SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended April 3, 2005

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 333-49821

MSX International, Inc.

(Exact name of registrant as specified in its charter)


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
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Securities and Exchange Act of 1934). Yes o No þ

At May 16, 2005, 486,354 shares of Class A common stock of the Registrant were outstanding.

MSX INTERNATIONAL, INC.
INDEX


			Pages
PART I. FINANCIAL INFORMATION

	*ITEM 1*. Financial Statements (unaudited):

		Consolidated Balance Sheets as of April 3, 2005 and January 2, 2005		2

		Consolidated Statements of Operations for the fiscal quarters ended April 3, 2005 and April 4, 2004		3

		Consolidated Statements of Cash Flows for the fiscal quarters ended April 3, 2005 and April 4, 2004		4

		Notes to Consolidated Financial Statements		5

	*ITEM 2.* Management’s Discussion and Analysis of Financial Condition and Results of Operations			23

	*ITEM 4.* Controls and Procedures			27

PART II. OTHER INFORMATION

	*ITEM 1.* Legal Proceedings			28

	*ITEM 4.* Submission of Matters to a Vote of Security Holders			28

	*ITEM 6*. Exhibits			28

SIGNATURE				29
Summary of the Collective Dismissal Agreement
Intercreditor Agreement
Certification of Chief Executive Officer to Rule 13a-15(e)
Certification of Chief Financial Officer to Rule 13a-15(e)
Certification Pursuant to 18 U.S.C. Section 1350

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MSX INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)
as of April 3, 2005 and January 2, 2005


	April 3,			January 2,
	2005			2005
	(in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	27,864		$	34,377
Accounts receivable, net (Note 4)		111,841			158,640
Inventory		9,572			12,160
Prepaid expenses and other assets		4,833			3,402
Assets held for sale (Note 2)		50,448			13,453
Deferred income taxes, net		3,899			5,341

Total current assets		208,457			227,373

Property and equipment, net		6,106			11,195
Goodwill, net (Note 5)		116,345			135,095
Assets held for sale (Note 2)		16,828			2,618
Deferred income taxes, net		742			—
Other assets		8,858			9,463

Total assets	$	357,336		$	385,744


LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt (Note 6)	$	2,826		$	10,995
Accounts payable and drafts		86,933			117,251
Accrued payroll and benefits		19,389			22,442
Liabilities held for sale (Note 2)		49,690			10,133
Other accrued liabilities		35,242			45,002

Total current liabilities		194,080			205,823

Long-term debt (Note 6)		251,951			249,869
Long-term deferred compensation liabilities and other		8,019			18,496
Liabilities held for sale (Note 2)		9,135			—
Deferred income taxes, net		—			1,016

Total liabilities		463,185			475,204

Commitments and contingencies		—			—
Redeemable Series A Preferred Stock (Note 7)		94,044			91,312

Shareholders’ deficit
Common 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			5
Additional paid-in capital		(24,881	)		(24,881	)
Common stock purchase warrants		750			750
Accumulated other comprehensive loss		(2,445	)		(894	)
Retained deficit		(173,322	)		(155,752	)

Total shareholders’ deficit		(199,893	)		(180,772	)

Total liabilities and shareholders’ deficit	$	357,336		$	385,744

The accompanying notes are an integral part of the consolidated financial statements

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
for the fiscal quarters ended April 3, 2005 and April 4, 2004


	Fiscal Quarter Ended
	April 3,			April 4,
	2005			2004
	(in thousands)
Net sales	$	113,098		$	125,390
Cost of sales		96,149			107,511


Gross profit		16,949			17,879

Selling, general and administrative expenses		9,473			9,354
Restructuring and severance costs (Note 3)		157			—


Income from continuing operations before interest and income taxes		7,319			8,525
Interest expense, net		8,504			7,556


Income (loss) from continuing operations before income taxes		(1,185	)		969

Income tax provision		1,278			920


Income (loss) from continuing operations		(2,463	)		49

Income (loss) from discontinued operations, net of taxes of $(1,271)and $175, respectively (Note 2)		(12,373	)		345


Net income (loss)		(14,836	)		394

Accretion for redemption of preferred stock		(2,732	)		(2,665	)


Net loss available to common shareholders	$	(17,568	)	$	(2,271	)

The accompanying notes are an integral part of the consolidated financial statements

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
for the fiscal quarters ended April 3, 2005 and April 4, 2004


	Fiscal Quarter Ended
	April 3,			April 4,
	2005			2004
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	(14,836	)	$	394
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation		2,094			2,381
Goodwill impairment charges		7,131			—
Amortization of debt issuance costs		1,142			1,107
Deferred income taxes (benefits)		(316	)		659
(Gain) on sale/disposal of property and equipment		(8	)		(55	)
(Increase) decrease in receivables, net		13,427			10,824
(Increase) decrease in inventory		(318	)		(395	)
(Increase) decrease in prepaid expenses and other assets		(1,495	)		(1,546	)
Increase (decrease) in current liabilities		(13,760	)		(2,725	)
Other, net		(691	)		(282	)

Net cash provided by (used for) operating activities		(7,630	)		10,362


Cash flows from investing activities:
Capital expenditures		(861	)		(342	)
Payments for contingent consideration		(604	)		—
Proceeds from sale/disposal of property and equipment		95			78
Other, net		—			294

Net cash provided by (used for) investing activities		(1,370	)		30


Cash flows from financing activities:
Debt issuance costs		(16	)		(313	)
Changes in revolving debt, net		(4,550	)		(634	)
Changes in book overdrafts, net		8,067			(3,696	)

Net cash provided by (used for) financing activities		3,501			(4,643	)


Effect of foreign exchange rate changes on cash and cash equivalents		(362	)		(1,278	)


Cash and cash equivalents:
Increase (decrease) for the period		(5,861	)		4,471
Balance, beginning of period		34,377			36,650

Balance, end of period (including $652 of cash held for sale as of April 3, 2005)	$	28,516		$	41,121

The accompanying notes are an integral part of the consolidated financial statements

MSX International, Inc.

Notes to Consolidated Financial Statements (Unaudited)

(dollars in thousands unless otherwise stated)

1. Organization and Basis of Presentation:

The accompanying financial statements present the consolidated assets and liabilities and results of operations of MSX International, Inc. and its majority owned subsidiaries (“MSXI”). MSXI is a holding company owned primarily by Citicorp and affiliates and certain members of management. We are principally engaged in providing technical business services to automobile manufacturers and suppliers and other industries primarily in North America and Europe. We utilize a 52-53 week fiscal year, which ends on the Sunday nearest December 31.

All intercompany transactions and balances have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, which are necessary for a fair presentation. The operating results for the fiscal quarters ended April 3, 2005 and April 4, 2004 are not necessarily indicative of the results of operations for the entire year. Reference should be made to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2005. Certain prior year amounts have been reclassified to conform to the presentation adopted during the current period.

Results of operations classified as discontinued at April 3, 2005 have been excluded from the discussion of continuing operations for all periods presented and are discussed separately in Note 2. Net assets held for sale are classified as such in the period that management commits to the plan of the sale. At April 3, 2005, net assets held for sale include substantially all engineering and staffing business in Europe as well as our technical and commercial publishing business primarily in Italy. Net assets held for sale at January 2, 2005 reflect only those associated with European engineering and staffing business.

