
    
    
    
    
    
    
    
    15,564Selling, general and administrative expenses
    
    
    
    
    
    
    636
    
    
    
    5,158
    
    
    
    1,560
    
    
    
    
    
    
    
    7,354Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    663Income from continuing operations
before interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    1,567
    
    
    
    3,082
    
    
    
    2,898
    
    
    
    
    
    
    
    7,547Interest expense (income), net
    
    
    6,948
    
    
    
    562
    
    
    
    568
    
    
    
    134
    
    
    
    
    
    
    
    8,212Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (6,948
    )
    
    
    1,005
    
    
    
    2,514
    
    
    
    2,764
    
    
    
    
    
    
    
    (665
    )Income tax provision (benefit)
    
    
    (1,400
    )
    
    
    
    
    
    
    1,302
    
    
    
    (1,190
    )
    
    
    
    
    
    
    (1,288
    )Equity in affiliates
    
    
    6,171
    
    
    
    
    
    
    
    4,959
    
    
    
    1,005
    
    
    
    (12,135
    )
    
    
    Income from continuing operations
    
    
    623
    
    
    
    1,005
    
    
    
    6,171
    
    
    
    4,959
    
    
    
    (12,135
    )
    
    
    623Income (loss) from discontinued operations, net
    
    
    1,889
    
    
    
    (217
    )
    
    
    1,889
    
    
    
    1,889
    
    
    
    (3,561
    )
    
    
    1,889Net income (loss)
    
    $
    2,512
    
    
    $
    788
    
    
    $
    8,060
    
    
    $
    6,848
    
    
    $
    (15,696
    )
    
    $
    2,512Fiscal Quarter Ended October 3, 2004:Net sales
    
    $
    
    
    
    $
    5,206
    
    
    $
    82,449
    
    
    $
    23,737
    
    
    $
    (99
    )
    
    $
    111,293Cost of sales
    
    
    
    
    
    
    4,127
    
    
    
    71,025
    
    
    
    19,690
    
    
    
    (99
    )
    
    
    94,743Gross profit
    
    
    
    
    
    
    1,079
    
    
    
    11,424
    
    
    
    4,047
    
    
    
    
    
    
    
    16,550Selling, general and administrative expenses
    
    
    
    
    
    
    532
    
    
    
    6,542
    
    
    
    1,458
    
    
    
    
    
    
    
    8,532Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    547
    
    
    
    4,873
    
    
    
    2,589
    
    
    
    
    
    
    
    8,009Interest expense (income), net
    
    
    6,272
    
    
    
    642
    
    
    
    1,025
    
    
    
    (29
    )
    
    
    
    
    
    
    7,910Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (6,272
    )
    
    
    (95
    )
    
    
    3,848
    
    
    
    2,618
    
    
    
    
    
    
    
    99Income tax provision (benefit)
    
    
    (1,180
    )
    
    
    
    
    
    
    1,277
    
    
    
    326
    
    
    
    
    
    
    
    423Equity in affiliates
    
    
    4,768
    
    
    
    
    
    
    
    2,197
    
    
    
    (95
    )
    
    
    (6,870
    )
    
    
    Income (loss) from continuing operations
    
    
    (324
    )
    
    
    (95
    )
    
    
    4,768
    
    
    
    2,197
    
    
    
    (6,870
    )
    
    
    (324
    )Loss from discontinued operations
    
    
    (860
    )
    
    
    (103
    )
    
    
    (860
    )
    
    
    (860
    )
    
    
    1,823
    
    
    
    (860
    )Net income (loss)
    
    $
    (1,184
    )
    
    $
    (198
    )
    
    $
    3,908
    
    
    $
    1,337
    
    
    $
    (5,047
    )
    
    $
    (1,184
    )
 22




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal nine months ended October 2, 2005 and October 3, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Nine Months Ended October 2, 2005Net sales
    
    $
    
    
    
    $
    18,769
    
    
    $
    240,242
    
    
    $
    81,714
    
    
    $
    (56
    )
    
