##### 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 1, 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 October 1, 2006 and
January 1, 2006
    
    
    2Consolidated Statements of Operations for the fiscal quarters and fiscal nine months
ended October 1, 2006 and October 2, 2005
    
    
    3Consolidated Statements of Cash Flows for the fiscal nine months
ended October 1, 2006 and October 2, 2005
    
    
    4Notes to Consolidated Financial Statements
    
    
    5ITEM 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    28ITEM 4.Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONITEM 1.Legal Proceedings
    
    
    39ITEM 1A.Risk Factors
    
    
    39ITEM 4.Submission of Matters to a Vote of Security Holders
    
    
    39ITEM 6. Exhibits
    
    
    39SIGNATURE
    
    
    40Certification of Chief Financial Officer pursuant to rules 13a-15(e)/15d-15(e)Certification of Chief Executive Officer pursuant to rules 13a-15(e)/15d-15(e)Certification pursuant to 18 U.S.C. Section 1350Press Release
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
MSX INTERNATIONAL, INC.
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 as of October 1, 2006 and January 1, 2006
 October 1,
    
    
    January 1,2006
    
    
    2006(in thousands, except share amounts)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    34,312
    
    
    $
    22,740Restricted cash and cash equivalents (Note 6)
    
    
    3,523
    
    
    
    4,997Accounts receivable, net (Note 4)
    
    
    87,529
    
    
    
    96,684Inventory
    
    
    704
    
    
    
    785Prepaid expenses and other assets
    
    
    4,021
    
    
    
    3,708Assets held for sale (Note 2)
    
    
    
    
    
    
    36,229Deferred income taxes, net
    
    
    4,538
    
    
    
    5,634Total current assets
    
    
    134,627
    
    
    
    170,777Property and equipment, net
    
    
    3,100
    
    
    
    3,757Goodwill, net (Note 5)
    
    
    25,775
    
    
    
    26,504Assets held for sale (Note 2)
    
    
    1,036
    
    
    
    5,588Other assets
    
    
    5,678
    
    
    
    6,810Deferred income taxes, net
    
    
    154
    
    
    
    1,000Total assets
    
    $
    170,370
    
    
    $
    214,436LIABILITIES AND SHAREHOLDERS DEFICITCurrent liabilities:Notes Payable and current portion of debt (Note 6)
    
    $
    1,932
    
    
    $
    Accounts payable and drafts
    
    
    59,129
    
    
    
    63,467Accrued payroll and benefits
    
    
    17,879
    
    
    
    19,906Liabilities held for sale (Note 2)
    
    
    
    
    
    
    31,332Other accrued liabilities
    
    
    37,961
    
    
    
    41,771Total current liabilities
    
    
    116,901
    
    
    
    156,476Long-term debt (Note 6)
    
    
    254,876
    
    
    
    251,688Long-term deferred compensation liabilities and other
    
    
    3,907
    
    
    
    5,402Liabilities held for sale (Note 2)
    
    
    
    
    
    
    9,138Total liabilities
    
    
    375,684
    
    
    
    422,704Commitments and contingencies (Note 7)
    
    
    
    
    
    
    Redeemable Series A Preferred Stock (Note 8)
    
    
    111,956
    
    
    
    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
    
    
    (5,986
    )
    
    
    (2,602
    )Retained deficit
    
    
    (287,158
    )
    
    
    (284,106
    )Total shareholders deficit
    
    
    (317,270
    )
    
    
    (310,834
    )Total liabilities and shareholders deficit
    
    $
    170,370
    
    
    $
    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 and fiscal nine months ended October 1, 2006 and October 2, 2005
 Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2006
    
    
    2005(in thousands)Net sales
    
    $
    90,094
    
    
    $
    100,299
    
    
    $
    268,769
    
    
    $
    308,404Cost of sales
    
    
    74,851
    
    
    
    85,774
    
    
    
    221,547
    
    
    
    260,567Gross profit
    
    
    15,243
    
    
    
    14,525
    
    
    
    47,222
    
    
    
    47,837Selling, general and administrative expenses
    
    
    6,017
    
    
    
    6,498
    
    
    
    19,860
    
    
    
    22,150Restructuring and severance costs (Note 3)
    
    
    (291
    )
    
    
    663
    
    
    
    124
    
    
    
    1,113Income from continuing operations before
interest and income taxes
    
    
    9,517
    
    
    
    7,364
    
    
    
    27,238
    
    
    
    24,574Interest expense, net
    
    
    7,062
    
    
    
    8,269
    
    
    
    22,122
    
    
    
    25,799Income (loss) from continuing operations before
income taxes
    
    
    2,455
    
    
    
    (905
    )
    
    
    5,116
    
    
    
    (1,225
    )Income tax provision (benefit)
    
    
    1,545
    
    
    
    (1,233
    )
    
    
    5,051
    
    
    
    507Income (loss) from continuing operations
    
    
    910
    
    
    
    328
    
    
    
    65
    
    
    
    (1,732
    )Income (loss) from discontinued operations, net
of taxes (Note 2)
    
    
    1,711
    
    
    
    2,184
    
    
    
    6,272
    
    
    
    (15,036
    )Net income (loss)
    
    
    2,621
    
    
    
    2,512
    
    
    
    6,337
    
    
    
    (16,768
    )Accretion for redemption of preferred stock
    
    
    (3,252
    )
    
    
    (2,895
    )
    
    
    (9,389
    )
    
    
    (8,359
    )Net loss available to common shareholders
    
    $
    (631
    )
    
    $
    (383
    )
    
    $
    (3,052
    )
    
    $
    (25,127
    )
 The accompanying notes are an integral part of the consolidated financial statements
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MSX INTERNATIONAL, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)  for the fiscal nine months ended October 1, 2006 and October 2, 2005
 Fiscal Nine Months EndedOctober 1,
    
    
    October 2,2006
    
    
    2005(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    6,337
    
    
    $
    (16,768
    )Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:Net (gain) loss on sale of businesses
    
    
    (4,362
    )
    
    
    4,031Depreciation
    
    
    2,002
    
    
    
    3,859Goodwill impairment charges
    
    
    
    
    
    
    7,131Amortization of debt issuance costs
    
    
    3,843
    
    
    
    3,452Deferred income taxes
    
    
    2,422
    
    
    
    (1,621
    )(Gain) loss on sale/disposal of property and equipment
    
    
    114
    
    
    
    (101
    )(Increase) decrease in receivables, net
    
    
    13,052
    
    
    
    33,664(Increase) decrease in inventory
    
    
    36
    
    
    
    2,083(Increase) decrease in prepaid expenses and other assets
    
    
    (314
    )
    
    
    (2,023
    )Increase (decrease) in current liabilities
    
    
    (22,151
    )
    
    
    (41,567
    )Other, net
    
    
    (732
    )
    
    
    (1,782
    )Net cash provided by (used for) operating activities
    
    
    247
    
    
    
    (9,642
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,596
    )
    
    
    (2,095
    )Payments for contingent consideration
    
    
    (1,813
    )
    
    
    (1,813
    )Proceeds from sale of businesses, net of related expenses
    
    
    10,765
    
    
    
    5,088Increase in restricted cash and cash equivalents
    
    
    (10,833
    )
    
    
    (4,997
    )Release of restricted cash and cash equivalents
    
    
    12,307
    
    
    
    Proceeds from sale/disposal of property and equipment
    
    
    96
    
    
    
    303Net cash provided by investing activities
    
    
    8,926
    
    
    
    (3,514
    )Cash flows from financing activities:Debt issuance costs
    
    
    (781
    )
    
    
    (25
    )Changes in revolving debt, net
    
    
    2,044
    
    
    
    (8,003
    )Repayment of long term debt
    
    
    (3,120
    )
    
    
    Changes in book overdrafts, net
    
    
    5,238
    
    
    
    6,564Net cash provided by (used for) financing activities
    
    
    3,381
    
    
    
    (1,464
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (1,255
    )
    
    
    (145
    )Cash and cash equivalents:Increase (Decrease) for the period
    
    
    11,299
    
    
    
    (14,765
    )Balance, beginning of period (including $273 of cash held for sale
at January 1, 2006)
    
    
    23,013
    
    
    
    34,377Balance, end of period (including $710 of cash held for sale at
October 2, 2005)
    
    $
    34,312
    
    
    $
    19,612
 The accompanying notes are an integral part of the consolidated financial statements
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1. Organization and Basis of Presentation
    2. Discontinued Operations
   Assets Held for SaleAt October 1, 2006    Certain property held by MSX International Engineering GmbHAt January 1, 2006    MSX International Engineering GmbH, our remaining
engineering operations in Germany (selected assets sold July 30, 2006)     Satiz S.r.l., our Italian technical and commercial publishing
business (sold April 21, 2006)    Creative Technology Services, LLC (sold
January 19, 2006)
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At October 1,
    
    
    At January 1,2006
    
    
    2006Assets:Cash and cash equivalents
    
    $
    
    
    
    $
    273Accounts receivable, net
    
    
    
    
    
    
    27,188Inventory
    
    
    
    
    
    
    6,657Prepaid expenses
    
    
    
    
    
    
    373Deferred tax assets
    
    
    
    
    
    
    1,738Total current assets held for sale
    
    
    
    
    
    
    36,229Property and equipment, net
    
    
    1,036
    
    
    
    4,765Goodwill, net
    
    
    
    
    
    
    372Other assets
    
    
    
    
    
    
    313Deferred tax assets
    
    
    
    
    
    
    138Total assets held for sale
    
    
    1,036
    
    
    
    41,817Liabilities:Note payable and current portion of long-term debt
    
    
    
    
    
    
    1,084Accounts payable and drafts
    
    
    
    
    
    
    22,535Accrued payroll and benefits
    
    
    
    
    
    
    5,755Other accrued liabilities
    
    
    
    
    
    
    1,958Total current liabilities held for sale
    
    
    
    
    
    
    31,332Long-term deferred compensation liabilities and other
    
    
    
    
    
    
    7,532Deferred tax liabilities
    
    
    
    
    
    
    1,606Total liabilities held for sale
    
    
    
    
    
    
    40,470Net assets held for sale
    
    $
    1,036
    
    
    $
    1,347
  Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    3,075
    
    
    $
    25,637
    
    
    $
    30,557
    
    
    $
    112,757Cost of sales
    
    
    1,629
    
    
    
    22,526
    
    
    
    26,815
    
    
    
    103,777Gross profit
    
    
    1,446
    
    
    
    3,111
    
    
    
    3,742
    
    
    
    8,980Selling, general and administrative expense
    
    
    81
    
    
    
    1,847
    
    
    
    1,849
    
    
    
    7,288Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    6,655Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,131Operating income (loss)
    
    
    1,365
    
    
    
    1,264
    
    
    
    1,882
    
    
    
    (12,094
    )Interest income, net
    
    
    
    
    
    
    72
    
    
    
    57
    
    
    
    61Net gain (loss) on sale of businesses
    
    
    291
    
    
    
    (32
    )
    
    
    4,362
    
    
    
    (4,031
    )Income (loss) before taxes, net
    
    
    1,656
    
    
    
    1,304
    
    
    
    6,301
    
    
    
    (16,064
    )Income tax expense (benefit)
    
    
    (55
    )
    
    
    (880
    )
    
    
    29
    
    
    
    (1,028
    )Income (loss) from discontinued operations
    
    $
    1,711
    
    
    $
    2,184
    
    
    $
    6,272
    
    
    $
    (15,036
    )
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     
  7




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Fiscal Nine Months EndedOctober 1,
    
    
    October 2,2006
    
    
    2005Gross sale price:Proceeds from sale
    
    $
    13,588
    
    
    $
    7,398Note receivable from sale
    
    
    250
    
    
    
    Total consideration
    
    
    13,838
    
    
    
    7,398Cumulative currency translation
gain
    
    
    2,643
    
    
    
    Less:Net assets sold
    
    
    3,772
    
    
    
    7,856Assumption of debt
    
    
    5,369
    
    
    
    Reserves and expenses
    
    
    2,978
    
    
    
    3,573Gain (loss) on sales, net
    
    $
    4,362
    
    
    $
    (4,031
    )
  2006
    
    
    2005Assets:Cash and cash equivalents
    
    $
    459
    
    
    $
    181Accounts receivable, net
    
    
    23,638
    
    
    
    10,470Inventory
    
    
    6,702
    
    
    
    Prepaid expenses
    
    
    411
    
    
    
    975Deferred tax assets  current
    
    
    2,383
    
    
    
    Total current assets sold
    
    
    33,593
    
    
    
    11,626Property and equipment, net
    
    
    4,171
    
    
    
    1,936Goodwill, net
    
    
    1,131
    
    
    
    Other assets
    
    
    975
    
    
    
    Total assets sold
    
    
    39,870
    
    
    
    13,562Liabilities:Current portion of debt
    
    
    2,775
    
    
    
    Accounts payable and drafts
    
    
    18,001
    
    
    
    1,074Accrued payroll and benefits
    
    
    3,657
    
    
    
    1,918Other accrued liabilities
    
    
    1,983
    
    
    
    2,714Total current liabilities sold
    
    
    26,416
    
    
    
    5,706Deferred compensation and other liabilities
    
    
    6,265
    
    
    
    Deferred tax liability
    
    
    3,417
    
    
    
    Total liabilities sold
    
    
    36,098
    
    
    
    5,706Net assets sold
    
    $
    3,772
    
    
    $
    7,856
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3. Restructuring and Severance:
  TerminationBenefitsReserve at January 1, 2006
    
    $
    5,423Charges from continuing operations, net
    
    
    124Charges from discontinued operations
    
    
    11Payments and reserve utilization
    
    
    (3,746
    )Reserves sold during the period
    
    
    (1,677
    )Reserve at October 1, 2006
    
    $
    135
  4. Accounts Receivable, net:
  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
    )Translation changes and other
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Balance at October 1, 2006
    
    $
    17,203
    
    
    $
    8,572
    
    
    $
    
    
    
    $
    25,775
 9




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6. Debt:
  Outstanding atInterest
    
    
    Maturity
    
    October 1,
    
    
    January 1,Rates
    
    
    Date
    
    2006
    
    
    2006Senior credit facility  JPMorgan Chase Bank, N.A.
    
    
    n/a
    
    
    June 30, 2006
    
    
    
    
    
    $
    Senior credit facility  Wells Fargo Foothill, Inc.
    
    
    n/a
    
    
    June 30, 2009
    
    $
    
    
    
    
    Senior secured notes, net of unamortized discount
    
    
    11.00
    %
    
    October 15, 2007
    
    
    75,339
    
    
    
    75,224Mezzanine term notes, net of unamortized discount
    
    
    11.50
    %
    
    October 15, 2007
    
    
    24,823
    
    
    
    24,684Fourth lien term notes
    
    
    10.00
    %
    
    January 15, 2008
    
    
    23,473
    
    
    
    21,780Senior subordinated notes
    
    
    11.375
    %
    
    January 15, 2008
    
    
    130,000
    
    
    
    130,000Notes payable to Satiz
    
    
    6.00
    %
    
    Various
    
    
    3,173
    
    
    
    256,808
    
    
    
    251,688Less Current Portion
    
    
    
    
    
    
    
    
    1,932
    
    
    
    Total long-term debt
    
    
    
    
    
    
    
    $
    254,876
    
    
    $
    251,688
     
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7. Commitments and Contingencies:
     8. Redeemable Series A Preferred Stock:
  9. Comprehensive Income (Loss):
  Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    2,621
    
    
    $
    2,512
    
    
    $
    6,337
    
    
    $
    (16,768
    )Other comprehensive income (loss) -
foreign currency translation adjustments
    
    
    (605
    )
    
    
    1,408
    
    
    
    (3,384
    )
    