2. Discontinued Operations

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” discontinued operations include components of entities or entire entities that, through disposal transactions, will be eliminated from the on-going operations of MSXI. Selected European businesses are reflected as discontinued operations and eliminated from the on-going operations of MSXI due to management’s decision to divest such operations. Operations reflected as discontinued include substantially all engineering and staffing business in Europe as well as our technical and commercial publishing business primarily in Italy. Management has determined these businesses are no longer core to the company’s strategy due to changing competitive requirements, customer demands and a required focus on business with higher growth and return prospects. For all businesses reflected as discontinued a process for selling such operations has been initiated and prospective buyers have been identified.

The following summary results of operations information is derived from the businesses that are in the disposal process:


	Fiscal Quarter Ended
	April 3,			April 4,
	2005			2004
	(in thousands)
Net sales	$	32,838		$	41,925
Cost of sales		30,959			39,202

Gross profit		1,879			2,723
Selling, general and administrative expense		1,774			1,954
Restructuring and severance costs		6,602			—
Goodwill impairment charge		7,131			—

Operating income (loss)		(13,628	)		769
Interest expense, net		16			249

Income (loss) before taxes, net		(13,644	)		520
Income tax provision (benefit)		(1,271	)		175

Income (loss) from discontinued operations	$	(12,373	)	$	345

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

entered into an agreement with various trade union organizations that establishes a program for permanent employment reductions affecting 124 personnel. Affected employees are expected to utilize the program in the first half of 2006.

Results of discontinued operations reflect a goodwill impairment charge totaling $7.1 million related to our technical and commercial publishing business in Italy. The impairment charge was calculated based on the estimated fair value of this business versus the carrying value of assets held for sale. Fair value of such assets was estimated based upon market values contemplated in the proposed sale.

The summary balance sheet information is derived from the businesses that are in the disposal process, which management believes is representative of the net assets of the businesses held for disposal. At April 3, 2005, assets held for sale include substantially all engineering and staffing business in Europe as well as our technical and commercial publishing business primarily in Italy. Net assets held for sale at January 2, 2005 include only our European engineering and staffing business due to the timing of management’s commitment to the sale.


	At April 3,		At January 2,
	2005		2005
	(in thousands)
Assets:
Cash and cash equivalents	$	652	$	—
Accounts receivable, net		45,511		12,140
Inventory		2,907		—
Prepaid expenses		1,378		1,313

Total current assets held for sale		50,448		13,453
Property and equipment, net		5,673		2,259
Goodwill, net		11,155		359

Total assets held for sale	$	67,276	$	16,071


Liabilities:
Note payable and current portion of long-term debt	$	2,118	$	—
Accounts payable and drafts		29,744		2,880
Accrued payroll and benefits		12,231		4,642
Other accrued liabilities		5,597		2,611

Total current liabilities held for sale		49,690		10,133
Long-term deferred compensation liabilities and other		9,135		—

Total liabilities held for sale	$	58,825	$	10,133

The net proceeds received from the prospective disposal may be subject to limitations in the Company’s senior credit facility. When such net proceeds become known and available, management anticipates applying them to reduce outstanding indebtedness.

3. Restructuring and Severance:

The following table shows the activity related to restructuring reserves for the fiscal quarter ended April 3, 2005:


							Other
	Termination			Facility			Contractual
	Benefits			Consolidation			Costs			Total
Reserve at January 2, 2005		573			562			199			1,334
Charges from continuing operations at April 3, 2005		157			—			—			157
Charges from discontinued operations at April 3, 2005		5,198			260			1,144			6,602
Payments and reserve utilization		(89	)		(379	)		(101	)		(569	)

Reserve at April 3, 2005	$	5,839		$	443		$	1,242		$	7,524

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

4. Accounts Receivable:

Accounts receivable include both billed and unbilled receivables. Unbilled receivables amounted to $28.1 million and $46.5 million at April 3, 2005 and January 2, 2005, respectively, excluding assets held for sale. All such billings are expected to be collected within the ensuing year. Accounts receivable also include the portion of our billings for certain vendor management services attributable to services provided by our vendors, which are passed on to our customers. These amounts totaled $41.4 million as of April 3, 2005 and $47.6 million as of January 2, 2005. A corresponding liability to our vendors for these amounts is recorded in accounts payable at the time the receivable is recognized.

5. Goodwill, net:

The following summarizes the changes in our goodwill balances by segment, net of assets held for sale, as of January 2, 2005, during the three months ended April 3, 2005:


	Business			Human Capital			Engineering
	Services			Services			Services		Total
Balance at January 2, 2005	$	37,703		$	97,392		$	—	$	135,095
Transfer of business unit		(1,809	)		1,809			—		—
Goodwill classified as held for sale during the fiscal period		(17,816	)		(69	)		—		(17,885	)
Translation changes and other		(865	)		—			—		(865	)

Balance at April 3, 2005	$	17,213		$	99,132		$	—	$	116,345

Results of discontinued operations reflect a goodwill impairment charge totaling $7.1 million as discussed further in Note 2.

6. Debt:

Debt is comprised of the following, excluding amounts held for sale:


	Interest Rates at						Outstanding at
	April 3,			January 2,			April 3,		January 2,
	2005			2005			2005		2005
Senior credit facility		6.00	%		5.50	%	$	2,089	$	590
Senior secured notes, net of unamortized discount		11.00	%		11.00	%		75,103		75,063
Mezzanine term notes, net of unamortized discount		11.50	%		11.50	%		24,551		24,506
Fourth lien term notes		10.00	%		10.00	%		20,208		19,710
Senior subordinated notes		11.375	%		11.375	%		130,000		130,000
Satiz facilities		—			4.455	%		—		8,065
Other		7.00	%		7.00	%		2,826		2,930


								254,777		260,864
Less current portion								2,826		10,995


Total long-term debt							$	251,951	$	249,869

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

7. Redeemable Series A Preferred Stock:

As of April 3, 2005 and January 2, 2003 there are 359,448 shares of the Preferred Stock outstanding with a stated value of $100 per share or about $36 million in total. We are authorized to issue up to 1,500,000 shares of Preferred Stock, divided into two classes: 500,000 shares of Series A Preferred Stock, par value $0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01. The Preferred Stock is redeemable to the extent that funds are legally available, on or after December 31, 2008, at the option of the company or the shareholder. As of April 3, 2005, dividends accrued totaled $58.1 million, however we have not declared or paid any dividends. We may not declare or pay any dividends or other distribution with respect to any common stock or other class or series of stock ranking junior to the Preferred Stock without first complying with restrictions specified in the Amended and Restated Stockholders’ Agreement. Our ability to pay cash dividends, and to acquire or redeem the preferred stock, is subject to restrictions contained in our debt agreements.

