SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

For the Fiscal Year Ended December 28, 2003

OR

For the transition period from                  to                 .

Commission File Number: 333-49821

MSX INTERNATIONAL, INC.

(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 [  ]

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 [  ] No [X]

No substantial amounts of the registrant’s common stock are held by non-affiliates of the registrant.

Number of shares outstanding of each of the registrant’s classes of common stock at March 19, 2004:

TABLE OF CONTENTS

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PART I

Item 1. Business.

     General

     We are a global provider of outsourced technical business services. Our broad range of technical services improves the business performance of our customers by reducing costs, enhancing operating effectiveness, and improving quality. Our customers value our in-depth knowledge of their business requirements and systems, our international delivery capability, and our proprietary processes and unique technical skills. We currently have over 6,100 employees providing technical services to more than 600 clients in 25 countries.

     Several benefits which drive increased outsourcing include reduced operating costs, lower capital investment, and increased management focus on core activities. Outsourcing also improves operating flexibility by increasing the variability of a company’s cost structure. While our services provide these benefits to our customers, we also focus on delivering higher value outsourcing services by providing our customers access to unique expertise and technologies. This expertise and these proprietary technologies enhance the value of outsourcing to our customers and provide greater profit margin opportunities for our company.

     Technical Service Offerings

     Our business is organized into three segments: human capital services, business services, and engineering services. The following table shows a summary of our net sales by segment, net of intercompany sales, for the three fiscal years ended December 28, 2003. Additional information on our operating results by segment appears in Note 16 of our consolidated financial statements included under Item 8 of this report.

     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 to provide them with these essential services, allowing them to improve operating efficiency by focusing on core competencies.

     The domestic and foreign markets for our services are highly competitive. In some cases, our 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. The following summarizes each of our segments.

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     Human Capital Services

     We provide a broad range of services to help maximize the effectiveness, flow and utilization of human capital in technology-oriented environments. Staffing solutions include:

	•		Contingent staffing—traditional temporary and/or permanent staffing 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.
	•		Vendor management programs—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

     Our competitors in human capital services include Adecco International, CDI, Keane, kforce, Manpower, Kelly Services Technical, Olsten, Randstad (in Europe only), TechAid, Volt, and numerous regional information technology-staffing firms. Other indirect competitors include Monster.com (a subsidiary of Monster Worldwide) and other internet-based staffing resources.

     Business Services

     We deliver a range of technology-based business services to meet the outsourcing requirements of our customers. Our business services segment give our customers the actionable product, market and customer information they need to improve product quality, reduce costs and improve customer loyalty and satisfaction. We also offer communication solutions that facilitate our customer’s communication strategies by creating, maintaining and delivering information. Our service offerings include:

	•		Warranty support programs – warranty process improvement consulting, claims assessment and analysis, contract administration of extended warranty programs, and management and operation of parts return centers
	•		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
	•		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
	•		Outsourced purchasing services – management of the procurement process from initial requisition to supplier payment

     In many cases, our principal competition for these business services is the customer’s in-house operations. Our competitors for these business services include, but are not limited to Accenture, EDS, IBM, ICG Commerce, Maritz, TeleTech/Percepta, Atisae, Valley Forge/SPX, Bowne, Xerox, and Budco.

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     Engineering Services

     We provide a complete range of engineering services, including consultancy, product and process development and full program management. Our customer base is primarily concentrated in the automotive industry. Our services are delivered through all phases of the product development cycle. Service offerings include:

	•		Technical consultancy – consultancy that supports complete engineering and niche vehicle programs and the application of processes and technology tools to achieve best in class product quality, timing and cost
	•		Technology applications – we apply technology and CAE tools to execute projects, including virtual engineering (digital design, predictive analysis, dimensional management, CAD engineering and manufacturing simulation). This reduces development process cycle time and minimizes requirements for physical prototypes and testing.
	•		Engineering services – we provide general engineering services required to deliver successful products. These include studio services, product engineering (body structures, chassis and trim), system integration in powertrain and electronics, prototype build, manufacturing engineering, and low volume vehicle build.

     Engineering competitors vary 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, Magna, Porsche, Roush Industries, and Wagon Inc., among others, deliver similar engineering services. European competition includes Bertrandt, Rücker, IVM, Magna-Steyr, Porsche, Stola, Pininfarina, Italdesign, Engineering & Design AG and Hawtal Whiting, a subsidiary of Wagon plc.

Significant Customers and Supply Relationships

     Our customers include the major United States and European automotive OEMs and automotive suppliers. Although we have more than 600 customers, Ford Motor Company (“Ford”), DaimlerChrysler AG (“DaimlerChrysler”), General Motors Corporation (“General Motors”), and Fiat Auto S.p.A. (“Fiat”), including their automotive subsidiaries, together accounted for 64.7% of our net sales for the fiscal year ended December 28, 2003.

     A substantial portion of our sales to selected large customers are sales of services that we or our predecessor companies have been providing to these customers for numerous years. We often deliver these services on a preferred or sole supplier basis, frequently in several countries or to multiple customer subsidiaries. Often we are integrated with or utilize our customers’ systems and processes. In many instances, we are co-located in our customers’ facilities. Our services are an integral part of our customers’ day-to-day operations. Such relationships permit a degree of forward revenue visibility. They also give us the opportunity to expand existing customer relationships by cross-selling our other technical business services.

     Part of our business with Ford during 2003 included the operation of a comprehensive management system for staffing services. In previous years these services were delivered pursuant to the Ford Master Vendor Agreement, which we had entered into as part of our 1997 acquisition of Geometric Results, Inc. Upon expiration of the original term of the Ford Master Vendor Agreement in August 2002, both Ford and MSXI verbally agreed to extend the term of the agreement pending the negotiation of a revised one-year arrangement, which was ultimately executed and in effect from January 1, 2003 to December 31, 2003. An agreement to extend the contract from January 1, 2004 to December 31, 2004 has been executed. Other business services previously performed pursuant to the companion Ford Master Supply Agreement were generally subject to annual renegotiation. These services are now delivered to Ford based on an annual purchase orders.

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     A significant portion of our $53.0 million in sales to Fiat during 2003 were made pursuant to purchase orders with Fiat’s principal manufacturing companies, including Fiat Auto. These 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. Contractual price reductions as a result of this agreement have not had a significant impact on our business.

     We believe we have developed strong relationships with our customers. We 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.

     Our services, especially to automotive customers, are frequently delivered pursuant to annual purchase orders that establish commercial terms, but which may vary in actual demand. Except as otherwise 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.

Global Capabilities

     We believe 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 currently provide services in 25 countries and 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 28, 2003, 43% of our net sales were generated outside of the United States.

     Additional financial information concerning our geographic 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 2003, including the appointment of Robert Netolicka as President and Chief Operating Officer in June 2003. Effective January 1, 2004 Mr. Netolicka became President and Chief Executive Officer. Organizational changes were made to position the company to achieve its business strategy and to reduce overhead and other indirect costs. A matrix organization was implemented in 2003 to enhance customer responsiveness and regional accountability, while supporting efforts to grow our non-automotive client base and increase our emphasis on service offerings which yield high returns on investment. Additional information on our executive officers appears in Item 10 of this report.

     The following table shows the geographic distribution of our employees:

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     A small portion of our employees in the United States are members of unions. We believe that our current relations with our employees are good. There are not any issues arising under a collective bargaining agreement, which would have a material adverse effect on our financial condition, results of operations or long term cash flows.

     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.

     Seasonality of our Business

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

     Environmental

     Due to the nature of our service offerings, 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 consider our intellectual property 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. Due to cost saving plans implemented during 2003, our number of facilities has declined.

     All of our facilities are leased with the exception of one facility in Europe. We believe that the termination of any one lease would not have a material adverse affect on our business.

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Item 3. Legal Proceedings.

     We are involved in various legal proceedings incidental to the ordinary conduct of our business. One such matter is a 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. Another 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. 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.

     On December 8, 2003, the Company’s stockholders adopted resolutions by written consent of the stockholders holding a majority of the Company’s stock that were eligible to vote on such matters. A brief description of each of the matters adopted by the Company’s stockholders is set forth below:

     A resolution to amend the company’s certificate of incorporation was adopted. The amendment to the certificate of incorporation was approved in anticipation of a recapitalization of the company’s common stock and the amendment contained terms that were necessary to effect the stock recapitalization.

     The company’s stockholders adopted a plan of recapitalization that provided for a reverse stock split of all series of the company’s common stock resulting in a 40:1 stock recapitalization.

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 1999 and 2003, we completed offers to exchange new senior subordinated notes and senior secured notes, respectively, 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.

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Item 6. Selected Financial Data.

     The selected historical consolidated financial data (other than EBITDA, as defined) as of and for the five fiscal years ended December 28, 2003 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. 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.

(A)		EBITDA is not a measure of operating results or cash flows from operations, as determined in accordance with accounting principles generally accepted in the United States. We have included EBITDA because we believe it is an indicative measure of operating performance and is used by investors and analysts to evaluate companies with our capital structure. As presented by us, EBITDA may not be comparable to similarly titled measures reported by other companies. EBITDA should be considered in addition to, not as a substitute for, operating income, net income (loss), cash flows and other measures of financial performance and liquidity reported in accordance with accounting principles generally accepted in the United States.
		EBITDA for each period is presented as defined in the senior secured note indenture and is calculated as income (loss) before the cumulative effect of accounting changes, plus (i) income tax expense/(benefit), (ii) Michigan single business and similar taxes, (iii) minority interests and equity in affiliates, (iv) net interest expense, (v) loss on asset impairment and sale, (vi) depreciation and amortization and (vii) goodwill impairment charges. Losses on asset impairment and sale and goodwill impairment charges have been added back for EBITDA purposes as these represent charges that will not require cash settlement at any future date. Michigan single business and similar taxes are treated like other income based taxes for purposes of EBITDA calculations.

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     The following table reconciles income (loss) before the cumulative effect of an accounting change to EBITDA, as defined:

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

Executive Overview

     We are a significant supplier of technical business services and have developed, through internal growth and acquisition, extensive international service delivery capability. We are executing the following business strategy to leverage our commercial strengths:

     • Capitalize on growing trend toward outsourcing – In many instances, our principal competition is our customers’ in-house operations. These internal resources often have other operational priorities, or they have become relatively costly or non-responsive to organizational requirements. We believe our customers are implementing outsourcing strategies in order to reduce costs, increase flexibility, and gain access to unique expertise or technologies.

     • Grow our non-automotive client base – Based on our significant experience delivering complex technical services to the automotive industry, we possess the credibility and technical expertise to serve other industries with similar outsourcing requirements. We are expanding and diversifying our client base by cross-selling our capabilities to existing non-automotive customers and by continuing to expand our customer portfolio.

     • Increase market share by delivering integrated services and cross-selling – We have a diverse, international client base of over 600 corporations in 25 countries. Our goal is to provide our customers with an integrated portfolio of technical business services and to enhance our revenues per customer by cross-selling services.

     • Increase margins through emphasis on higher return service offerings – We are committed to developing and delivering higher value-added, business solutions to address the complex and evolving outsourcing needs of our customers. We believe this will both enhance profitability and solidify our position as a one-stop outsourced business service provider. Specific areas of emphasis include non-automotive technical staffing, and warranty- and aftermarket-related business services.

     Our business segments are affected by differing industry dynamics. As a result of recent trends, we have experienced an overall revenue decline during the past three years. Our revenue remains under pressure from continuing cost containment actions at our major customers. In response to difficult industry conditions we completed a significant restructuring plan in 2003 that reduced our headcount, consolidated underutilized facilities and eliminated unfavorable leases. We believe that automotive OEM budgets will generally remain stable in the next 12 to 24 months as our customers pursue cost reductions on their existing platforms and launch new concepts and products. Economic growth in the Americas and Europe is also expected to support the continuing development of our business. Operating trends in the first quarter of 2004 appear to support the key assumptions in the Company’s 2004 operating plan.

     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 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, including growth in non-automotive markets.

     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 30, 2001, December 29, 2002, and December 28, 2003 include the results of operations of acquired companies from the effective date of their acquisition and the results of business units that have been modified or discontinued due to restructuring actions.