    
    (1,552
    )Comprehensive income (loss)
    
    $
    2,016
    
    
    $
    3,920
    
    
    $
    2,953
    
    
    $
    (18,320
    )
 11




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10. Income Taxes:
  11. Segment Information:
     Business
    
    HumanOutsourcing
    
    Capital
    
    EngineeringServices
    
    Services
    
    Services
    
    Other
    
    TotalQuarter Ended October 1, 2006:Net sales  external
    
    $
    42,270
    
    
    $
    27,177
    
    
    $
    20,647
    
    
    $
    
    
    
    $
    90,094Net intercompany
sales
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    EBITA
    
    
    6,854
    
    
    
    3,480
    
    
    
    794
    
    
    
    
    
    
    
    11,128Quarter Ended October 2, 2005:Net sales  external
    
    $
    42,770
    
    
    $
    34,912
    
    
    $
    22,617
    
    
    $
    
    
    
    
    100,299Net intercompany
sales
    
    
    
    
    
    
    2
    
    
    
    11
    
    
    
    (13
    )
    
    
    EBITA
    
    
    5,712
    
    
    
    3,754
    
    
    
    1,421
    
    
    
    
    
    
    
    10,887Nine Months Ended October 1, 2006:Net sales  external
    
    
    126,184
    
    
    
    79,628
    
    
    
    62,957
    
    
    
    
    
    
    
    268,769Net intercompany
sales
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    (36
    )
    
    
    EBITA
    
    
    17,498
    
    
    
    10,296
    
    
    
    4,611
    
    
    
    
    
    
    
    32,405Nine Months Ended October 2, 2005:Net sales  external
    
    
    132,493
    
    
    
    108,655
    
    
    
    67,256
    
    
    
    
    
    
    
    308,404Net intercompany
sales
    
    
    40
    
    
    
    2
    
    
    
    15
    
    
    
    (57
    )
    
    
    EBITA
    
    
    17,595
    
    
    
    11,167
    
    
    
    5,737
    
    
    
    
    
    
    
    34,499
 12




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##### Table of Contents



Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2006
    
    
    2005Total segment EBITA
    
    $
    11,128
    
    
    $
    10,887
    
    
    $
    32,405
    
    
    $
    34,499Net costs not allocated to segments
    
    
    (1,259
    )
    
    
    (3,306
    )
    
    
    (4,081
    )
    
    
    (8,684
    )Interest expense, net
    
    
    (7,062
    )
    
    
    (8,269
    )
    
    
    (22,122
    )
    
    
    (25,799
    )Michigan single business tax and other similar taxes
    
    
    (352
    )
    
    
    (217
    )
    
    
    (1,086
    )
    
    
    (1,241
    )Consolidated income (loss) from continuing
operations before income taxes
    
    $
    2,455
    
    
    $
    (905
    )
    
    $
    5,116
    
    
    $
    (1,225
    )
 12. Stock-Based Compensation:
     WeightedaverageNumber of
    
    Weighted
    
    remaining
    
    AggregateStock
    
    average exercise
    
    contractual life
    
    IntrinsicOptions
    
    price
    
    in years
    
    Value (000s)Outstanding at January 1, 2006
    
    
    39,650
    
    
    $
    64.04
    
    
    
    6.6
    
    
    $
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (7,150
    )
    
    
    61.40
    
    
    
    
    
    
    
    Outstanding at October 1, 2006
    
    
    32,500
    
    
    
    64.62
    
    
    
    5.9
    
    
    
    Exercisable at October 1, 2006
    
    
    22,225
    
    
    
    62.90
    
    
    
    5.4
    
    
    
    
 13




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##### Table of Contents



13. Subsequent Event:
  14. Recent Accounting Pronouncements
   Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109.
 14




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##### Table of Contents



15. 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
  15




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##### Table of Contents



15.
Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of October 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,257
    
    
    $
    697
    
    
    $
    9,358
    
    
    $
    
    
    
    $
    34,312Restricted cash and cash equivalents
    
    
    3,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,523Accounts receivable, net
    
    
    
    
    
    
    45,321
    
    
    
    42,208
    
    
    
    
    
    
    
    87,529Inventory
    
    
    
    
    
    
    697
    
    
    
    7
    
    
    
    
    
    
    
    704Prepaid expenses and other assets
    
    
    
    
    
    
    1,906
    
    
    
    2,115
    
    
    
    
    
    
    
    4,021Deferred income taxes, net
    
    
    
    
    
    
    4,031
    
    
    
    4,538
    
    
    
    (4,031
    )
    
    
    4,538Total current assets
    
    
    27,780
    
    
    
    52,652
    
    
    
    58,226
    
    
    
    (4,031
    )
    
    
    134,627Property and equipment, net
    
    
    
    
    
    
    1,236
    
    
    
    1,864
    
    
    
    
    
    
    
    3,100Goodwill, net
    
    
    
    
    
    
    25,743
    
    
    
    32
    
    
    
    
    
    
    
    25,775Investments in subsidiaries
    
    
    36,698
    
    
    
    (7,552
    )
    
    
    
    
    
    
    (29,146
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    1,036
    
    
    
    
    
    
    
    1,036Other assets
    
    
    2,741
    
    
    
    2,699
    
    
    
    238
    
    
    
    
    
    
    
    5,678Deferred income taxes, net
    
    
    4,732
    
    
    
    
    
    
    
    425
    
    
    
    (5,003
    )
    
    
    154Total assets
    
    $
    71,951
    
    
    $
    74,778
    
    
    $
    61,821
    
    
    $
    (38,180
    )
    
    $
    170,370LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    1,932
    
    
    $
    
    
    
    $
    1,932Accounts payable and drafts
    
    
    
    
    
    
    41,494
    
    
    
    17,635
    
    
    
    
    
    
    
    59,129Accrued liabilities
    
    
    5,162
    
    
    
    20,605
    
    
    
    30,073
    
    
    
    
    
    
    
    55,840Deferred income taxes, net
    
    
    4,031
    
    
    
    
    
    
    
    
    
    
    
    (4,031
    )
    
    
    Total current liabilities
    
    
    9,193
    
    
    
    62,099
    
    
    
    49,640
    
    
    
    (4,031
    )
    
    
    116,901Long-term debt
    
    
    236,299
    
    
    
    
    
    
    
    18,577
    
    
    
    
    
    
    
    254,876Intercompany accounts
    
    
    31,773
    
    
    
    (31,939
    )
    
    
    166
    
    
    
    
    
    
    
    Long-term deferred compensation and other liabilities
    
    
    
    
    
    
    2,917
    
    
    
    990
    
    
    
    
    
    
    
    3,907Deferred income taxes, net
    
    
    
    
    
    
    5,003
    
    
    
    
    
    
    
    (5,003
    )
    
    
    Total liabilities
    
    
    277,265
    
    
    
    38,080
    
    
    
    69,373
    
    
    
    (9,034
    )
    
    
    375,684Redeemable Series A Preferred Stock
    
    
    111,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,956Shareholders equity (deficit)
    
    
    (317,270
    )
    
    
    36,698
    
    
    
    (7,552
    )
    
    
    (29,146
    )
    
    
    (317,270
    )Total liabilities and shareholders
equity (deficit)
    
    $
    71,951
    
    
    $
    74,778
    
    
    $
    61,821
    
    
    $
    (38,180
    )
    
    $
    170,370
 16




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##### Table of Contents



15.
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
    
    $
    6,998
    
    
    $
    432
    
    
    $
    15,310
    
    
    $
    
    
    
    $
    22,740Restricted cash and cash equivalents
    
    
    4,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,997Accounts 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
 17




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##### Table of Contents



15. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended October 1, 2006 and October 2, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended October 1, 2006:Net sales
    
    $
    
    
    
    $
    50,099
    
    
    $
    40,004
    
    
    $
    (9
    )
    
    $
    90,094Cost of sales
    
    
    
    
    
    
    42,881
    
    
    
    31,979
    
    
    
    (9
    )
    
    
    74,851Gross profit
    
    
    