8. Comprehensive Loss:

Our comprehensive loss was:


	Fiscal Quarter Ended
	April 3,			April 4,
	2005			2004
Net income (loss)	$	(14,836	)	$	394
Other comprehensive loss - foreign currency translation adjustments		(1,551	)		(1,314	)


Comprehensive loss	$	(16,387	)	$	(920	)

9. Income Taxes:

The company currently provides valuation allowances for a significant portion of its deferred tax assets. The effective tax rate for the quarter ended April 3, 2005 differs from the 35% federal statutory rate primarily because of such valuation allowances and the effect of certain foreign tax rates. Tax expense for the period relates primarily to earnings in foreign jurisdictions for which valuation allowances have not previously been recorded.

10. Segment Information:

MSXI is a global provider of technical business services to the automotive and other industries. Our business includes: business services, human capital services, and engineering services. Our business services include solutions to quality, and communication related customer needs. Human capital services include a full range of staffing solutions, including direct support of our engineering and business services. Engineering services offers a full range of total product, custom, or single point engineering solutions. Certain operations within each of our segments have been aggregated following the provisions of SFAS No. 131 due to the similar characteristics of their operations, including the nature of their service offerings, processes supporting the delivery of the services, common customers, and marketing and sales processes.

The accounting policies of each of our segments are the same as those for MSXI except that the financial results for each segment are presented using a management approach. We evaluate performance based on earnings before interest, taxes, including the Michigan Single Business Tax and other similar taxes, amortization and non-cash charges, (EBITA). The results of each segment include certain allocations for general, administrative, and other shared costs. However, certain shared costs and termination and restructuring costs are not allocated to the segments.

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

The following is a summary of selected data for each of our segments, excluding discontinued operations:


			Human
	Business		Capital		Engineering
	Services		Services		Services		Other			Total
Quarter Ended April 3, 2005
Net sales — external	$	43,169	$	46,741	$	23,188	$	—		$	113,098
Net intercompany sales		14		—		15		(29	)		—
EBITA		5,561		2,896		2,022		—			10,479

Quarter Ended April 4, 2004
Net sales — external	$	45,694	$	51,401	$	28,295	$	—		$	125,390
Net intercompany sales		305		2		269		(576	)		—
EBITA		6,189		3,702		2,544		—			12,435

A reconciliation of total segment EBITA to consolidated income (loss) from continuing operations before income taxes is as follows:


	Fiscal Quarter Ended
	April 3,			April 4,
	2005			2004
Total segment EBITA	$	10,479		$	12,435
Net costs not allocated to segments		(2,637	)		(3,348	)
Interest expense		(8,504	)		(7,556	)
Michigan single business tax and other similar taxes		(523	)		(562	)

Consolidated income (loss) from continuing operations before taxes	$	(1,185	)	$	969

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

11. Stock-Based Compensation:

We account for stock options under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (“APB Opinion No. 25”), “Accounting for Stock Issued to Employees,” and related interpretations. In June, 2003 we repriced selected outstanding stock options. In accordance with APB Opinion No. 25 we now account for the options under variable plan accounting. We have not recognized any expense related to employee stock options as the estimated fair value of the stock is below the exercise price of the options as of April 3, 2005. Applying the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” would have no effect on our reported results of operations.

12. New Accounting Pronouncements:

SFAS No. 123-R,: Accounting for Stock-Based Compensation- Revised: Issued by the FASB in December 2004, this standard establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods and services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. The new statement is now effective for public companies for annual periods beginning after June 15, 2005. MSXI is in the process of studying this statement, and has yet to determine the effects, if any, on its consolidated financial statements.

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.:

Senior secured notes that are issued by MSX International, Inc. are collateralized by security interests in substantially all of the assets of the company and its domestic subsidiaries, subject to permitted liens. Payment obligations under the senior secured notes as well as the senior subordinated notes issued by MSX International, Inc. are guaranteed jointly and severally by all domestic subsidiaries of MSX International, Inc.

The following presents condensed consolidating financial information for:

	•	MSXI—the parent company and issuer

	•	The guarantor subsidiaries

	•	The non-guarantor subsidiaries

	•	MSXI on a consolidated basis

Investments in subsidiaries are accounted for under the equity method. The principal elimination entries are to eliminate the investments in subsidiaries and intercompany balances and transactions. Separate financial statements for each of the guarantor and non-guarantor subsidiaries are not presented because management has determined such statements would not provide additional material information to the holders of the senior subordinated or senior secured notes.

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. – continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of April 3, 2005


	MSXI			Guarantor		Non-Guarantor					MSXI
	(Issuer)			Subsidiaries		Subsidiaries		Eliminations			Consolidated
						(in thousands)
ASSETS

Current assets:
Cash and cash equivalents	$	—		$	13,893	$	13,971	$	—		$	27,864
Accounts receivable, net		—			65,383		46,459		—			111,842
Inventory		—			9,565		6		—			9,571
Prepaid expenses and other assets		—			3,281		1,552		—			4,833
Assets held for sale		—			—		50,448		—			50,448
Deferred income taxes, net		—			2,370		3,899		(2,370	)		3,899

Total current assets		—			94,492		116,335		(2,370	)		208,457

Property and equipment, net		—			3,850		2,256		—			6,106
Goodwill, net		—			116,302		43		—			116,345
Investments in subsidiaries		100,048			11,425		—		(111,473	)		—
Assets held for sale		—			—		16,828		—			16,828
Other assets		5,258			2,973		627		—			8,858
Deferred income taxes, net		1,876			—		742		(1,876	)		742

Total assets	$	107,182		$	229,042	$	136,831	$	(115,719	)	$	357,336


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Notes payable and current portion of long-term debt	$	—		$	—	$	2,826	$	—		$	2,826
Accounts payable and drafts		—			65,602		21,331		—			86,933
Accrued liabilities		4,824			26,647		23,160		—			54,631
Liabilities held for sale		—			—		49,690		—			49,690
Deferred income taxes, net		2,370			—		—		(2,370	)		—

Total current liabilities		7,194			92,249		97,007		(2,370	)		194,080

Long-term debt		235,116			—		16,835		—			251,951
Intercompany accounts		(29,279	)		28,033		1,246		—			—
Long-term deferred compensation and other liabilities		—			6,836		1,183		—			8,019
Liabilities held for sale		—			—		9,135		—			9,135
Deferred income taxes, net		—			1,876		—		(1,876	)		—

Total liabilities		213,031			128,994		125,406		(4,246	)		463,185

Redeemable Series A Preferred Stock		94,044			—		—		—			94,044
Shareholders’ equity (deficit)		(199,893	)		100,048		11,425		(111,473	)		(199,893	)

Total liabilities and shareholders’ equity (deficit)	$	107,182		$	229,042	$	136,831	$	(115,719	)	$	357,336

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. – continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005


	MSXI			Guarantor		Non-Guarantor					MSXI
	(Issuer)			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS

Current assets:
Cash and cash equivalents	$	5,650		$	11,570	$	17,157	$	—		$	34,377
Accounts receivable, net		—			68,099		90,541		—			158,640
Inventory		—			9,121		3,039		—			12,160
Prepaid expenses and other assets		—			2,736		666		—			3,402
Assets held for sale		—			—		13,453		—			13,453
Deferred income taxes, net		—			2,569		5,341		(2,569	)		5,341

