Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the Fiscal Year Ended December 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)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 and 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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 x

None of the registrant’s common stock is held by non-affiliates of the registrant.

Number of shares outstanding of each of the registrant’s classes of common stock at March 18, 2003:
                   20,054,000 shares of Class A Common Stock, $0.01 par value.

Table of Contents

TABLE OF CONTENTS

1

Table of Contents

PART I

Item 1. Business.

     General

     MSX International, Inc. (“MSXI”), headquartered in Southfield, Michigan, combines innovative people, standardized processes and today’s technologies to deliver technical business services on a global basis. We are a single source provider of these services at our facilities, at our customers’ facilities, and through web-based and other commerce networks. With both scalable and customized solutions, our people offer broad-based knowledge and experience that adds value to various phases in the life cycle of our customers’ products and services. We currently employ more than 7,900 professional staff at 78 operating locations in 26 countries.

     Since our formation, we have pursued both internal development and complementary acquisitions that have expanded our geographic and customer reach, increased our technical service capabilities and leveraged our corporate services. More recently, we have worked to refine and package our many capabilities and resources into fewer, more scalable service offerings. A strategic imperative is to expand our customer base beyond the automotive industry to demonstrate the universal applicability and economic value of our business services while continuing to grow our automotive business. Our sales to non-automotive customers represent 22.1% of our total sales based on fiscal 2002 results.

     Technical Service Offerings

     We provide a broad range of technical business services to our customers and group our offerings under three service lines: collaborative engineering management, human capital management, and other collaborative services. The following table sets forth, for the three fiscal years ended December 29, 2002, a summary of our net sales by service line, net of intercompany sales. Additional information on our operating results by service line is set forth in Note 16 of our consolidated financial statements included under Item 8 of this report.

     By leveraging competencies from each of our service lines, we believe we are positioned to compete in large and growing areas of the global economy. Our scalable solutions and customized offerings are adapted to customer needs that have emerged in recent years due to the convergence of digital communication technologies and business process improvement initiatives. Our net sales are based principally on fees charged for resources provided to support development, manufacturing and distribution of customer products and services. We believe that our customers will increasingly rely on outside vendors with combined intellectual capital and service delivery resources to provide them with these essential services, allowing them to improve operating efficiency by focusing on core competencies.

     Our domestic and foreign markets are highly competitive. In some cases, our global competitors include a number of other well-established vendors, as well as customers with their own internal capabilities. Although a number of companies of varying size compete with us, no single competitor is substantially in competition with respect to all of our services. A full description of our services can be found on our website at www.msxi.com. The following is a summary of our offerings through each of our service lines.

2

Table of Contents

     Collaborative Engineering Management

     We provide a complete range of engineering services, including consultancy, product and process development and full program management. Our engineering customer base is primarily concentrated in the transportation and related industries. Our advice, innovation and solutions can be delivered through all phases of the product development cycle. Our service offerings cover the following key areas:

	•		Technical consultancy – consultancy based on our more than 30 years of experience in complete engineering and niche vehicle programs and in the applications of processes and technology tools to achieve best in class product quality, timing and cost
	•		Technology applications – using the latest technology and CAE tools to execute projects for our clients, including virtual engineering (digital design, predictive analysis, dimensional management, CAD engineering and manufacturing simulation). This reduces development process cycle time and minimizes the requirement for physical proto-types and testing, thereby reducing overall cost
	•		Engineering services – in support of the above specialist skills we provide general engineering services capable of delivering successful products, including studio services, product engineering (body structures, chassis and trim), system integration in powertrain and electronics, prototype build, manufacturing engineering, and low volume vehicle build

     In order to deliver full vehicle programs, we have established strategic alliances with partners who share our commitment to engineering excellence and who offer services and technologies that complement our areas of expertise. This strategic direction allows us to maintain a lean cost structure and compete favorably in this highly competitive environment.

     Competitors vary in our industry depending on services provided and geographic reach. Customers are focused on companies that can provide global reach, depth and breadth of experience. In North America, we compete with Magna, Porsche, Roush Industries, and Wagon Inc., among others. European competition includes Bertrandt, Rücker, IVM, Magna-Steyr, Porsche, Stola, Pininfarina, Italdesign, Engineering & Design AG and Hawtal Whiting, a subsidiary of Wagon plc.

     Human Capital Management Services

     We provide a broad range of services to help maximize the effectiveness, flow and utilization of human capital, particularly in technology-oriented environments. Through this practice we provide custom staffing solutions, including:

	•		Contingent staffing & direct placement – traditional temporary and/or permanent staffing solutions for information technology, engineering or other professional staff needs. Our staffing capabilities include design and production engineers, computer operators, database specialists, network administrators and specialists, PC support staff, software engineers, systems analysts and administrators, and technical support specialists
	•		Retained search services – direct recruitment of middle and senior management talent on a “retained” basis
	•		Workforce procurement/master service provider – management of the entire contract staffing procurement and deployment process on a regional, national or global basis utilizing web enabled supporting technologies
	•		Specialized training – training programs and virtual training courseware

     We currently provide these services to a wide variety of industries for both short and long-term assignments with international delivery, recruiting and training capability. We are a worldwide leader in automotive technical staffing, providing engineers, designers and technicians on a contract basis to support our customers’ product development efforts. We supply outsourced professional services based on our ability to identify, match and provide high quality personnel on an efficient basis and at a competitive price. We manage and compete with many companies in the technical staffing industry, which is highly competitive, fragmented, and historically has had limited barriers to entry. We use a variety of resources and techniques to support our recruiting capability, including support of a proprietary web-enabled recruiting system, licenses with web exchanges, internal training through MSX International University, international sourcing, and competitive benchmarking of compensation and benefits. Our competitors in human capital management services include Adecco International, CDI, Keane, kforce, TechAid, Manpower, Kelly Services Technical, Olsten, Randstad (in Europe only), Volt, and numerous regional information technology-staffing firms. Other indirect competitors include Monster.com (a subsidiary of TMP Worldwide) and other internet-based staffing resources.