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Results of Operations

     Restructuring Initiatives

     As reflected in year over year operating results, our business was impacted by lower demand for information technology staffing solutions, cost containment actions at major customers and deferrals of product development initiatives in the automotive industry. More recently, performance has been challenged by additional cost containment actions at several of our largest customers. Such actions affecting our business have included extended seasonal shutdowns beyond normal seasonal variances, contract staffing reductions, and fee reductions that enabled us to secure long term contract renewals for our vendor management programs.

     In response to these trends, management has commenced operational streamlining initiatives in an effort to optimize the Company’s cost structure and align resources with the Company’s growth strategy. The incremental costs of these programs have been reported during these years as restructuring charges and all initiatives to date have been fully executed at the end of fiscal 2003. Based on the initiatives we anticipate annual savings of $34.4 million in 2004. The table below details the restructuring charges for the last three fiscal years:

     Employee termination costs

     Employee terminations resulting from our 2003 cost reduction plan affected approximately 320 indirect employees throughout the United States and Europe. The costs associated with employee terminations consist of severance pay, placement services, and legal and related fees. In accordance with SFAS 146 these charges were recorded at the time it was communicated to the employees that they were being involuntarily terminated. As of December 28, 2003 there is approximately $8.0 million in accrued severance costs that are expected to be paid during fiscal 2004. Prior to 2003 the headcount reductions affected primarily indirect and administrative staff positions throughout the United States and Europe.

     Facility consolidation costs

     During 2003 the company completed an analysis of its operating facilities based on profitability, lease terms and geographic requirements. As a result of this analysis we reduced our operating facilities from 78 at December 29, 2002 to 60 one year later. A charge of $7.3 million was recorded in the fourth quarter of 2003 as a result of these consolidations. Facility consolidation costs include rental expense, property taxes, commissions, moving expenses and legal fees associated with the vacating of facilities. As of December 28, 2003 the unpaid portion of the 2003 facility consolidations costs totaled $6.0 million and are expected to be substantially paid during fiscal 2004.

     Other contractual costs

     As part of our cost savings initiatives, we also analyzed our operating lease obligations and determined that selected leases no longer provided economic benefit to the company. In accordance with SFAS 146 we recorded a liability for these leases equal to their fair values based on the remaining lease obligations. These costs include the termination of operating leases for computer software and equipment and certain other leases. As of December 28, 2003 the unpaid portion of operating lease obligations totaled $3.1 million and is expected to be substantially paid during fiscal 2004.

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     Asset impairment charges

     During 2003 the company recorded non-cash asset impairment charges totaling $8.2 million. The charges were based on an assessment of the recoverability of our long-lived assets in light of the challenging environment in which we operate and as part of our business planning process for 2004. Assets are considered impaired if the book value exceeds the undiscounted cash flows expected from the use of the asset. The charges also included leasehold improvements that were abandoned as a result of our facility consolidations.

     Fiscal Year Ended December 29, 2002 Compared with the Fiscal Year Ended December 28, 2003

     Net Sales. Overall, the decline in sales reflects lower demand for automotive engineering and human capital services and reductions from the closure/sale of certain unprofitable operations. Our sales by segment, net of intercompany sales, were as follows:

     The decline in human capital services reflects reduced volumes in our engineering staffing in both the United States and Europe and reduced volumes of information technology and technical staffing services in our regional U.S. markets. The decrease in human capital services revenue during fiscal 2003 includes $25.1 million of reductions as a result of the closure/sale of certain unprofitable operations as part of our ongoing cost reduction plans. In addition, our vendor management programs have been impacted by price reductions negotiated with customers to secure contract extensions.

     Sales of business services improved versus 2002 as a result of favorable exchange rate changes affecting our European operations. The net impact of year over year exchange rate changes was to increase sales of business services by about $30.0 million. Excluding the favorable impact of foreign exchange rate changes and a reduction in revenue of $2.1 million due to the sale of an unprofitable operation, sales of business services for fiscal 2003 decreased about $11.1 million, or 4.3% versus 2002. The decrease primarily reflects reduced demand for technical and consumer publishing services in Italy due to program delays by our automotive customers and lower volumes in North America.

     Sales of our engineering services reflect a significant decline in volumes in our European operations partially offset by a favorable exchange impact of $7.0 million on sales. After adjusting for the impact of exchange rates variances, our European engineering operations reflect a net decrease of $39.4 million compared to fiscal 2002. Sales from our engineering operations in North and South America declined $2.0 million compared to fiscal 2002, reflecting relatively stable demand. Our engineering operations have been challenged by cost reduction programs and reduced product development activities at key automotive customers. The decrease in engineering operations also includes $3.6 million of reduced volume due to the closure of certain unprofitable operations.

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

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     Overall, gross profit declined year over year as a result of reduced volumes and pricing pressures, primarily in our engineering services and human capital services. Volume reductions resulted in a decrease in gross margins of over $28.0 million versus 2002. The impact of reduced volumes and pricing pressures was partially offset by cost reductions implemented throughout the company. Our cost reduction programs have focused primarily on indirect labor and related fringe benefit costs, elimination of unprofitable operations, consolidation of facilities and reductions of other indirect operating costs. These initiatives resulted in overall gross profit savings in excess of $8.5 million during fiscal 2003 and we anticipate additional annualized savings of $19.0 million in 2004. Gross profit as a percentage of sales declined to 11.1% for 2003 compared to 12.5% for 2002. The decrease as a percent of sales reflects pricing pressures affecting our business, and unfavorable absorption of certain fixed costs, including underutilized facilities.

     Selling, general and administrative expenses decreased $19.8 million compared to fiscal 2002. Selling, general and administrative expenses, as a percentage of net sales, were 8.4% during fiscal 2003 compared to 9.8% during fiscal 2002. The decrease reflects ongoing cost reduction programs implemented across the company throughout 2002 and 2003. These cost reductions are expected to result in additional annualized savings of approximately $15.4 million in 2004.

