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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 29, 2002

OR

For the transition period from                      to

Commission File Number: 333-49821

MSX International, Inc.
(Exact name of registrant as specified in its charter)

(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 x No o

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MSX INTERNATIONAL, INC.
INDEX

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

MSX INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
as of September 29, 2002 and December 30, 2001

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

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MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
for the fiscal quarters and fiscal nine months ended September 29, 2002 and September 30, 2001

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 September 29, 2002 and September 30, 2001

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

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MSX International, Inc.
Notes to Consolidated Financial Statements (Unaudited)
(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 by Citigroup and affiliates and certain members of management. We are principally engaged in providing collaborative enterprise 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 only normal recurring items, which are necessary for a fair presentation. The operating results for the fiscal quarters and fiscal nine months ended September 29, 2002 and September 30, 2001 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 December 30, 2001. Certain prior year amounts have been reclassified to conform to the presentation adopted during the current period.

2.

Acquisitions of Businesses:

     Effective January 1, 2002, we completed the acquisition of selected assets and liabilities of Draupner Associates AB in Gottenberg, Sweden for a total purchase price at closing of about $2.4 million, before acquisition related costs, with an additional amount payable contingent on the achievement of an annual earnings target. Draupner’s principal business is digital documentation and translation services for the automotive and related industries. Upon completion, the Draupner business was integrated with our custom communication service offerings. Also effective January 1, 2002, we acquired the remaining 51% of the outstanding common stock of Cadform-MSX Engineering GmbH through a series of transactions that were contemplated at the time of our previous investment in Cadform. Specifically, we exercised our option to acquire an additional 16% of the common stock of Cadform for about $0.3 million. The remaining 35% of their common stock was acquired in exchange for a 7.8% interest in our existing engineering business in Germany. Prior to these transactions, we owned 49% of the outstanding common stock of Cadform. The purchase price for both the Draupner and Cadform transactions was funded with borrowings under our credit facility.

     The terms of certain of our acquisition agreements provide for additional contingent consideration to be paid over a period of up to two years if the acquired entity’s future operating results exceed targeted levels. Contingent consideration is earned when the acquired entity’s financial performance grows in excess of the targeted levels established at the time of acquisition. Such additional consideration is recorded when earned. No such additional consideration has been recorded or paid during fiscal 2002.

     The operating results of acquired companies have been included in our consolidated operating results from the effective date of acquisition. The proforma effects of the above transactions would not be materially different from reported results for the periods presented.

3.

Goodwill and Intangible Assets:

     Effective January 1, 2002, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142. Under the standard, goodwill is no longer amortized but is tested periodically for impairment. Additionally, SFAS No. 142 changes the methodology of assessing goodwill impairment. Under the standard, goodwill is considered impaired if the book value of an operating unit exceeds its estimated fair value. Upon adoption of SFAS No. 142 we recorded a one-time, non-cash charge of $47.8 million, before related taxes, to reduce the carrying value of goodwill. The charge is reflected as a cumulative effect of an accounting change in our consolidated results of operations. In calculating the impairment charge, the fair value of the operating units underlying our business was estimated using a discounted cash flow methodology.

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

     The following summarizes our comparable income (loss) before the cumulative effect of this change in accounting principle, assuming SFAS No. 142 was adopted effective January 1, 2001.

     The following summarizes the changes in our goodwill balances during the nine months ended September 29, 2002:

     Goodwill recorded during the period was primarily generated from the purchase of additional shares and consolidation of Cadform-MSX Engineering as disclosed in Note 2. Adjustments to the preliminary allocation of purchase price to Cadform may occur during the remainder of 2002 as a result of new or revised information regarding the value of assets acquired and liabilities assumed. Management believes the resolution of these matters will not have a material effect on the results of operations, financial position, or cash flows of MSXI. A substantial portion of the goodwill generated was previously included in the carrying amount of our investment in Cadform-MSX Engineering as of December 30, 2001.

4.

Accounts Receivable:

     Accounts receivable include the portion of our billings for purchasing support services attributable to services provided by our vendors that are passed on to our customers. These amounts totaled $47.8 million as of September 29, 2002 and $49.7 million as of December 30, 2001. A corresponding liability to our vendors for these amounts is recorded in accounts payable at the time the receivable is recognized.

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

5.

Debt:

     Debt is comprised of the following:

     Effective July 10, 2002, our lending group approved the second amendment to our amended and restated credit facility. In conjunction with this amendment, on July 31, 2002 we also entered into a second secured term loan with an affiliate of Citigroup, our majority owners, totaling about $15.5 million. In summary, terms of the second amendment to our credit agreement include the following:

	•		Available funds under the revolving credit portion of the credit facility are reduced from $100 million to $85 million
	•		A prepayment of $15 million was made on July 31, 2002 against outstanding term loans under the agreement
	•		Certain financial covenant requirements have been revised for the duration of the credit facility term
	•		The applicable spread over benchmark interest rates, applicable when the ratio of debt to EBITDA is above certain levels, was increased
	•		Certain other definitions and requirements were added and/or modified

     The second secured term loan is secured by a second priority security interest on all assets securing our amended and restated credit agreement. The loan matures on July 7, 2007 with interest accruing annually at 10%. Interest is not payable until the later of July 7, 2007 or the date on which payment in full of all other obligations under the amended and restated credit agreement are made.

     Other debt represents balances outstanding on lines of credit and other facilities maintained by certain foreign subsidiaries with local banks. Included in other debt at September 29, 2002 is $2.4 million outstanding under the BHF Bank Credit Facility maintained by Cadform-MSX Engineering GmbH. This facility provides for borrowings up to 4.7 million euro at both fixed and floating interest rates. Amounts outstanding are currently payable on demand and are partially secured by a guarantee and letter of credit provided by MSX International.

     As of September 29, 2002, $38.4 million was outstanding under the revolving and swingline portions of our credit facility and has been classified as long-term debt as we have both the ability and intent to refinance such amounts under the credit facility. The revolving credit portion of our credit facility expires on December 7, 2004.

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

6.

Redeemable Series A Preferred Stock:

     We are authorized to issue up to 1,500,000 shares of Preferred Stock, divided into two classes: 500,000 shares of Redeemable Series A Preferred Stock, par value $0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01. As of September 29, 2002 and December 30, 2001, 359,448 and 360,000 shares of our Redeemable Series A Preferred Stock are issued and outstanding. Dividends on preferred stock are payable in cash at a rate per annum equal to 12 percent of the stated value plus an amount equal to any accrued and unpaid dividends. As of September 29, 2002, we have not declared or paid any dividends. Dividends accumulated but not declared totaled about $34.6 million as of September 29, 2002.

7.

Comprehensive Income:

     Our comprehensive income was:

8.

Segment Information:

     MSXI is a global provider of collaborative enterprise services to the automotive and other industries. We group our services by type of service as follows: collaborative engineering management, human capital management, and other collaborative services. Due to the similar characteristics of our service lines, including the nature of our service offerings, processes supporting the delivery of our services, our customers, and our marketing and sales processes, our operations have been aggregated following the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131 for segment reporting purposes.

     The following is a summary of our net sales by service line:

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

     We evaluate performance based on earnings before interest and taxes (EBIT), including the Michigan Single Business Tax and other similar taxes, as defined. A reconciliation of consolidated EBIT to consolidated income (loss) before income taxes, minority interests, and equity in net losses of affiliates is as follows:

9.

Guarantor and Non-Guarantor Subsidiaries:

     In connection with our $130 million of senior subordinated notes outstanding, each of our significant domestic restricted subsidiaries, as defined in the related bond indenture (the “Guarantor Subsidiaries”), irrevocably and unconditionally guarantee MSXI’s performance as primary obligor. The following condensed consolidating financial data provides information regarding the financial position, results of operations and cash flows of the Guarantor Subsidiaries as set forth below. Separate financial statements of the Guarantor Subsidiaries are not presented because management has determined those would not provide material information to the holders of the senior subordinated notes.

     The Guarantor Subsidiaries account for their investments in the non-guarantor subsidiaries, if any, on the equity method. The principal elimination entries are to eliminate the investments in subsidiaries and intercompany balances and transactions.

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

9.

Guarantor and Non-Guarantor Subsidiaries: — continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of September 29, 2002

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

9.

Guarantor and Non-Guarantor Subsidiaries: — continued

MSX INTERNATIONAL, INC.

CONDENSED CONSOLIDATING BALANCE SHEET
as of December 30, 2001