3

Table of Contents

     Other Collaborative Services

     We provide a broad range of technology-based business services to help support the objectives of our customers. Our service offerings include:

•

Quality Relationship Management – we believe our quality relationship management programs give our customers a competitive edge by providing the actionable product, market and customer information they need to improve product quality, reduce costs and improve customer loyalty and satisfaction. Examples of our services include:

	•		Warranty support programs – management and operation of parts return centers, warranty process improvement consulting, claims assessment and analysis, and contract administration of extended warranty programs
	•		Product quality improvement programs – supplier quality assurance, technical call centers, and quality training and consulting programs
	•		Retail support programs – process improvement consulting, customer satisfaction program management, and training programs

•

Supply Chain Management – through supply chain management, we work with our customers to streamline their procurement process, reduce procurement systems costs, and reduce fixed costs in the process. We do this by providing personnel with the required expertise and recommending process improvements through technology solutions required to achieve the desired results. In addition to internally developed technology, we have formed strategic partnerships with companies such as Commerce One and IBM to support our ability to deliver technology responsively while minimizing cost to the customer. Our services include the following:

	•		Outsourced purchasing services – management of the procurement process from initial requisition to supplier payment
	•		eProcurement services
	•		Contract manufacturing – supply chain management services that provide full product life cycle support, from concept/design to shipment of product
	•		Supply chain management consulting to meet specific customer needs

•

Custom Communication Services – we offer a full spectrum of solutions to provide our customers with a competitive advantage in facilitating communications through creating, maintaining and delivering information. Our services include the following:

	•		Technical and consumer publishing – assists our customers in reducing cost and cycle time by facilitating the reuse and repurposing of content in technical writing, translation, print and distribution
	•		Integrated marketing support and research services - - supports the development and implementation of personalized marketing programs including copy and design, translation, printing and distribution
	•		Integrated document management – assists our customers in facilitating the internal development and distribution of knowledge across their organizations. Our services include document imaging and on-site document centers

     There is a high degree of competition among suppliers of the outsourced business services we provide. In many cases, our principal competition is the customer’s in-house operations. For certain of our services there are numerous outside competitors, many of whom presently have greater name recognition and resources than we do. For quality relationship management and supply chain management services we compete with other national, regional and global service companies such as Accenture, EDS, IBM, ICG Commerce, Maritz, TeleTech/Percepta, Atisae and other consulting firms. In the custom communications area we compete with companies such as Valley Forge/SPX, Bowne, Xerox, Budco and Lason.

4

Table of Contents

     Significant Customers and Supply Relationships

     We currently have sales to more than 1,000 customers. These include the major United States and European automotive OEMs and automotive suppliers. Ford, DaimlerChrysler AG (“DaimlerChrysler”), General Motors Corporation (“General Motors”), and Fiat S.p.A. (“Fiat”), including their automotive subsidiaries, together accounted for 63.5% of our net sales for the fiscal year ended December 29, 2002.

     A substantial portion of our sales to selected large customers were made pursuant to multi-year supply agreements and purchase orders with open terms. Although dependent on actual market demand, such agreements permit a degree of forward revenue visibility. They also give us the opportunity to expand existing customer relationships by providing cross-selling opportunities for our other technical business services.

     A significant portion of our $310 million in sales to Ford during 2002 were made pursuant to the Ford Master Vendor Agreement and the Ford Master Supply Agreement, which were entered into for an original five-year term when we acquired Geometric Results, Inc. in August 1997. To date, we have generally met or exceeded the standards of performance and competitiveness as required by these agreements. Upon expiration of the original term in August 2002, both Ford and MSXI verbally agreed to extend the term of the Master Vendor Agreement pending the negotiation of a revised arrangement. The terms of the revised agreement are currently under negotiation and should be completed in 2003.

     Significant portions of our $64.8 million in sales to Fiat during 2002 were made pursuant to purchase orders with Fiat’s principal manufacturing companies. The purchase orders were modified and extended when we acquired Satiz S.r.l. in December 1999. These agreements were extended to five-year terms and include exclusivity provisions for selected services, which are subject to agreed quality benchmarking procedures. Our services to Fiat are subject to annual price reductions based on the volume of sales. Since the acquisition of Satiz was completed contractual price reductions as a result of this agreement have not had a significant impact on our business.

     Sales to Johnson Controls, Inc. (“JCI”), a “top ten” customer, were made pursuant to a supply agreement that was executed when we acquired MegaTech Engineering, Inc. in December 1998. The five-year agreement designates MSXI as JCI’s exclusive supplier on a worldwide basis for specified engineering and design services. The agreement includes specific growth objectives, price benchmarking, and an agreement to negotiate in 2003 to extend the agreement for an additional five years.

     We believe we have developed strong relationships with our customers and have a reputation for quality, reliability and service that has been recognized through Ford’s Q1 award, among others. In addition, most of our operations comply with ISO quality standards. Certification to ISO standards requires a determination by an independent assessor that the operation is in compliance with a documented quality management system.

     Except as noted above, no material portion of our business is dependent upon any one customer or is subject to contractual renegotiation of prices. In general, equipment and technologies required to support our service offerings are obtainable from various sources in the quantities desired.

5

Table of Contents

     Global Capabilities

     Our international presence is an important competitive advantage in winning and retaining new business and meeting the global sourcing, quality and engineering requirements of many of our customers. We are currently providing services in 26 countries. We believe we are the only company currently providing such a broad range of services to the automotive industry on a worldwide basis. Foreign operations are subject to political, monetary, economic and other risks associated with international businesses. Additional information about market risks is included under Item 7A of this report. For the fiscal year ended December 29, 2002, 43% of our net sales were generated outside of the United States. Our global capabilities have continued to grow and strengthen our product offerings as a result of acquisitions completed during past years.

     Our UK engineering and human capital management capabilities expanded in 1998 through the acquisition of Gold Arrow Contract Services, Ltd. (“Gold Arrow”), an information technology and technical staffing company headquartered in Basildon, Essex, England. We further expanded our presence in Europe during 1999 through the acquisition of 75% of the outstanding common stock of Satiz S.r.l., effective December 31, 1999, and the acquisition of QR Quandoccorre S.r.l. and Quandoccorre Interinale S.p.A., effective January 3, 2000. The acquisition of Satiz was complementary to several of our service offerings and gives us a platform for custom communication services in Europe. The acquisition of the Quandoccorre companies was completed to provide us with a basis to expand our human capital management services in Italy. During the fourth quarter of 2002 we sold the Quandoccorre companies due to unfavorable developments in the Italian staffing market. We are utilizing the resources of Cadform-MSX Engineering Gmbh, which was consolidated in January 2002, to strengthen our positioning with German automotive manufacturers and their suppliers. Also during 2002, we acquired the remaining 25% of Satiz Srl. The acquisition of Australian-based Radial Pacific Pty. Ltd. in December 2000 enhanced our capabilities in Australia and strengthened our ability to support collaborative engineering opportunities across multiple time zones.