     Operating results during 2002 and 2003 include various restructuring charges totaling $8.0 million and $31.5 million, respectively. For a detailed analysis and explanation of these costs refer to “Restructuring Initiatives” above. Results for 2002 include a goodwill impairment charge totaling $8.7 million. The 2002 charge was calculated based on a fair value impairment analysis in accordance with SFAS No. 142. An equivalent analysis was performed during 2003 resulting in no impairment charge. Fair value improvements during 2003 reflect the impact of restructuring actions taken and improvements in market assumptions and related forecasted results.

     Loss on asset impairment and sale. During the third quarter of 2003 we sold selected assets of our translation management business in Europe, receiving cash consideration of approximately $0.5 million. This transaction resulted in a loss on the sale of $1.1 million and a related charge against goodwill associated with these assets totaling $0.7 million. The sale was completed as part of our restructuring efforts in response to forecasted operating losses generated by this business.

     During the fourth quarter of 2002 we sold our human capital services 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 investment in 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 increased $3.9 million, from $25.9 million during fiscal 2002 to $29.8 million during fiscal 2003. Interest expense during 2003 includes the write off of deferred financing costs totaling $2.4 million which resulted from the refinancing of our senior bank debt on August 1, 2003. The refinancing of debt outstanding on that date was treated as a debt extinguishment, requiring recognition of these costs, due to the extent of changes in terms and conditions of our outstanding debt. The remaining increase in interest expense compared to 2002 primarily resulted from increased interest rates on debt outstanding as a result of the refinancing. Additional information on interest rate market risk is included under Item 7A of this report.

     Income taxes. Our provision for income taxes was $19.7 million during fiscal 2003. This compares to an income tax benefit of $3.5 million during fiscal 2002. During fiscal 2003 we recorded a non-cash tax charge of $34.8 million to establish valuation allowances against a substantial portion of our deferred tax assets. Valuation allowances were required due to cumulative operating losses generated by certain operations. When negative evidence such as cumulative losses exists SFAS No. 109, Accounting for Income Taxes, requires management to place considerable weight on historical results and less weight on future projections when evaluating the realizability of deferred tax assets. As a result, management determined that the likelihood of realizing certain deferred tax assets was not sufficient to allow for continued recognition of assets.

     Minority interests and equity in net losses of affiliates. Minority interests and equity losses improved from an expense of $2.6 million during the fiscal 2002 to income of $0.2 million during fiscal 2003. Minority interest and equity losses during 2002 include $2.6 million in losses related to MTE Groups LLC, a minority-certified tooling and business services company in which we owned an equity investment. During 2002, MTE experienced serious market challenges from key customers that ultimately impaired its financial performance, resulting in significant liquidity problems. As a result of their performance and the lack of liquidity that emerged in the fourth quarter of 2002, the remaining value of our investment was written off during the fourth quarter of 2002.

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     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 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:

     The decline in human capital services reflects lower volumes in our engineering staffing business in North America and Europe and reduced volumes of information technology 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 of fiscal 2002, we completed the sale of our Italian staffing operations, which reported sales of $13.2 million during 2002. Sales of our business 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 this acquisition, sales of our business services declined $7.9 million, or 3.0%, reflecting relatively flat demand for our services. 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, engineering services decreased $46.6 million, or 18.2% 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.

     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 13.1% compared to fiscal 2001. The overall decrease reflects reductions in engineering services and human capital 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 business 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 9.8% during fiscal 2002 compared to 8.7% during fiscal 2001, despite an overall decrease of $1.8 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.

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     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 cost 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 of goodwill and intangibles was $6.2 million during fiscal 2001 while goodwill impairment charges totaled $8.7 million during fiscal 2002. 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 and forecasted market conditions.

     Loss on asset impairment and sale. During the fourth quarter of 2002 we sold our human capital 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 our investment in 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, referred to herein as the fourth lien term note, 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 41.2% 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 interests 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 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 engineering and human capital 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.

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

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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.

     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 provided by operating activities totaled $14.5 million in fiscal 2003, a $12.1 million decrease from $26.6 million in fiscal 2002. Operating cash flows during 2003 reflect a $24.2 million reduction in earnings before non-cash charges and taxes due to factors described in our operating results. The remaining change in net cash from operating activities reflects improvements in our working capital due primarily to efforts to reduce investments in accounts receivable and the timing of vendor payments relative to the close of the fiscal period.

     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.

     The cash management and accounts receivable processes related to the delivery of our vendor management system and selected procurement operations are customized to our customer’s unique service delivery requirements. Various procedures and controls are implemented to ensure timely and accurate processing, as the values involved may have a material impact on our liquidity if unanticipated events were to occur. We have agreed with the customer of a major program to modify the process by which we receive funds and disburse payments to the vendors participating in this “pass-thru” program. This is expected to result in a one-time remittance totaling $8.5 million back to the customer. This amount is reflected as a current liability in our balance sheet at December 28, 2003. The remittance will be funded by available credit resources and is expected to occur during 2004.

     Investing Activities. Net cash used for investing activities decreased $9.5 million from $12.8 million during fiscal 2002 to $3.3 million during fiscal 2003. By eliminating funding for selected discretionary programs, we reduced our capital spending from $9.0 million in fiscal 2002 to $5.3 million in fiscal 2003. We believe that this level of capital spending is sustainable for the next several years at current levels of business. Cash used to acquire businesses during 2002 included funding of the acquisition of Draupner Associates AB and the remaining outstanding common stock of Cadform-MSX Engineering GmbH. Proceeds from the sale/disposal of property and equipment resulted from the disposal of idle or obsolete equipment and the disposition of selected assets of our translation management business. Other cash from investing activities during fiscal 2002 primarily represents the refund of escrow funds related to an investment in MTE Groups LLC as a result of their non-attainment of earnings targets.

     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. 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

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sale of our human capital 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.

     Financing Activities Net cash provided by financing activities was $13.2 million during fiscal 2003 compared to cash used in financing activities of $9.1 million during fiscal 2002. During the third quarter of 2003 we completed our private offering of senior notes and used the proceeds to repay all outstanding debt under our existing credit facility and to repay our outstanding revolving debt. Financing activities during 2003 also include an increase in book overdrafts, of $13.9 million, compared to 2002 due to the timing of vendor payment funding.