Total current assets		5,650			94,095		130,197		(2,569	)		227,373

Property and equipment, net		—			4,367		6,828		—			11,195
Goodwill, net		—			116,302		18,793		—			135,095
Investment in subsidiaries		110,993			23,829		—		(134,822	)		—
Assets held for sale		—			—		2,618		—			2,618
Other assets		5,767			3,032		664		—			9,463
Deferred income taxes, net		1,257			—		—		(1,257	)		—

Total assets	$	123,667		$	241,625	$	159,100	$	(138,648	)	$	385,744


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Notes payable and current portion of long-term debt	$	—		$	—	$	10,995	$	—		$	10,995
Accounts payable and drafts		—			62,594		54,657		—			117,251
Accrued liabilities		10,998			27,447		28,999		—			67,444
Liabilities held for sale		—			—		10,133		—			10,133
Deferred income taxes, net		2,569			—		—		(2,569	)		—

Total current liabilities		13,567			90,041		104,784		(2,569	)		205,823

Long-term debt		232,521			—		17,348		—			249,869
Intercompany accounts		(32,963	)		31,929		1,034		—			—
Long-term deferred compensation and other liabilities		—			7,405		11,091		—			18,496
Deferred income taxes, net		—			1,257		1,016		(1,257	)		1,016

Total liabilities		213,125			130,632		135,273		(3,826	)		475,204

Redeemable Series A Preferred Stock		91,312			—		—		—			91,312
Shareholders’ equity (deficit)		(180,770	)		110,993		23,827		(134,822	)		(180,772	)

Total liabilities and shareholders’ equity (deficit)	$	123,667		$	241,625	$	159,100	$	(138,648	)	$	385,744

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.- continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended April 3, 2005 and April 4, 2004


	MSXI			Guarantor			Non-Guarantor						MSXI
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)
Fiscal Quarter Ended April 3, 2005
Net sales	$	—		$	80,869		$	32,257		$	(28	)	$	113,098
Cost of sales		—			69,962			26,215			(28	)		96,149

Gross profit		—			10,907			6,042			—			16,949
Selling, general and administrative expenses		—			7,198			2,275			—			9,473
Restructuring and severance costs		—			132			25			—			157

Income (loss) from continuing operations before interest, income taxes, and equity in affiliates		—			3,577			3,742			—			7,319
Interest expense, net		6,253			1,291			960			—			8,504

Income (loss) from continuing operations before income taxes, and equity in affiliates		(6,253	)		2,286			2,782			—			(1,185	)
Income tax provision (benefit)		(808	)		827			1,259			—			1,278
Equity in affiliates		2,982			1,523			—			(4,505	)		—


Income (loss) from continuing operations		(2,463	)		2,982			1,523			(4,505	)		(2,463	)

Income from discontinued operations, net		(12,373	)		(12,373	)		(12,373	)		24,746			(12,373	)


Net income (loss)	$	(14,836	)	$	(9,391	)	$	(10,850	)	$	20,241		$	(14,836	)


Fiscal Quarter Ended April 4, 2004
Net sales	$	—		$	97,399		$	28,567		$	(576	)	$	125,390
Cost of sales		—			87,569			20,518			(576	)		107,511

Gross profit		—			9,830			8,049			—			17,879
Selling, general and administrative expenses		—			6,991			2,363			—			9,354

Income from continuing operations before interest, income taxes, and equity in affiliates		—			2,839			5,686			—			8,525
Interest expense, net		6,667			1,099			(210	)		—			7,556

Income from continuing operations before income taxes, and equity in affiliates		(6,667	)		1,740			5,896			—			969
Income tax provision (benefit)		(622	)		436			1,106			—			920
Equity in affiliates		6,095			4,789			—			(10,884	)		—


Income from continuing operations		50			6,093			4,790			(10,884	)		49
Income from discontinued operations, net		345			345			345			(690	)		345


Net income (loss)	$	395		$	6,438		$	5,135		$	(11,574	)	$	394

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc. – continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal quarter ended April 3, 2005


	MSXI			Guarantor			Non-Guarantor						MSXI
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	(14,836	)	$	(9,391	)	$	(10,850	)	$	20,241		$	(14,836	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Equity in affiliates, including discontinued operations		9,391			10,850			—			(20,241	)		—
Depreciation		—			820			1,274			—			2,094
Goodwill impairment charges		—			—			7,131						7,131
Amortization of debt issuance costs		1,030			—			112			—			1,142
Deferred taxes		(818	)		818			(316	)		—			(316	)
(Gain) Loss on sale/disposal of property and equipment		—			(5	)		(3	)		—			(8	)
(Increase) decrease in receivables, net		—			2,716			10,711			—			13,427
(Increase) decrease in inventory		—			(444	)		126			—			(318	)
(Increase) decrease in prepaid expenses and other assets		—			(544	)		(951	)		—			(1,495	)
Increase (decrease) in current liabilities		(6,174	)		(5,861	)		(1,725	)		—			(13,760	)
Other, net		—			95			(786	)		—			(691	)

Net cash provided by (used for) operating activities		(11,407	)		(946	)		4,723			—			(7,630	)


Cash flows from investing activities:
Capital expenditures		—			(305	)		(556	)		—			(861	)
Payments for contingent consideration		—			(604	)					—			(604	)
Proceeds from sale/disposal of property and equipment		—			7			88			—			95

Net cash used for investing activities		—			(902	)		(468	)		—			(1,370	)


Cash flows from financing activities:
Transactions with subsidiaries		3,684			(3,896	)		212			—			—
Debt issuance costs		(16	)		—						—			(16	)
Changes in revolving debt, net		2,089			—			(6,639	)		—			(4,550	)
Change in book overdrafts		—			8,067			—			—			8,067

Net cash provided by (used for) financing activities		5,757			4,171			(6,427	)		—			3,501


Effect of foreign exchange rate changes on cash and cash equivalents		—			—			(362	)		—			(362	)


Cash and cash equivalents:
Increase (decrease) for the period		(5,650	)		2,323			(2,534	)		—			(5,861	)
Balance, beginning of period		5,650			11,570			17,157			—			34,377

Balance, end of period	$	—		$	13,893		$	14,623		$	—		$	28,516

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

13. Guarantor and Non-Guarantor Subsidiaries of MSX International, Inc.– continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal quarter ended April 4, 2004


	MSXI			Guarantor			Non-Guarantor						MSXI
	(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	394		$	6,439		$	5,134		$	(11,573	)	$	394
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Equity in affiliates, including discontinued operations		(6,439	)		(5,134	)		—			11,573			—
Depreciation		—			1,212			1,169			—			2,381
Amortization of debt issuance costs		1,028			—			79			—			1,107
Deferred taxes		(572	)		573			658			—			659
Loss on sale/disposal of property and equipment		—			3			(58	)		—			(55	)
(Increase) decrease in receivables, net		—			6,218			4,606			—			10,824
(Increase) decrease in inventory		—			(434	)		39			—			(395	)
(Increase) decrease in prepaid expenses and other assets		—			(610	)		(936	)		—			(1,546	)
Increase (decrease) in current liabilities		(4,276	)		10,712			(9,161	)		—			(2,725	)
Other, net		—			(143	)		(139	)		—			(282	)

Net cash provided by (used for) operating activities		(9,865	)		18,836			1,391			—			10,362


Cash flows from investing activities:
Capital expenditures		—			(200	)		(142	)		—			(342	)
Proceeds from sale/disposition of property and equipment		—			2			76			—			78
Other, net		—			294			0			—			294

Net cash used for investing activities		—			96			(66	)		—			30


Cash flows from financing activities:
Transactions with subsidiaries		17,811			(13,261	)		(4,550	)		—			—
Debt issuance costs		(296	)		—			(17	)		—			(313	)
Changes in revolving debt, net		—			—			(634	)		—			(634	)
Change in book overdrafts		—			(3,696	)		—			—			(3,696	)

Net cash provided by (used for) financing activities		17,515			(16,957	)		(5,201	)		—			(4,643	)


Effect of foreign exchange rate changes on cash and cash equivalents		—			—			(1,278	)		—			(1,278	)


Cash and cash equivalents:
Increase (decrease) for the period		7,650			1,975			(5,154	)		—			4,471
Balance, beginning of period		18,600			391			17,659			—			36,650

Balance, end of period	$	26,250		$	2,366		$	12,505		$	—		$	41,121

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited:

Senior secured notes that are issued by MSXI Limited, an indirect subsidiary of MSX International, Inc., are collateralized by the accounts receivable of MSXI Limited and substantially all of the assets of MSXI and its domestic subsidiaries, subject to permitted liens. Payment obligations under the senior secured notes issued by MSXI Limited are guaranteed jointly and severally by MSX International, Inc. and all of its domestic subsidiaries. Because of the parent and subsidiary guarantee structure, we present the following condensed consolidating financial information for:

	•	MSXI — the parent company

	•	MSXI Limited — the issuer

	•	The guarantor subsidiaries

	•	The non-guarantor subsidiaries

	•	MSXI on a consolidated basis

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited– continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of April 3, 2005


				MSXI
	MSXI			Limited			Guarantor		Non-Guarantor					MSXI
	(Parent)			(Issuer)			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS

Current assets:
Cash and cash equivalents	$	—		$	1,456		$	13,893	$	12,515	$	—		$	27,864
Accounts receivable, net		—			9,757			65,383		36,702		—			111,842
Inventory		—			—			9,565		6		—			9,571
Prepaid expenses and other assets		—			454			3,281		1,098		—			4,833
Assets held for sale		—			9,991			—		40,457		—			50,448
Deferred income taxes, net		—			540			2,370		3,359		(2,370	)		3,899

Total current assets		—			22,198			94,492		94,137		(2,370	)		208,457

Property and equipment, net		—			880			3,850		1,376		—			6,106
Goodwill, net		—			32			116,302		11		—			116,345
Investments in subsidiaries		100,048			—			11,425		9,628		(121,101	)		—
Assets held for sale		—			609			—		16,219		—			16,828
Other assets		5,258			443			2,973		184		—			8,858
Deferred income taxes, net		1,876			—			—		1,281		(2,415	)		742

Total assets	$	107,182		$	24,162		$	229,042	$	122,836	$	(125,886	)	$	357,336


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Notes payable and current portion of long-term debt	$	—		$	—		$	—	$	2,826	$	—		$	2,826
Accounts payable and drafts		—			5,331			65,602		16,000		—			86,933
Accrued liabilities		4,824			4,490			26,647		18,670		—			54,631
Liabilities held for sale		—			5,944			—		43,746		—			49,690
Deferred income taxes, net		2,370			—			—		—		(2,370	)		—

Total current liabilities		7,194			15,765			92,249		81,242		(2,370	)		194,080

Long-term debt		235,116			16,835			—		—		—			251,951
Intercompany accounts		(29,279	)		(19,011	)		28,033		20,257		—			—
Long-term deferred compensation and other liabilities		—			403			6,836		780		—			8,019
Liabilities held for sale		—			—			—		9,135		—			9,135
Deferred income taxes, net		—			539			1,876		—		(2,415	)		—

Total liabilities		213,031			14,531			128,994		111,414		(4,785	)		463,185

Redeemable Series A Preferred Stock		94,044			—			—		—		—			94,044
Shareholders’ equity (deficit)		(199,893	)		9,631			100,048		11,422		(121,101	)		(199,893	)

Total liabilities and shareholders’ equity (deficit)	$	107,182		$	24,162		$	229,042	$	122,836	$	(125,886	)	$	357,336

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited – continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of January 2, 2005


				MSXI
	MSXI			Limited			Guarantor		Non-Guarantor					MSXI
	(Parent)			(Issuer)			Subsidiaries		Subsidiaries		Eliminations			Consolidated
	(in thousands)
ASSETS

Current assets:
Cash and cash equivalents	$	5,650		$	18		$	11,570	$	17,139	$	—		$	34,377
Accounts receivable, net		—			12,867			68,099		77,674		—			158,640
Inventory		—			—			9,121		3,039		—			12,160
Prepaid expenses and other assets		—			188			2,736		478		—			3,402
Assets held for sale		—			7,420			—		6,033		—			13,453
Deferred income taxes, net		—			350			2,569		4,991		(2,569	)		5,341

Total current assets		5,650			20,843			94,095		109,354		(2,569	)		227,373

Property and equipment, net		—			1,084			4,367		5,744		—			11,195
Goodwill, net		—			108			116,302		18,685		—			135,095
Investment in subsidiaries		110,993			—			23,829		10,102		(144,924	)		—
Assets held for sale		—			526			—		2,092		—			2,618
Other assets		5,767			493			3,032		171		—			9,463
Deferred income taxes, net		1,257			—			—		—		(1,257	)		—

Total assets	$	123,667		$	23,054		$	241,625	$	146,148	$	(148,750	)	$	385,744


LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Notes payable and current portion of long-term debt	$	—		$	590		$	—	$	10,405	$	—		$	10,995
Accounts payable and drafts		—			6,538			62,594		48,119		—			117,251
Accrued liabilities		10,998			4,548			27,447		24,451		—			67,444
Liabilities held for sale		—			5,542			—		4,591		—			10,133
Deferred income taxes, net		2,569			—			—		—		(2,569	)		—

Total current liabilities		13,567			17,218			90,041		87,566		(2,569	)		205,823

Long-term debt		232,521			16,758			—		590		—			249,869
Intercompany accounts		(32,963	)		(21,753	)		31,929		22,787		—			—
Long-term deferred compensation and other liabilities		—			378			7,405		10,713		—			18,496
Deferred income taxes, net		—			349			1,257		667		(1,257	)		1,016

Total liabilities		213,125			12,950			130,632		122,323		(3,826	)		475,204

Redeemable Series A Preferred Stock		91,312			—			—		—		—			91,312
Shareholders’ equity (deficit)		(180,770	)		10,104			110,993		23,825		(144,924	)		(180,772	)

Total liabilities and shareholders’ equity (deficit)	$	123,667		$	23,054		$	241,625	$	146,148	$	(148,750	)	$	385,744

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited– continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the fiscal quarters ended April 3, 2005


				MSXI
	MSXI			Limited			Guarantor			Non-Guarantor						MSXI
	(Parent)			(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)
Fiscal Quarter Ended April 3, 2005

