##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 2, 2006
 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
of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1950 Concept Drive, Warren, Michigan
    
    48091(Address of principal executive offices)
    
    (Zip Code)
 (248) 299-1000
 þ o
  o o þ
 o þ




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##### 



MSX INTERNATIONAL, INC.
INDEX
 PagesPART I.FINANCIAL INFORMATIONITEM 1.Financial Statements (unaudited):Consolidated Balance Sheets as of April 2, 2006 and January 1, 2006
    
    
    2Consolidated Statements of Operations for the fiscal quarters ended April 2, 2006 and April 3, 2005
    
    
    3Consolidated Statements of Cash Flows for the fiscal quarters ended April 2, 2006 and April 3, 2005
    
    
    4Notes to Consolidated Financial Statements
    
    
    5ITEM 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25ITEM 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) and 15d-15(e)Certification of Chief Financial Officer Pursuant to Rules 13a-15(e) and 15d-15(e)Certification Pursuant to Section 906Press Release Announcing 1st Quarter ResultsDeed of Transfer of the Entire Quota of Satiz S.r.l.
  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 April 2, 2006 and January 1, 2006
 April 2,
    
    
    January 1,2006
    
    
    2006(in thousands except share amounts)ASSETSCurrent assets:Cash and cash equivalents (including $0.1 million
and $5.0 million of
restricted cash, respectively) (Note 6)
    
    $
    29,471
    
    
    $
    27,737Accounts receivable, net (Note 4)
    
    
    96,260
    
    
    
    96,684Inventory
    
    
    686
    
    
    
    785Prepaid expenses and other assets
    
    
    3,844
    
    
    
    3,708Assets held for sale (Note 2)
    
    
    24,800
    
    
    
    36,229Deferred income taxes, net
    
    
    5,245
    
    
    
    5,634Total current assets
    
    
    160,306
    
    
    
    170,777Property and equipment, net
    
    
    3,747
    
    
    
    3,757Goodwill, net (Note 5)
    
    
    25,772
    
    
    
    26,504Assets held for sale (Note 2)
    
    
    6,279
    
    
    
    5,588Other assets
    
    
    6,287
    
    
    
    6,810Deferred income taxes, net
    
    
    827
    
    
    
    1,000Total assets
    
    $
    203,218
    
    
    $
    214,436LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Accounts payable and drafts
    
    $
    64,305
    
    
    $
    63,467Accrued payroll and benefits
    
    
    19,206
    
    
    
    19,906Liabilities held for sale (Note 2)
    
    
    24,849
    
    
    
    31,332Other accrued liabilities
    
    
    36,100
    
    
    
    41,771Total current liabilities
    
    
    144,460
    
    
    
    156,476Long-term debt (Note 6)
    
    
    252,322
    
    
    
    251,688Long-term deferred compensation liabilities and other
    
    
    4,795
    
    
    
    5,402Liabilities held for sale (Note 2)
    
    
    9,476
    
    
    
    9,138Total liabilities
    
    
    411,053
    
    
    
    422,704Commitments and contingencies (Note 7)
    
    
    
    
    
    
    Redeemable Series A Preferred Stock (Note 8)
    
    
    105,635
    
    
    
    102,566Shareholders 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
    
    
    (2,923
    )
    
    
    (2,602
    )Retained deficit
    
    
    (286,421
    )
    
    
    (284,106
    )Total shareholders deficit
    
    
    (313,470
    )
    
    
    (310,834
    )Total liabilities and shareholders deficit
    
    $
    203,218
    
    
    $
    214,436
 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 ended April 2, 2006 and April 3, 2005
 Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005(in thousands)Net sales
    
    $
    88,620
    
    
    $
    101,089Cost of sales
    
    
    72,862
    
    
    
    84,594Gross profit
    
    
    15,758
    
    
    
    16,495Selling, general and administrative expenses
    
    
    6,800
    
    
    
    8,514Restructuring and severance costs (Note 3)
    
    
    183
    
    
    
    126Income from continuing operations before
interest and income taxes
    
    
    8,775
    
    
    
    7,855Interest expense, net
    
    
    7,645
    
    
    
    8,504Income (loss) from continuing operations before
income taxes
    
    
    1,130
    
    
    
    (649
    )Income tax provision
    
    
    1,651
    
    
    
    1,240Loss from continuing operations
    
    
    (521
    )
    
    
    (1,889
    )Income (loss) from discontinued operations, net
of taxes (Note 2)
    
    
    1,275
    
    
    
    (12,947
    )Net income (loss)
    
    
    754
    
    
    
    (14,836
    )Accretion for redemption of preferred stock
    
    
    (3,069
    )
    
    
    (2,732
    )Net loss available to common shareholders
    
    $
    (2,315
    )
    
    $
    (17,568
    )
 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 quarters ended April 2, 2006 and April 3, 2005
 Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005(in thousands)Cash flows from operating activities:Net income
(loss)
    
    $
    754
    
    
    $
    (14,836
    )Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Net gain on sale of businesses
    
    
    (470
    )
    
    
    Depreciation
    
    
    756
    
    
    
    2,094Goodwill impairment charges
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    1,259
    
    
    
    1,142Deferred income taxes (benefits)
    
    
    1,042
    
    
    
    (316
    )(Gain) loss on sale/disposal of property and equipment
    
    
    31
    
    
    
    (8
    )(Increase) decrease in receivables, net
    
    
    5,636
    
    
    
    13,427(Increase) decrease in inventory
    
    
    54
    
    
    
    (318
    )(Increase) decrease in prepaid expenses and other assets
    
    
    (203
    )
    
    
    (1,495
    )Increase (decrease) in current liabilities
    
    
    (18,986
    )
    
    
    (13,760
    )Other, net
    
    
    (1,157
    )
    
    
    (691
    )Net cash provided by (used for) operating activities
    
    
    (11,284
    )
    
    
    (7,630
    )Cash flows from investing activities:Capital expenditures
    
    
    (815
    )
    
    
    (861
    )Payments for contingent consideration
    
    
    (604
    )
    
    
    (604
    )Proceeds from sale of businesses, net of related expenses
    
    
    7,012
    
    
    
    Proceeds from sale/disposal of property and equipment
    
    
    52
    
    
    
    95Net cash provided by (used for) investing activities
    
    
    5,645
    
    
    
    (1,370
    )Cash flows from financing activities:Debt issuance costs
    
    
    (120
    )
    
    
    (16
    )Changes in revolving debt, net
    
    
    1,691
    
    
    
    (4,550
    )Changes in book overdrafts, net
    
    
    6,457
    
    
    
    8,067Net cash provided by (used for) financing activities
    
    
    8,028
    
    
    
    3,501Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (499
    )
    
    
    (362
    )Cash and cash equivalents:Increase
(decrease) for the period
    
    
    1,890
    
    
    
    (5,861
    )Balance, beginning of period (including $273 of cash held for sale
at January 1, 2006)
    
    
    28,010
    
    
    
    34,377Balance, end of period (including $429 and $652 of cash held for sale
at April 2, 2006 and April 3, 2005, respectively))
    
    $
    29,900
    
    
    $
    28,516
 The accompanying notes are an integral part of the consolidated financial statements
 4




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MSX International, Inc.
 
 Notes to Consolidated Financial Statements (Unaudited)
  1.
    
    Organization and Basis of Presentation:
   2.
    
    Discontinued Operations
   Assets Held for SaleAt April 2, 2006
    
    MSX International Engineering GmbH, our remaining
  engineering operations in Germany
    
    Satiz S.r.l., our Italian technical and commercial publishing
  business (sold April 21, 2006)At January 1, 2006
    
    MSX International Engineering GmbH, our remaining
  engineering operations in Germany
    
    Satiz S.r.l., our Italian technical and commercial publishing
  business (sold April 21, 2006)
    
    Creative Technology Services, LLC (sold
  January 19, 2006)
 5




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  At April 2,
    
    
    At January 1,2006
    
    
    2006Assets:Cash and cash equivalents
    
    $
    429
    
    
    $
    273Accounts receivable, net
    
    
    20,237
    
    
    
    27,188Inventory
    
    
    1,699
    
    
    
    6,657Prepaid expenses
    
    
    335
    
    
    
    373Deferred tax assets
    
    
    2,100
    
    
    
    1,738Total current assets held for sale
    
    
    24,800
    
    
    
    36,229Property and equipment, net
    
    
    4,923
    
    
    
    4,765Goodwill, net
    
    
    381
    
    
    
    372Other assets
    
    
    
    
    
    
    313Deferred tax assets
    
    
    975
    
    
    
    138Total assets held for sale
    
    
    31,079
    
    
    
    41,817Liabilities:Note payable and current portion of long-term debt
    
    
    2,775
    
    
    
    1,084Accounts payable and drafts
    
    
    17,252
    
    
    
    22,535Accrued payroll and benefits
    
    
    3,582
    
    
    
    5,755Other accrued liabilities
    
    
    1,240
    
    
    
    1,958Total current liabilities held for sale
    
    
    24,849
    
    
    
    31,332Long-term deferred compensation liabilities and other
    
    
    6,059
    
    
    
    7,532Deferred tax liabilities
    
    
    3,417
    
    
    
    1,606Total liabilities held for sale
    
    
    34,325
    
    
    
    40,470Net assets (liabilities) held for sale
    
    $
    (3,246
    )
    
    $
    1,347
  Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005Net sales
    
    $
    22,542
    
    
    $
    44,848Cost of sales
    
    
    19,946
    
    
    
    42,515Gross profit
    
    
    2,596
    
    
    
    2,333Selling, general and administrative expense
    
    
    1,705
    
    
    
    2,732Restructuring and severance
    
    
    11
    
    
    
    6,633Goodwill impairment charge
    
    
    
    
    
    
    7,131Operating income (loss)
    
    
    880
    
    
    
    (14,163
    )Interest (income) expense, net
    
    
    (3
    )
    
    
    16Net gain on sale of businesses
    
    
    470
    
    
    
    Income (loss) before taxes, net
    
    
    1,353
    
    
    
    (14,179
    )Income tax expense (benefit)
    
    
    78
    
    
    
    (1,232
    )Income (loss) from discontinued operations
    
    $
    1,275
    
    
    $
    (12,947
    )
 6




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
     Gross sale price:Cash proceeds
    
    $
    7,266Note receivable
    
    
    250Total sale price
    
    
    7,516Less:Net assets sold
    
    
    6,656Reserves and expenses
    
    
    390Gain on sales, net
    
    $
    470
  Assets:Cash and cash equivalents
    
    $
    Accounts receivable, net
    
    
    2,087Inventory
    
    
    5,003Prepaid expenses
    
    
    142Deferred tax assets  current
    
    
    132Total current assets sold
    
    
    7,364Property and equipment, net
    
    
    72Goodwill, net
    
    
    732Other assets
    
    
    151Total assets sold
    
    
    8,319Liabilities:Accounts payable and drafts
    
    
    526Accrued payroll and benefits
    
    
    327Other accrued liabilities
    
    
    603Total current liabilities sold
    
    
    1,456Deferred compensation and other liabilities
    
    
    207Total liabilities sold
    
    
    1,663Net assets sold
    
    $
    6,656
 7




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 3.
    
    Restructuring and Severance:
  TerminationBenefitsReserve at January 1, 2006
    
    $
    5,423Charges from continuing operations
    
    
    183Charges from discontinued operations
    
    
    11Payments and reserve utilization
    
    
    (3,164
    )Reserve at April 2, 2006
    
    $
    2,453
 4.
    
    Accounts Receivable:
  5.
    
    Goodwill, net:
  Business
    
    
    HumanOutsourcing
    
    
    Capital
    
    
    EngineeringServices
    
    
    Services
    
    
    Services
    
    
    TotalBalance at January 1, 2006
    
    $
    17,200
    
    
    $
    9,304
    
    
    $
    
    
    
    $
    26,504Goodwill classified as held for sale during the fiscal period
    
    
    
    
    
    
    (732
    )
    
    
    
    
    
    
    (732
    )Balance at April 2, 2006
    
    $
    17,200
    
    
    $
    8,572
    
    
    $
    
    
    
    $
    25,772
 8




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
 6.
    
    Debt:
  Outstanding atInterest
    
    
    Maturity
    
    
    April 2,
    
    
    January 1,Rates
    
    
    Date
    
    
    2006
    
    
    2006Senior Credit Facility
    
    
    n/a
    
    
    January 15, 2007
    
    $
    
    
    
    $
    Senior secured notes, net of unamortized discount
    
    
    11.00
    %
    
    October 15, 2007
    
    
    75,263
    
    
    
    75,224Mezzanine term notes, net of unamortized discount
    
    
    11.50
    %
    
    October 15, 2007
    
    
    24,729
    
    
    
    24,684Fourth lien term notes
    
    
    10.00
    %
    
    January 15, 2008
    
    
    22,330
    
    
    
    21,780Senior subordinated notes
    
    
    11.375
    %
    
    January 15, 2008
    
    
    130,000
    
    
    
    130,000Total long-term debt
    
    
    
    
    
    
    
    
    
    $
    252,322
    
    
    $
    251,688
   
    
    Extend the maturity date of the Credit Agreement from August 1, 2006 to January 15,
2007;
    
    Reduce the aggregate commitments under the Credit Agreement from $45 million to $25
million subject to limitations based on domestic accounts receivable and cash
collateral held in blocked accounts in connection with prepayments of obligations under
the facility;
    
    Allow for future permanent reductions of commitment and related borrowings via use
of funds from any asset sales held in blocked accounts by the bank; and
    
    Modify certain covenants and restrictions on the Companys ability to borrow under
the facility, including the elimination of all commitments related to non-domestic
subsidiaries of the Company.
 7.
    
    Commitments and Contingencies:
   9




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
  8.
    
    Redeemable Series A Preferred Stock:
  9.
    
    Comprehensive Income (Loss):
  Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005Net income (loss)
    
    $
    754
    
    
    $
    (14,836
    )Other
comprehensive loss 
foreign currency translation adjustments
    
    
    (321
    )
    
    
    (1,551
    )Comprehensive income (loss)
    
    $
    433
    
    
    $
    (16,387
    )
 10.
    
    Income Taxes:
  11.
    
    Segment Information:
  10




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##### Table of Contents



MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
   Business
    
    HumanOutsourcing
    
    Capital
    
    EngineeringServices
    
    Services
    
    Services
    
    Other
    
    TotalQuarter Ended April 2, 2006Net sales  external
    
    $
    40,256
    
    
    $
    26,606
    
    
    $
    21,758
    
    
    $
    
    
    
    $
    88,620Net intercompany sales
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    EBITA
    
    
    5,353
    
    
    
    2,787
    
    
    
    1,817
    
    
    
    
    
    
    
    9,957Quarter Ended April 3, 2005Net sales  external
    
    
    43,170
    
    
    
    36,470
    
    
    
    21,449
    
    
    
    
    
    
    
    101,089Net intercompany sales
    
    
    89
    
    
    
    
    
    
    
    98
    
    
    
    (187
    )
    
    
    EBITA
    
    
    5,603
    
    
    
    3,347
    
    
    
    1,832
    
    
    
    
    
    
    
    10,782
  Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005Total segment EBITA
    
    $
    9,957
    
    
    $
    10,782Net costs not allocated to segments
    
    
    (838
    )
    
    
    (2,417
    )Interest expense
    
    
    (7,645
    )
    
    
    (8,504
    )Michigan single business tax and other similar taxes
    
    
    (344
    )
    
    
    (510
    )Consolidated
income (loss) from continuing operations before income taxes
    
    $
    1,130
    
    
    $
    (649
    )
 12.
    