     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 in 2001, we were 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.

     Debt Arrangements

     Senior Secured Notes and Mezzanine Term Notes. On August 1, 2003 we completed private offerings of senior secured notes totaling $100.5 million that mature on October 15, 2007. Effective December 19, 2003 the notes were exchanged for notes that were registered under the Securities Act of 1933. The transactions included the issuance of $75.5 million aggregate principal amount of 11% senior secured notes, priced to yield 11.25%, and $25.0 million aggregate principal amount of 11.5% mezzanine term notes. The notes were issued by both MSX International, Inc. and MSX International Limited (MSXI Limited), a wholly-owned subsidiary in the United Kingdom. The $25.0 million of mezzanine term notes were issued to Citicorp Mezzanine III, L.P. Proceeds from the combined offering totaled $95.5 million, net of related expenses and discount and were used to repay all debt outstanding under our existing credit facility. These transactions refinanced our debt obligations over a longer term and removed certain restrictive covenants in place under prior arrangements.

     Senior Subordinated Notes. At December 28, 2003, 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.

     Credit Facility and Fourth Lien Term Notes. Upon consummation of the private offering of senior secured notes, our second secured term note was amended and restated into a $14.7 million note issued by MSX International, Inc. and a $2.4 million note issued by MSXI Limited. The amendments to the note also included extending the maturity from June 7, 2007 to January 15, 2008, and resetting the covenants in the notes so that they are equivalent to the senior notes sold on August 1, 2003. The amended and restated notes are referred to as the “fourth lien term notes”.

     Concurrent with the offerings during 2003, we entered into an amended and restated credit facility with Bank One, N.A. Terms of the amendment allow for revolving advances up to $40.0 million on a secured basis through July 2006 plus an additional $5.0 million available exclusively for the issuance of letters of credit. Available borrowings are subject to accounts receivable collateral requirements and certain customary covenants.

     Satiz Facility. Satiz S.r.l., a subsidiary based in Italy, maintains financing arrangements with Fidis S.p.a. and Ifis that provide for borrowings up to 100% of its eligible accounts receivable, as defined in the agreements. As of December 28, 2003, borrowings under the arrangements bear interest rate at the Euribor rate plus 2.875% and 4.179% respectively, and are collateralized by the underlying accounts receivable. The agreements are renewed annually unless terminated by either party. Fidis S.p.a. is a subsidiary of Fiat S.p.a., who owned a minority investment in Satiz until December 2002.

     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.

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     Liquidity and Available Financing

     Our total indebtedness as of December 28, 2003 consists of senior secured notes, mezzanine term notes, senior subordinated notes, our fourth lien term notes, borrowings under our credit facilities and borrowings under various short-term arrangements. In addition to our total indebtedness, we also have contractual and other commitments under various arrangements as discussed below.

     Available borrowings under our credit facility as of December 28, 2003 are subject to adequate accounts receivable collateral requirements. As of December 28, 2003 we have $39.7 million available for immediate borrowing based on eligible accounts receivable as determined in accordance with our amended credit agreement.

     We believe that our current financing arrangements provide us with sufficient financial flexibility to fund our operations and debt service requirements through the term of our new senior credit facility with an expected maturity of July 2006, although there can be no assurance that will be the case. 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. From time to time, we review 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 of 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.

     Contractual Obligations and Off-Balance Sheet Arrangements

     Our material obligations under firm contractual and other arrangements, including commitments for future payments under long-term debt arrangements, operating lease arrangements and other long-term obligations as of December 28, 2003 are summarized below.

     In addition to our total indebtedness, we also have contingent commitments under letters of credit totaling about $4.2 million, without duplication. Except for our letters of credit, we have no other existing off-balance sheet financing arrangements.

     At December 28, 2003, we have accruals totaling $10.5 million related to contingent earnout obligations, related to the acquisition of Lexstra International, inc. and Lexus Temporaries, Inc. and various other claims by and against two former employees. For a discussion of this and other pending cases refer to “Legal Proceedings”. It is impossible to determine the final outcome of all outstanding litigation or the impact on the company. If final liabilities related to litigation are significantly more than our current accrual, funding of such obligations could have a material adverse impact on our liquidity and capital resources.

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Critical Accounting Policies

     Our critical 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 Accounts Receivable – Periodically, we review accounts receivable to reassess our estimates of collectibility. We provide valuation reserves for bad debts based on specific identification of likely and probable losses. In addition, we provide valuation reserves for estimates of aged receivables that may be written off, based upon historical experience. These valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of accounts receivable becomes available. Circumstances that could cause our valuation reserves to increase include changes in our clients liquidity and credit quality, other factors negatively impacting our clients ability to pay their obligations as they come due, and the quality of our collection efforts.

	•		Valuation of goodwill and long-lived assets – During the fourth quarter we 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, investment requirements, market conditions, and appropriate discount rates. Management judgments are based on historical experience, information from our customers, market and regional trends, and other information including, in the case of discount rates, cost of capital data compiled by third parties. During the first quarter of 2002, we recorded a cumulative charge upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142 as described in our results of operations. We update our fair value analysis during the fourth quarter of each year. During the fourth quarter of 2002 an additional charge of $8.7 million was recorded based on this analysis. 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. In updating our analysis in 2003 we used a discount rate of 10.61%, which represents the median weighted average cost of capital (WACC) for the staffing industry per Ibbotson Associates, in our cash flow calculations. A 1% change in the discount rate results in a $12.0 million change in the calculated fair value assuming all other assumptions are unchanged.
	•		Deferred income taxes – At December 28, 2003 our consolidated balance sheet includes net deferred tax assets of $5.3 million. As of December 28, 2003, valuation allowances totaling $40.8 million have been established against a substantial portion of our deferred tax assets. Valuation allowances were required due to cumulative operating losses generated by certain operations. When negative evidence such as cumulative losses exists SFAS No. 109, Accounting for Income Taxes, requires management to place considerable weight on historical results and less weight on future projections when evaluating the realizability of deferred tax assets. As a result, management determined that the likelihood of realizing certain deferred tax assets was not sufficient to allow for continued recognition of assets.
	•		Valuation of common stock purchase warrants—In connection with the issuance of mezzanine term notes during 2003, we granted to Citicorp Mezzanine III, L.P. the right to purchase 16,666 shares of our Class A common stock. The purchase warrants are exercisable at a price of $0.01 per share, subject to certain anti-dilution adjustments, through July 31, 2013. To determine the fair value of the warrants we completed a discounted cash flow analysis, which 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. During the third quarter of 2003, we recorded common stock purchase warrants at a fair value of $750,000. While we believe that the estimates and assumptions underlying our valuation models are valid, different assumptions could result in a different fair market value assigned to the warrants.