    $
    340,669Cost of sales
    
    
    
    
    
    
    12,916
    
    
    
    209,286
    
    
    
    67,912
    
    
    
    (56
    )
    
    
    290,058Gross profit
    
    
    
    
    
    
    5,853
    
    
    
    30,956
    
    
    
    13,802
    
    
    
    
    
    
    
    50,611Selling, general and administrative expenses
    
    
    
    
    
    
    1,906
    
    
    
    17,899
    
    
    
    4,961
    
    
    
    
    
    
    
    24,766Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    1,069
    
    
    
    97
    
    
    
    
    
    
    
    1,166Income from continuing operations
before interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    3,947
    
    
    
    11,988
    
    
    
    8,744
    
    
    
    
    
    
    
    24,679Interest expense (income), net
    
    
    19,864
    
    
    
    2,537
    
    
    
    2,699
    
    
    
    583
    
    
    
    
    
    
    
    25,683Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (19,864
    )
    
    
    1,410
    
    
    
    9,289
    
    
    
    8,161
    
    
    
    
    
    
    
    (1,004
    )Income tax provision (benefit)
    
    
    (3,743
    )
    
    
    
    
    
    
    3,685
    
    
    
    430
    
    
    
    
    
    
    
    372Equity in affiliates
    
    
    14,745
    
    
    
    
    
    
    
    9,141
    
    
    
    1,410
    
    
    
    (25,296
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,376
    )
    
    
    1,410
    
    
    
    14,745
    
    
    
    9,141
    
    
    
    (25,296
    )
    
    
    (1,376
    )Income (loss) from discontinued operations, net
    
    
    (15,392
    )
    
    
    826
    
    
    
    (15,392
    )
    
    
    (15,267
    )
    
    
    29,833
    
    
    
    (15,392
    )Net income (loss)
    
    $
    (16,768
    )
    
    $
    2,236
    
    
    $
    (647
    )
    
    $
    (6,126
    )
    
    $
    4,537
    
    
    $
    (16,768
    )Fiscal Nine Months Ended October 3, 2004Net sales
    
    $
    
    
    
    $
    16,243
    
    
    $
    266,864
    
    
    $
    69,262
    
    
    $
    (2,012
    )
    
    $
    350,357Cost of sales
    
    
    
    
    
    
    12,295
    
    
    
    234,307
    
    
    
    54,731
    
    
    
    (2,012
    )
    
    
    299,321Gross profit
    
    
    
    
    
    
    3,948
    
    
    
    32,557
    
    
    
    14,531
    
    
    
    
    
    
    
    51,036Selling, general and administrative expenses
    
    
    
    
    
    
    2,631
    
    
    
    20,081
    
    
    
    3,797
    
    
    
    
    
    
    
    26,509Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    147
    
    
    
    
    
    
    
    
    
    
    
    147Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    1,317
    
    
    
    12,329
    
    
    
    10,734
    
    
    
    
    
    
    
    24,380Interest expense (income), net
    
    
    18,994
    
    
    
    1,280
    
    
    
    3,287
    
    
    
    121
    
    
    
    
    
    
    
    23,682Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (18,994
    )
    
    
    37
    
    
    
    9,042
    
    
    
    10,613
    
    
    
    
    
    
    
    698Income tax provision (benefit)
    
    
    (3,064
    )
    
    
    52
    
    
    
    3,015
    
    
    
    1,409
    
    
    
    
    
    
    
    1,412Equity in affiliates
    
    
    15,216
    
    
    
    
    
    
    
    9,189
    
    
    
    (15
    )
    
    
    (24,390
    )
    
    
    Income (loss) from continuing operations
    
    
    (714
    )
    
    
    (15
    )
    
    
    15,216
    
    
    
    9,189
    
    
    
    (24,390
    )
    
    
    (714
    )Income (loss) from discontinued operations
    
    
    (192
    )
    
    
    615
    
    
    
    (192
    )
    
    
    (192
    )
    
    
    (231
    )
    
    
    (192
    )Net income (loss)
    
    $
    (906
    )
    
    $
    600
    
    
    $
    15,024
    
    
    $
    8,997
    
    
    $
    (24,621
    )
    
    $
    (906
    )
 23




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine months ended October 2, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (16,768
    )
    
    $
    2,236
    
    
    $
    (647
    )
    
    $
    (6,126
    )
    
    $
    4,537
    
    
    $
    (16,768
    )Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates, including discontinued
operations
    
    
    647
    
    
    
    
    
    
    
    6,126
    
    
    
    (2,236
    )
    
    
    (4,537
    )
    
    
    Loss on asset impairment and sale
    
    
    
    
    
    
    (547
    )
    
    
    
    
    
    
    4,578
    
    
    
    
    
    
    
    4,031Depreciation
    
    
    
    
    
    
    572
    
    
    
    2,291
    
    
    
    996
    
    
    
    
    
    
    
    3,859Goodwill impairment charges
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    3,126
    
    
    
    326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,452Deferred taxes
    
    
    (556
    )
    
    
    
    
    
    
    432
    
    
    
    (1,497
    )
    
    
    
    
    
    
    (1,621
    )(Gain) on sale/disposal of property
and equipment
    
    
    
    
    
    
    (1
    )
    
    
    (45
    )
    
    
    (55
    )
    
    
    
    
    
    
    (101
    )(Increase) decrease in receivable, net
    
    
    
    
    
    
    2,367
    
    
    
    4,790
    
    
    
    26,507
    
    
    
    
    
    
    
    33,664(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    258
    
    
    
    
    
    
    
    2,083(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (284
    )
    
    
    (880
    )
    
    
    (859
    )
    
    
    
    
    
    
    (2,023
    )Increase (decrease) in current liabilities
    
    
    (5,873
    )
    
    
    (883
    )
    
    
    (16,675
    )
    
    
    (18,136
    )
    
    
    
    
    
    
    (41,567
    )Other, net
    
    
    
    
    
    
    34
    
    
    
    (311
    )
    
    
    (1,505
    )
    
    
    
    
    
    
    (1,782
    )Net cash provided by (used for) operating activities
    
    
    (19,424
    )
    
    
    3,820
    
    
    
    (3,094
    )
    
    
    9,056
    
    
    
    
    
    
    
    (9,642
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (171
    )
    
    
    (938
    )
    
    
    (986
    )
    
    
    
    
    
    


    (2,095
    )Payments for contingent consideration
    
    
    
    
    
    
    
    
    
    
    (1,813
    )
    
    
    
    
    
    
    
    
    
    


    (1,813
    )Proceeds from sale of business
    
    
    
    
    
    
    5,608
    
    
    
    
    
    
    
    (520
    )
    
    
    
    
    
    
    5,088Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    8
    
    
    
    55
    
    
    
    240
    
    
    
    
    
    
    


    303Net cash provided by (used for) investing activities
    
    
    
    
    
    
    5,445
    
    
    
    (2,696
    )
    
    
    (1,266
    )
    
    
    
    
    
    
    1,483Cash flows from financing activities:Transactions with subsidiaries
    
    
    24,512
    
    
    
    (5,767
    )
    
    
    (10,915
    )
    
    
    (7,830
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (25
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25
    )Changes in revolving debt, net
    
    
    
    
    
    
    (581
    )
    
    
    
    
    
    
    (7,422
    )
    
    
    
    
    
    
    (8,003
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    6,564
    
    
    
    
    
    
    
    
    
    
    
    6,564Net cash provided by (used for) financing activities
    
    
    24,487
    
    
    
    (6,348
    )
    
    
    (4,351
    )
    
    
    (15,252
    )
    
    
    
    
    
    
    (1,464
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (1,529
    )
    
    
    
    
    
    
    1,384
    
    
    
    
    
    
    
    (145
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    5,063
    
    
    
    1,388
    
    
    
    (10,141
    )
    
    
    (6,078
    )
    
    
    
    
    
    
    (9,768
    )Balance, beginning of period
    
    
    5,650
    
    
    
    18
    
    
    
    11,570
    
    
    
    17,139
    
    
    
    
    
    
    
    34,377Balance, end
of period (including $710 of cash
held for sale as of October 2, 2005)
    
    $
    10,713
    
    
    $
    1,406
    
    
    $
    1,429
    
    
    $
    11,061
    
    
    $
    
    
    
    $
    24,609
 24




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 15. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal nine months ended October 3, 2004
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (906
    )
    
    $
    600
    
    
    $
    15,024
    
    
    $
    8,997
    
    
    $
    (24,621
    )
    
    $
    (906
    )Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates, including discontinued
operations
    
    
    (15,024
    )
    
    
    
    
    
    
    (8,997
    )
    
    
    (600
    )
    
    
    24,621
    
    
    
    Depreciation
    
    
    
    
    
    
    1,177
    
    
    
    3,358
    
    
    
    2,160
    
    
    
    
    
    
    
    6,695Amortization of debt issuance costs
    
    
    3,024
    
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,268Deferred taxes
    
    
    (2,957
    )
    
    
    
    
    
    
    2,997
    
    
    
    358
    
    
    
    
    
    
    
    398(Gain) loss on sale/disposal of property and
equipment
    
    
    
    
    
    
    (95
    )
    
    
    3
    
    
    
    13
    
    
    
    
    
    
    
    (79
    )(Increase) decrease in receivable, net
    
    
    
    
    
    
    5,934
    
    
    
    13,812
    
    
    
    28,293
    
    
    
    
    
    
    
    48,039(Increase) decrease in inventory
    
    
    
    
    
    
    (4
    )
    
    
    (699
    )
    
    
    85
    
    
    
    
    
    
    
    (618
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (321
    )
    
    
    (1,274
    )
    
    
    (298
    )
    
    
    
    
    
    
    (1,893
    )Increase (decrease) in current liabilities
    
    
    (4,265
    )
    
    
    (13,333
    )
    
    
    (10,252
    )
    
    
    (25,034
    )
    
    
    
    
    
    
    (52,884
    )Other, net
    
    
    
    
    
    
    80
    
    
    
    (103
    )
    
    
    325
    
    
    
    
    
    
    
    302Net cash provided by (used for) operating activities
    
    
    (20,128
    )
    
    
    (5,718
    )
    
    
    13,869
    
    
    
    14,299
    
    
    
    
    
    
    
    2,322Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (260
    )
    
    
    (395
    )
    
    
    (1,252
    )
    
    
    
    
    
    
    (1,907
    )Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    99
    
    
    
    22
    
    
    
    183
    
    
    
    
    
    
    
    304Other, net
    
    
    
    
    
    
    
    
    
    
    489
    
    
    
    
    
    
    
    
    
    
    
    489Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (161
    )
    
    
    116
    
    
    
    (1,069
    )
    
    
    
    
    
    
    (1,114
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    19,220
    
    
    
    (1,094
    )
    
    
    (7,891
    )
    
    
    (10,235
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (462
    )
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (398
    )Changes in revolving debt, net
    
    
    
    
    
    
    1,724
    
    
    
    
    
    
    
    (2,360
    )
    
    
    
    
    
    
    (636
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    (4,322
    )
    
    
    
    
    
    
    
    
    
    
    (4,322
    )Net cash provided by (used for) financing activities
    
    
    18,758
    
    
    
    694
    
    
    
    (12,213
    )
    
    
    (12,595
    )
    
    
    
    
    
    
    (5,356
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (322
    )
    
    
    
    
    
    
    (126
    )
    
    
    
    
    
    
    (448
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (1,370
    )
    
    
    (5,507
    )
    
    
    1,772
    
    
    
    509
    
    
    
    
    
    
    
    (4,596
    )Balance, beginning of period
    
    
    18,600
    
    
    
    5,639
    
    
    
    390
    
    
    
    12,021
    
    
    
    
    
    
    
    36,650Balance, end of period
    
    $
    17,230
    
    
    $
    132
    
    
    $
    2,162
    
    
    $
    12,530
    
    
    $
    
    
    
    $
    32,054
 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
    
    $
    41,486
    
    
    $
    41,385
    
    
    $
    101
    
    
    
    0.2
    %Human Capital Services
    
    
    43,964
    
    
    
    45,892
    
    
    
    (1,928
    )
    
    
    (4.2
    %)Engineering Services
    
    
    25,182
    
    
    
    24,016
    
    
    
    1,166
    
    
    
    4.9
    %Total net sales
    
    $
    110,632
    
    
    $
    111,293
    
    
    $
    (661
    )
    
    
    (0.6
    %)Fiscal Nine Months:Business Outsourcing Services
    
    $
    128,773
    
    
    $
    130,333
    
    
    $
    (1,560
    )
    
    
    (1.2
    %)Human Capital Services
    
    
    137,975
    
    
    
    145,732
    
    
    
    (7,757
    )
    
    
    (5.3
    %)Engineering Services
    
    
    73,921
    
    
    
    74,292
    
    
    
    (371
    )
    
    
    (0.5
    %)Total net sales
    
    $
    340,669
    
    
    $
    350,357
    
    
    $
    (9,688
    )
    
    
    (2.8
    %)
 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
    
    $
    15,564
    
    
    $
    16,550
    
    
    $
    (986
    )
    
    
    (6.0
    %)% of net sales
    
    
    14.1
    %
    
    
    14.9
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    7,354
    
    
    $
    8,532
    
    
    $
    (1,178
    )
    
    
    (13.8
    %)% of net sales
    
    
    6.6
    %
    
    
    7.7
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    7,547
    
    
    $
    8,009
    
    
    $
    (462
    )
    
    
    (5.8
    %)% of net sales
    
    
    6.8
    %
    
    
    7.2
    %
    
    
    n/a
    
    
    
    n/aFiscal Nine Months:Gross profit
    
    $
    50,611
    
    
    $
    51,036
    
    
    $
    (425
    )
    
    
    (0.8
    %)% of net sales
    
    
    14.9
    %
    
    
    14.6
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    24,766
    
    
    $
    26,509
    
    
    $
    (1,743
    )
    
    
    (6.6
    %)% of net sales
    
    
    7.3
    %
    
    
    7.6
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    24,679
    
    
    $
    24,380
    
    
    $
    299
    
    
    
    1.2
    %% of net sales
    
    
    7.2
    %
    
    
    7.0
    %
    
    
    n/a
    
    
    
    n/a
  27




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Interest expense
  Income taxes
  Discontinued Operations
      28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Liquidity and Capital Resources
 Cash Flows
 General.
  Operating Activities
 Investing Activities.
 Financing Activities
 Liquidity and Available Financings
    29




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  New Accounting Pronouncements
 SFAS No. 123-R,: Accounting for Stock-Based Compensation- Revised:
 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
 (a)
    
    Exhibits:
 31.1
    
    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.31.2
    
    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.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 3rd quarter results.
 32




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##### Table of Contents



SIGNATURE
   MSX INTERNATIONAL, INC.(Registrant)By:
    /s/ Frederick K. MinturnFrederick K. MinturnExecutive Vice President and
Chief Financial Officer 
 33




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##### Table of Contents



EXHIBIT INDEX
 EXHIBIT NO.
    
    DESCRIPTIONEXHIBIT
    
    
    31.1
    
    
    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.EXHIBIT
    
    
    31.2
    
    
    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.EXHIBIT
    
    
    32.1
    
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes  Oxley Act of 2002.EXHIBIT
    
    
    99.1
    
    
    Press release announcing 3rd quarter results.
 34