    Stock-Based Compensation:
   11




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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)  continued
   WeightedaverageNumber of
    
    
    Weighted
    
    
    remaining
    
    
    Aggregatestock
    
    
    average
    
    
    contractual life in
    
    
    Intrinsicoptions
    
    
    exercise price
    
    
    years
    
    
    Value (000s)Outstanding at January 1, 2006
    
    
    39,650
    
    
    $
    64.04
    
    
    
    6.6
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (6,650
    )
    
    
    60.00
    
    
    
    
    
    
    
    Outstanding at April 2, 2006
    
    
    33,000
    
    
    
    64.85
    
    
    
    6.1
    
    
    
    Exercisable at April 2, 2006
    
    
    19,725
    
    
    $
    63.78
    
    
    
    5.5
    
    
    $
    
   13.
    
    Subsequent Event:
  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.:
   
    
    MSXIthe parent company and issuer
    
    The guarantor subsidiaries
    
    The non-guarantor subsidiaries
    
    MSXI on a consolidated basis
  13




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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 April 2, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,480
    
    
    $
    547
    
    
    $
    8,444
    
    
    $
    
    
    
    $
    29,471Accounts receivable, net
    
    
    
    
    
    
    50,903
    
    
    
    45,357
    
    
    
    
    
    
    
    96,260Inventory
    
    
    
    
    
    
    680
    
    
    
    6
    
    
    
    
    
    
    
    686Prepaid expenses and other assets
    
    
    
    
    
    
    2,371
    
    
    
    1,473
    
    
    
    
    
    
    
    3,844Assets held for sale
    
    
    
    
    
    
    
    
    
    
    24,800
    
    
    
    
    
    
    
    24,800Deferred income taxes, net
    
    
    
    
    
    
    3,862
    
    
    
    5,245
    
    
    
    (3,862
    )
    
    
    5,245Total current assets
    
    
    20,480
    
    
    
    58,363
    
    
    
    85,325
    
    
    
    (3,862
    )
    
    
    160,306Property and equipment, net
    
    
    
    
    
    
    1,868
    
    
    
    1,879
    
    
    
    
    
    
    
    3,747Goodwill, net
    
    
    
    
    
    
    25,742
    
    
    
    30
    
    
    
    
    
    
    
    25,772Investments in subsidiaries
    
    
    21,144
    
    
    
    (7,074
    )
    
    
    
    
    
    
    (14,070
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    6,279
    
    
    
    
    
    
    
    6,279Other assets
    
    
    3,235
    
    
    
    2,734
    
    
    
    318
    
    
    
    
    
    
    
    6,287Deferred income taxes, net
    
    
    3,636
    
    
    
    
    
    
    
    1,097
    
    
    
    (3,906
    )
    
    
    827Total assets
    
    $
    48,495
    
    
    $
    81,633
    
    
    $
    94,928
    
    
    $
    (21,838
    )
    
    $
    203,218LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    43,912
    
    
    
    20,393
    
    
    
    
    
    
    
    64,305Accrued liabilities
    
    
    5,264
    
    
    
    24,665
    
    
    
    25,377
    
    
    
    
    
    
    
    55,306Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    24,849
    
    
    
    
    
    
    
    24,849Deferred income taxes, net
    
    
    3,862
    
    
    
    
    
    
    
    
    
    
    
    (3,862
    )
    
    
    Total current liabilities
    
    
    9,126
    
    
    
    68,577
    
    
    
    70,619
    
    
    
    (3,862
    )
    
    
    144,460Long-term debt
    
    
    235,161
    
    
    
    
    
    
    
    17,161
    
    
    
    
    
    
    
    252,322Intercompany accounts
    
    
    12,043
    
    
    
    (16,155
    )
    
    
    4,112
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    4,161
    
    
    
    634
    
    
    
    
    
    
    
    4,795Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    9,476
    
    
    
    
    
    
    
    9,476Deferred income taxes, net
    
    
    
    
    
    
    3,906
    
    
    
    
    
    
    
    (3,906
    )
    
    
    Total liabilities
    
    
    256,330
    
    
    
    60,489
    
    
    
    102,002
    
    
    
    (7,768
    )
    
    
    411,053Redeemable Series A Preferred Stock
    
    
    105,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,635Shareholders equity (deficit)
    
    
    (313,470
    )
    
    
    21,144
    
    
    
    (7,074
    )
    
    
    (14,070
    )
    
    
    (313,470
    )Total liabilities and shareholders
equity (deficit)
    
    $
    48,495
    
    
    $
    81,633
    
    
    $
    94,928
    
    
    $
    (21,838
    )
    
    $
    203,218
 14




---



##### 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 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,995
    
    
    $
    432
    
    
    $
    15,310
    
    
    $
    
    
    
    $
    27,737Accounts receivable, net
    
    
    
    
    
    
    55,279
    
    
    
    41,405
    
    
    
    
    
    
    
    96,684Inventory
    
    
    
    
    
    
    778
    
    
    
    7
    
    
    
    
    
    
    
    785Prepaid expenses and other assets
    
    
    
    
    
    
    2,095
    
    
    
    1,613
    
    
    
    
    
    
    
    3,708Assets held for sale
    
    
    
    
    
    
    7,327
    
    
    
    28,902
    
    
    
    
    
    
    
    36,229Deferred income taxes, net
    
    
    
    
    
    
    3,718
    
    
    
    5,766
    
    
    
    (3,850
    )
    
    
    5,634Total current assets
    
    
    11,995
    
    
    
    69,629
    
    
    
    93,003
    
    
    
    (3,850
    )
    
    
    170,777Property and equipment, net
    
    
    
    
    
    
    2,154
    
    
    
    1,603
    
    
    
    
    
    
    
    3,757Goodwill, net
    
    
    
    
    
    
    26,475
    
    
    
    29
    
    
    
    
    
    
    
    26,504Investment in subsidiaries
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    
    
    
    
    (8,487
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    497
    
    
    
    5,091
    
    
    
    
    
    
    
    5,588Other assets
    
    
    3,698
    
    
    
    2,760
    
    
    
    352
    
    
    
    
    
    
    
    6,810Deferred income taxes, net
    
    
    3,373
    
    
    
    
    
    
    
    1,138
    
    
    
    (3,511
    )
    
    
    1,000Total assets
    
    $
    33,559
    
    
    $
    95,509
    
    
    $
    101,216
    
    
    $
    (15,848
    )
    
    $
    214,436LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    42,049
    
    
    
    21,418
    
    
    
    
    
    
    
    63,467Accrued liabilities
    
    
    11,499
    
    
    
    26,655
    
    
    
    23,523
    
    
    
    
    
    
    
    61,677Liabilities held for sale
    
    
    
    
    
    
    1,653
    
    
    
    29,679
    
    
    
    
    
    
    
    31,332Deferred income taxes, net
    
    
    3,850
    
    
    
    
    
    
    
    
    
    
    
    (3,850
    )
    
    
    Total current liabilities
    
    
    15,349
    
    
    
    70,357
    
    
    
    74,620
    
    
    