    
    
    
    7,218
    
    
    
    8,025
    
    
    
    
    
    
    
    15,243Selling, general and administrative expenses
    
    
    
    
    
    
    3,755
    
    
    
    2,262
    
    
    
    
    
    
    
    6,017Restructuring and severance costs
    
    
    
    
    
    
    (395
    )
    
    
    104
    
    
    
    
    
    
    
    (291
    )Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    3,858
    
    
    
    5,659
    
    
    
    
    
    
    
    9,517Interest expense, net
    
    
    7,648
    
    
    
    (466
    )
    
    
    (120
    )
    
    
    
    
    
    
    7,062Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (7,648
    )
    
    
    4,324
    
    
    
    5,779
    
    
    
    
    
    
    
    2,455Income tax provision (benefit)
    
    
    (1,280
    )
    
    
    1,348
    
    
    
    1,477
    
    
    
    
    
    
    
    1,545Equity in affiliates
    
    
    (7,278
    )
    
    
    (4,302
    )
    
    
    
    
    
    
    11,580
    
    
    
    Income from continuing operations
    
    
    910
    
    
    
    7,278
    
    
    
    4,302
    
    
    
    (11,580
    )
    
    
    910Income from discontinued operations, net
    
    
    1,711
    
    
    
    1,711
    
    
    
    1,014
    
    
    
    (2,725
    )
    
    
    1,711Net income
    
    $
    2,621
    
    
    $
    8,989
    
    
    $
    5,316
    
    
    $
    (14,305
    )
    
    $
    2,621Fiscal Quarter Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    65,116
    
    
    $
    35,197
    
    
    $
    (14
    )
    
    $
    100,299Cost of sales
    
    
    
    
    
    
    57,358
    
    
    
    28,430
    
    
    
    (14
    )
    
    
    85,774Gross profit
    
    
    
    
    
    
    7,758
    
    
    
    6,767
    
    
    
    
    
    
    
    14,525Selling, general and administrative expenses
    
    
    
    
    
    
    4,301
    
    
    
    2,197
    
    
    
    
    
    
    
    6,498Restructuring and severance costs
    
    
    
    
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    663Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    2,794
    
    
    
    4,570
    
    
    
    
    
    
    
    7,364Interest expense, net
    
    
    6,947
    
    
    
    568
    
    
    
    754
    
    
    
    
    
    
    
    8,269Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (6,947
    )
    
    
    2,226
    
    
    
    3,816
    
    
    
    
    
    
    
    (905
    )Income tax provision (benefit)
    
    
    (1,399
    )
    
    
    1,379
    
    
    
    (1,213
    )
    
    
    
    
    
    
    (1,233
    )Equity in affiliates
    
    
    (5,876
    )
    
    
    (5,029
    )
    
    
    
    
    
    
    10,905
    
    
    
    Income from continuing operations
    
    
    328
    
    
    
    5,876
    
    
    
    5,029
    
    
    
    (10,905
    )
    
    
    328Income from discontinued operations, net
    
    
    2,184
    
    
    
    2,184
    
    
    
    1,818
    
    
    
    (4,002
    )
    
    
    2,184Net income
    
    $
    2,512
    
    
    $
    8,060
    
    
    $
    6,847
    
    
    $
    (14,907
    )
    
    $
    2,512
 18




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##### Table of Contents



15.
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 1, 2006 and October 2, 2005
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Nine Months Ended October 1, 2006:Net sales
    
    $
    
    
    
    $
    153,992
    
    
    $
    114,806
    
    
    $
    (29
    )
    
    $
    268,769Cost of sales
    
    
    
    
    
    
    129,473
    
    
    
    92,103
    
    
    
    (29
    )
    
    
    221,547Gross profit
    
    
    
    
    
    
    24,519
    
    
    
    22,703
    
    
    
    
    
    
    
    47,222Selling, general and administrative expenses
    
    
    
    
    
    
    11,962
    
    
    
    7,898
    
    
    
    
    
    
    
    19,860Restructuring and severance costs
    
    
    
    
    
    
    (100
    )
    
    
    224
    
    
    
    
    
    
    
    124Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    12,657
    
    
    
    14,581
    
    
    
    
    
    
    
    27,238Interest expense (income), net
    
    
    22,617
    
    
    
    (679
    )
    
    
    184
    
    
    
    
    
    
    
    22,122Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (22,617
    )
    
    
    13,336
    
    
    
    14,397
    
    
    
    
    
    
    
    5,116Income tax provision (benefit)
    
    
    (3,365
    )
    
    
    3,409
    
    
    
    5,007
    
    
    
    
    
    
    
    5,051Equity in affiliates
    
    
    (19,317
    )
    
    
    (9,390
    )
    
    
    
    
    
    
    28,707
    
    
    
    Income from continuing operations
    
    
    65
    
    
    
    19,317
    
    
    
    9,390
    
    
    
    (28,707
    )
    
    
    65Income from discontinued operations, net
    
    
    6,272
    
    
    
    6,272
    
    
    
    4,644
    
    
    
    (10,916
    )
    
    
    6,272Net income
    
    $
    6,337
    
    
    $
    25,589
    
    
    $
    14,034
    
    
    $
    (39,623
    )
    
    $
    6,337Fiscal Nine Months Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    204,256
    
    
    $
    104,204
    
    
    $
    (56
    )
    
    $
    308,404Cost of sales
    
    
    
    
    
    
    176,452
    
    
    
    84,171
    
    
    
    (56
    )
    
    
    260,567Gross profit
    
    
    
    
    
    
    27,804
    
    
    
    20,033
    
    
    
    
    
    
    
    47,837Selling, general and administrative expenses
    
    
    
    
    
    
    15,283
    
    
    
    6,867
    
    
    
    
    
    
    
    22,150Restructuring and severance costs
    
    
    
    
    
    
    1,016
    
    
    
    97
    
    
    
    
    
    
    
    1,113Income from continuing operations before
interest, income taxes, and equity in
affiliates
    
    
    
    
    
    
    11,505
    
    
    
    13,069
    
    
    
    
    
    
    
    24,574Interest expense, net
    
    
    19,864
    
    
    
    2,698
    
    
    
    3,237
    
    
    
    
    
    
    
    25,799Income (loss) from continuing operations before
income taxes, and equity in affiliates
    
    
    (19,864
    )
    
    
    8,807
    
    
    
    9,832
    
    
    
    
    
    
    
    (1,225
    )Income tax provision (benefit)
    
    
    (3,743
    )
    
    
    3,665
    
    
    
    585
    
    
    
    
    
    
    
    507Equity in affiliates
    
    
    (14,389
    )
    
    
    (9,247
    )
    
    
    
    
    
    
    23,636
    
    
    
    Income (loss) from continuing operations
    
    
    (1,732
    )
    
    
    14,389
    
    
    
    9,247
    
    
    
    (23,636
    )
    
    
    (1,732
    )Loss from discontinued operations, net
    
    
    (15,036
    )
    
    
    (15,036
    )
    
    
    (15,374
    )
    
    
    30,410
    
    
    
    (15,036
    )Net loss
    
    $
    (16,768
    )
    
    $
    (647
    )
    
    $
    (6,127
    )
    
    $
    6,774
    
    
    $
    (16,768
    )
 19




---



##### Table of Contents



15. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.  continued
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal nine months ended October 1, 2006
 MSXI
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    6,337
    
    
    $
    25,589
    
    
    $
    14,034
    
    
    $
    (39,623
    )
    
    $
    6,337Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:Equity in affiliates, including discontinued operations
    
    
    (25,589
    )
    
    
    (14,034
    )
    
    
    
    
    
    
    39,623
    
    
    
    Gain on sale of businesses
    
    
    
    
    
    
    (474
    )
    
    
    (3,888
    )
    
    
    
    
    
    
    (4,362
    )Depreciation
    
    
    
    
    
    
    1,184
    
    
    
    818
    
    
    
    
    
    
    
    2,002Amortization of debt issuance costs and
non-cash interest
    
    
    3,426
    
    
    