Corporate Development

     Our past acquisitions have 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. In total, we have completed over 15 acquisitions since 1998 and made certain other investments that continue to support our ongoing business and growth opportunities. While we are currently focused on developing our business through internal growth, we may pursue opportunistic strategic acquisitions, alliances and other corporate development activities.

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.

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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.

Recently Issued Accounting Pronouncements

     In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how companies classify and measure in their statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that a company classify certain financial instruments as liabilities anticipated changes to because they embody an obligation of the company. The company will adopt FAS 150 beginning in the first fiscal quarter of 2004. Based on anticipated changes to the terms of our mandatorily redeemable preferred stock, we do not expect our consolidated results of operations or financial position to be affected.

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to variable interest entities created after January 31, 2003. Variable interest entities created prior to February 1, 2003, must be consolidated effective December 31, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. In December 2003, the FASB redeliberated certain proposed modifications and revised FIN 46 (“FIN 46 ®”). The revised provisions are applicable no later than the first reporting period ending after March 15, 2004. The Company is in the process of determining the impact FIN 46 and FIN 46 (R) will have on the Company’s consolidated results of operations or financial position.

Forward Looking Statements

     Certain of the statements made in this report on Form 10K, 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 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 2003, 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 29, 2002 and December 28, 2003, adjustments from the translation of the financial results of our foreign operations increased equity by about $6.3 million and $6.6 million, respectively.

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     Interest Rate Management

     We manage interest cost using a combination of fixed and variable rate debt. As of December 28, 2003, 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. We also have $75.5 million of senior secured notes outstanding at a fixed interest rate of 11% and $25.0 million of mezzanine term notes at a fixed interest rate of 11.5%. Both notes mature on October 15, 2007. In addition, under our new senior credit facility, we have a $40 million revolver with variable interest rates. As of December 28, 2003, the fair value of the senior subordinated notes was $71.0 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 37.8%, 10.9%, 8.5% and 7.5%, respectively, of our consolidated net sales for fiscal 2003. 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.

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Item 8. Financial Statements and Supplementary Data.

Report of Independent Auditors

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 28, 2003 and December 29, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended December 28, 2003, 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.

/s/ PRICEWATERHOUSECOOPERS LLP

Detroit, Michigan
March 12, 2004

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MSX INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS
as of December 29, 2002 and December 28, 2003

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

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MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
for the three fiscal years ended December 28, 2003

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

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MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three fiscal years ended December 28, 2003

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

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MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
for the three fiscal years ended December 28, 2003

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

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MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands unless otherwise stated)

1.

Organization and Basis of Presentation:

     The accompanying financial statements present the assets, liabilities and results of operations of MSX International, Inc. and its consolidated subsidiaries (“MSXI”). MSXI is a holding company owned by Citicorp and affiliates and certain members of management. Since our formation we have completed numerous acquisitions, the most recent of which are disclosed in Note 3. The results of operations of acquired companies have been included in the results of operations of MSXI from the effective date of each transaction.

     We are principally engaged in providing business services to automobile manufacturers and suppliers and other industries primarily in North America and Europe.

2.

Summary of Critical Accounting Policies:

     a. Principles of Consolidation: The accompanying financial statements include the accounts of MSX International, Inc. and all majority owned subsidiaries. Significant intercompany transactions have been eliminated. Companies that are 20 to 50 percent owned by MSX International, Inc. or its wholly owned subsidiaries are accounted for by the equity method of accounting. We use a 52-53 week fiscal year that ends on the Sunday nearest December 31. The three most recent fiscal year ends contain 52 weeks.

     b. Cash and Cash Equivalents: All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

     c. Receivables: Receivables are presented net of aggregate allowances for doubtful accounts of $4.4 million and $3.0 million at December 29, 2002 and December 28, 2003, respectively.

     d. Inventory: Inventory is comprised of raw materials, parts and supplies which are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method.

     e. Property and Equipment: Property and equipment, including significant betterments to leased facilities, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Maintenance and repair costs are charged to expense as incurred.

     Under the provisions of Statement of Position 98-1, costs associated with software developed or obtained for internal use are capitalized when both the preliminary project stage is complete and management has authorized funding of the development program. Such costs are included in computers, peripherals and software. Capitalized costs include both external costs of software and consulting as well as payroll and payroll related costs of MSXI personnel working directly on the development project. Internal costs capitalized are not material to the consolidated balance sheet at December 29, 2002 and December 28, 2003.

     f. Goodwill and Other Intangibles: The excess of purchase price, including direct cost of acquisition, over the estimated fair value of acquired assets and assumed liabilities is allocated to goodwill. Management evaluates the carrying value of goodwill when events or circumstances warrant such a review, and in any case, annually during the fourth quarter of each year.

     g. Fair Value of Financial Instruments: The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable, and short-term debt approximate their carrying amounts. The estimated fair value and carrying amounts of long-term debt borrowings are reported in Note 9.

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MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

     h. Stock Based Compensation: We account for stock options in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”. In June 2003 we repriced selected outstanding stock options and in accordance with Accounting principles Board Opinion No. 25 and we are now required to account for the stock options under variable plan accounting. Under APB 25, we recognize no compensation expense related to stock options issued as no options have been granted at a price below the estimated market price on the day of grant. The following table illustrates the effect on net income (loss) if we had applied the fair value recognition provisions of SFAS No.123, “Accounting for Stock-Based Compensation,” to stock based employee compensation.