    (3,850
    )
    
    
    156,476Long-term debt
    
    
    234,610
    
    
    
    
    
    
    
    17,078
    
    
    
    
    
    
    
    251,688Intercompany accounts
    
    
    (8,132
    )
    
    
    2,160
    
    
    
    5,972
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    4,916
    
    
    
    486
    
    
    
    
    
    
    
    5,402Liabilities held for sale
    
    
    
    
    
    
    72
    
    
    
    9,066
    
    
    
    
    
    
    
    9,138Deferred income taxes, net
    
    
    
    
    
    
    3,511
    
    
    
    
    
    
    
    (3,511
    )
    
    
    Total liabilities
    
    
    241,827
    
    
    
    81,016
    
    
    
    107,222
    
    
    
    (7,361
    )
    
    
    422,704Redeemable Series A Preferred Stock
    
    
    102,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,566Shareholders equity (deficit)
    
    
    (310,834
    )
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    (8,487
    )
    
    
    (310,834
    )Total liabilities and shareholders
equity (deficit)
    
    $
    33,559
    
    
    $
    95,509
    
    
    $
    101,216
    
    
    $
    (15,848
    )
    
    $
    214,436
 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 quarters ended April 2, 2006 and April 3, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended April 2, 2006:Net sales
    
    $
    
    
    
    $
    53,792
    
    
    $
    34,839
    
    
    $
    (11
    )
    
    $
    88,620Cost of sales
    
    
    
    
    
    
    44,799
    
    
    
    28,074
    
    
    
    (11
    )
    
    
    72,862Gross profit
    
    
    
    
    
    
    8,993
    
    
    
    6,765
    
    
    
    
    
    
    
    15,758Selling, general and administrative expenses
    
    
    
    
    
    
    4,169
    
    
    
    2,631
    
    
    
    
    
    
    
    6,800Restructuring and severance costs
    
    
    
    
    
    
    79
    
    
    
    104
    
    
    
    
    
    
    
    183Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    4,745
    
    
    
    4,030
    
    
    
    
    
    
    
    8,775Interest expense, net
    
    
    7,403
    
    
    
    (47
    )
    
    
    289
    
    
    
    
    
    
    
    7,645Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (7,403
    )
    
    
    4,792
    
    
    
    3,741
    
    
    
    
    
    
    
    1,130Income tax provision (benefit)
    
    
    (1,185
    )
    
    
    1,191
    
    
    
    1,645
    
    
    
    
    
    
    
    1,651Equity in affiliates
    
    
    5,697
    
    
    
    2,096
    
    
    
    
    
    
    
    (7,793
    )
    
    
    Income (loss) from continuing operations
    
    
    (521
    )
    
    
    5,697
    
    
    
    2,096
    
    
    
    (7,793
    )
    
    
    (521
    )Income from discontinued operations, net
    
    
    1,275
    
    
    
    1,275
    
    
    
    547
    
    
    
    (1,822
    )
    
    
    1,275Net income
    
    $
    754
    
    
    $
    6,972
    
    
    $
    2,643
    
    
    $
    (9,615
    )
    
    $
    754Fiscal Quarter Ended April 3, 2005:Net sales
    
    $
    
    
    
    $
    68,859
    
    
    $
    32,258
    
    
    $
    (28
    )
    
    $
    101,089Cost of sales
    
    
    
    
    
    
    58,754
    
    
    
    25,868
    
    
    
    (28
    )
    
    
    84,594Gross profit
    
    
    
    
    
    
    10,105
    
    
    
    6,390
    
    
    
    
    
    
    
    16,495Selling, general and administrative expenses
    
    
    
    
    
    
    6,239
    
    
    
    2,275
    
    
    
    
    
    
    
    8,514Restructuring and severance costs
    
    
    
    
    
    
    101
    
    
    
    25
    
    
    
    
    
    
    
    126Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    3,765
    
    
    
    4,090
    
    
    
    
    
    
    
    7,855Interest expense, net
    
    
    6,253
    
    
    
    1,291
    
    
    
    960
    
    
    
    
    
    
    
    8,504Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,253
    )
    
    
    2,474
    
    
    
    3,130
    
    
    
    
    
    
    
    (649
    )Income tax provision (benefit)
    
    
    (808
    )
    
    
    790
    
    
    
    1,258
    
    
    
    
    
    
    
    1,240Equity in affiliates
    
    
    3,556
    
    
    
    1,872
    
    
    
    
    
    
    
    (5,428
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,889
    )
    
    
    3,556
    
    
    
    1,872
    
    
    
    (5,428
    )
    
    
    (1,889
    )Loss from discontinued operations, net
    
    
    (12,947
    )
    
    
    (12,947
    )
    
    
    (12,722
    )
    
    
    25,669
    
    
    
    (12,947
    )Net loss
    
    $
    (14,836
    )
    
    $
    (9,391
    )
    
    $
    (10,850
    )
    
    $
    20,241
    
    
    $
    (14,836
    )
 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 quarter ended April 2, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    754
    
    
    $
    6,972
    
    
    $
    2,643
    
    
    $
    (9,615
    )
    
    $
    754Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued operations
    
    
    (6,972
    )
    
    
    (2,643
    )
    
    
    
    
    
    
    9,615
    
    
    
    Gain on sale
of businesses
    
    
    
    
    
    
    (470
    )
    
    
    
    
    
    
    
    
    
    
    (470
    )Depreciation
    
    
    
    
    
    
    454
    
    
    
    302
    
    
    
    
    
    
    
    756Amortization of debt issuance costs and
non-cash interest
    
    
    1,133
    
    
    
    
    
    
    
    126
    
    
    
    
    
    
    
    1,259Deferred taxes
    
    
    (251
    )
    
    
    389
    
    
    
    904
    
    
    
    
    
    
    
    1,042(Gain) loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31(Increase) decrease in receivables, net
    
    
    
    
    
    
    4,721
    
    
    
    915
    
    
    
    
    
    
    
    5,636(Increase) decrease in inventory
    
    
    
    
    
    
    99
    
    
    
    (45
    )
    
    
    
    
    
    
    54(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (276
    )
    
    
    73
    
    
    
    
    
    
    
    (203
    )Increase (decrease) in current liabilities
    
    
    (6,233
    )
    
    
    (7,430
    )
    
    
    (5,323
    )
    
    
    
    
    
    
    (18,986
    )Other, net
    
    
    
    
    
    
    171
    
    
    
    (1,328
    )
    
    
    
    
    
    
    (1,157
    )Net cash provided by (used for) operating activities
    
    
    (11,569
    )
    
    
    2,018
    
    
    
    (1,733
    )
    
    
    
    
    
    
    (11,284
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (249
    )
    
    
    (566
    )
    
    
    
    
    
    
    (815
    )Payments for contingent consideration and minority interests
    
    
    
    
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    (604
    )Proceeds from sale/disposal of businesses, net of expenses paid
    
    
    
    
    
    
    7,012
    
    
    
    
    
    
    
    
    
    
    
    7,012Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    30
    
    
    
    22
    
    
    
    
    
    
    
    52Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used for) investing activities
    
    
    
    
    
    
    6,189
    
    
    
    (544
    )
    
    
    
    
    
    
    5,645Cash flows from financing activities:Transactions with subsidiaries
    
    
    20,174
    
    
    
    (14,924
    )
    
    
    (5,250
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    1,691
    
    
    
    
    
    
    
    1,691Change in book overdrafts, net
    
    
    
    
    
    
    6,832
    
    
    
    (375
    )
    
    
    
    
    
    
    6,457Net cash provided by (used for) financing activities
    
    
    20,054
    
    
    