    
    
    
    
    417
    
    
    
    
    
    
    
    3,843Deferred taxes
    
    
    (1,178
    )
    
    
    1,317
    
    
    
    2,283
    
    
    
    
    
    
    
    2,422(Gain) loss on sale/disposal of property
and equipment
    
    
    
    
    
    
    69
    
    
    
    45
    
    
    
    
    
    
    
    114(Increase) decrease in receivables, net
    
    
    
    
    
    
    10,303
    
    
    
    2,749
    
    
    
    
    
    
    
    13,052(Increase) decrease in inventory
    
    
    
    
    
    
    82
    
    
    
    (46
    )
    
    
    
    
    
    
    36(Increase) decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    189
    
    
    
    (503
    )
    
    
    
    
    
    
    (314
    )Increase (decrease) in current liabilities
    
    
    (6,335
    )
    
    
    (12,355
    )
    
    
    (3,461
    )
    
    
    
    
    
    
    (22,151
    )Other, net
    
    
    
    
    
    
    169
    
    
    
    (901
    )
    
    
    
    
    
    
    (732
    )Net cash provided by (used for) operating activities
    
    
    (23,339
    )
    
    
    12,039
    
    
    
    11,547
    
    
    
    
    
    
    
    247Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (408
    )
    
    
    (1,188
    )
    
    
    
    
    
    
    (1,596
    )Payments for contingent consideration and minority interests
    
    
    
    
    
    
    (1,813
    )
    
    
    
    
    
    
    
    
    
    
    (1,813
    )Proceeds from sale of businesses, net of expenses paid
    
    
    
    
    
    
    6,796
    
    
    
    3,969
    
    
    
    
    
    
    
    10,765Increase in restricted cash and cash equivalents
    
    
    (10,833
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,833
    )Release of restricted cash and cash equivalents
    
    
    12,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,307Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    53
    
    
    
    43
    
    
    
    
    
    
    
    96Net cash provided by (used for) investing activities
    
    
    1,474
    
    
    
    4,628
    
    
    
    2,824
    
    
    
    
    
    
    
    8,926Cash flows from financing activities:Transactions with subsidiaries
    
    
    39,905
    
    
    
    (21,893
    )
    
    
    (18,012
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (781
    )Changes in revolving debt, net
    
    
    
    
    
    
    
    
    
    
    2,044
    
    
    
    
    
    
    
    2,044Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    (3,120
    )
    
    
    
    
    
    
    (3,120
    )Change in book overdrafts, net
    
    
    
    
    
    
    5,500
    
    
    
    (262
    )
    
    
    
    
    
    
    5,238Net cash provided by (used for) financing activities
    
    
    39,124
    
    
    
    (16,393
    )
    
    
    (19,350
    )
    
    
    
    
    
    
    3,381Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (9
    )
    
    
    (1,246
    )
    
    
    
    
    
    
    (1,255
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    17,259
    
    
    
    265
    
    
    
    (6,225
    )
    
    
    
    
    
    
    11,299Balance, beginning of period (including $273 of cash held for sale)
    
    
    6,998
    
    
    
    432
    
    
    
    15,583
    
    
    
    
    
    
    
    23,013Balance, end of period
    
    $
    24,257
    
    
    $
    697
    
    
    $
    9,358
    
    
    $
    
    
    
    $
    34,312
 20




---



##### Table of Contents



15.
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 sale of businesses
    
    
    
    
    
    
    
    
    
    
    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 businesses, net of expenses paid
    
    
    
    
    
    
    
    
    
    
    5,088
    
    
    
    
    
    
    
    5,088Increase of restricted cash and cash equivalents
    
    
    (4,997
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,997
    )Proceeds from sale/disposal of property and equipment
    
    
    
    
    
    
    55
    
    
    
    248
    
    
    
    
    
    
    
    303Net cash provided by (used for) investing activities
    
    
    (4,997
    )
    
    
    (2,696
    )
    
    
    4,179
    
    
    
    
    
    
    
    (3,514
    )Cash 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
    
    
    66
    
    
    
    (10,141
    )
    
    
    (4,690
    )
    
    
    
    
    
    
    (14,765
    )Balance, beginning of period
    
    
    5,650
    
    
    
    11,570
    
    
    
    17,157
    
    
    
    
    
    
    
    34,377Balance, end of period (including $710 of cash held for sale)
    
    $
    5,716
    
    
    $
    1,429
    
    
    $
    12,467
    
    
    $
    
    
    
    $
    19,612
 21




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##### Table of Contents



16. 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
  22




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##### Table of Contents



16. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING BALANCE SHEET
as of October 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    24,257
    
    
    $
    2,354
    
    
    $
    697
    
    
    $
    7,004
    
    
    $
    
    
    
    $
    34,312Restricted cash and cash equivalents
    
    
    3,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,523Accounts receivable, net
    
    
    
    
    
    
    9,166
    
    
    
    45,321
    
    
    
    33,042
    
    
    
    
    
    
    
    87,529Inventory
    
    
    
    
    
    
    
    
    
    
    697
    
    
    
    7
    
    
    
    
    
    
    
    704Prepaid expenses and other assets
    
    
    
    
    
    
    504
    
    
    
    1,906
    
    
    
    1,611
    
    
    
    
    
    
    
    4,021Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    4,031
    
    
    
    5,140
    
    
    
    (4,633
    )
    
    
    4,538Total current assets
    
    
    27,780
    
    
    
    12,024
    
    
    
    52,652
    
    
    
    46,804
    
    
    
    (4,633
    )
    
    
    134,627Property and equipment, net
    
    
    
    
    
    
    235
    
    
    
    1,236
    
    
    
    1,629
    
    
    
    
    
    
    
    3,100Goodwill, net
    
    
    
    
    
    
    32
    
    
    
    25,743
    
    
    
    
    
    
    
    
    
    
    
    25,775Investments in subsidiaries
    
    
    36,698
    
    
    
    
    
    
    
    (7,552
    )
    
    
    17,511
    
    
    
    (46,657
    )
    
    
    Assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,036
    
    
    
    
    
    
    
    1,036Other assets
    
    
    2,741
    
    
    
    186
    
    
    
    2,699
    
    
    
    52
    
    
    
    
    
    
    
    5,678Deferred income taxes, net
    
    
    4,732
    
    
    
    1,584
    
    
    
    
    
    
    
    
    
    
    
    (6,162
    )
    
    
    154Total assets
    
    $
    71,951
    
    
    $
    14,061
    
    
    $
    74,778
    
    
    $
    67,032
    
    
    $
    (57,452
    )
    
    $
    170,370LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable and current portion
of long-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,932
    
    
    $
    
    
    
    $
    1,932Accounts payable and drafts
    
    
    
    
    
    
    6,867
    
    
    
    41,494
    
    
    
    10,768
    
    
    
    
    
    
    
    59,129Accrued liabilities
    
    
    5,162
    
    
    
    4,147
    
    
    
    20,605
    
    
    
    25,926
    
    
    
    
    
    
    
    55,840Deferred income taxes, net
    
    
    4,031
    
    
    
    602
    
    
    
    
    
    
    
    
    
    
    
    (4,633
    )
    
    
    Total current liabilities
    
    
    9,193
    
    
    
    11,616
    
    
    
    62,099
    
    
    
    38,626
    
    
    
    (4,633
    )
    
    
    116,901Long-term debt
    
    
    236,299
    
    
    
    17,336
    
    
    
    
    
    
    
    1,241
    
    
    
    
    
    
    
    254,876Intercompany accounts
    
    
    31,773
    
    
    
    (32,350
    )
    
    
    (31,939
    )
    
    
    32,516
    
    
    
    
    
    
    
    Long-term deferred compensation and
other liabilities
    
    
    
    
    
    
    (52
    )
    
    
    2,917
    
    
    
    1,042
    
    
    
    
    
    
    
    3,907Deferred income taxes, net
    
    
    
    
    
    
    
    
    