Net sales	$	—		$	5,985		$	80,869		$	26,272		$	(28	)	$	113,098
Cost of sales		—			4,537			69,962			21,678			(28	)		96,149

Gross profit		—			1,448			10,907			4,594			—			16,949
Selling, general and administrative expenses		—			547			7,198			1,728			—			9,473
Restructuring and severance costs		—			—			132			25			—			157

Income (loss) from continuing operations before interest, income taxes, and equity in affiliates		—			901			3,577			2,841			—			7,319
Interest expense (income), net		6,253			737			1,291			223			—			8,504

Income (loss) from continuing operations before income taxes, and equity in affiliates		(6,253	)		164			2,286			2,618			—			(1,185	)
Income tax provision (benefit)		(808	)		—			827			1,259			—			1,278
Equity in affiliates		2,982			—			1,523			164			(4,669	)		—


Income (loss) from continuing operations		(2,463	)		164			2,982			1,523			(4,669	)		(2,463	)

Income from discontinued operations, net		(12,373	)		198			(12,373	)		(12,373	)		24,548			(12,373	)


Net income (loss)	$	(14,836	)	$	362		$	(9,391	)	$	(10,850	)	$	19,879		$	(14,836	)


Fiscal Quarter Ended April 4, 2004

Net sales	$	—		$	5,843		$	97,399		$	22,724		$	(576	)	$	125,390
Cost of sales		—			4,277			87,569			16,241			(576	)		107,511

Gross profit		—			1,566			9,830			6,483			—			17,879
Selling, general and administrative expenses		—			993			6,991			1,370			—			9,354

Income from continuing operations before interest, income taxes, and equity in affiliates		—			573			2,839			5,113			—			8,525
Interest expense (income), net		6,667			(216	)		1,099			6			—			7,556

Income (loss) from continuing operations before income taxes, and equity in affiliates		(6,667	)		789			1,740			5,107			—			969
Income tax provision (benefit)		(622	)		422			436			684			—			920
Minority interests and equity in affiliates, net of taxes		6,095			—			4,789			367			(11,251	)		—


Income (loss) from continuing operations		50			367			6,093			4,790			(11,251	)		49

Income (loss) from discontinued operations		345			602			345			345			(1,292	)		345


Net income (loss)	$	395		$	969		$	6,438		$	5,135		$	(12,543	)	$	394

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited– continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
for the fiscal quarter ended April 3, 2005


				MSXI
	MSXI			Limited			Guarantor			Non-Guarantor						MSXI
	(Parent)			(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)

Cash flows from operating activities:
Net income (loss)	$	(14,836	)	$	362		$	(9,391	)	$	(10,850	)	$	19,879		$	(14,836	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Equity in affiliates, including discontinued operations		9,391			—			10,850			(362	)		(19,879	)		—
Depreciation		—			300			820			974			—			2,094
Goodwill impairment charges		—			—			—			7,131						7,131
Amortization of debt issuance costs		1,030			112			—			—			—			1,142
Deferred taxes		(818	)		1			818			(317	)		—			(316	)
(Gain) on sale/disposal of property and equipment		—			(3	)		(5	)		—			—			(8	)
(Increase) decrease in receivable, net		—			341			2,716			10,370			—			13,427
(Increase) decrease in inventory		—			—			(444	)		126			—			(318	)
(Increase) decrease in prepaid expenses and other assets		—			(69	)		(544	)		(882	)		—			(1,495	)
Increase (decrease) in current liabilities		(6,174	)		(864	)		(5,861	)		(861	)		—			(13,760	)
Other, net		—			28			95			(814	)		—			(691	)

Net cash provided by (used for) operating activities		(11,407	)		208			(946	)		4,515			—			(7,630	)


Cash flows from investing activities:
Capital expenditures		—			(130	)		(305	)		(426	)					(861	)
Payments for contingent consideration		—			—			(604	)		—						(604	)
Proceeds from sale/disposal of property and equipment		—			3			7			85						95

Net cash used for investing activities		—			(127	)		(902	)		(341	)		—			(1,370	)


Cash flows from financing activities:
Transactions with subsidiaries		3,684			2,742			(3,896	)		(2,530	)		—			—
Debt issuance costs		(16	)		—			—			—			—			(16	)
Changes in revolving debt, net		2,089			(588	)		—			(6,051	)		—			(4,550	)
Changes in book overdrafts, net		—			—			8,067			—			—			8,067

Net cash provided by (used for) financing activities		5,757			2,154			4,171			(8,581	)		—			3,501


Effect of foreign exchange rate changes on cash and cash equivalents		—			(797	)		—			435			—			(362	)


Cash and cash equivalents:
Increase (decrease) for the period		(5,650	)		1,438			2,323			(3,972	)		—			(5,861	)
Balance, beginning of period		5,650			18			11,570			17,139			—			34,377

Balance, end of period	$	—		$	1,456		$	13,893		$	13,167		$	—		$	28,516

MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited) — continued
(dollars in thousands unless otherwise stated)

14. Guarantor and Non-Guarantor Subsidiaries of MSXI Limited– continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
for the fiscal quarter ended April 4, 2004


				MSXI
	MSXI			Limited			Guarantor			Non-Guarantor						MSXI
	(Parent)			(Issuer)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
	(in thousands)
Cash flows from operating activities:
Net income (loss)	$	394		$	968		$	6,439		$	5,134		$	(12,541	)	$	394
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Equity in affiliates, including discontinued operations		(6,439	)		—			(5,134	)		(968	)		12,541			—
Depreciation		—			401			1,212			768			—			2,381
Amortization of debt issuance costs		1,028			79			—			—			—			1,107
Deferred taxes		(572	)		116			573			542			—			659
Loss on sale/disposal of property and equipment		—			(70	)		3			12			—			(55	)
(Increase) decrease in receivable, net		—			4,016			6,218			590			—			10,824
(Increase) decrease in inventory		—			(3	)		(434	)		42			—			(395	)
(Increase) decrease in prepaid expenses and other assets		—			(70	)		(610	)		(866	)		—			(1,546	)
Increase (decrease) in current liabilities		(4,276	)		(8,389	)		10,712			(772	)		—			(2,725	)
Other, net		—			49			(143	)		(188	)		—			(282	)

Net cash provided by (used for) operating activities		(9,865	)		(2,903	)		18,836			4,294			—			10,362

Cash flows from investing activities:
Capital expenditures		—			(51	)		(200	)		(91	)		—			(342	)
Loss on sale/disposal of property and equipment		—			66			2			10			—			78
Other, net		—			—			294			—			—			294

Net cash used for investing activities		—			15			96			(81	)		—			30


Cash flows from financing activities:
Transactions with subsidiaries		17,811			(1,894	)		(13,261	)		(2,656	)		—			—
Debt issuance costs		(296	)		(17	)		—			—			—			(313	)
Changes in revolving debt, net		—			—			—			(634	)		—			(634	)
Changes in book overdrafts, net		—			—			(3,696	)		—			—			(3,696	)

Net cash provided by (used for) financing activities		17,515			(1,911	)		(16,957	)		(3,290	)		—			(4,643	)


Effect of foreign exchange rate changes on cash and cash equivalents		—			(741	)		—			(537	)		—			(1,278	)


Cash and cash equivalents:
Increase (decrease) for the period		7,650			(5,540	)		1,975			386			—			4,471
Balance, beginning of period		18,600			5,639			391			12,020			—			36,650

Balance, end of period	$	26,250		$	99		$	2,366		$	12,406		$	—		$	41,121

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Outlook

Our business segments are affected by differing industry dynamics. As a result of trends, we have experienced an overall revenue decline during the past several years. Our revenue remains under pressure from continuing cost containment actions at our major customers. We believe that automotive OEM budgets will continue to be challenged due to excess capacity, competition for market share, and pressure to reduce costs.