    (8,092
    )
    
    
    (3,934
    )
    
    
    
    
    
    
    8,028Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (499
    )
    
    
    
    
    
    
    (499
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    8,485
    
    
    
    115
    
    
    
    (6,710
    )
    
    
    
    
    
    
    1,890Balance, beginning of period (including $273 of cash held for sale)
    
    
    11,995
    
    
    
    432
    
    
    
    15,583
    
    
    
    
    
    
    
    28,010Balance, end of period (including $429 of cash held for sale)
    
    $
    20,480
    
    
    $
    547
    
    
    $
    8,873
    
    
    $
    
    
    
    $
    29,900
 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 quarter ended April 3, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (14,836
    )
    
    $
    (9,391
    )
    
    $
    (10,850
    )
    
    $
    20,241
    
    
    $
    (14,836
    )Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued
operations
    
    
    9,391
    
    
    
    10,850
    
    
    
    
    
    
    
    (20,241
    )
    
    
    Depreciation
    
    
    
    
    
    
    820
    
    
    
    1,274
    
    
    
    
    
    
    
    2,094Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    1,030
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    1,142Deferred taxes
    
    
    (818
    )
    
    
    818
    
    
    
    (316
    )
    
    
    
    
    
    
    (316
    )(Gain) Loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    (5
    )
    
    
    (3
    )
    
    
    
    
    
    
    (8
    )(Increase) decrease in receivables, net
    
    
    
    
    
    
    2,716
    
    
    
    10,711
    
    
    
    
    
    
    
    13,427(Increase) decrease in inventory
    
    
    
    
    
    
    (444
    )
    
    
    126
    
    
    
    
    
    
    
    (318
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (544
    )
    
    
    (951
    )
    
    
    
    
    
    
    (1,495
    )Increase (decrease) in current liabilities
    
    
    (6,174
    )
    
    
    (5,861
    )
    
    
    (1,725
    )
    
    
    
    
    
    
    (13,760
    )Other, net
    
    
    
    
    
    
    95
    
    
    
    (786
    )
    
    
    
    
    
    
    (691
    )Net cash provided by (used for) operating activities
    
    
    (11,407
    )
    
    
    (946
    )
    
    
    4,723
    
    
    
    
    
    
    
    (7,630
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (305
    )
    
    
    (556
    )
    
    
    
    
    
    
    (861
    )Payments for contingent consideration
    
    
    
    
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    (604
    )Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    7
    
    
    
    88
    
    
    
    
    
    
    
    95Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (902
    )
    
    
    (468
    )
    
    
    
    
    
    
    (1,370
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    3,684
    
    
    
    (3,896
    )
    
    
    212
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Changes in revolving debt, net
    
    
    2,089
    
    
    
    
    
    
    
    (6,639
    )
    
    
    
    
    
    
    (4,550
    )Change in book overdrafts
    
    
    
    
    
    
    8,067
    
    
    
    
    
    
    
    
    
    
    
    8,067Net cash provided by (used for) financing activities
    
    
    5,757
    
    
    
    4,171
    
    
    
    (6,427
    )
    
    
    
    
    
    
    3,501Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    
    
    
    
    (362
    )
    
    
    
    
    
    
    (362
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (5,650
    )
    
    
    2,323
    
    
    
    (2,534
    )
    
    
    
    
    
    
    (5,861
    )Balance, beginning of period
    
    
    5,650
    
    
    
    11,570
    
    
    
    17,157
    
    
    
    
    
    
    
    34,377Balance, end of period (including $652 of cash held
for sale as of April 3, 2005)
    
    $
    
    
    
    $
    13,893
    
    
    $
    14,623
    
    
    $
    
    
    
    $
    28,516
 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




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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 BALANCE SHEET
as of April 2, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    20,480
    
    
    $
    2,039
    
    
    $
    547
    
    
    $
    6,405
    
    
    $
    
    
    
    $
    29,471Accounts receivable, net
    
    
    
    
    
    
    11,184
    
    
    
    50,903
    
    
    
    34,173
    
    
    
    
    
    
    
    96,260Inventory
    
    
    
    
    
    
    
    
    
    
    680
    
    
    
    6
    
    
    
    
    
    
    
    686Prepaid expenses and other assets
    
    
    
    
    
    
    527
    
    
    
    2,371
    
    
    
    946
    
    
    
    
    
    
    
    3,844Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,800
    
    
    
    
    
    
    
    24,800Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,862
    
    
    
    5,505
    
    
    
    (4,122
    )
    
    
    5,245Total current assets
    
    
    20,480
    
    
    
    13,750
    
    
    
    58,363
    
    
    
    71,835
    
    
    
    (4,122
    )
    
    
    160,306Property and equipment, net
    
    
    
    
    
    
    262
    
    
    
    1,868
    
    
    
    1,617
    
    
    
    
    
    
    
    3,747Goodwill, net
    
    
    
    
    
    
    30
    
    
    
    25,742
    
    
    
    
    
    
    
    
    
    
    
    25,772Investments in subsidiaries
    
    
    21,144
    
    
    
    
    
    
    
    (7,074
    )
    
    
    15,424
    
    
    
    (29,494
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,279
    
    
    
    
    
    
    
    6,279Other assets
    
    
    3,235
    
    
    
    253
    
    
    
    2,734
    
    
    
    65
    
    
    
    
    
    
    
    6,287Deferred income taxes, net
    
    
    3,636
    
    
    
    2,591
    
    
    
    
    
    
    
    
    
    
    
    (5,400
    )
    
    
    827Total assets
    
    $
    48,495
    
    
    $
    16,886
    
    
    $
    81,633
    
    
    $
    95,220
    
    
    $
    (39,016
    )
    
    $
    203,218LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    6,386
    
    
    
    43,912
    
    
    
    14,007
    
    
    
    
    
    
    
    64,305Accrued liabilities
    
    
    5,264
    
    
    
    6,523
    
    
    
    24,665
    
    
    
    18,854
    
    
    
    
    
    
    
    55,306Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,849
    
    
    
    
    
    
    
    24,849Deferred income taxes, net
    
    
    3,862
    
    
    
    260
    
    
    
    
    
    
    
    
    
    
    
    (4,122
    )
    
    
    Total current liabilities
    
    
    9,126
    
    
    
    13,169
    
    
    
    68,577
    
    
    
    57,710
    
    
    
    (4,122
    )
    
    
    144,460Long-term debt
    
    
    235,161
    
    
    
    17,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,322Intercompany accounts
    
    
    12,043
    
    
    
    (28,819
    )
    
    
    (16,155
    )
    
    
    32,931
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    (49
    )
    
    
    4,161
    
    
    
    683
    
    
    
    
    
    
    
    4,795Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,476
    
    
    
    
    
    
    
    9,476Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,906
    
    
    
    1,494
    
    
    
    (5,400
    )
    
    
    Total
liabilities
    
    
    256,330
    
    
    
    1,462
    
    
    
    60,489
    
    
    
    102,294
    
    
    
    (9,522
    )
    
    
    411,053Redeemable Series A Preferred Stock
    
    
    105,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,635Shareholders equity (deficit)
    
    
    (313,470
    )
    
    
    15,424
    
    
    
    21,144
    
    
    
    (7,074
    )
    
    
    (29,494
    )
    
    
    (313,470
    )Total liabilities and
shareholders
equity (deficit)
    
    $
    48,495
    
    
    $
    16,886
    
    
    $
    81,633
    
    
    $
    95,220
    
    
    $
    (39,016
    )
    
    $
    203,218
 20




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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 BALANCE SHEET
as of January 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,995
    