     Additional financial information concerning our geographical coverage is set forth in Note 16 to our consolidated financial statements included under Item 8 of this report.

     Organizational Development

     We made several key appointments to our executive team in recent years, including the appointment of Thomas Stallkamp as Vice Chairman and Chief Executive Officer in January 2000. Other recent changes were undertaken to align our management structure with our technical business service offerings. The changes include the creation of a centralized sales organization and product development champions to support the rollout of our services to targeted markets. The objective of these management changes is to enhance our responsiveness to key customers and to further commercialize our service offerings, especially to support the growth of our non-automotive customer base. Additional information on our executive officers appears in Item 10 of this report.

     The following table sets forth certain recent information regarding our employees by region:

     A small portion of our employees in the United States are members of unions. We believe our current relations with our employees and their unions are good.

6

Table of Contents

     We depend upon our ability to attract, retain and develop personnel, particularly technical personnel, who possess the skills and experience necessary to meet the needs of our customers. Competition for individuals with proven technical or professional skills is intense. We compete with other technical service companies, as well as customers and other employers for qualified personnel.

     We are committed to improving the professional development of our employees. In April 2000, we combined and expanded several existing training resources to launch MSX International University. This is a global learning resource that focuses on providing market-driven education to support both our internal needs and our customers’ strategic and operational training needs. The university uses web-based administration and embraces all forms of technologies and learning delivery methods. It delivers courses through two schools: the School of Technology and the School of Business and Leadership Education. It has also formed alliances with academic institutions in the United States, the United Kingdom and Germany, which allow employees to pursue Bachelor of Science and Master of Science degrees in engineering and other technical disciplines.

     Formation and Growth through Acquisitions and Corporate Development

     MSXI is a holding company owned by Citicorp affiliates and certain members of management. MSXI was incorporated and owned by Citicorp Venture Capital, Ltd., MascoTech, Inc. (“MascoTech”), and management under the laws of Delaware in late 1996 to pursue growth opportunities in technical business services. On November 28, 2000, MascoTech sold its equity interest in MSXI to a subsidiary of Citicorp. On the same date Citicorp Venture Capital, Ltd. sold its equity interest in MSXI to the same subsidiary.

     Since our formation, corporate investments have complemented our internal growth strategies. Specifically, we have completed numerous strategic acquisitions and made certain strategic investments that continue to support our ongoing business and growth opportunities. These transactions have expanded our geographic coverage, our service offerings, and our reach to customers outside the automotive industry. As we pursue additional strategic acquisitions, alliances and other corporate development activities, we intend to continue to rationalize our cost structure through the elimination of redundant back office activities, operating facilities, management and administrative offices.

7

Table of Contents

     Businesses acquired over the past five years include the following:

     In addition to the above, in October 2000, we invested in a certified minority provider of human capital management services to a large automotive supplier. We provide technology solutions, sub-contract labor and selected administrative support services to this company. In September 2001, we completed a small investment in itiliti, Inc., which provides a web-enabled solution that complements our human capital management practice.

     For additional information on acquisitions, see Note 3 to our consolidated financial statements included under Item 8 of this report.

8

Table of Contents

     Seasonality of our Business

     Primarily the number of billing days in the period and the seasonality of our customers’ businesses affect our quarterly operating results. Demand for some of our services has historically been lower during automotive shutdown periods including the year-end holidays.

     Environmental

     Compliance with foreign, federal, state and local environmental protection laws and regulations is not expected to result in material capital expenditures or have a material adverse effect on our financial condition, results of operations, cash flows or competitive position.

     Patents and Trademarks

     We hold a number of United States and foreign patents, licenses, copyrights, tradenames and trademarks. Although we regard our intellectual property to be valuable, we do not believe that there is any reasonable likelihood of the loss of any rights that would have a material effect on our operating units, services or present business as a whole.

Item 2. Properties.

     The following table sets forth the current number of facilities we operate by region. We believe that substantially all of our property and equipment is in good condition and that we have sufficient capacity to meet our current and projected operating needs. The number of facilities in any region is dictated by the local demographics and requirements to support our customers’ needs. Our facilities are utilized to provide all or any combination of our service offerings.

     Substantially all of our facilities are leased. We believe that the termination of any one lease would not have a material adverse affect on our business.

Item 3. Legal Proceedings.

     We are involved in various legal proceedings incidental to the ordinary conduct of our business. One such matter is proceeding in both federal court and in an arbitration proceeding. It involves claims and counter claims asserted by both parties in connection with a contingent earnout obligation related to the acquisition of Lexstra International, Inc. and Lexus Temporaries, Inc. and various other claims by and against two former employees. See “Management’s Discussion and Analysis — Liquidity and Capital Resources” for further discussion regarding the potential impact of this case. Litigation is subject to significant uncertainty and any final result could be greater or less than what management anticipates. However, we believe that none of the legal proceedings will have a material adverse effect on our financial condition, results of operation or long-term cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

     The re-election of the existing Board of Directors was ratified and approved by the consent of a majority of our stockholders in lieu of a stockholder meeting.

9

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     MSXI is privately owned and there is no current public trading market for our equity securities. See “Item 12. Security Ownership of Certain Beneficial Owners and Management”. For further information related to ownership aspects of our common stock, see the discussion under “Amended and Restated Stockholders’ Agreement” contained under “Item 13. Certain Relationships and Related Transactions”.

     During 1998 and 1999, we completed offers to exchange new senior subordinated notes that had been registered under the Securities Act of 1933 for similar notes that had not been registered. We may not declare or pay any dividends or other distributions with respect to any common stock or other class or series of stock ranking junior to our Series A Preferred Stock without first complying with restrictions specified in the Amended and Restated Stockholders’ Agreement. See Note 12 to our consolidated financial statements included under Item 8 of this report.