We remain focused on building our customized services into standardized and scalable product offerings. We believe that this positioning of our services as integrated solutions will improve our value proposition to existing and prospective customers. Our strategy is to sell high value solutions by leveraging our global organization and existing customer base. As we continue to expand our services with current and new customers in the automotive industry, an important strategy is to expand our customer relationships to other industries. Our targeted markets include transportation, medical products, and financial services, among others. Although we cannot provide assurance about the future, our actions are expected to enhance profitability on existing business and increase operating efficiencies while we work to expand our customer base.

We are continually enhancing our overall business strategy by evaluating the rate of return on our portfolio of service offerings. During the fourth quarter of fiscal 2004, we determined we would seek to divest substantially all of our engineering and staffing businesses in Europe. During the first quarter of 2005, we determined we would seek to divest our technical and commercial publishing business primarily in Italy. Management will continue to explore and evaluate additional development alternatives to focus the company on business units with excellent growth prospects, particularly in the areas of warranty and dealership consulting. Operations classified as discontinued at April 3, 2005 have been excluded from the discussion of continuing operations and are discussed separately under the heading “Discontinued Operations”.

Net Sales

For the first quarter of fiscal 2005, consolidated net sales decreased $12.3 million, or 9.8%, from $125.4 million in the first quarter of fiscal 2004 to $113.1 million during fiscal 2005. First quarter 2005 reflect one week less sales for selected businesses due to the 53rd week included in the first quarter of 2004 as a result of our fiscal calendar. This reduction in billable days along with reduced demand from our traditional automotive customers resulted in a 9.8% reduction in net sales from continuing operations. Our sales by segment, net of intercompany sales, were as follows:


	Fiscal Quarter Ended
	April 3,		April 4,		(Dec) vs. 2004
	2005		2004		$			%
			(dollars in thousands)
Business Services	$	43,169	$	45,694	$	(2,525	)		(5.5	%)
Human Capital Services		46,741		51,401		(4,660	)		(9.1	%)
Engineering Services		23,188		28,295		(5,107	)		(18.0	%)

Total net sales	$	113,098	$	125,390	$	(12,292	)		(9.8	%)

The decline in business services reflects reduced volumes in our U.S. programs offset by favorable volumes on warranty and retail improvement programs in Europe. U.S. program volumes have declined primarily due to the exit/cancellation of certain non-core or low margin business. Several new programs were launched in late 2004 and during the first quarter of 2005, partially offsetting these losses. European volume improvements reflects the impact of new programs and included a $1.4 million benefit from favorable exchange rates versus 2004.

The decline in human capital services primarily reflects reduced volumes in our engineering staffing and IT and technical staffing service. Volume reductions reflect a 11.6% decline in automotive contract staffing volumes while other human capital services volumes decreased 5.1% versus fiscal 2004. The decline in automotive staffing volumes reflect continued pressures from auto clients to reduce costs in response to lower sales volumes.

Sales of engineering services reflect declining volumes in outsourced OEM engineering programs and specialty vehicle programs due to reduced OEM budgets.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Operating Profit

Our consolidated gross profit, selling, general and administrative expenses and operating income for the periods presented were:


	Fiscal Quarter Ended
							Inc / (Dec) vs. 2004
	April 3,			April 4,
	2005			2004			$			%
	(dollars in thousands)
Gross profit	$	16,949		$	17,879		$	(930	)		(5.2	)%
% of net sales		15.0	%		14.3	%		n/a			n/a
Selling, general and administrative expenses	$	9,473		$	9,354		$	119			1.3	%
% of net sales		8.4	%		7.5	%		n/a			n/a
Operating income (loss)	$	(1,185	)	$	969		$	(2,154	)		(222.3	%)
% of net sales		(1.0	%)		0.8	%		n/a			n/a

Overall gross profit declined quarter over quarter due to reduced volumes across our business segments. Such volume reductions resulted in a decrease in gross margins of approximately $1.7 million versus 2004. The impact of reduced volumes was partially offset by improved profits on 2005 programs due to reductions in operating costs and displacement of lower margin programs. As a result of profit improvement initiatives gross margin as a percent of sales improved versus 2004. Selling, general and administrative costs increased as a percentage of sales from 2004 as a result of reduced volumes and increased investment in sales initiatives during 2005. We will continue to review such costs relative to projected levels of business and implement additional reductions as necessary. Operating results during 2005 also include restructuring costs totaling $0.2 million related to employment related actions taken during the first quarter.

Interest expense

Interest expense increased from $7.6 million during the first quarter of 2004 to $8.5 million during the first quarter of 2005, a $0.9 million increase. The increase in interest expense compared to 2004 primarily resulted from the impact of foreign exchange rates on the recorded value of U.S. dollar denominated debt issued by our U.K. subsidiary. Such rates resulted in an adverse impact in the first quarter of 2005 and a favorable impact in the comparable period of 2004.

Income taxes

The company currently provides valuation allowances for a significant portion of its deferred tax assets. The effective tax rate for the quarter ended April 3, 2005 differs from the 35% federal statutory rate primarily because of these valuation allowances. Tax expense for the period relates primarily to earnings in foreign jurisdictions for which valuation allowances have not previously been recorded.

Discontinued Operations

Selected European businesses are reflected as discontinued operations and eliminated from the on-going operations of MSXI due to management’s decision to divest such operations. Operations reflected as discontinued include substantially all engineering and staffing business in Europe as well as our technical and commercial publishing business primarily in Italy. Management has determined these businesses are no longer core to the company’s strategy due to changing competitive requirements, customer demands and our focus on businesses with higher growth and return prospects. For all businesses reflected as discontinued a process for selling such operations has been initiated and prospective buyers have been identified. In accordance with SFAS No. 144, discontinued operations have been eliminated from the on-going operations of MSXI.

Results of discontinued operations include restructuring charges totaling $6.6 million related primarily to employment actions taken in our technical and commercial publishing business in Italy. During the first quarter of 2005 we entered into an agreement with various trade union organizations that establishes a program for permanent employment reductions affecting 124 personnel. Affected employees are expected to utilize the program in the first half of 2006.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Results of discontinued operations also reflect a goodwill impairment charge totaling $7.1 million related to our technical and commercial publishing business in Italy. The impairment charge was calculated based on the estimated fair value of this business versus the carrying value of assets held for sale. The fair value of such assets was estimated based upon market values contemplated in the proposed sale.