    
    5,003
    
    
    
    1,159
    
    
    
    (6,162
    )
    
    
    Total liabilities
    
    
    277,265
    
    
    
    (3,450
    )
    
    
    38,080
    
    
    
    74,584
    
    
    
    (10,795
    )
    
    
    375,684Redeemable Series A Preferred Stock
    
    
    111,956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,956Shareholders equity (deficit)
    
    
    (317,270
    )
    
    
    17,511
    
    
    
    36,698
    
    
    
    (7,552
    )
    
    
    (46,657
    )
    
    
    (317,270
    )Total liabilities and shareholders
equity (deficit)
    
    $
    71,951
    
    
    $
    14,061
    
    
    $
    74,778
    
    
    $
    67,032
    
    
    $
    (57,452
    )
    
    $
    170,370
 23




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##### Table of Contents



16. 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
    
    $
    6,998
    
    
    $
    6,980
    
    
    $
    432
    
    
    $
    8,330
    
    
    $
    
    
    
    $
    22,740Restricted cash and cash equivalents
    
    
    4,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,997Accounts 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
 24




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##### Table of Contents



16. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended October 1, 2006 and October 2, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Quarter Ended October 1, 2006:Net sales
    
    $
    
    
    
    $
    6,750
    
    
    $
    50,099
    
    
    $
    33,254
    
    
    $
    (9
    )
    
    $
    90,094Cost of sales
    
    
    
    
    
    
    5,140
    
    
    
    42,881
    
    
    
    26,839
    
    
    
    (9
    )
    
    
    74,851Gross profit
    
    
    
    
    
    
    1,610
    
    
    
    7,218
    
    
    
    6,415
    
    
    
    
    
    
    
    15,243Selling, general and administrative expenses
    
    
    
    
    
    
    306
    
    
    
    3,755
    
    
    
    1,956
    
    
    
    
    
    
    
    6,017Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    (395
    )
    
    
    104
    
    
    
    
    
    
    
    (291
    )Income from continuing operations
before interest,
income taxes, and equity in
affiliates
    
    
    
    
    
    
    1,304
    
    
    
    3,858
    
    
    
    4,355
    
    
    
    
    
    
    
    9,517Interest expense (income), net
    
    
    7,648
    
    
    
    (316
    )
    
    
    (466
    )
    
    
    196
    
    
    
    
    
    
    
    7,062Income (loss) from continuing operations
before income taxes,
and equity
in affiliates
    
    
    (7,648
    )
    
    
    1,620
    
    
    
    4,324
    
    
    
    4,159
    
    
    
    
    
    
    
    2,455Income tax provision (benefit)
    
    
    (1,280
    )
    
    
    248
    
    
    
    1,348
    
    
    
    1,229
    
    
    
    
    
    
    
    1,545Equity in affiliates
    
    
    (7,278
    )
    
    
    
    
    
    
    (4,302
    )
    
    
    (1,372
    )
    
    
    12,952
    
    
    
    Income from continuing operations
    
    
    910
    
    
    
    1,372
    
    
    
    7,278
    
    
    
    4,302
    
    
    
    (12,952
    )
    
    
    910Income (loss) from discontinued operations, net
    
    
    1,711
    
    
    
    
    
    
    
    1,711
    
    
    
    1,014
    
    
    
    (2,725
    )
    
    
    1,711Net income
    
    $
    2,621
    
    
    $
    1,372
    
    
    $
    8,989
    
    
    $
    5,316
    
    
    $
    (15,677
    )
    
    $
    2,621Fiscal Quarter Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    6,129
    
    
    $
    65,116
    
    
    $
    29,068
    
    
    $
    (14
    )
    
    $
    100,299Cost of sales
    
    
    
    
    
    
    3,927
    
    
    
    57,358
    
    
    
    24,503
    
    
    
    (14
    )
    
    
    85,774Gross profit
    
    
    
    
    
    
    2,202
    
    
    
    7,758
    
    
    
    4,565
    
    
    
    
    
    
    
    14,525Selling, general and administrative expenses
    
    
    
    
    
    
    636
    
    
    
    4,301
    
    
    
    1,561
    
    
    
    
    
    
    
    6,498Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    663
    
    
    
    
    
    
    
    
    
    
    
    663Income from continuing operations
before interest, income
taxes, and
equity in affiliates
    
    
    
    
    
    
    1,566
    
    
    
    2,794
    
    
    
    3,004
    
    
    
    
    
    
    
    7,364Interest expense, net
    
    
    6,947
    
    
    
    561
    
    
    
    568
    
    
    
    193
    
    
    
    
    
    
    
    8,269Income (loss) from continuing operations
before income taxes, and equity
in affiliates
    
    
    (6,947
    )
    
    
    1,005
    
    
    
    2,226
    
    
    
    2,811
    
    
    
    
    
    
    
    (905
    )Income tax provision (benefit)
    
    
    (1,399
    )
    
    
    
    
    
    
    1,379
    
    
    
    (1,213
    )
    
    
    
    
    
    
    (1,233
    )Equity in affiliates
    
    
    (5,876
    )
    
    
    
    
    
    
    (5,029
    )
    
    
    (1,005
    )
    
    
    11,910
    
    
    
    Income from continuing operations
    
    
    328
    
    
    
    1,005
    
    
    
    5,876
    
    
    
    5,029
    
    
    
    (11,910
    )
    
    
    328Income (loss) from discontinued operations
    
    
    2,184
    
    
    
    (217
    )
    
    
    2,184
    
    
    
    1,818
    
    
    
    (3,785
    )
    
    
    2,184Net income
    
    $
    2,512
    
    
    $
    788
    
    
    $
    8,060
    
    
    $
    6,848
    
    
    $
    (15,695
    )
    
    $
    2,512
 25




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##### Table of Contents



16. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited continued
 MSX INTERNATIONAL, INC.
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal nine months ended October 1, 2006 and October 2, 2005
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Fiscal Nine Months Ended October 1, 2006:Net sales
    
    $
    
    
    
    $
    19,501
    
    
    $
    153,992
    
    
    $
    95,305
    
    
    $
    (29
    )
    
    $
    268,769Cost of sales
    
    
    
    
    
    
    14,207
    
    
    
    129,473
    
    
    
    77,896
    
    
    
    (29
    )
    
    
    221,547Gross profit
    
    
    
    
    
    
    5,294
    
    
    
    24,519
    
    
    
    17,409
    
    
    
    
    
    
    
    47,222Selling, general and administrative expenses
    
    
    
    
    
    
    1,450
    
    
    
    11,962
    
    
    
    6,448
    
    
    
    
    
    
    
    19,860Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    224
    
    
    
    
    
    
    
    124Income from continuing operations
before interest, income
taxes, and equity in
affiliates
    
    
    
    
    
    
    3,844
    
    
    
    12,657
    
    
    
    10,737
    
    
    
    
    
    
    
    27,238Interest expense (income), net
    
    
    22,617
    
    
    
    (678
    )
    
    
    (679
    )
    
    
    862
    
    
    
    
    
    
    
    22,122Income (loss) from continuing operations
before income taxes, and equity
in affiliates
    
    
    (22,617
    )
    
    
    4,522
    
    
    
    13,336
    
    
    
    9,875
    
    
    
    
    
    
    
    5,116Income tax provision (benefit)
    
    
    (3,365
    )
    
    
    1,419
    
    
    
    3,409
    
    
    
    3,588
    
    
    
    
    
    
    
    5,051Equity in affiliates
    
    
    19,317
    
    
    
    
    
    
    
    9,390
    
    
    
    3,103
    
    
    
    (31,810
    )
    
    
    Income (loss) from continuing operations
    
    
    65
    
    
    
    3,103
    
    
    
    19,317
    
    
    
    9,390
    
    
    
    (31,810
    )
    
    
    65Income (loss) from discontinued operations, net
    
    
    6,272
    
    
    
    (193
    )
    
    
    6,272
    
    
    
    4,644
    
    
    
    (10,723
    )
    