10

Table of Contents

Item 6. Selected Financial Data.

     The selected historical consolidated financial data as of and for the five fiscal years ended December 29, 2002 have been derived from the audited historical financial statements of MSXI. The results of operations for the periods presented include the results of operations of acquired companies from the effective date of their acquisition. As a result, our financial performance for each fiscal year is not directly comparable without taking into account the impact of acquisitions. The selected financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K.

11

Table of Contents

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

     The following analysis of our results of operations and liquidity and capital resources should be read in conjunction with our consolidated financial statements and the related notes included under Item 8 of this report. The results of operations for the fiscal years ended December 31, 2000, December 30, 2001, and December 29, 2002 include the results of operations of acquired companies from the effective date of their acquisition. As a result, our financial performance for each fiscal year is not directly comparable without taking into account the impact of acquisitions.

     As explained in Note 12 to the consolidated financial statements, prior financial statements reflect a change in the treatment of accumulated dividends on preferred stock. As reflected in the consolidated balance sheets and statements of shareholders’ deficit, accumulated dividends on preferred stock, which had been disclosed in previous filings, have been deducted from shareholders’ deficit and included with the related preferred stock. This change in treatment has no impact on the reported net income (loss) or cash flows for any of the periods presented.

Significant Accounting Policies

     Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. Certain accounting policies applied require management’s judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to a degree of uncertainty. Management judgments are based on historical experience, information from our customers, market and regional trends, and other information. Significant accounting policies include:

	•		Valuation of goodwill and long-lived assets — we periodically review the carrying value of our goodwill and long-lived assets for impairment based on projections of anticipated discounted cash flows. Determining market values based on discounted cash flows requires management to make significant estimates and assumptions including, but not limited to, long-term projections of cash flows, market conditions, and appropriate discount rates. Management judgments are based on historical experience, information from our customers, market and regional trends, and other information. During the first quarter of 2002, we recorded a cumulative charge upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142 as described below. We updated our fair value analysis during the fourth quarter of 2002 resulting in an additional charge of $8.7 million. While we believe that the estimates and assumptions underlying our valuation models are valid, different assumptions could result in a larger or smaller charge to earnings.
	•		Deferred income taxes - at December 29, 2002 our consolidated balance sheet includes net deferred tax assets of $19.4 million, including $18.4 million related to net operating losses generated by certain operations. As of December 29, 2002, a valuation allowance totaling $6.1 million exists for certain deferred tax assets where, based on current facts and circumstances, management determined that the likelihood of realization was not sufficient to allow for continued recognition of the assets. Realization of the remaining net deferred tax assets is dependent primarily on the generation of future taxable income within certain regions and implementation of tax utilization strategies by management.

Results of Operations

     Outlook

     As reflected in our year to date operating results, our business continues to be challenged by reduced demand in the IT staffing industry, cost containment actions at our major customers, and delayed product development initiatives in the automotive industry resulting from economic uncertainties. In response to these challenges, we took restructuring and cost reduction actions that had an impact throughout the company. These actions included the divestiture of a non-strategic business, closure of certain unprofitable operations, and work force reductions in targeted areas. These actions along with declining revenues resulted in fourth quarter results that were below our financial obligations to our senior bank lenders. With support from our ownership, on February 14, 2003 we established a new financing package with our syndicate of bank lenders, which we believe provides sufficient financial resources and liquidity to meet our needs through December 2004. At the same time, we are focused on bundling 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 goal is to sell high value solutions by leveraging our global organization and existing customer base. Although we cannot provide assurance about the future, we believe our efforts will result in improved profitability, operating efficiencies, and expansion of our customer base, including growth in non-automotive markets.

12

Table of Contents

     Fiscal Year Ended December 30, 2001 Compared with the Fiscal Year Ended December 29, 2002

     Net Sales. Overall, our net sales during 2002 reflect weak demand for automotive engineering and human capital management services as our customers have reduced or delayed spending on information technology projects and product development programs. Reductions in Europe were partially offset by improved exchange rates versus the dollar. Our sales by service line, net of intercompany sales, were as follows:

     Engineering sales during fiscal 2002 included $16.5 million of incremental sales from the consolidation of Cadform-MSX Engineering GmbH effective January 1, 2002. Excluding incremental sales from the consolidation of Cadform, collaborative engineering sales decreased $47.4 million, or 18.7% compared to fiscal 2001. The decrease reflects lower demand for automotive design and specialty work in substantially all of our geographic markets and mandatory price reductions from certain customers. The decline in human capital management services reflects lower volumes in our engineering staffing business in North America and Europe and reduced volumes of IT staffing services in our North American market. In addition, our human capital programs have been subject to customer mandated price reductions. During the fourth quarter, we completed the sale of our Italian staffing operations, which reported sales of $13.2 million during fiscal 2002. Sales of our other collaborative services decreased slightly from fiscal 2001. The 2002 results include $6.8 million of incremental sales from the acquisition of Draupner Associates AB effective January 1, 2002. Excluding the incremental sales from acquisitions, sales of our other collaborative services declined 2.7% reflecting relatively flat demand for our services.

     Operating Income. Our consolidated gross profit and operating income for the periods presented were:

     Gross profit during fiscal 2002 includes a $2.2 million benefit related to the early termination of a long-term engagement. Gross profit during 2002 also includes $6.0 million of product development and start up costs for our supply chain management service offerings. Excluding these development costs and the early termination benefit, overall gross profits decreased 14% compared to fiscal 2001. The overall decrease reflects reductions in collaborative engineering and human capital management profits. The reduced profitability primarily reflects lower volumes and reduced margins resulting from price reductions. Reductions in sales volume and the impact of price reductions were partially offset by cost reductions implemented throughout the company and improved results from our other collaborative services. Overall our cost reduction programs, which began in the fourth quarter of 2001, resulted in savings in excess of $23 million for the full 2002 year, primarily in indirect labor, related fringe and benefit costs, and other operating costs.

     Selling, general and administrative expenses, as a percentage of net sales, were 9.7% during fiscal 2002 compared to 8.7% during fiscal 2001, despite an overall decrease of $2.5 million. The increase as a percentage of sales reflects the impact of lower volumes during fiscal 2002 and investments in our sales efforts. To date, the impact of cost reductions that we started implementing during the fourth quarter of 2001 and throughout 2002 have been partially offset by investments to develop our marketing, sales, and product portfolio to support and grow our service offerings and incremental costs from acquired companies that were consolidated for the first time in 2002. We are continuing to review and take actions to optimize our cost structure based on current and forecast business levels as discussed further below.