    
    $
    6,980
    
    
    $
    432
    
    
    $
    8,330
    
    
    $
    
    
    
    $
    27,737Accounts receivable, net
    
    
    
    
    
    
    10,616
    
    
    
    55,279
    
    
    
    30,789
    
    
    
    
    
    
    
    96,684Inventory
    
    
    
    
    
    
    
    
    
    
    778
    
    
    
    7
    
    
    
    
    
    
    
    785Prepaid
expenses and other assets
    
    
    
    
    
    
    578
    
    
    
    2,095
    
    
    
    1,035
    
    
    
    
    
    
    
    3,708Assets held for sale
    
    
    
    
    
    
    
    
    
    
    7,327
    
    
    
    28,902
    
    
    
    
    
    
    
    36,229Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,718
    
    
    
    6,023
    
    
    
    (4,107
    )
    
    
    5,634Total current assets
    
    
    11,995
    
    
    
    18,174
    
    
    
    69,629
    
    
    
    75,086
    
    
    
    (4,107
    )
    
    
    170,777Property and equipment, net
    
    
    
    
    
    
    300
    
    
    
    2,154
    
    
    
    1,303
    
    
    
    
    
    
    
    3,757Goodwill, net
    
    
    
    
    
    
    29
    
    
    
    26,475
    
    
    
    
    
    
    
    
    
    
    
    26,504Investment in subsidiaries
    
    
    14,493
    
    
    
    
    
    
    
    (6,006
    )
    
    
    13,920
    
    
    
    (22,407
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    5,091
    
    
    
    
    
    
    
    5,588Other assets
    
    
    3,698
    
    
    
    288
    
    
    
    2,760
    
    
    
    64
    
    
    
    
    
    
    
    6,810Deferred income taxes, net
    
    
    3,373
    
    
    
    2,562
    
    
    
    
    
    
    
    
    
    
    
    (4,935
    )
    
    
    1,000Total assets
    
    $
    33,559
    
    
    $
    21,353
    
    
    $
    95,509
    
    
    $
    95,464
    
    
    $
    (31,449
    )
    
    $
    214,436LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes
payable and current portion of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Accounts payable and drafts
    
    
    
    
    
    
    7,409
    
    
    
    42,049
    
    
    
    14,009
    
    
    
    
    
    
    
    63,467Accrued liabilities
    
    
    11,499
    
    
    
    5,609
    
    
    
    26,655
    
    
    
    17,914
    
    
    
    
    
    
    
    61,677Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    1,653
    
    
    
    29,679
    
    
    
    
    
    
    
    31,332Deferred income taxes, net
    
    
    3,850
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    (4,107
    )
    
    
    Total current liabilities
    
    
    15,349
    
    
    
    13,275
    
    
    
    70,357
    
    
    
    61,602
    
    
    
    (4,107
    )
    
    
    156,476Long-term debt
    
    
    234,610
    
    
    
    17,078
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    251,688Intercompany accounts
    
    
    (8,132
    )
    
    
    (22,870
    )
    
    
    2,160
    
    
    
    28,842
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    (50
    )
    
    
    4,916
    
    
    
    536
    
    
    
    
    
    
    
    5,402Liabilities held for sale
    
    
    
    
    
    
    
    
    
    
    72
    
    
    
    9,066
    
    
    
    
    
    
    
    9,138Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    3,511
    
    
    
    1,424
    
    
    
    (4,935
    )
    
    
    Total liabilities
    
    
    241,827
    
    
    
    7,433
    
    
    
    81,016
    
    
    
    101,470
    
    
    
    (9,042
    )
    
    
    422,704Redeemable Series A Preferred Stock
    
    
    102,566
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,566Shareholders equity (deficit)
    
    
    (310,834
    )
    
    
    13,920
    
    
    
    14,493
    
    
    
    (6,006
    )
    
    
    (22,407
    )
    
    
    (310,834
    )Total liabilities and
shareholders
equity (deficit)
    
    $
    33,559
    
    
    $
    21,353
    
    
    $
    95,509
    
    
    $
    95,464
    
    
    $
    (31,449
    )
    
    $
    214,436
 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 April 2, 2006 and April 3, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended April 2, 2006:Net sales
    
    $
    
    
    
    $
    6,098
    
    
    $
    53,792
    
    
    $
    28,741
    
    
    $
    (11
    )
    
    $
    88,620Cost of sales
    
    
    
    
    
    
    4,166
    
    
    
    44,799
    
    
    
    23,908
    
    
    
    (11
    )
    
    
    72,862Gross profit
    
    
    
    
    
    
    1,932
    
    
    
    8,993
    
    
    
    4,833
    
    
    
    
    
    
    
    15,758Selling, general and administrative expenses
    
    
    
    
    
    
    786
    
    
    
    4,169
    
    
    
    1,845
    
    
    
    
    
    
    
    6,800Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    104
    
    
    
    
    
    
    
    183Income from continuing operations
before interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    1,146
    
    
    
    4,745
    
    
    
    2,884
    
    
    
    
    
    
    
    8,775Interest expense (income), net
    
    
    7,403
    
    
    
    55
    
    
    
    (47
    )
    
    
    234
    
    
    
    
    
    
    
    7,645Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (7,403
    )
    
    
    1,091
    
    
    
    4,792
    
    
    
    2,650
    
    
    
    
    
    
    
    1,130Income tax provision (benefit)
    
    
    (1,185
    )
    
    
    
    
    
    
    1,191
    
    
    
    1,645
    
    
    
    
    
    
    
    1,651Equity in affiliates
    
    
    5,697
    
    
    
    
    
    
    
    2,096
    
    
    
    1,091
    
    
    
    (8,884
    )
    
    
    Income (loss) from continuing operations
    
    
    (521
    )
    
    
    1,091
    
    
    
    5,697
    
    
    
    2,096
    
    
    
    (8,884
    )
    
    
    (521
    )Income (loss) from discontinued operations, net
    
    
    1,275
    
    
    
    
    
    
    
    1,275
    
    
    
    547
    
    
    
    (1,822
    )
    
    
    1,275Net income (loss)
    
    $
    754
    
    
    $
    1,091
    
    
    $
    6,972
    
    
    $
    2,643
    
    
    $
    (10,706
    )
    
    $
    754Fiscal Quarter Ended April 3, 2005:Net sales
    
    $
    
    
    
    $
    5,985
    
    
    $
    68,859
    
    
    $
    26,273
    
    
    $
    (28
    )
    
    $
    101,089Cost of sales
    
    
    
    
    
    
    4,537
    
    
    
    58,754
    
    
    
    21,331
    
    
    
    (28
    )
    
    
    84,594Gross profit
    
    
    
    
    
    
    1,448
    
    
    
    10,105
    
    
    
    4,942
    
    
    
    
    
    
    
    16,495Selling, general and administrative expenses
    
    
    
    
    
    
    547
    
    
    
    6,239
    
    
    
    1,728
    
    
    
    
    
    
    
    8,514Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    25
    
    
    
    
    
    
    
    126Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    901
    
    
    
    3,765
    
    
    
    3,189
    
    
    
    
    
    
    
    7,855Interest expense, net
    
    
    6,253
    
    
    
    737
    
    
    
    1,291
    
    
    
    223
    
    
    
    
    
    
    
    8,504Income (loss) from continuing operations
before income taxes, and equity in affiliates
    
    
    (6,253
    )
    
    
    164
    
    
    
    2,474
    
    
    
    2,966
    
    
    
    
    
    
    
    (649
    )Income tax provision (benefit)
    
    
    (808
    )
    
    
    
    
    
    
    790
    
    
    
    1,258
    
    
    
    
    
    
    