Liquidity and Capital Resources

Cash Flows

General. Historically, our principal capital requirements are for working capital, product development initiatives, and capital expenditures for customer programs. These requirements have been met through a combination of senior secured debt, issuance of senior subordinated notes and cash from operations. In response to lower sales volumes and a de-emphasis on capital intensive businesses we have reduced our capital expenditures for existing programs and selected new product development initiatives. We also emphasize disciplined management of working capital. Capital expenditure requirements for current programs have decreased commensurate with reduced demand for selected services and by redeploying underutilized assets. Days sales outstanding, accounts receivable agings, and other working capital metrics are monitored closely to minimize investments in working capital. We believe that such metrics are important to identify opportunities and potential problems, particularly those associated with the automated payment processes of our large automotive customers. Cash balances in excess of amounts required to fund daily operations are used to pay down any amounts outstanding under our credit facility. Thereafter, surplus funds are invested in short term, money market investments.

We typically pay our employees on a weekly basis and receive payment from our customers within invoicing terms, which is generally a 30 to 60 day period after the invoice date. However, in connection with certain of our vendor management services, we collect related receivables at approximately the same time we make payment to suppliers.

Operating Activities. Net cash used for operating activities was $7.6 million for the first quarter of fiscal 2005 compared to net cash provided by operating activities of $10.4 million during fiscal 2004. The reduction in cash from operating activities primarily reflects improvements in accounts receivable collections offset by negative changes in working capital due to the timing of vendor payments. Due to the timing of vendor payments a significant portion of our vendor payments are reflected as bank overdrafts during 2005 versus accounts payable during 2004. In addition, operating cash flows in 2005 reflect the payment of management bonuses totaling $2.4 million. The remaining reduction in operating cash flows reflects lower earnings versus 2004. As of April 3, 2005, $16.5 million of cash balances were held on behalf of a vendor management solutions partner. Subsequent to the first fiscal quarter in 2005, approximately $13.0 million of such balances were paid to the partner in accordance with normal terms.

Investing Activities. Net cash used for investing activities was $1.4 million for the first quarter of 2005 compared to net cash provided by investing activities of $30 thousand for the first quarter of 2004. During the first quarter of 2005, net cash used for investing activities included a $0.6 million payment related to the settlement of a contingent earnout obligation.

Financing Activities. Net cash provided by financing activities was $3.5 million for the first quarter of 2005 compared to net cash used for financing activities of $4.6 million for the first quarter of 2004. Financing activities during 2005 also includes an increase in book overdrafts, of $8.1 million, compared to 2004 due to the timing of vendor payments.

Liquidity and Available Financings

Our total indebtedness as of April 3, 2005 consists of senior secured notes, mezzanine term notes, fourth lien term notes, senior subordinated notes and borrowings under various short-term arrangements. In addition to our total indebtedness, we also have contingent commitments related to letters of credit totaling about $5.3 million at April 3, 2005.

Available borrowings under our credit facility as of April 3, 2005 are subject to accounts receivable balance requirements. As of April 3, 2005 we have $35.2 million available for immediate borrowing based on eligible accounts receivable as determined in accordance with our credit agreement, as amended.

We believe that our financing arrangements, including further expected changes to arrangements in Italy, provide us with sufficient financial flexibility to fund our operations, debt service requirements and contingent earnout obligations (“see part II, Item I. Legal Proceedings”) through the term of our senior credit facility, although there can be no assurance that will be the case. We expect to obtain a suitable extension to our amended and restated credit facility on or before its expiration. Our ability to access additional capital in the long term depends on availability of capital markets and pricing on commercially reasonable terms as well as our credit profile at the time we are seeking funds. From time to time, we review

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

our long-term financing and capital structure. As a result of our review, we may periodically explore alternatives to our current financing, including the issuance of additional long-term debt, refinancing our new credit facility and other restructurings or financings. In addition, we may from time to time seek to retire our outstanding notes in open market purchases, privately negotiated transactions or otherwise. These repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amount of repurchases of our notes may be material and may involve significant amounts of cash and/or financing availability.

New Accounting Pronouncements

Forward — Looking Statements

Certain of the statements made in this report on Form 10-Q, including those concerning restructuring activities and other operational improvements, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by the use of forward looking terminology such as “believes,” “expects,” “estimates,” “will,” “should,” “plans,” “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. Such forward-looking statements are based on current management projections and expectations. They involve significant risks and uncertainties. As such, they are not guarantees of future performance. MSX International disclaims any intent or obligation to update such statements.

Actual results may vary materially from those in the forward-looking statements as a result of any number of factors, many of which are beyond the control of management. These important factors include: our leverage and related exposure to changes in interest rates; our reliance on major customers in the automotive industry and the timing of their product development and other initiatives; the market demand for our business services in general; our ability to recruit and place qualified personnel; delays or unexpected costs associated with cost reduction efforts; risks associated with operating internationally, including economic, political and currency risks; and risks associated with our acquisition strategy. Additional information concerning these and other factors are discussed in MSX International’s Registration Statement on Form S-4 (dated November 19, 2003) and in other filings with the Securities and Exchange Commission.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of MSX International, Inc.’s Disclosure Committee and management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15. Based upon this evaluation the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in our periodic SEC reports is recorded, processed, summarized, and reported as and when required.

There have been no significant changes in internal control over financial reporting that have materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings incidental to the ordinary conduct of our business. One such matter is an arbitration and related action in state court to enforce/vacate a March 2004 arbitration award totaling $3.8 million. The underlying dispute involves a claim for a contingent earnout payment under the terms of a purchase agreement for the acquisition of Management Resources, Inc. In October 2004, the state court granted MSXI’s motion to vacate the arbitration award and ordered that the matter be re-arbitrated before a new arbitrator. The opposing party has filed an appeal with the Michigan Court of Appeals. In addition, we and our subsidiaries are parties to various legal proceedings arising in the normal course of business. While litigation is subject to inherent uncertainties, management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s consolidated financial condition, results of operation or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the first quarter of fiscal 2005 the following matter was ratified and approved by the consent of a majority of the holders of our outstanding common stock:

•	The following persons were elected to the MSX International, Inc. Board of Directors:

  Robert Netolicka
  Erwin H. Billig
  David E. Cole
  Charles E. Corpening
  Michael A. Delaney
  Richard J. Puricelli
  Thomas Stallkamp

ITEM 6. EXHIBITS

(a) Exhibits:


			10.1			Summary of the Collective Dismissal Agreement between Satiz Srl and the Trade Union Organizations.

			10.2			Intercreditor Agreement.

			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.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 18, 2005

MSX INTERNATIONAL, INC.
(Registrant)


By:		/s/ Frederick K. Minturn
		Frederick K. Minturn
		Executive Vice President and
		Chief Financial Officer

(Chief accounting officer and authorized signatory)

EXHIBIT INDEX


EX		DESCRIPTION
10.1		Summary of the Collective Dismissal Agreement between Satiz Srl and the Trade Union Organizations.

10.2		Intercreditor Agreement.

31.1		Certification of Chief Executive Officer pursuant to rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended.

31.2		Certification of Chief Financial Officer pursuant to rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes – Oxley Act of 2002.

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MSX INTERNATIONAL INC 10-Q