13

Table of Contents

     Operating results during 2001 and 2002 include charges totaling $1.3 million and $8.0 million, respectively, for termination benefits and related costs associated with our cost reduction programs. A substantial portion of the 2002 charge was recorded during the fourth quarter with payment expected early in 2003. Actions taken during 2001 and early in 2002 resulted in operating costs savings in excess of $23 million during 2002. Restructuring activities during the fourth quarter of 2002 are expected to reduce operating costs by about $25 million during 2003 and $32 million on an annualized basis. These cost reductions impacted substantially all of our operations. Amortization and goodwill charges increased $2.5 million compared to fiscal 2001. The 2002 charge was calculated based on a fair value impairment analysis in accordance with SFAS No. 142. Goodwill amortization expense during 2001 was based on an amortization approach prior to adoption of SFAS No. 142. The fair value approach used during 2002 resulted in a larger charge due to current market conditions.

     Loss on asset impairment and sale. During the fourth quarter of 2002 we sold our human capital management operations in Italy and recognized a loss on our investment in Prototipo Holding BV. The sale of Quandoccorre Interinale and QR Quandoccorre, our Italian staffing operations, was completed as part of our restructuring efforts in response to current and forecasted operating losses resulting from developments in the staffing markets these businesses competed in. The sale proceeds totaled about $1.0 million, resulting in a non-cash loss on the sale of $2.7 million during the fourth quarter of 2002. The operations, which were acquired in a series of transactions beginning in 1999, had reported operating losses of about $1.0 million through November of 2002. The loss on Prototipo Holding BV amounted to $1.6 million and reflected a reduction in the market value of the business due to their weakened economic performance.

     Interest Expense. Interest expense decreased $2.0 million, from $27.9 million during fiscal 2001 to $25.9 million during fiscal 2002. Reduced interest expense during 2002 reflects improved base interest rates on variable rate debt and reductions in our average daily borrowings outstanding. Improvements in interest expense on our bank debt were partially offset by amortization of additional debt issuance costs associated with amending our primary credit facility, increased margins over base interest rates following the amendment, and incremental interest on a second secured term loan issued during the third quarter of 2002. Additional information on interest rate market risk is included under Item 7A of this report.

     Income taxes. Our income tax benefit during fiscal 2002 represents an effective rate of 13.8% compared to an effective rate of 41.1% during fiscal 2001. Income taxes during 2002 reflect the establishment of valuation allowances totaling $6.1 million for certain deferred tax assets in our European operations. The valuation allowances were required for selected operations where, based on current facts and circumstances, management determined that the likelihood of realization was not sufficient to allow for continued recognition of the assets.

     Minority interests and equity in net losses of affiliates. Minority interest and equity losses during 2002 include $2.6 million in losses related to MTE Groups LLC, an equity investee. During 2002, MTE generated substantial operating losses, eventually leading to short term liquidity concerns. As a result of their performance, the remaining value of our investment was written off during the fourth quarter of 2002. Equity losses during 2001 include our portion of MTE Group losses totaling $0.8 million in addition to minority interest expense of $0.4 million and equity losses from Cadform-MSX Engineering GmbH totaling $0.8 million. Cadform-MSX Engineering was consolidated effective January 1, 2002.

     Cumulative effect of accounting change for goodwill impairment. During the first quarter of fiscal 2002 we adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill be evaluated for impairment charges based on a market value approach instead of amortizing such intangibles over specified periods. Upon adoption, we evaluated the market value of our operating units as of December 30, 2001 based on a discounted cash flow methodology as prescribed by the standard. The result of this analysis was a net charge after taxes of $38.1 million. The impairment charge relates to our collaborative engineering and human capital management service lines. Both of these areas experienced significant downturns during 2001 due to reduced demand for selected services and price reductions implemented by our major customers. The impact of the declines had a significant impact on current valuations when compared to prior performance levels and growth rates. While we believe these lower valuations are temporary in nature, adoption of SFAS No. 142 required that we record this charge during the first quarter of 2002 as a cumulative adjustment from adoption of the new rules.

14

Table of Contents

     Fiscal Year Ended December 31, 2000 Compared with the Fiscal Year Ended December 30, 2001

     Net Sales. Our sales by service line, net of intercompany sales, were as follows:

     Consolidated net sales were $929.3 million during fiscal 2001 compared to $1,035.2 million during fiscal 2000, a decrease of $105.9 million, or 10.2%. Comparable fiscal 2001 sales continued to be negatively impacted by depressed foreign currency exchange rates in certain countries in which we operate. The net impact of year over year exchange rate changes was to reduce consolidated net sales by about $13.4 million for the fiscal 2001 year. Excluding the impact of foreign exchange rate changes, consolidated fiscal 2001 net sales decreased $92.5 million, or 8.9%, compared to 2000.

     After adjusting for the impact of foreign exchange rates, the $92.5 million decrease in sales during fiscal 2001 is comprised of a $34.1 million decrease in sales of collaborative engineering services, a $71.3 million decrease in sales of human capital management services, and a $0.6 million decrease in sales of other collaborative services. The decrease in engineering sales reflects price reduction pressures and reduced volumes of engineering services in North America and Europe as our automotive customers have delayed their engineering programs due to current economic conditions. Sales of human capital management services decreased during fiscal 2001 due to reduced demand in North American markets for IT development, automotive engineering, and permanent placement services. Reductions in human capital management sales volumes, on a year to date basis, were partially offset by the impact of businesses acquired during the first quarter of fiscal 2000. Sales of our other collaborative services decreased as a result of lower volumes due to declines in our automotive business and the divestiture of a non-core business during fiscal 2000.

     Operating Income. Our consolidated gross profit and operating income for the periods presented were:

     Gross profit, as a percentage of sales, decreased to 13.0% during fiscal 2001 compared to 14.1% during fiscal 2000. The decrease in gross profit reflects the pricing pressures and unfavorable volumes in our engineering and human capital management operations, particularly in the second half of 2001, resulting in less favorable absorption of fixed and indirect operating costs. Overall, operating income decreased during 2001 due to reduced sales volumes, pricing pressures and costs incurred to position the company for growth and expansion into targeted vertical markets. The overall decline in our operating results is attributable to the general economic downturn, which has impacted demand for technical services in the automotive and telecommunications sectors.

     We took initial steps to reduce our cost structure commensurate with the current levels of business during 2001. As a result, we recorded about $1.3 million of severance costs during the fourth quarter of 2001 and took other steps to reduce our cost structure. We began realizing annual benefits in excess of $23 million from our cost reduction efforts starting in the first quarter of fiscal 2002.

15

Table of Contents

     Selling, general and administrative expenses, as a percentage of net sales, were 8.7% during fiscal 2001 compared to 8.0% during fiscal 2000. The increase as a percentage of sales reflects the impact of lower volumes during fiscal 2001, particularly in the second half of the year. Overall, selling, general and administrative expenses decreased in comparison to 2000 reflecting reductions in incentive compensation totaling $7.7 million. After adjusting for reductions in incentive compensation, selling, general and administrative expenses increased on a year over year basis. The increase reflects costs incurred to develop our service offerings and sales efforts within our developing vertical markets.

     Interest Expense. Interest expense decreased $2.2 million, from $30.1 million during fiscal 2000 to $27.9 million during fiscal 2001. Average daily borrowings outstanding increased slightly during fiscal 2001 in order to fund investments in businesses and product development. However, the impact of increased borrowings was more than offset by declines in the interest rates on our variable rate debt. Additional information on interest rate market risk is included under Item 7A of this report.

     Net Income. Net income during fiscal 2001 was $0.5 million, compared to net income of $14.9 million in fiscal 2000. The decrease reflects lower operating earnings and increased equity losses during the year. Our effective income tax rate during fiscal 2001 was 41.1% versus 42.0% during fiscal 2000. The improvement resulted from certain legal reorganization changes that took effect in 2001 combined with a favorable mix of taxable earnings compared to fiscal 2000. Minority interests and equity losses increased $1.2 million compared to fiscal 2000 primarily as a result of losses reported by our equity investees during 2001. Our equity investees are experiencing the same pricing pressures and volume reductions that are impacting our business.

Liquidity and Capital Resources

     Cash Flows

     General. 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 bank debt, the issuance of senior subordinated and second secured term notes and cash generated from operations. Cash balances in excess of amounts required to fund daily operations are generally used to pay down debt outstanding under the revolving credit portion of our credit facility. We typically pay our employees on a weekly basis and receive payment from our customers within invoicing terms, which is generally a 60-day period after the invoice date. However, in connection with certain of our master vendor and supply chain management programs, we collect related receivables at approximately the same time we make payment to suppliers.

     Operating Activities. Net cash provided by operating activities totaled $26.6 million in fiscal 2002, a $31.8 million decrease from $58.4 million in fiscal 2001. Operating cash flows during 2002 reflect a $19.4 million reduction in earnings before non-cash charges and taxes due to factors described in our operating results. The remaining decrease reflects reductions in working capital primarily related to the timing of accounts receivable collections versus payments to our employees, contractors and vendors.

     Net cash provided by operating activities during fiscal 2001 decreased $0.7 million from $59.1 million in fiscal 2000 to $58.4 million in fiscal 2001. Cash from operations during fiscal 2000 includes significant improvements in accounts receivable collections resulting from the transition of Satiz S.r.l. into our cash management system. The reduction in Satiz accounts receivable resulted in a one-time improvement in cash from operations of about $12 million during fiscal 2000. Excluding the one-time improvements during fiscal 2000, cash provided by operations increased about $11 million during fiscal 2001 despite reduced profits during the year. The improvement resulted from our efforts to maximize working capital through accounts receivable collections and management of vendor payments.

16

Table of Contents

     Investing Activities. Net cash used for investing activities decreased to $12.8 million during fiscal 2002, from $35.1 million during fiscal 2001. The decrease includes a reduction in funds used to acquire businesses of $9.8 million and reductions in capital expenditures totaling $10.2 million compared to the prior year. Cash used to acquire businesses during 2002 included funding of the Draupner and Cadform transactions and payment for the remaining shares of Satiz Srl from Fiat. For additional information on businesses acquired, see “Corporate Development” below. Acquisitions during fiscal 2001 included minority investments in MTE Groups L.L.C. and itiliti, Inc. totaling about $6.6 million as well as the payment of contingent consideration related to certain prior acquisitions. Proceeds from the sale/disposal of equipment and investments during fiscal 2002 include $1.0 million from the sale of our human capital management business in Italy. Other cash from investing activities during fiscal 2002 primarily represents the return of funds that had been escrowed to cover contingent purchase price for our MTE investment had MTE achieved certain earnings targets.

     Net cash used for investing activities during fiscal 2001 decreased $40.3 million, from $75.4 million during fiscal 2000 to $35.1 million. The decrease includes a reduction in funds used to acquire businesses of $43.6 million. Cash used to acquire businesses during fiscal 2001 included investments in MTE Groups L.L.C. and itiliti, Inc. totaling about $6.6 million as well as the payment of contingent consideration related to certain prior acquisitions. Cash used to acquire businesses during fiscal 2000 includes the acquisition of certain operations from Corporate Staffing Resources, Inc. and payments of contingent consideration from prior acquisitions. The increase of $1.1 million in capital expenditures during fiscal 2001 reflects an increase in capital invested for future programs and services while capital required to maintain current programs declined year over year. Proceeds from the sale/disposal of property and equipment during fiscal 2000 include proceeds from the sale of certain non-core assets, primarily real estate and equipment, associated with our offset printing business.

     Financing Activities. Net cash used for financing activities was $9.1 million during fiscal 2002 compared to net cash used of $23.8 million in 2001, a decrease of $14.7 million. Cash generated from operations in excess of investing requirements was utilized to reduce revolving debt and make scheduled term loan repayments. Under the terms of our credit agreement, we are also subject to mandatory partial prepayments of amounts outstanding under the term loan portion of our credit facility if excess cash flows, as defined, are generated on an annual basis. Repayment of debt during 2002 includes a mandatory prepayment during the second quarter totaling $9.1 million as a result of cash flows generated during fiscal 2001. Repayment of debt also includes a $15 million repayment of term loans due to refinancing under a second secured term loan as described below.

     During the first quarter of fiscal 2001, a subsidiary of MSX International, Inc. completed a sale of unregistered securities to certain directors and members of management. The securities were sold in units with each unit comprised of MSX International Inc.’s Series A Preferred Stock, par value $0.01 per share, and Class A Common Stock, par value $0.01 per share. In total, 9,936 shares of Series A Preferred Stock and 482,400 shares of Class A Common Stock were sold. The shares of Series A Preferred Stock and Class A Common Stock, which comprised the units sold, were acquired from Citicorp, our majority stockholder, at a price equal to the price at which the units were sold to management. The entire proceeds of $3.6 million were used to pay the purchase price of the shares acquired from Citicorp.

     Net cash used for financing activities was $23.8 million during fiscal 2001 compared to net cash provided by financing activities of $21.8 million in fiscal 2000, a decrease of $45.6 million. Financing requirements decreased consistent with the reduction in funds required to acquire companies. Therefore, cash generated from operations in excess of investing requirements were utilized to reduce revolving debt and make scheduled term loan repayments.

17

Table of Contents

     Debt Arrangements

     Senior Subordinated Notes. At December 29, 2002, we have $130 million of 11 3/8% unsecured senior subordinated notes outstanding, which are registered under the Securities Act of 1933. The notes mature on January 15, 2008 with interest payable semi-annually. The notes may be redeemed subsequent to January 15, 2003 at premiums that begin at 105.6875% and decline each year to face value for redemptions taking place after January 15, 2006.

     Credit Facility and Second Secured Term Notes. In December 1999, we completed an amended and restated credit facility with commercial banks and institutional lenders led by Bank One N.A, as agent. The amended and restated credit facility replaced a prior credit facility. The revolving credit portion of the amended and restated agreement expires December 7, 2004. The credit facility initially provided for revolving credit up to $100 million and five and seven year term loans totaling, together, up to $105 million. At closing, we borrowed $80 million under the term loan portion of the credit facility and subsequently increased the term loan advances to $105 million in early 2000.

     During 2001 and 2002, we completed the first and second amendments to the amended and restated credit facility. As a result of the second amendment our available funds under the revolving credit portion of the credit facility declined from $100 million to $85 million. In conjunction with the second amendment, on July 31, 2002 we also entered into a second secured term loan with affiliates of Citicorp, our majority owners, totaling about $15.5 million. $15 million of the proceeds from the second secured term loan were used to permanently pay down amounts outstanding under the existing term loan portion of the credit facility, as required by the second amendment. The remaining proceeds from the second secured term loan were used to fund closing fees associated with the loan. The net effect of these events was to reduce the maximum borrowing capacity under our credit facility by $15 million.

     On December 20, 2002, we received a short-term waiver from our bank lenders of certain financial covenant requirements in our credit agreement for the period ended December 29, 2002. We had sought the waiver to address potential default of these covenants as of that date. Effective February 14, 2003, we completed the third amendment to our amended and restated credit facility. The amendment modifies financial covenant requirements for the duration of the revolving credit term, increased certain interest rate spreads over base rates and revised certain other definitions and limitations contained in the earlier agreement. No changes were made to the repayment terms associated with the existing term loans. The $85 million revolving credit portion of the credit facility is subject to a $5 million availability requirement to address treasury management services used by the company. As part of the amended arrangement, our equity sponsors, Citicorp and affiliates, committed to provide up to $10.8 million of alternative senior funding pursuant to an amendment to our second secured term loan. Such funding would be triggered to resolve future defaults in our senior leverage and our fixed charge coverage ratios through June 30, 2004. Proceeds, if utilized, would be used to make partial principal payments of the existing term loans.

     Satiz Facility. Satiz S.r.l., which was acquired effective December 31, 1999, maintains a financing arrangement that provides for lines of credit up to 100% of its eligible accounts receivable, as defined in the agreement. As of December 29, 2002, about $3.1 million was available for borrowing under this arrangement. The original term of the agreement expired on December 12, 2001 and renews annually unless terminated by either party.

     Additional information regarding these obligations is set forth in Note 9 and Note 18 to our consolidated financial statements included under Item 8 of this report.

     Liquidity and Available Financing

     Our total indebtedness consists of our senior subordinated notes, our second secured term loan, borrowings under our credit facilities and borrowings under various short-term arrangements. In addition to our total indebtedness, we also have contingent commitments under letters of credit totaling about $4.9 million at December 29, 2002. Fluctuations in our operating cash flows are impacted by our ability to collect receivables from our customers within reasonable and customary terms and manage related payments to vendors. We rely on our credit facilities to provide sufficient flexibility to fund fluctuations in our operating cash requirements, fund required capital to grow the business, and to fund investment opportunities, while meeting our debt service requirements.

     Our term loans require scheduled quarterly payments of principle over the next four years with the balance of $52.2 million payable in 2006. Available borrowings under the revolving credit portion of our credit facility are subject to adequate accounts receivable balance requirements. In addition to existing eligibility requirements, our available accounts receivable must include a reserve of $6 million as a result of the third amendment to the agreement. As of December 29, 2002, we have $72.4 million of unutilized capacity under the revolving credit portion of our credit facility of which $42.4 million is immediately available for borrowing based on required levels of accounts receivable in accordance with the third amendment to our credit agreement. Availability under our credit facilities is also subject to meeting our debt service obligations and

18

Table of Contents

financial covenant requirements and is dependent upon the future performance of MSXI. Our future performance will be impacted by general economic conditions and other factors, which may be outside of our control. We believe that our current financing arrangements, as recently renegotiated, provide us with sufficient financial flexibility to fund our operations and debt service requirements through the remaining term of our amended revolving credit facility maturing in December 2004, although there can be no assurance that will be the case. At December 29, 2002, we have accruals totaling $10.5 million related to contingent earnout obligations. Certain earnout obligations are the subject of current legal proceedings. As with any legal proceeding, it is impossible to determine the final outcome of the litigation or the impact on the Company. If the final liability is significantly more than our current accrual, funding of such an obligation could have a material adverse impact on our liquidity and capital resources.

     Financing requirements over the longer term will require additional access to capital markets. 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.

Corporate Development

     Our past acquisitions expanded our geographic coverage, increased our service offerings to existing customers and increased our reach to customers outside of the automotive industry. These acquisitions along with our existing businesses provide us with a solid platform to grow our business globally and into a variety of industries. During the last three fiscal years our acquisitions and related investments represent a culmination of this strategy. Transactions include:

	•		On February 23, 2000, we acquired the professional staffing operations of Corporate Staffing Resources, Inc. of South Bend, Indiana. Specifically, we acquired 100% of the outstanding common stock of Intranational Computer Consultants, Inc. and Programming Management and Systems, Inc. and selected assets and liabilities of CMS Management Services and Ascend for a total purchase price of about $31.8 million at closing. These companies provide information technology and technical professional staffing throughout the United States with combined historical annual sales of over $57 million.
	•		Effective January 1, 2002, we completed the acquisition of selected assets and liabilities of Draupner Associates AB in Gottenberg, Sweden. The total purchase price at closing was about $2.4 million, before acquisition related costs. An additional contingent amount is not expected to become due. Draupner’s principle 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.
	•		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-MSX 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-MSX.
	•		Effective in December 2002, we acquired the remaining 25% of the outstanding common stock of Satiz Srl for $3.5 million in cash from an affiliate of the Fiat Group. The purchase was contemplated as part of our original acquisition of 75% of their outstanding common stock in December 1999. Satiz specializes in commercial and technical publishing primarily in Europe and derives a significant portion of their sales from Fiat Group and related subsidiaries, including Fiat Auto.

     The above transactions were funded through a combination of cash from operations and borrowings under our credit facility.

Inflation

     Although we cannot anticipate future inflation, we do not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on our results of operations. Our contracts typically do not include automatic adjustments for inflation.

19

Table of Contents

Seasonality

     The number of billing days in the period and the seasonality of our customers’ businesses primarily affect our quarterly operating results. Demand for our services has historically been lower during automotive shutdown periods, including the year-end holidays.

Eurocurrency

     During fiscal 2002, combined sales from operations that have adopted the Euro were about 24.5% of our total net sales. All of these affected operations have transitioned to make the Euro their functional currency as of January 2002. We have not experienced any significant operational disruptions to date and do not expect the continued implementation of the Euro to cause any significant future operational disruptions. In addition, we have not incurred and do not expect to incur any significant adverse effects from the continued implementation of the Euro, including currency risk, which could affect our liquidity or capital resources.

Recently Issued Accounting Pronouncements

     In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities’’. This statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of the commitment to an exit or disposal plan. This statement will be effective for MSXI for any exit or disposal activities initiated after December 31, 2002. The adoption of this statement will principally impact the ultimate timing of when costs associated with any future exit or disposal activities are recorded as expense.

     In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation Transition and Disclosure’’. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amended the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The disclosure provisions will be adopted in the first quarter of fiscal 2003.

     In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires a guarantor to recognize, at the inception of a qualified guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Management is currently reviewing these recognition and measurement provisions, which are effective on a prospective basis for qualified guarantees issued or modified after December 31, 2002, to determine whether they will have a material impact on our consolidated financial statements. The disclosure requirements of FIN No. 45, which are effective for fiscal 2002, are presented in Note 11 to our consolidated financial statements.

Forward Looking Statements

     Certain of the statements made in this report on Form 10K, including the success of 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 technical 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 July 20, 1999) and in other filings with the Securities and Exchange Commission.

20

Table of Contents

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

     We are exposed to certain market risks, including interest rate and currency exchange rate risks. Risk exposures relating to these market risks are summarized below. This information should be read in connection with the consolidated financial statements and the related notes thereto included elsewhere in this Form 10-K.

     Currency Rate Management

     For fiscal 2002, about 43% of our net sales were from markets outside of the United States. To date, the majority of our exposure has been naturally hedged since our foreign operation’s revenues and operating costs are typically denominated in the same currency. We may periodically hedge specific transactions or obligations in non-functional currencies in order to mitigate any additional risk. However, we do not enter into financial instruments for trading or speculative purposes. For the fiscal years ended December 30, 2001 and December 29, 2002, adjustments from the translation of the financial results of our foreign operations increased equity by about $38 thousand and $6.3 million, respectively.

     Interest Rate Management

     We manage interest cost using a combination of fixed and variable rate debt. As of December 29, 2002, we had $130 million of senior subordinated notes outstanding at a fixed interest rate of 11-3/8% with a remaining duration of five years. In addition, we have a $150 million credit facility and other short-term facilities at variable rates of interest. As of December 29, 2002, $78.3 million was outstanding under our credit facility at short-term interest rates ranging from 4.42% to 4.15%. A 1% increase in the credit facility’s applicable interest rate would result in additional interest expense of approximately $1.1 million per year.

     As of December 29, 2002 the fair value of the senior subordinated notes was $58.0 million compared to its carrying value of $130 million.

     Sales to Major Markets/Customers

     Our current business is heavily reliant on the domestic and foreign automotive industries. Ford, DaimlerChrysler, General Motors and Fiat, including their automotive subsidiaries, accounted for approximately 38.4%, 8.7%, 8.4% and 8%, respectively, of our consolidated net sales for fiscal 2002. Significant future price or volume reductions from these customers could adversely affect our earnings and financial condition. We believe we can expand our services to other less cyclical industries and have had some success in doing so. However, there can be no assurance that our diversification efforts will fully offset the impact of any further declines in our automotive markets.

21

Table of Contents

Item 8. Financial Statements and Supplementary Data.

Report of Independent Accountants

To the Board of Directors and Shareholders
of MSX International, Inc.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of MSX International, Inc. and its subsidiaries at December 29, 2002 and December 30, 2001, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 29, 2002, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As explained in Note 7 to the consolidated financial statements, the Company changed its method of accounting for goodwill effective December 31, 2001.

As explained in Note 12 to the consolidated financial statements, the Company revised the accounting for preferred stock dividends.

/s/ PRICEWATERHOUSECOOPERS LLP

Detroit, Michigan
February 28, 2003

22

Table of Contents

MSX INTERNATIONAL, INC.

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

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

23

Table of Contents

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
for the three fiscal years ended December 29, 2002

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

24

Table of Contents

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three fiscal years ended December 29, 2002