    
    6,272Net income
    
    $
    6,337
    
    
    $
    2,910
    
    
    $
    25,589
    
    
    $
    14,034
    
    
    $
    (42,533
    )
    
    $
    6,337Fiscal Nine Months Ended October 2, 2005:Net sales
    
    $
    
    
    
    $
    18,769
    
    
    $
    204,256
    
    
    $
    85,435
    
    
    $
    (56
    )
    
    $
    308,404Cost of sales
    
    
    
    
    
    
    12,916
    
    
    
    176,452
    
    
    
    71,255
    
    
    
    (56
    )
    
    
    260,567Gross profit
    
    
    
    
    
    
    5,853
    
    
    
    27,804
    
    
    
    14,180
    
    
    
    
    
    
    
    47,837Selling, general and administrative expenses
    
    
    
    
    
    
    1,906
    
    
    
    15,283
    
    
    
    4,961
    
    
    
    
    
    
    
    22,150Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    1,016
    
    
    
    97
    
    
    
    
    
    
    
    1,113Income from continuing operations
before interest, income taxes, and
equity in affiliates
    
    
    
    
    
    
    3,947
    
    
    
    11,505
    
    
    
    9,122
    
    
    
    
    
    
    
    24,574Interest expense, net
    
    
    19,864
    
    
    
    2,536
    
    
    
    2,698
    
    
    
    701
    
    
    
    
    
    
    
    25,799Income (loss) from continuing operations
before income taxes, and equity
in affiliates
    
    
    (19,864
    )
    
    
    1,411
    
    
    
    8,807
    
    
    
    8,421
    
    
    
    
    
    
    
    (1,225
    )Income tax provision (benefit)
    
    
    (3,743
    )
    
    
    
    
    
    
    3,665
    
    
    
    585
    
    
    
    
    
    
    
    507Equity in affiliates
    
    
    (14,389
    )
    
    
    
    
    
    
    (9,247
    )
    
    
    (1,411
    )
    
    
    25,047
    
    
    
    Income (loss) from continuing operations
    
    
    (1,732
    )
    
    
    1,411
    
    
    
    14,389
    
    
    
    9,247
    
    
    
    (25,047
    )
    
    
    (1,732
    )Income (loss) from discontinued operations
    
    
    (15,036
    )
    
    
    826
    
    
    
    (15,036
    )
    
    
    (15,374
    )
    
    
    29,584
    
    
    
    (15,036
    )Net income (loss)
    
    $
    (16,768
    )
    
    $
    2,237
    
    
    $
    (647
    )
    
    $
    (6,127
    )
    
    $
    4,537
    
    
    $
    (16,768
    )
 26




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##### Table of Contents



16. 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 1, 2006
 MSXIMSXI
    
    
    Limited
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    
    
    
    
    MSXI(Parent)
    
    
    (Issuer)
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net income (loss)
    
    $
    6,337
    
    
    $
    2,910
    
    
    $
    25,589
    
    
    $
    14,034
    
    
    $
    (42,533
    )
    
    $
    6,337Adjustments to reconcile net income to net cash
provided by (used for) operating activities:Equity
in affiliates, including discontinued
operations
    
    
    (25,589
    )
    
    
    
    
    
    
    (14,034
    )
    
    
    (2,910
    )
    
    
    42,533
    
    
    
    Loss (gain)
on sale of businesses
    
    
    
    
    
    
    193
    
    
    
    (474
    )
    
    
    (4,081
    )
    
    
    
    
    
    
    (4,362
    )Depreciation
    
    
    
    
    
    
    159
    
    
    
    1,184
    
    
    
    659
    
    
    
    
    
    
    
    2,002Amortization
of debt issuance costs
    
    
    3,426
    
    
    
    417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,843Deferred taxes
    
    
    (1,178
    )
    
    
    1,322
    
    
    
    1,317
    
    
    
    961
    
    
    
    
    
    
    
    2,422Loss on
sale/disposal of property and
equipment
    
    
    
    
    
    
    4
    
    
    
    69
    
    
    
    41
    
    
    
    
    
    
    
    114(Increase)
decrease in receivable, net
    
    
    
    
    
    
    1,452
    
    
    
    10,303
    
    
    
    1,297
    
    
    
    
    
    
    
    13,052(Increase)
decrease in inventory
    
    
    
    
    
    
    
    
    
    
    82
    
    
    
    (46
    )
    
    
    
    
    
    
    36(Increase)
decrease in prepaid expenses
and other assets
    
    
    
    
    
    
    75
    
    
    
    189
    
    
    
    (578
    )
    
    
    
    
    
    
    (314
    )Increase
(decrease) in current liabilities
    
    
    (6,335
    )
    
    
    (2,007
    )
    
    
    (12,355
    )
    
    
    (1,454
    )
    
    
    
    
    
    
    (22,151
    )Other, net
    
    
    
    
    
    
    3
    
    
    
    169
    
    
    
    (904
    )
    
    
    
    
    
    
    (732
    )Net cash provided by (used for) operating activities
    
    
    (23,339
    )
    
    
    4,528
    
    
    
    12,039
    
    
    
    7,019
    
    
    
    
    
    
    
    247Cash flows from investing activities:Capital expenditures
    
    
    
    
    
    
    (82
    )
    
    
    (408
    )
    
    
    (1,106
    )
    
    
    
    
    
    
    (1,596
    )Payments for contingent consideration and minority interests
    
    
    
    
    
    
    
    
    
    
    (1,813
    )
    
    
    
    
    
    
    
    
    
    
    (1,813
    )Proceeds from sale of businesses, net of expenses paid
    
    
    
    
    
    
    (193
    )
    
    
    6,796
    
    
    
    4,162
    
    
    
    
    
    
    
    10,765Increase in restricted cash and cash equivalents
    
    
    (10,833
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,833
    )Release of restricted cash and cash equivalents
    
    
    12,307
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,307Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    7
    
    
    
    53
    
    
    
    36
    
    
    
    
    
    
    
    96Net cash provided by (used for) investing activities
    
    
    1,474
    
    
    
    (268
    )
    
    
    4,628
    
    
    
    3,092
    
    
    
    
    
    
    
    8,926Cash flows from financing activities:Transactions with subsidiaries
    
    
    39,905
    
    
    
    (9,480
    )
    
    
    (21,893
    )
    
    
    (8,532
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (781
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (781
    )Changes in revolving and term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,044
    
    
    
    
    
    
    
    2,044Repayment of long term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,120
    )
    
    
    
    
    
    
    (3,120
    )Changes in bank overdrafts, net
    
    
    
    
    
    
    
    
    
    
    5,500
    
    
    
    (262
    )
    
    
    
    
    
    
    5,238Net cash provided by (used for) financing activities
    
    
    39,124
    
    
    
    (9,480
    )
    
    
    (16,393
    )
    
    
    (9,870
    )
    
    
    
    
    
    
    3,381Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    594
    
    
    
    (9.00
    )
    
    
    (1,840
    )
    
    
    
    
    
    
    (1,255
    )Cash and cash equivalents:Increase (decrease) for the period
    
    
    17,259
    
    
    
    (4,626
    )
    
    
    265
    
    
    
    (1,599
    )
    
    
    
    
    
    
    11,299Balance, beginning of period (including $273 of cash held for sale)
    
    
    6,998
    
    
    
    6,980
    
    
    
    432
    
    
    
    8,603
    
    
    
    
    
    
    
    23,013Balance, end of period
    
    $
    24,257
    
    
    $
    2,354
    
    
    $
    697
    
    
    $
    7,004
    
    
    $
    
    
    
    $
    34,312
 27




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##### Table of Contents



16. 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 (gain) on sale of businesses
    
    
    
    
    
    
    (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, net of expenses paid
    
    
    
    
    
    
    5,608
    
    
    
    
    
    
    
    (520
    )
    
    
    
    
    
    
    5,088Increase of restricted cash and cash equivalents
    
    
    (4,997
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,997
    )Proceeds from sale/disposal of property and
equipment
    