     Since stock options generally become exercisable over several years and additional grants are likely to be made in future years, the pro forma amounts for compensation cost may not be indicative of the effect on net income for future years.

     i. Foreign Currency Translation and Transactions: Net assets of operations outside of the United States are translated into U.S. dollars using current exchange rates with the effects of translation adjustments included in shareholders’ deficit as a separate component of comprehensive income. Revenues and expenses of operations outside of the United States are translated at the average rates of exchange during the period. Gains and losses arising from transactions denominated in currencies other than the functional currency of a particular entity are included in income. Net transaction gains and losses were not material to our results of operations during the periods presented.

     j. Revenue Recognition: Our revenue is primarily comprised of revenue from time and material contracts and fixed price contracts. Revenues from time and material contracts are valued at selling price based on contractual billing rates. Revenues from certain master vendor and supply chain management programs are recorded, net of billings from sub-suppliers, at the completion of each individual service. Revenues from fixed price contracts are recognized using the percentage of completion method, measured by comparing the percentage of labor costs incurred to date to the estimated total labor costs for each contract.

     Contract costs include all direct material and labor costs and indirect costs such as indirect labor, supplies, tools and repairs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in fixed price contracts may result in revisions to estimates of costs and revenues and are recognized in the period in which the revisions are determined.

     k. Depreciation: Depreciation is computed using the straight-line method over the estimated useful lives of assets as follows:

     Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or the term of the lease, whichever is shorter.

     l. Income Taxes: Deferred income taxes are recorded to reflect the differences between the tax basis and financial reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

     m. Foreign Currency Contracts: MSXI has significant operations outside of the United States that are subject to foreign currency exchange risk. We may periodically hedge transactions or obligations in non-functional currencies in order to mitigate this risk. No such contracts were entered into during fiscal 2001, 2002 or 2003.

     n. Reclassifications: Certain prior year amounts have been reclassified to conform to the presentation adopted during fiscal 2003.

     o. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from such estimates and assumptions.

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MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

     p. Recently Issued Accounting Pronouncements: In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how companies classify and measure in their statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that a company classify certain financial instruments as liabilities because they embody an obligation of the company. The company will adopt FAS 150 beginning in the first fiscal quarter of 2004. Based on anticipated changes to the terms of our mandatorily redeemable preferred stock, we do not expect our consolidated results of operations or financial position to be affected.

     In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46) which requires the consolidation of variable interest entities, as defined. FIN 46 is applicable to variable interest entities created after January 31, 2003. Variable interest entities created prior to February 1, 2003, must be consolidated effective December 31, 2003. Disclosures are required currently if the Company expects to consolidate any variable interest entities. In December 2003, the FASB redeliberated certain proposed modifications and revised FIN 46 (“FIN 46 (R)”). The revised provisions are applicable no later than the first reporting period ending after March 15, 2004. The Company is in the process of determining the impact FIN 46 and FIN 46 (R) will have on the Company’s consolidated results of operations or financial position.

3.

Acquisitions and Disposition of Businesses and Investments:

     Acquisition of Businesses and Investments

     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 technical and consumer publishing 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 transactions were accounted for under the purchase method of accounting resulting in goodwill of $8.3 million.

     Effective in December 2002 we acquired the remaining 25% of the outstanding common stock of Satiz Srl from Fiat SpA. The transaction had been contemplated as part of the original acquisition of 75% of the outstanding common stock of Satiz in December of 1999. The total purchase price was about $3.5 million based on formulas established at the time of the original 75% acquisition. The transaction was accounted for under the purchase method of accounting resulting in additional goodwill of $2.4 million. Satiz specializes in commercial and technical publishing in Europe and derives a significant portion of its sales from Fiat and related subsidiaries.

     In September 2001, we invested about $1.6 million in itiliti, Inc. and became a strategic partner with other staffing companies for the commercialization of its workforce procurement technology. The initial investment, accounted for under the cost method, was a bridge loan that later was converted into preferred stock. In July 2002, itiliti, Inc. sold its operations and assets to Peopleclick, Inc. and received as consideration shares of Peopleclick common stock. Concurrently, our investment in itiliti, Inc. was converted into an interest in a newly-organized, limited liability company named itiliti LLC, which assumed ownership of its predecessor’s interest in Peopleclick common stock. Peopleclick provides a variety of technology tools and solutions supporting the delivery of workforce management services. It delivers selected services to us directly, which we integrate into solutions delivered to certain customers.

     All of the above transactions were funded through a combination of cash from operations and borrowings under our credit facility. The operating results of acquired companies have been included in our consolidated operating results from the effective date of the acquisition. The proforma effects of the above transactions would not be materially different from reported results for the periods presented.

29

MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

     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, as additional purchase price. In this regard, we recorded additional liabilities for consideration during 2001 related to prior year acquisitions, which resulted in additional goodwill capitalization of about $2.1 million. No such consideration was recorded or paid during 2002 or 2003. Other than discussed in Note 11, no additional purchase price contingencies exist.

     Asset impairments and sale

     During the fourth quarter of 2002, we completed the sale of our human capital businesses in Italy and recognized losses on the valuation of certain long-term investments. Quandoccorre Interinale and QR Quandoccorre were sold for net proceeds of about $1.0 million, resulting in a loss on sale of $2.7 million. The sale was completed as part of our restructuring efforts in response to current and forecasted operating losses generated by these businesses. These companies had been acquired through a series of transactions during fiscal 1999 and 2000.

     Also during the fourth quarter of 2002, we recognized losses on our investments in Prototipo Holding BV and MTE Groups LLC totaling $1.6 million and $2.4 million, respectively, reflecting reductions in the market value of our investments. The investment in Prototipo Holding BV, representing a 2% interest, was acquired in November of 2000 and was accounted for under the cost method. The investment in MTE Groups, representing a 49% interest, was acquired in 2001 and had been accounted for under the equity method. The write-down of MTE comprised the balance of our investment and $0.7 million of receivables for certain services provided to MTE. The charges were determined based upon an evaluation of the financial stability of these businesses and the best available market information.

     Effective September 1, 2003, we completed the sale of selected assets of Draupner Associates AB in Europe for approximately $0.5 million. This transaction resulted in a loss on the sale of $1.1 million and was consummated as part of our restructuring efforts in response to forecasted operating losses generated by this business. As a result of the sale we also recorded a charge against goodwill associated with these assets totaling $0.7 million. The proforma effects of the above transactions would not be materially different from reported results for the periods presented.