    1,240Equity in affiliates
    
    
    3,556
    
    
    
    
    
    
    
    1,872
    
    
    
    162
    
    
    
    (5,590
    )
    
    
    Income (loss) from continuing operations
    
    
    (1,889
    )
    
    
    164
    
    
    
    3,556
    
    
    
    1,870
    
    
    
    (5,590
    )
    
    
    (1,889
    )Income (loss) from discontinued operations
    
    
    (12,947
    )
    
    
    198
    
    
    
    (12,947
    )
    
    
    (12,720
    )
    
    
    25,469
    
    
    
    (12,947
    )Net income (loss)
    
    $
    (14,836
    )
    
    $
    362
    
    
    $
    (9,391
    )
    
    $
    (10,850
    )
    
    $
    19,879
    
    
    $
    (14,836
    )
 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 STATEMENT OF CASH FLOWS
for the fiscal quarter ended April 2, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    754
    
    
    $
    1,091
    
    
    $
    6,972
    
    
    $
    2,643
    
    
    $
    (10,706
    )
    
    $
    754Adjustments to reconcile net
income to net cash
provided by (used for)
operating activities:Equity in affiliates,
including discontinued
operations
    
    
    (6,972
    )
    
    
    
    
    
    
    (2,643
    )
    
    
    (1,091
    )
    
    
    10,706
    
    
    
    Gain on sale
of businesses
    
    
    
    
    
    
    
    
    
    
    (470
    )
    
    
    
    
    
    
    
    
    
    
    (470
    )Depreciation
    
    
    
    
    
    
    57
    
    
    
    454
    
    
    
    245
    
    
    
    
    
    
    
    756Amortization of debt
issuance costs
    
    
    1,133
    
    
    
    126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,259Deferred taxes
    
    
    (251
    )
    
    
    (27
    )
    
    
    389
    
    
    
    931
    
    
    
    
    
    
    
    1,042Loss on sale/disposal
of property and
equipment
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31(Increase) decrease in
receivable, net
    
    
    
    
    
    
    (566
    )
    
    
    4,721
    
    
    
    1,481
    
    
    
    
    
    
    
    5,636(Increase) decrease in
inventory
    
    
    
    
    
    
    
    
    
    
    99
    
    
    
    (45
    )
    
    
    
    
    
    
    54(Increase) decrease in
prepaid expenses
and other assets
    
    
    
    
    
    
    51
    
    
    
    (276
    )
    
    
    22
    
    
    
    
    
    
    
    (203
    )Increase (decrease) in
current liabilities
    
    
    (6,233
    )
    
    
    (109
    )
    
    
    (7,430
    )
    
    
    (5,214
    )
    
    
    
    
    
    
    (18,986
    )Other, net
    
    
    
    
    
    
    2
    
    
    
    171
    
    
    
    (1,330
    )
    
    
    
    
    
    
    (1,157
    )Net cash provided by (used for)
operating activities
    
    
    (11,569
    )
    
    
    625
    
    
    
    2,018
    
    
    
    (2,358
    )
    
    
    
    
    
    
    (11,284
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (23
    )
    
    
    (249
    )
    
    
    (543
    )
    
    
    
    
    
    
    (815
    )Payments for contingent
consideration and minority
interests
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    (604
    )Proceeds from sale/disposal of
businesses, net of expenses paid
    
    
    
    
    
    
    
    
    
    
    7,012
    
    
    
    
    
    
    
    
    
    
    
    7,012Proceeds from sale/disposal of
property and
equipment
    
    
    
    
    
    
    7
    
    
    
    30
    
    
    
    15
    
    
    
    
    
    
    
    52Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used for)
investing activities
    
    
    
    
    
    
    (16
    )
    
    
    6,189
    
    
    
    (528
    )
    
    
    
    
    
    
    5,645Cash flows from financing activities:Transactions with subsidiaries
    
    
    20,174
    
    
    
    (5,949
    )
    
    
    (14,924
    )
    
    
    699
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (120
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,691
    
    
    
    
    
    
    
    1,691Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    6,832
    
    
    
    (375
    )
    
    
    
    
    
    
    6,457Net cash provided by (used for)
financing activities
    
    
    20,054
    
    
    
    (5,949
    )
    
    
    (8,092
    )
    
    
    2,015
    
    
    
    
    
    
    
    8,028Effect of foreign exchange rate
changes on cash
and cash equivalents
    
    
    
    
    
    
    399
    
    
    
    
    
    
    
    (898
    )
    
    
    
    
    
    
    (499
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    8,485
    
    
    
    (4,941
    )
    
    
    115
    
    
    
    (1,769
    )
    
    
    
    
    
    
    1,890Balance, beginning of period
(including $273 of cash held for
sale)
    
    
    11,995
    
    
    
    6,980
    
    
    
    432
    
    
    
    8,603
    
    
    
    
    
    
    
    28,010Balance, end of period (including
$429 of cash held for sale)
    
    $
    20,480
    
    
    $
    2,039
    
    
    $
    547
    
    
    $
    6,834
    
    
    $
    
    
    
    $
    29,900
 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 quarter ended April 3, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    (14,836
    )
    
    $
    362
    
    
    $
    (9,391
    )
    
    $
    (10,850
    )
    
    $
    19,879
    
    
    $
    (14,836
    )Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities:Equity in affiliates, including discontinued
operations
    
    
    9,391
    
    
    
    
    
    
    
    10,850
    
    
    
    (362
    )
    
    
    (19,879
    )
    
    
    Depreciation
    
    
    
    
    
    
    300
    
    
    
    820
    
    
    
    974
    
    
    
    
    
    
    
    2,094Goodwill impairment charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,131
    
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    1,030
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,142Deferred taxes
    
    
    (818
    )
    
    
    1
    
    
    
    818
    
    
    
    (317
    )
    
    
    
    
    
    
    (316
    )Gain on sale/disposal of property
and equipment
    
    
    
    
    
    
    (3
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )(Increase) decrease in receivable, net
    
    
    
    
    
    
    341
    
    
    
    2,716
    
    
    
    10,370
    
    
    
    
    
    
    
    13,427(Increase) decrease in inventory
    
    
    
    
    
    
    
    
    
    
    (444
    )
    
    
    126
    
    
    
    
    
    
    
    (318
    )(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    (69
    )
    
    
    (544
    )
    
    
    (882
    )
    
    
    
    
    
    
    (1,495
    )Increase (decrease) in current liabilities
    
    
    (6,174
    )
    
    
    (864
    )
    
    
    (5,861
    )
    
    
    (861
    )
    
    
    
    
    
    
    (13,760
    )Other, net
    
    
    
    
    
    
    28
    
    
    
    95
    
    
    
    (814
    )
    
    
    
    
    
    
    (691
    )Net cash provided by (used for) operating activities
    
    
    (11,407
    )
    
    
    208
    
    
    
    (946
    )
    
    
    4,515
    
    
    
    
    
    
    
    (7,630
    )Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (130
    )
    
    
    (305
    )
    
    
    (426
    )
    
    
    
    
    
    
    (861
    )Payments for contingent consideration
    
    
    
    
    
    
    
    
    
    
    (604
    )
    
    
    
    
    
    
    
    
    
    
    (604
    )Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    3
    
    
    
    7
    
    
    
    85
    
    
    
    
    
    
    
    95Net cash provided by (used for) investing activities
    
    
    
    
    
    
    (127
    )
    
    
    (902
    )
    
    
    (341
    )
    
    
    
    
    
    
    (1,370
    )Cash flows from financing activities:Transactions with subsidiaries
    
    
    3,684
    
    
    
    2,742
    
    
    
    (3,896
    )
    
    
    (2,530
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Changes in revolving debt, net
    
    
    2,089
    
    
    
    (588
    )
    
    
    
    
    
    
    (6,051
    )
    
    
    
    
    
    
    (4,550
    )Changes in book overdrafts, net
    
    
    
    
    
    
    
    
    
    
    8,067
    
    
    
    
    
    
    
    
    
    
    
    8,067Net cash provided by (used for) financing activities
    
    
    5,757
    
    
    
    2,154
    
    
    
    4,171
    
    
    
    (8,581
    )
    
    
    
    
    
    
    3,501Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (797
    )
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    (362
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    (5,650
    )
    
    
    1,438
    
    
    
    2,323
    
    
    
    (3,972
    )
    
    
    
    
    
    
    (5,861
    )Balance, beginning of period
    
    
    5,650
    
    
    
    18
    
    
    
    11,570
    
    
    
    17,139
    
    
    
    
    
    
    
    34,377Balance, end of period (including $652 of cash
held for sale as of April 3, 2005)
    
    $
    
    
    
    $
    1,456
    
    
    $
    13,893
    
    
    $
    13,167
    
    
    $
    
    
    
    $
    28,516
 24




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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
  Fiscal Quarter EndedApril 2,
    
    
    April 3,
    
    
    Inc / (Dec) vs. 20052006
    
    
    2005
    
    
    $
    
    
    %(dollars in thousands)Business Outsourcing Services
    
    $
    40,256
    
    
    $
    43,170
    
    
    $
    (2,914
    )
    
    
    (6.8
    %)Human Capital Services
    
    
    26,606
    
    
    
    36,470
    
    
    
    (9,864
    )
    
    
    (27.0
    %)Engineering Services
    
    
    21,758
    
    
    
    21,449
    
    
    
    309
    
    
    
    1.4
    %Total net sales
    
    $
    88,620
    
    
    $
    101,089
    
    
    $
    (12,469
    )
    
    
    (12.3
    %)
  25




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   Operating Profit
  Fiscal Quarter EndedApril 2,
    
    April 3,
    
    Inc (Dec) vs. 20052006
    
    2005
    
    $
    
    %(dollars in thousands)Gross profit
    
    $
    15,758
    
    
    $
    16,495
    
    
    $
    (737
    )
    
    
    (4.5
    %)% of net sales
    
    
    17.8
    %
    
    
    16.3
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    6,800
    
    
    $
    8,514
    
    
    $
    (1,714
    )
    
    
    (20.1
    %)% of net sales
    
    
    7.7
    %
    
    
    8.4
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    8,775
    
    
    $
    7,855
    
    
    $
    920
    
    
    
    11.7
    %% of net sales
    
    
    9.9
    %
    
    
    7.8
    %
    
    
    n/a
    
    
    
    n/a
  Interest expense, net
  Income taxes
  26




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Discontinued Operations
   
 At April 2, 2006
 
    
    MSX International Engineering GmbH, our remaining
engineering operations in Germany
    
    Satiz S.r.l., our Italian technical and commercial publishing
business (sold April 21, 2006)
 At January 1, 2006
 
    
    MSX International Engineering GmbH, our remaining
engineering operations in Germany
    
    Satiz S.r.l., our Italian technical and commercial publishing
business (sold April 21, 2006)
    
    Creative Technology Services, LLC (sold
January 19, 2006)
  Fiscal Quarter EndedApril 2,
    
    
    April 3,2006
    
    
    2005Net sales
    
    $
    22,542
    
    
    $
    44,848Cost of sales
    
    
    19,946
    
    
    
    42,515Gross profit
    
    
    2,596
    
    
    
    2,333Selling, general and administrative expense
    
    
    1,705
    
    
    
    2,732Restructuring and severance
    
    
    11
    
    
    
    6,633Goodwill impairment charge
    
    
    
    
    
    
    7,131Operating income (loss)
    
    
    880
    
    
    
    (14,163
    )Interest (income) expense, net
    
    
    (3
    )
    
    
    16Net gain on sale of businesses
    
    
    470
    
    
    
    Income (loss) before taxes, net
    
    
    1,353
    
    
    
    (14,179
    )Income tax expense (benefit)
    
    
    78
    
    
    
    (1,232
    )Income (loss) from discontinued operations
    
    $
    1,275
    
    
    $
    (12,947
    )
 27




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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
   28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
   
    
    Extend the maturity date of the credit facility from August 1, 2006 to January 15,
2007;
    
    Reduce the aggregate commitments under the credit facility from $45 million to $25
million subject to limitations based on domestic accounts receivable and cash
collateral held in blocked accounts in connection with prepayments of obligations under
the credit facility;
    
    Allow for future permanent reductions of commitment and related borrowings via use
of funds from any asset sales held in blocked accounts by the bank; and
    
    Modify certain covenants and restrictions on the Companys ability to borrow under
the credit facility, including the elimination of all commitments related to
non-domestic subsidiaries of the Company.
   Forward  Looking Statements
  
    
    Our substantial leverage and related exposure to changes in interest rates;
    
    Our reliance on the automotive industry and major customers in such industry,
including without limitation the timing of such customers product development and
other initiatives;
    
    The market demand for our business services in general;
 29




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
    
    Our ability to attract, retain, develop and place qualified personnel, particularly technical personnel;
    
    Delays or unexpected costs associated with our cost reduction efforts;
    
    Risks associated with operating internationally, including economic, political and currency risks; and
    
    Risks associated with material weaknesses we have identified in our internal
controls over financial reporting and the potential adverse affect of those weaknesses
on our business if such weaknesses are not adequately addressed.
   30




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##### Table of Contents



ITEM
4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedure:
   Material Weaknesses in Internal Control over Financial Reporting:
  
    
    The Company did not maintain an effective control environment over the financial
reporting and general ledger processes due primarily to limitations in the capacity of
the accounting and other departments. Limitations are believed to be caused by
voluntary and involuntary staff turnover resulting from downsizing of operations and
related support functions. These limitations, in addition to other factors resulted in
weaknesses identified for (1) Authorization of Journal Entries multiple individuals
have the ability to initiate and record journal entries into the general ledger without
prior review or approval. Reviews of such journal entries are not done on a regular
basis. Formal policies and procedures for authorization and/or review of posted
journal entries are not developed or implemented (2) Financial Reporting and Oversight
The financial statements of Satiz S.r.l. for 2003 and 2004 were not correct primarily
as a result of unsubstantiated amounts recorded as unbilled accounts receivable. In
addition, the financial statements of other subsidiaries for 2004 were not correct as a
result of misstated pension and other liabilities. These errors caused the financial
statements of the Company for 2003 and 2004 to be restated in our Annual Report on Form
10-K filed on April 17, 2006. These restatements are an indication that the controls
over financial reporting are not adequate and (3) Segregation of Duties The Company
does not maintain adequate segregation of duties over certain general ledger activities
or maintain adequate monitoring controls in such areas.
    
    Employees within certain departments have access rights within the accounting system
that are incompatible with their assigned roles. Appropriate controls are not in place
to provide assurance over the information technology process such as review of security
event logs and activity reports.
 Plan for Remediation of Material Weaknesses in Internal Control over Financial Reporting:
  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 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 1st quarter results99.2
    
    Deed of Transfer of the Entire Quota of Satiz S.r.l., an
Italian Company with a Sole Quotaholder  English Translation
 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
 Exhibits
    
    Description31.1
    
    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 1st quarter results99.2
    
    Deed of Transfer of the Entire Quota of Satiz S.r.l., an
Italian Company with a Sole Quotaholder  English Translation
 34