    
    
    
    
    
    8
    
    
    
    55
    
    
    
    240
    
    
    
    
    
    
    
    303Net cash provided by (used for) investing activities
    
    
    (4,997
    )
    
    
    5,445
    
    
    
    (2,696
    )
    
    
    (1,266
    )
    
    
    
    
    
    
    (3,514
    )Cash 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
    
    
    66
    
    
    
    1,388
    
    
    
    (10,141
    )
    
    
    (6,078
    )
    
    
    
    
    
    
    (14,765
    )Balance, beginning of period
    
    
    5,650
    
    
    
    18
    
    
    
    11,570
    
    
    
    17,139
    
    
    
    
    
    
    
    34,377Balance, end of period (including $710 of cash
held for sale)
    
    $
    5,716
    
    
    $
    1,406
    
    
    $
    1,429
    
    
    $
    11,061
    
    
    $
    
    
    
    $
    19,612
 28




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##### Table of Contents



Results of Operations
 Outlook
    29




---



##### Table of Contents



Net Sales
   October 1,
    
    
    October 2,
    
    
    Inc / (Dec) vs. 20052006
    
    
    2005
    
    
    $
    
    
    %(dollars in thousands)Fiscal Quarter Ended:Business Outsourcing Services
    
    $
    42,270
    
    
    $
    42,770
    
    
    $
    (500
    )
    
    
    (1.2
    %)Human Capital Services
    
    
    27,177
    
    
    
    34,912
    
    
    
    (7,735
    )
    
    
    (22.2
    %)Engineering Services
    
    
    20,647
    
    
    
    22,617
    
    
    
    (1,970
    )
    
    
    (8.7
    %)Total net sales
    
    $
    90,094
    
    
    $
    100,299
    
    
    $
    (10,205
    )
    
    
    (10.2
    %)
 October 1,
    
    
    October 2,
    
    
    Inc / (Dec) vs. 20052006
    
    
    2005
    
    
    $
    
    
    %(dollars in thousands)Fiscal nine months ended:Business Outsourcing Services
    
    $
    126,184
    
    
    $
    132,493
    
    
    $
    (6,309
    )
    
    
    (4.8
    %)Human Capital Services
    
    
    79,628
    
    
    
    108,655
    
    
    
    (29,027
    )
    
    
    (26.7
    %)Engineering Services
    
    
    62,957
    
    
    
    67,256
    
    
    
    (4,299
    )
    
    
    (6.4
    %)Total net sales
    
    $
    268,769
    
    
    $
    308,404
    
    
    $
    (39,635
    )
    
    
    (12.9
    %)
    30




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##### Table of Contents



Operating Profit
  October 1,
    
    October 2,
    
    Inc (Dec) vs. 20052006
    
    2005
    
    $
    
    %(dollars in thousands)Fiscal Quarter Ended:Gross profit
    
    $
    15,243
    
    
    $
    14,525
    
    
    $
    718
    
    
    
    4.9
    %% of net sales
    
    
    16.9
    %
    
    
    14.5
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    6,017
    
    
    $
    6,498
    
    
    $
    (481
    )
    
    
    (7.4
    %)% of net sales
    
    
    6.7
    %
    
    
    6.5
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    9,517
    
    
    $
    7,364
    
    
    $
    2,153
    
    
    
    29.2
    %% of net sales
    
    
    10.6
    %
    
    
    7.3
    %
    
    
    n/a
    
    
    
    n/a
 October 1,
    
    October 2,
    
    Inc (Dec) vs. 20052006
    
    2005
    
    $
    
    %(dollars in thousands)Fiscal nine months ended:Gross profit
    
    $
    47,222
    
    
    $
    47,837
    
    
    $
    (615
    )
    
    
    (1.3
    %)% of net sales
    
    
    17.6
    %
    
    
    15.5
    %
    
    
    n/a
    
    
    
    n/aSelling, general and administrative expenses
    
    $
    19,860
    
    
    $
    22,150
    
    
    $
    (2,290
    )
    
    
    (10.3
    %)% of net sales
    
    
    7.4
    %
    
    
    7.2
    %
    
    
    n/a
    
    
    
    n/aOperating income
    
    $
    27,238
    
    
    $
    24,574
    
    
    $
    2,664
    
    
    
    10.8
    %% of net sales
    
    
    10.1
    %
    
    
    8.0
    %
    
    
    n/a
    
    
    
    n/a
   Interest expense, net
  31




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##### Table of Contents



Income taxes
  Discontinued Operations
   Assets Held for SaleAt October 1, 2006    Certain property held by MSX International Engineering GmbHAt January 1, 2006    MSX International Engineering GmbH, our remaining
engineering operations in Germany (selected assets sold July 30, 2006)    Satiz S.r.l., our Italian technical and commercial publishing
business (sold April 21, 2006)    Creative Technology Services, LLC (sold
January 19, 2006)
 32




---



##### Table of Contents



Fiscal Quarter Ended
    
    
    Fiscal Nine Months EndedOctober 1,
    
    
    October 2,
    
    
    October 1,
    
    
    October 2,2006
    
    
    2005
    
    
    2006
    
    
    2005(dollars in thousands)Net sales
    
    $
    3,075
    
    
    $
    25,637
    
    
    $
    30,557
    
    
    $
    112,757Cost of sales
    
    
    1,629
    
    
    
    22,526
    
    
    
    26,815
    
    
    
    103,777Gross profit
    
    
    1,446
    
    
    
    3,111
    
    
    
    3,742
    
    
    
    8,980Selling, general and administrative expense
    
    
    81
    
    
    
    1,847
    
    
    
    1,849
    
    
    
    7,288Restructuring and severance costs
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    6,655Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,131Operating income (loss)
    
    
    1,365
    
    
    
    1,264
    
    
    
    1,882
    
    
    
    (12,094
    )Interest income, net
    
    
    
    
    
    
    72
    
    
    
    57
    
    
    
    61Net gain (loss) on sale of businesses
    
    
    291
    
    
    
    (32
    )
    
    
    4,362
    
    
    
    (4,031
    )Income (loss) before taxes, net
    
    
    1,656
    
    
    
    1,304
    
    
    
    6,301
    
    
    
    (16,064
    )Income tax expense (benefit)
    
    
    (55
    )
    
    
    (880
    )
    
    
    29
    
    
    
    (1,028
    )Income (loss) from discontinued operations
    
    $
    1,711
    
    
    $
    2,184
    
    
    $
    6,272
    
    
    $
    (15,036
    )
  
    33




---



##### Table of Contents



 
 Liquidity and Capital Resources
 Cash Flows
 General.
  Operating Activities
 Investing Activities.
 34




---



##### Table of Contents



Financing Activities
 Liquidity and Available Financings
     Recent Accounting Pronouncements
   35




---



##### Table of Contents



Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109.
 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;
    
    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.
   36




---



##### 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.
 Remediation of Material Weaknesses in Internal Control over Financial Reporting:
  Authorization of Journal Entries
 Financial Reporting Oversight
 37




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##### Table of Contents



Segregation
of Duties
 Accounting
System Access
 Changes in Internal Control over Financial Reporting
  38




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  Our ability to meet our long-term liquidity needs and obtain additional financing is uncertain.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 6. EXHIBITS
  31.1
    
    Certification of Chief Financial Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.31.2
    
    Certification of Chief Executive Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes  Oxley Act of 2002.99.1
    
    Press release announcing third quarter results
 39




---



##### Table of Contents



SIGNATURE
   MSX INTERNATIONAL, INC.
(Registrant)By:
    /s/ Frederick K. MinturnFrederick K. MinturnExecutive Vice President and
Chief Financial Officer 
 40




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##### Table of Contents



Exhibit No.
    
    Description of Exhibits31.1
    
    Certification of Chief Financial Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.31.2
    
    Certification of Chief Executive Officer pursuant to rules
13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of
1934, as amended.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to section 906 of the Sarbanes  Oxley Act of 2002.99.1
    
    Press release announcing third quarter results
 41