SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Securities and Exchange Act of 1934).   Yes o     No 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 31, 2005:

TABLE OF CONTENTS

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GLOSSARY

Certain terms used in the text and financial statements are defined below.

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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 enhancing operating effectiveness, improving quality, and reducing costs. 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 5,700 employees providing technical services to more than 400 clients in 19 countries.

     Several benefits which drive outsourcing include reduced operating costs, lower capital investment, and 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: business services, human capital 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 January 2, 2005, after adjusting for discontinued operations. For additional information on discontinued operations see Note 4 of our consolidated financial statements included under Item 8. of this report. 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.

     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 the services offered by each of our segments.

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     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.

     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 and custom processes
	•	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 resource providers.

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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 development and support 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 vehicle and system development and build, process and manufacturing engineering, and low volume vehicle build.

     In North America, Magna, Porsche, Roush Industries, and Wagon Inc., among others, deliver similar engineering services. Substantially all of our Eurpoean engineering operations are presented as discontinued as of January 2, 2005.

     A significant portion of our $48.0 million in sales to Fiat during 2004 were made pursuant to purchase orders with Fiat’s principal manufacturing companies, including Fiat Auto and Iveco. These purchase orders were modified and extended when we acquired Satiz 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.

     During fiscal 2004, our Fiat Auto contract was renewed for three years (2005-2007) for the exclusive supply of editorial services, preparation of documentation as well as other related services. Our Iveco contract was renewed for three years (2004-2006) with an option for the fourth year for the exclusive supply of editorial services, preparation of documentation as well as other related activities.

     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. Quality certificates are site specific and are based upon the individual needs of our customers.

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     Our services, especially to automotive customers, are frequently delivered pursuant to annual or multi-year 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

     Employees

     Our future success is substantially dependent 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.

     As of January 2, 2005, we had the following number of employees, broken out by geographic locations:

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     A small portion of our employees in the U.S. are members of unions. We believe that our current relations with our employees are good. There are no significant 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.

     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 U.S. 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.

     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 across all of our segments. The following table sets forth the current number of facilities we operate by region:

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

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

     There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

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”. There were approximately 40 record holders of our common stock as of March 31, 2005.

     During 1999 and 2003, we completed offers to exchange 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 13 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 from continuing operations, as defined) as of and for the five fiscal years ended January 2, 2005 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. Results of operations classified as discontinued are shown separately. For additional information on discontinued operations see Note 4 of our consolidated financial statements included under Item 8. of this report. 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, income (loss) from continuing operations, cash flows and other measures of financial performance and liquidity reported in accordance with accounting principles generally accepted in the United States.

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EBITDA for each period is presented as defined in our 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.

     The following table reconciles income (loss) from continuing operations before the cumulative effect of an accounting change to EBITDA from continuing operations, 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 outsourcing service delivery capability. We are executing the following business strategy to leverage our commercial strengths:

	•	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 growth and development include non-automotive technical staffing, product quality, warranty, and aftermarket-related business services.
	•	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.
	•	Increase market share – 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. Our goal is to expand and diversify our client base by cross-selling our capabilities to existing customers and providing our customers with an integrated portfolio of technical 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 several years. Our revenue remains under pressure from continuing cost containment actions at our major customers. We believe that automotive OEM budgets will continue to be challenged due to declining market share and pressure to reduce costs.

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

     We are continually enhancing our overall business strategy by evaluating the rate of return on our portfolio of service offerings. During the fourth quarter of fiscal 2004, we determined we would seek to divest substantially all of our engineering and staffing businesses in Europe. Management will continue to explore and evaluate additional development alternatives to focus the company on business units with excellent growth prospects, particularly in the areas of warranty and dealership consulting.

     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 periods presented include the results of operations of acquired companies from the effective date of their acquisition. Where necessary, prior year information has been modified to conform to the current year presentation. Operations classified as discontinued at January 2, 2005 have been excluded from the discussion of continuing operations and are discussed separately under the heading “Discontinued Operations”.

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Results of Operations

     Fiscal Year Ended January 2, 2005 Compared with the Fiscal Year Ended December 28, 2003

     Net Sales. Overall, the decline in sales reflects program reductions in our historical automotive and technical service businesses partially offset by new programs sold during fiscal 2004. Our sales by segment, net of intercompany sales, were as follows:

     Sales of business services were favorably impacted by exchange rate variances versus 2003. The net impact of year over year exchange rate changes was to increase sales of business services by approximately $13.9 million. After adjusting for exchange rate variances, sales of our business services during fiscal 2004 declined $25.9 million, or 9.2%, from fiscal 2003. The decline in business services is primarily due to reduced demand for custom communication services in our Italian operations, in part due to commercial challenges confronting our principal customer, Fiat Auto as well as reduced demand services with specific customers in the U.S. We are currently focused on diversifying our customer base in the U.S. to offset these declines. We recently executed a three-year extension of our contract with Fiat Auto covering most services on commercially reasonable terms that include price reductions, but accelerated invoice payment terms.

     The decline in human capital services is primarily due to reduced volumes in our engineering staffing and IT and technical staffing services. Volume reductions reflect a 25.1% decline in automotive contract staffing volumes while other human capital services volumes decreased 7.9% versus fiscal 2003. The decline in automotive staffing volumes reflect continued pressures from auto clients to reduce costs in response to lower sales volumes.

     The decline in engineering services is primarily due to the shutdown of manufacturing engineering operations in North America. Demand for engineering services remained relatively stable during 2004.

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

     Overall gross profits from continuing operations decreased from 2003 due to both reduced sales volumes and price changes. Volume reductions resulted in a decrease in gross profit of over $18.5 million. Price changes included customer mandated reductions, changes agreed with customers to secure longer-term contracts, and changes to our mix of services. Gross profit, as a percent of sales, improved from 2003 due to cost reductions implemented during 2003 and continued initiatives during 2004. We have realigned our variable cost structure to current levels of business by reducing indirect labor and operating costs, facility consolidations, and elimination of unprofitable operations that are not strategic to our long-term growth. Such initiatives generated savings of over $18.4 million during 2004. We will continue to rationalize our cost structure for selected programs while working to expand more profitable lines of business.

     Selling, general and administrative expenses decreased $14.1 million compared to fiscal 2003. Selling, general and administrative expenses, as a percentage of net sales, were 7.3% during fiscal 2004 compared to 8.9% during fiscal 2003. The decrease is primarily due to ongoing cost reductions. Cost reductions were implemented across our operations in response to sales declines. Reductions were achieved through staff reductions, operational streamlining and simplification of our support and backroom activities. We will continue to evaluate our selling, general and administrative expenses relative to current levels of business.

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     Operating results during 2004 reflect a $1.7 million charge substantially due to continued restructuring and cost reduction actions at our Italian subsidiary, Satiz. Fiscal year 2003 results include a loss on our investment in Prototipo Holdings BV, which amounted to $1.6 million. Operating results during 2003 include various restructuring charges totaling $20.3 million. For a detailed analysis and explanation of these costs refer to “Restructuring Initiatives” below.

     Interest Expense. Interest expense increased $2.3 million, from $28.8 million during fiscal 2003 to $31.1 million during fiscal 2004. Interest expense during fiscal 2003 included 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 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. Interest expense during 2004, reflects a significant increase in interest rates on debt outstanding versus our prior arrangements due to the revised terms and conditions associated with our 2003 refinancing. Average debt outstanding also increased nominally versus 2003 due to the conversion from variable to fixed debt outstanding for much of our financing.

     Income taxes. Our provision for income taxes was $1.7 million during fiscal 2004 compared to $18.7 million during fiscal 2003. The income tax expense in 2004 is primarily due to earnings from selected operations where valuation allowances have not been recorded in previous years. 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. In accordance with SFAS No. 109, when negative evidence such as cumulative losses exists management must 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.

     Discontinued Operations. In the fourth quarter of fiscal 2004, management determined that it would seek to divest substantially all engineering and staffing businesses in Europe. Due to changing competitive requirements and customer demands for automotive engineering and staffing in Europe, combined with management’s focus on businesses with higher growth and return prospects, the Company determined these businesses are no longer core to its strategies. A process for selling the businesses was initiated and prospective purchasers have been identified the sale is expected to occur during 2005. In accordance with SFAS No. 144, discontinued operations have been eliminated from the on-going operations of MSXI.

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     The following table represents the income statement of those entities, which are in the disposal process: