SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended July 4, 2004

OR

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

For the transition period from    to

Commission File Number: 333-49821

MSX International, Inc.

(248)299-1000
(Registrant’s telephone number, including area code)

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

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]

At August 5, 2004, 486,350 shares of Class A common stock of the Registrant were outstanding.

MSX INTERNATIONAL, INC.
INDEX

1

PART I. FINANCIAL INFORMATION

MSX INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)
as of July 4, 2004 and December 28, 2003

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

2

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
for the fiscal quarters and fiscal six months ended July 4, 2004 and June 29, 2003

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

3

MSX INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
for the fiscal six months ended July 4, 2004 and June 29, 2003

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

4

MSX International, Inc.

1.

Organization and Basis of Presentation:

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

     All intercompany transactions and balances have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring items, which are necessary for a fair presentation. The operating results for the fiscal quarters and fiscal six months ended July 4, 2004 and June 29, 2003 are not necessarily indicative of the results of operations for the entire year. Reference should be made to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2003. Certain prior year amounts have been reclassified to conform to the presentation adopted during the current period.

2.

Restructuring and Severance:

     During 2003 we executed several restructuring actions to reduce operating costs and streamline our administrative infrastructure. No significant charges were recorded during the first six months of 2004. These obligations are expected to be substantially paid by the second quarter of fiscal 2005. The following table shows the activity related to restructuring reserves for the fiscal six months ended July 4, 2004:

3.

Accounts Receivable:

     Accounts receivable include both billed and unbilled receivables. Unbilled receivables amounted to $63.2 million and $59.1 million at July 4, 2004 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 vendor management programs attributable to services provided by our vendors, which are passed on to our customers. These amounts totaled $63.0 million as of July 4, 2004 and $48.7 million as of December 28, 2003. A corresponding liability to our vendors for these amounts is recorded in accounts payable at the time the receivable is recognized.

5

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

4.

Goodwill, net:

     The following summarizes the changes in our goodwill balances during the fiscal six months ended July 4, 2004:

     During the first quarter of fiscal 2004 we recorded a contingent earnout obligation totaling $3.8 million related to a prior acquisition. Payment of this obligation is pending resolution of a dispute regarding the earnout.

5.

Debt:

     Debt is comprised of the following:

     The company was notified by its largest finance source in Italy, Fidis S.p.a., of its intent to terminate the current financing arrangement with Satiz S.r.l. in 2004. At July 4, 2004 $9.3 million was drawn on the facility, collateralized by a corresponding amount of accounts receivable from our largest Italian customer. Recently, the company concluded an arrangement with an alternative financing source to replace the majority but not all of the existing arrangement with Fidis. We have also negotiated improved payment terms with the customer. We continue to seek additional financing.

6

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

6.

Series A Preferred Stock:

     Effective December 29, 2003 the company amended its Restated Certificate of Incorporation to modify the redemption provisions of our 12% Series A Cumulative Preferred Stock (the “Preferred Stock”). As a result of the amendment, the Preferred Stock is now redeemable to the extent that funds are legally available, on or after December 31, 2008, at the option of the company or the shareholder.

     As of July 4, 2004 and December 28, 2003 there are 359,448 shares of the Preferred Stock outstanding with a stated value of $100 per share or about $36 million in total. We are authorized to issue up to 1,500,000 shares of Preferred Stock, divided into two classes: 500,000 shares of Series A Preferred Stock, par value $0.01, and 1,000,000 shares of New Preferred Stock, par value $0.01. As of July 4, 2004, dividends accrued totaled $50.2 million, however we have not declared or paid any dividends. We may not declare or pay any dividends or other distribution with respect to any common stock or other class or series of stock ranking junior to the Preferred Stock without first complying with restrictions specified in the Amended and Restated Stockholders’ Agreement. Our ability to pay cash dividends, and to acquire or redeem the preferred stock, is subject to restrictions contained in our debt agreements.

7.

Comprehensive Income (Loss):

     Our comprehensive income (loss) was:

8.

Income Taxes:

     We currently provide valuation allowances for a significant portion of the company’s deferred tax assets. The effective tax rate for the quarter and six months ended July 4, 2004 differs from the 35% federal statutory rate primarily because of these valuation allowances. The income tax benefit for the quarter ended July 4, 2004 relates primarily to improved performance in a foreign operation, which resulted in a reduction to a valuation allowance previously recorded for this operation. The income tax expense for the fiscal six months ended July 4, 2004 relates primarily to earnings in certain foreign jurisdictions for which valuation allowances are not required.

7

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

9.

Segment Information:

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

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

     The following is a summary of selected data for each of our segments:

8

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

9.

Segment Information: — continued

     A reconciliation of total segment EBITA to consolidated income (loss) before income taxes, minority interests and equity in affiliates is as follows:

10.

Stock-Based Compensation:

     We account for stock options under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations. In June 2003 we repriced selected outstanding stock options. In accordance with APB 25 we now account for the options under variable plan accounting. We have not recognized any expense related to employee stock options, as the estimated fair value of the stock is below the exercise price of the options as of July 4, 2004. The following table illustrates the effect on net loss for the fiscal quarters and fiscal six months ended July 4, 2004 and June 29, 2003 if we had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

11.

New Accounting Pronouncements:

     In May 2003, the Financial Accounting Standards Board (FASB) issued 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. As discussed in Note 6, the redemption provisions of our preferred stock were amended and the adoption of SFAS 150 during the first quarter of fiscal 2004 did not have any impact on the company’s consolidated results of operations or financial position.

     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. The adoption of FIN 46 during the first quarter of fiscal 2004 did not have a material impact on the company’s consolidated results of operations or financial position.

9

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

12.

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

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

     The following presents condensed consolidating financial information for:

•		MSXI—the parent company and issuer
•		The guarantor subsidiaries
•		The non-guarantor subsidiaries
•		MSXI on a consolidated basis

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

10

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

12.

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

MSX INTERNATIONAL, INC.

CON