4.

Restructuring and Severance:

     We experienced declining revenue at several intervals over the last three years, due to the unstable economic environment, volatile demand for business services, and challenges posed by key customers. The consolidated statement of operations reflects an operating loss for 2003. In response to declines in revenue and reduced margins due to pricing pressure, we implemented programs in each of the last three years to maintain liquidity and reduce costs. Such actions included the following:

•		On August 1, 2003 we completed a private offering of senior secured notes totaling $100.5 million that mature October 15, 2007. Net proceeds of $95.5 million were used to payoff our existing senior credit facility, including $62.7 million of term debt. The transaction served to extend into future years debt repayment obligations under the existing facility, which was scheduled to expire December 7, 2004. Concurrently with the notes offering, we amended our senior credit facility to include a $40 million revolving facility and an additional $5 million exclusively for the issuance of letters of credit.
•		Available borrowings under our new senior credit facility are subject to accounts receivable collateral requirements. As of December 28, 2003, we have $39.7 million available for immediate borrowing.
•		Our principal operating costs are variable in nature consisting of employment-related expenses and leased facilities, allowing us to implement operational changes in response to changes in our customers’ business needs. Less than 1 percent of our domestic employees are subject to collective bargaining arrangements, and our total employment has been reduced from over 10,000 personnel at December 30, 2001 to 6,149 at December 28, 2003. We reduced the number of operating facilities from 102 at December 30, 2001 to sixty at December 28, 2003.

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MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

•		A substantial portion of our net sales is to automotive customers. However, we believe our revenues from these customers are dependent on overall product development activity and spending on various support services, rather than the level of new vehicle production volume. Although revenues generated by our human capital services and engineering services have declined significantly in the last three years, net sales from business services has remained relatively stable.
•		We project more stable demand for our services compared to the 2001 to 2003 period. After giving effect to recent restructuring and other cost reduction actions, we believe we will be able to maintain compliance with obligations incorporated in the new senior credit facility and new notes. Operating trends in the first quarter of 2004 appear to support the key assumptions in the Company’s 2004 operating plan. However, there can be no assurance that economic stability will continue, that demand from our principal customers will occur at anticipated levels, or that unanticipated challenges will not adversely impact the Company’s ability to achieve its 2004 operating plan.

     During the past several years, management has commenced operational streamlining initiatives in an effort to optimize the Company’s cost structure and align resources with the Company’s growth strategy. The incremental costs of these programs have been reported during these years as restructuring charges and all initiatives to date have been fully executed at the end of fiscal 2003. Restructuring charges incurred in 2003 were accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Restructuring charges incurred prior to 2003 were accounted for in accordance with Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The table below details the restructuring charges for the last three fiscal years:

     Employee termination costs

     Employee terminations resulting from our 2003 cost reduction plan affected approximately 320 indirect employees throughout the United States and Europe. The costs associated with employee terminations consist of severance pay, placement services, and legal and related fees. In accordance with SFAS 146, these charges were recorded at the time it was communicated to the employees that they were being involuntarily terminated. As of December 28, 2003 there is approximately $8.0 million in accrued severance costs that are expected to be paid during fiscal 2004. Prior to 2003 the headcount reductions targeted primarily indirect and administrative staff positions throughout the United States and Europe.

     Facility consolidation costs

     During 2003 the company completed an analysis of its operating facilities based on profitability, lease terms and geographic requirements. As a result of this analysis we reduced our operating facilities from 78 in 2002 to 60 in 2003. A charge of $7.3 million was recorded in the fourth quarter of 2003 as a result of these consolidations. This charge was recorded at the time we discontinued using the closed facilities. Facility consolidation costs include rental expense, property taxes, commissions, moving expenses and legal fees associated with the vacating of facilities. As of December 28, 2003 the unpaid portion of the 2003 facility consolidations costs totaled $6.0 million and are expected to be substantially paid during fiscal 2004.

31

MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

     Other contractual costs

     As part of our cost savings initiatives we analyzed our operating leases and determined that selected leases no longer provided economic benefit to the company. In accordance with SFAS 146 we recorded a liability for these leases equal to their fair values based on the remaining lease obligations. These costs include the termination of operating leases for computer software and equipment and certain other leases. As of December 28, 2003 the unpaid portion of these operating lease obligations totaled $3.1 million and are expected to be substantially paid during fiscal 2004.

     Asset impairment charges

     During 2003 the company recorded non-cash asset impairment charges totaling $8.2 million. The charges were based on an assessment of the recoverability of our long-lived assets in light of the challenging environment in which we operate and as part of our business planning process for 2004. It was also based on the decision to discontinue service offerings related to certain software solutions. Assets are considered impaired if the book value exceeds the undiscounted cash flows expected from the use of the asset. The charges included leasehold improvements that were abandoned as a result of our facility consolidations.

     The following table provides the activity and ending balances for the company’s restructuring charges for the last three fiscal years:

32

MSX INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(dollars in thousands unless otherwise stated)

5.

Accounts Receivable, Net:

     A significant portion of our revenues are delivered to manufacturers in the automotive and transportation related industries. Sales to significant automotive customers, including their automotive subsidiaries, as a percent of total net sales were:

     At December 30, 2001, December 29, 2002 and December 28, 2003 the foregoing four customers and their subsidiaries accounted for approximately 52%, 58% and 57%, respectively, of our billed accounts receivable balance.

     Accounts receivable includes both billed and unbilled receivables. Unbilled receivables amounted to $69.2 million and $59.1 million at December 29, 2002 and December 28, 2003, respectively. All such billings are expected to be collected within the ensuing year. Accounts receivable also include the portion of our billings for certain master vendor and supply chain management services attributable to services provided by our vendors, which are passed on to our customers. These amounts totaled $37.1 million as of December 29, 2002 and $38.3 million as of December 28, 2003. A corresponding liability to our vendors for these amounts is recorded in accounts payable at the time the related receivables are recorded.

6.

Property and Equipment, Net:

     Property and equipment, net includes the following: