**Management’s Responsibility forFinancial Reporting**

 

 

IntierAutomotive Inc. management is responsible for the preparation and presentationof the consolidated financial statements and all other information in thisAnnual Report. The consolidated financial statements were prepared bymanagement in accordance with Canadian generally accepted accountingprinciples. The preparation of the consolidated financial statements inconformity with Canadian generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the amounts reportedtherein. Management has determined such amounts on a reasonable and prudentbasis to present fairly, in all material respects, the consolidated financialstatements; however, actual results may differ from these estimates. Financialinformation presented elsewhere in this Annual Report has been prepared bymanagement on a basis consistent with the consolidated financial statements.The consolidated financial statements have been reviewed by the Audit Committeeand approved by the Board of Directors of Intier Automotive Inc.

 

Managementis responsible for the development and maintenance of systems of internalaccounting and administrative controls of high quality consistent withreasonable cost. Such systems are designed to provide reasonable assurance thatthe financial information is accurate, relevant and reliable, and that theCompany’s assets are appropriately accounted for and adequately safeguarded.

 

TheCompany’s Audit Committee is appointed by the Board of Directors annually andis comprised solely of outside independent directors. The Audit Committee meetsperiodically with management, as well as with the internal auditors and theindependent auditors, to satisfy itself that each is properly discharging itsresponsibilities, to review the consolidated financial statements and theindependent Auditors’ Report and to discuss significant financial reportingissues and auditing matters. The Audit Committee reports its findings to theBoard of Directors for consideration when approving the consolidated financialstatements for issuance to the shareholders. The Audit Committee alsoconsiders, for review by the Board of Directors and approval by theshareholders, the engagement or reappointment of the independent auditors andthe approval of their fees.

 

Theconsolidated financial statements have been audited by Ernst & Young LLP,the independent auditors, in accordance with Canadian and United Statesgenerally accepted auditing standards on behalf of the shareholders of IntierAutomotive Inc. The Auditors’ Report outlines the nature of their examinationand their opinion on the consolidated financial statements of the Company. Theindependent auditors have full and unrestricted access to the Audit Committee.

** **
| (Signed) **Donald  J. Walker**          | (Signed) **Michael  E. McCarthy** |
|-----------------------------------------|-----------------------------------|
| *President and Chief Executive Officer* | *Executive Vice-President and*    |
|                                    | *Chief Financial Officer*         |
| Newmarket,  Canada                      |                              |
| February  17, 2004                      |                              |

 

1

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**Auditors’ Report**

 

 

**To the Shareholders of IntierAutomotive Inc.**

 

We have audited the consolidated balance sheets ofIntier Automotive Inc. as at December 31, 2003 and 2002 and the consolidatedstatements of income, retained earnings and Magna’s net investment and cashflows for each of the years in the three-year period ended December 31, 2003.These financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements basedon our audits.

 

We conducted our audits in accordance with Canadiangenerally accepted auditing standards and United States generally acceptedauditing standards. Those standards require that we plan and perform an auditto obtain reasonable assurance whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation.

 

In our opinion, these consolidated financialstatements present fairly, in all material respects, the financial position ofthe Company as at December 31, 2003 and 2002 and the results of its operationsand its cash flows for each of the years in the three-year period endedDecember 31, 2003 in accordance with Canadian generally accepted accountingprinciples.

 

As described in Note 2 to these consolidatedfinancial statements, the Company changed its accounting policy for stock-basedcompensation.

** **
|                           |   |
|---------------------------|--------|
| **Ernst & Young LLP** |   |
| *Chartered Accountants*   |   |
|                      |   |
| Toronto, Canada           |   |
| February  17, 2004        |   |

 

2

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**SignificantAccounting Policies**

 

 

Basisof Presentation

 

Theconsolidated financial statements of Intier Automotive Inc. (the “Company”)have been prepared in U.S. dollars following Canadian generally acceptedaccounting principles (“Canadian GAAP”). These principles are also inconformity, in all material respects, with United States generally acceptedaccounting principles (“U.S. GAAP”), except as described in Note 23 to theconsolidated financial statements.

 

Principlesof Consolidation

 

TheCompany directly supplies most of the major automobile manufacturers in theworld with approximately 24,000 employees at 71 manufacturing facilities and 17product development, engineering and testing centres in North America, Europe,Brazil, Japan and China.

 

TheCompany’s subsidiaries are included in these consolidated financial statementsusing the purchase method of accounting from the date they were acquired byMagna International Inc. (“Magna”). The Company accounts for its interests injointly controlled entities using the proportionate consolidation method. Allsignificant intercompany balances and transactions have been eliminated.

 

Theconsolidated financial statements prior to August 1, 2001 present the historiccombined results of operations and cash flows of the assets and liabilitiesreorganized under the Company on a carve out basis from Magna. To give effectto the continuity of Magna’s interest in the assets and liabilities of theCompany, all the assets and liabilities have been recorded in theseconsolidated financial statements at Magna’s book values except for assetsunder capital leases related to the distribution of land and buildings by theCompany to a related party, MI Developments Inc. (“MID”), during the year endedDecember 31, 1998.

 

Thecomparative information prior to August 1, 2001 reflects the consolidatedfinancial position, results of operations, changes in Magna’s net investmentand cash flows of the Company as if it had operated as a stand-alone entitysubject to Magna’s control. Certain of the expenses presented in theseconsolidated financial statements represent intercompany allocations andmanagement estimates of the cost of services provided by Magna. Theseallocations and estimates are considered by management to be the best availableapproximation of the expenses that the Company would have incurred had itoperated on a stand-alone basis over the periods presented.

 

As aresult of the basis of presentation described above, the 2001 comparativeconsolidated statement of income may not necessarily be indicative of therevenues and expenses that would have resulted had the Company operated as astand-alone entity prior to August 1, 2001.

 

ForeignCurrency Translation

 

Assetsand liabilities of the Company’s operations having a functional currency otherthan the U.S. dollar are translated into U.S. dollars using the exchange ratein effect at the year end and revenues and expenses are translated at theaverage rate during the year. Exchange gains or losses on translation of theCompany’s net equity investment in these operations are deferred as a separatecomponent of shareholders’ equity.

 

Theappropriate amounts of exchange gains or losses accumulated in the separatecomponent of shareholders’ equity are reflected in income when there is areduction, as a result of capital transactions, in the Company’s net investmentin the operations that gave rise to such exchange gains and losses.

 

Foreignexchange gains and losses on transactions occurring in a currency other than anoperation’s functional currency are reflected in income except for gains andlosses on foreign exchange contracts used to hedge specific future commitmentsin foreign currencies. Gains and losses on these contracts are accounted for asa component of the related hedged transaction. In addition, gains and lossesfrom foreign denominated debt designated as a hedge on the Company’s netinvestments in foreign operations are not included in income, but are shown inthe currency translation account.

 

3

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Useof Estimates

 

Thepreparation of the consolidated financial statements in conformity withCanadian generally accepted accounting principles requires management to makeestimates and assumptions that affect the amounts reported and disclosed in theconsolidated financial statements and accompanying notes. Actual results coulddiffer from those estimates.

 

Cashand Cash Equivalents

 

Cashand cash equivalents include cash on account, demand deposits and short-terminvestments with remaining maturities of less than three months at acquisition.

 

Inventories

 

Inventoriesare valued at the lower of cost and net realizable value, with cost beingdetermined substantially on a first-in, first-out basis. Cost includes the costof materials plus direct labour applied to the product and the applicable shareof manufacturing overhead.

 

Investments

 

Investmentsin which the Company has significant influence are accounted for on the equitybasis.

 

CapitalAssets

 

Capitalassets are recorded at historical cost, which includes acquisition anddevelopment costs less related investment tax credits. Development costsinclude direct construction costs, interest capitalized on construction inprogress and land under development and indirect costs wholly attributable todevelopment.

 

Depreciationis provided on a straight-line basis over the estimated useful lives of capitalassets at annual rates of 21/2% to 5% for buildings, 7% to 10% for generalpurpose equipment and 10% to 30% for special purpose equipment. Assets undercapital leases are amortized over the respective lease terms.

 

Allnon-capital costs incurred in establishing new facilities, which requiresubstantial time to reach commercial production capability, are expensed asincurred.

 

Goodwill

 

EffectiveJanuary 1, 2002, goodwill is no longer amortized and is subject to an annualimpairment test. Goodwill impairment is evaluated between annual tests upon theoccurrence of certain events or circumstances. Goodwill impairment is assessedbased on a comparison of the fair value of a reporting unit to the underlyingcarrying value of the reporting unit’s net assets, including goodwill. When thecarrying amount of the reporting unit exceeds its fair value, the fair value ofthe reporting unit’s goodwill is compared with its carrying amount to measurethe amount of impairment loss, if any. The fair value of the goodwill isdetermined using the estimated discounted future cash flows of the reportingunit.

 

Priorto January 1, 2002, goodwill was generally amortized over 20 years and in allcases amortization did not exceed 40 years, and goodwill impairment wasassessed based on estimated future undiscounted cash flows for the business towhich the goodwill related.

 

Long-LivedAssets

 

TheCompany evaluates long-lived assets for impairment whenever indicators ofimpairment exist. Indicators of impairment include goodwill impairment,prolonged operating losses or a decision to cease or dispose of, or otherwisechange the use of an existing long-lived asset.

 

4

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Animpairment loss is recognized when the carrying value of an asset to be heldand used exceeds the sum of the undiscounted cash flows expected from its useand eventual disposition. An impairment loss is measured as the amount by whichthe assets carrying value exceeds its fair value. Discounted cash flows areused to determine fair value.

 

Priorto January 1, 2002, asset impairment was measured as the amount by which theasset’s carrying value exceeded the undiscounted future cash flow from the useof the asset.

 

RevenueRecognition

 

Revenuefrom the sale of manufactured products is recognized when the price is fixed ordeterminable, in accordance with mutually agreed upon pricing, collectibilityis reasonably assured, upon shipment to (or receipt) by customers depending oncontractual terms, and acceptance by customers of the products in accordancewith mutually agreed upon specifications and quality standards detailed in theunderlying contract arrangements.

 

Revenuefrom separately priced engineering service and tooling contracts is recognizedsubstantially on a completed contract basis. The description of the policy hasbeen amended to more accurately reflect the method of accounting for separatelypriced engineering services and tooling contracts. In addition, revenues arerecognized on a percentage of completion basis in respect of design andengineering services provided to customers under certain long-term contracts.

 

Revenueand cost of sales, including amounts from separately priced engineering andtooling contracts, are presented on a gross basis in the consolidatedstatements of income when the Company is acting as principal and is subject tosignificant risks and rewards in connection with the process of bringing theproduct to its final state and in the post sale dealings with its customers.Otherwise, components of revenues and related costs are presented on a netbasis.

 

Pre-ProductionCosts Related to Long-Term Supply Agreements

 

Costsincurred (net of customer subsidies) related to design and engineering, whichare paid for as part of subsequent related parts production piece priceamounts, are expensed as incurred unless a contractual guarantee forreimbursement exists.

 

Costsincurred (net of customer subsidies) related to design and development costsfor moulds, dies and other tools that the Company does not own (and that willbe used in, and paid for as part of the piece price amount for, subsequentrelated parts production) are expensed as incurred unless the supply agreementprovides a contractual guarantee for reimbursement or the non-cancellable rightto use the moulds, dies and other tools during the supply agreement.

 

Costsdeferred in the above circumstances are amortized on a units of production basisto cost of goods sold over the anticipated term of the supply agreement.

 

GovernmentFinancing

 

TheCompany makes periodic applications for financial assistance under availablegovernment assistance programs in the various jurisdictions in which the Companyoperates. Grants relating to capital expenditures are reflected as a reductionof the cost of the related assets. Grants and tax credits relating to currentoperating expenditures are recorded as a reduction of expense at the time theeligible expenses are incurred. In the case of certain foreign subsidiaries,the Company receives tax super allowances which are accounted for as areduction of income tax expense. The Company also receives loans which arerecorded as liabilities in amounts equal to the cash received.

 

Researchand Development

 

Researchcosts are expensed as incurred and development costs which meet certaincriteria where future benefit is reasonably certain are deferred to the extentof their estimated recovery.

 

5

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IncomeTaxes

 

TheCompany uses the liability method of tax allocation for accounting for incometaxes. Under the liability method of tax allocation, future tax assets andliabilities are determined based on differences between the financial reportingcarrying value and the tax cost bases of assets and liabilities and aremeasured using the substantively enacted tax rates and laws that will be ineffect when the differences are expected to reverse.

 

EmployeeFuture Benefit Plans

 

Thecost of providing benefits through defined pensions and post retirement benefitplans is actuarially determined and recognized in earnings using the projectedbenefit method prorated on service and management’s best estimate of expectedplan investment performance, salary escalation, retirement ages of employeesand expected health care costs. Differences arising from plan amendments,changes in assumptions and experience gains and losses are recognized in incomeover the expected average remaining service life of employees or in the case ofretirees, the remaining life expectancy.

 

Thecost of providing benefits through defined contribution pension plans ischarged to earnings in the period in respect of which contributions becomepayable.

 

Stock-BasedCompensation

 

EffectiveJanuary 1, 2003, the Company prospectively adopted the fair value method forrecognizing compensation expense for stock options granted under its IncentiveStock Option Plan (the “Option Plan”). Under the prospective method of adoption,compensation expense is recognized for fixed price stock options granted,modified, or settled after January 1, 2003, assuming compensation expense forthe stock option plan had been determined based upon the fair value of theoptions at the grant date.

 

Thefair value of stock options is estimated at the grant date using theBlack-Scholes option pricing model. This model requires the input of a numberof assumptions, including dividend yields, expected stock price volatility,expected time until exercise and risk-free interest rates. Although theassumptions used reflect management’s best estimates, they involve inherentuncertainties based on market conditions generally outside of the control ofthe Company. If other assumptions are used, stock-based compensation expensecould be significantly impacted.

 

Compensationexpense is recognized over the vesting period of the options granted, and isrecorded in selling, general and administrative expenses in the consolidatedstatement of income and contributed surplus in the consolidated balance sheet.On the exercise of stock options, the consideration received and theaccumulated contributed surplus amount is credited to capital stock.

 

Priorto 2003, no compensation expense was recognized for stock options granted underthe Option Plan. For stock options granted during 2002, pro forma net incomeand earnings per share disclosure showing the impact of fair value accountingis included in Note 15.

 

EarningsPer Class A Subordinate Voting or Class B Share

 

Basicearnings per Class A Subordinate Voting or Class B Share are calculated on netincome attributable to Class A Subordinate Voting and Class B shares using theweighted average number of Class A Subordinate Voting and Class B Sharesoutstanding during the year.

 

Dilutedearnings per Class A Subordinate Voting or Class B Share are calculated on theweighted average number of Class A Subordinate Voting and Class B Shares thatwould have been outstanding during the year had all Convertible SeriesPreferred Shares been converted at the beginning of the year (or date ofissuance, if later) into Class A Subordinate Voting Shares based on

 

6

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theholder’s fixed price conversion option, if such conversions are dilutive. Inaddition, the weighted average number of Class A Subordinate Voting and Class BShares used to determine diluted earnings per share includes an adjustment forstock options outstanding using the treasury stock method. Under the treasurystock method:

 

•        the exercise of options is assumed to be at the beginning of the period(or at the date of issuance, if later);

•        the proceeds from the exercise of options, plus future periodcompensation expense on options granted on or after January 1, 2003, are assumedto be used to purchase Class A Subordinate Voting Shares at the average marketprice during the period; and

•        the incremental number of Class A Subordinate Voting Shares (thedifference between the number of shares assumed issued and the number of sharesassumed purchased) are included in the denominator of the diluted earnings pershare computation.

 

ConvertibleSeries Preferred Shares

 

Threekey attributes of the Company’s Convertible Series Preferred Shares have beenvalued as of their date of issuance and are presented separately in theCompany’s consolidated financial statements. These attributes are:

 

i)The retraction of the Convertible Series Preferred Shares at their carryingvalue by the holders;

 

ii)The non-cumulative cash dividend payable in respect of the Convertible SeriesPreferred Shares; and

 

iii)The ability to convert the Convertible Series Preferred Shares into Class ASubordinate Voting Shares at a fixed price.

 

Theretraction attribute is a liability of the Company and is presented aslong-term debt because it is at the option of the holder. The non-cumulativenature of the dividend means that it is dissimilar to an interest payment ondebt and, therefore, the long-term debt is presented as the net present valueof (i.e., at a discount to) the carrying value which becomes payable, at theoption of the holder, on the retraction dates. The resultant discount isamortized to income systematically from the date of issuance until the date ofretraction for each series of the Convertible Series Preferred Shares.

 

Thenon-cumulative dividend, for reasons indicated above, is not considereddebt-related. However, because holders of the Convertible Series PreferredShares expect to receive dividends and it was the Company’s expectation, at thedate of issuance, to pay dividends, there is a value to the expected stream ofdividend payments. The net present value of this expected dividend stream has,therefore, been presented as equity. As dividends are declared, asystematically calculated portion of the dividend is shown as a return ofcapital and is deducted from the amount presented as equity. The dividends onthe Convertible Series Preferred Shares as presented in the consolidatedstatements of income and retained earnings and Magna’s net investment reflectthe actual dividend declared net of the amount considered a return on capital.

 

Thethird attribute, the conversion feature, is similar to a stock warrant in thatit provides holders with the option to exchange their Convertible Series PreferredShares for Class A Subordinate Voting Shares at a fixed price. The residualapproach was used to value this attribute and this amount is classified asequity.

 

ComparativeFigures

 

Certainof the comparative figures have been reclassified to conform to the currentyear method of presentation.

 

7

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**ConsolidatedBalance Sheets**

 

 
| **As at  December 31**********(U.S. dollars in millions)** |   | **2003**    |        | **2002** |   |
|------------------------------------------------------------|--------|-------------|-------------|----------|--------|
|                                                       |   |        |        |     |   |
| **Assets**                                                 |   |        |        |     |   |
| Current assets:                                            |   |        |        |     |   |
| Cash and cash equivalents                                  |   | **$**       | **216.7**   |     | $      | 241.3 |   |
| Accounts receivable *(note 21)*                            |   | **810.7**   |        | 579.9    |   |
| Inventories *(note 7)*                                     |   | **304.9**   |        | 261.7    |   |
| Prepaid expenses and other                                 |   | **37.9**    |        | 27.8     |   |
| Income taxes receivable *(note 10)*                        |   | **—**  |        | 5.5      |   |
|                                                       |   | **1,370.2** |        | 1,116.2  |   |
| Capital assets, net *(notes 8, 9)*                         |   | **561.2**   |        | 478.1    |   |
| Goodwill *(note 9)*                                        |   | **116.4**   |        | 100.7    |   |
| Future tax assets *(note 10)*                              |   | **72.5**    |        | 75.5     |   |
| Other assets *(note 6)*                                    |   | **21.8**    |        | 11.3     |   |
|                                                       |   | **$**       | **2,142.1** |     | $      | 1,781.8 |   |
|                                                       |   |        |        |     |   |
| **Liabilities and  Shareholders’ Equity**             |   |        |        |     |   |
| Current liabilities:                                       |   |        |        |     |   |
| Bank indebtedness *(note 11)*                              |   | **$**       | **29.7**    |     | $      | 48.6 |   |
| Accounts payable *(note 21)*                               |   | **830.8**   |        | 658.0    |   |
| Accrued salaries and wages                                 |   | **75.0**    |        | 74.3     |   |
| Other accrued liabilities *(note 5)*                       |   | **101.8**   |        | 50.2     |   |
| Income taxes payable *(note 10)*                           |   | **2.4**     |        | —   |   |
| Long-term debt due within one year *(note 11)*             |   | **4.4**     |        | 4.2      |   |
| Convertible Series Preferred Shares *(note 13)*            |   | **108.6**   |        | —   |   |
|                                                       |   | **1,152.7** |        | 835.3    |   |
| Long-term debt *(notes 11, 21)*                            |   | **33.0**    |        | 31.8     |   |
| Other long-term liabilities *(note 12)*                    |   | **32.6**    |        | 25.6     |   |
| Convertible Series Preferred Shares *(note 13)*            |   | **106.1**   |        | 206.2    |   |
| Future tax liabilities *(note 10)*                         |   | **45.9**    |        | 38.0     |   |
| Minority interest                                          |   | **1.1**     |        | 0.9      |   |
|                                                       |   |        |        |     |   |
| **Shareholders’ equity:**                             |   |        |        |     |   |
| Convertible Series Preferred Shares *(note 13)*            |   | **11.8**    |        | 22.0     |   |
| Class A Subordinate Voting Shares *(note 14)*              |   | **86.1**    |        | 71.8     |   |
| Class B Shares *(note 14)*                                 |   | **495.8**   |        | 495.8    |   |
| Contributed surplus *(notes 2, 15)*                        |   | **0.6**     |        | —   |   |
| Retained earnings                                          |   | **61.1**    |        | 17.2     |   |
| Currency translation adjustment *(note 17)*                |   | **115.3**   |        | 37.2     |   |
|                                                       |   | **770.7**   |        | 644.0    |   |
|                                                       |   | **$**       | **2,142.1** |     | $      | 1,781.8 |   |

 

*Commitments and contingencies (notes 11 and 22)*

*The accompanying notes are an integral part of theseconsolidated financial statements*

 
| On behalf of the Board:   |                   |
|---------------------------|------------------------|
|                      |                   |
| (Signed) Lawrence Worrall | (Signed) Neil G. Davis |
| Director                  | Director               |

 

8

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**Consolidated Statements of Income****, Retained Earnings and Magna’s Net Investment**

 

 
| **Years ended  December 31****(U.S. dollars in millions, except per share figures and numbers of shares)** |   | **2003**    |        | **2002**   |   | **2001** |   |
|------------------------------------------------------------------------------------------------------------|--------|-------------|-------------|------------|--------|----------|--------|
|                                                                                                       |   |        | ** **  |       |   |     |   |
| Sales *(note 21)*                                                                                          |   | **$**       | **4,654.6** | ** ** | $      | 3,861.6  |   | $ | 3,268.1 |   |
| Cost of goods sold *(note 21)*                                                                             |   | **4,117.8** | ** **  | 3,374.9    |   | 2,861.6  |   |
| Depreciation and amortization *(note 9)*                                                                   |   | **99.5**    | ** **  | 88.5       |   | 88.0     |   |
| Selling, general and administrative *(notes 2, 15)*                                                        |   | **238.3**   | ** **  | 197.6      |   | 168.1    |   |
| Affiliation and social fees *(note 21)*                                                                    |   | **62.6**    | ** **  | 55.3       |   | 48.8     |   |
| Other charges *(note 9)*                                                                                   |   | **—**  | ** **  | 23.6       |   | —   |   |
| Operating income                                                                                           |   | **136.4**   | ** **  | 121.7      |   | 101.6    |   |
| Interest expense (income), net *(notes 11, 21)*                                                            |   | **1.6**     | ** **  | (1.5       | )      | 16.2     |   |
| Amortization of discount on Convertible  Series Preferred Shares *(notes 13, 21)*                          |   | **12.4**    | ** **  | 11.6       |   | 4.8      |   |
| Equity (income) loss *(note 6)*                                                                            |   | **(0.4**    | **)**       | (0.6       | )      | 0.4      |   |
| Income before income taxes and minority  interest                                                          |   | **122.8**   | ** **  | 112.2      |   | 80.2     |   |
| Income taxes *(note 10)*                                                                                   |   | **60.3**    | ** **  | 64.5       |   | 40.7     |   |
| Minority interest                                                                                          |   | **0.2**     | ** **  | (0.9       | )      | (0.4     | )      |
| Net income                                                                                                 |   | **$**       | **62.3**    | ** ** | $      | 48.6     |   | $ | 39.9 |   |
| Financing charge on Convertible Series  Preferred Shares *(notes 13, 21)*                                  |   | **1.1**     | ** **  | 1.9        |   | 0.9      |   |
| Net income attributable to Class A  Subordinate Voting and Class B Shares                                  |   | **$**       | **61.2**    | ** ** | $      | 46.7     |   | $ | 39.0 |   |
| Retained earnings and Magna’s net  investment, beginning of year                                      |   | **17.2**    | ** **  | 15.9       |   | 850.2    |   |
| Adjustment for change in accounting policy  for goodwill *(note 9)*                                        |   | **—**  | ** **  | (35.7      | )      | —   |   |
| Net distribution to Magna                                                                                  |   | **—**  | ** **  | —     |   | (869.5   | )      |
|                                                                                                       |   |        | ** **  |       |   |     |   |
| Dividends on Class A Subordinate Voting and  Class B Shares                                                |   | **(17.3**   | **)**       | (9.7       | )      | (2.0     | )      |
| Change in currency translation adjustment *(note 17)*                                                      |   | **—**  | ** **  | —     |   | (1.8     | )      |
| Retained earnings, end of year                                                                             |   | **$**       | **61.1**    | ** ** | $      | 17.2     |   | $ | 15.9 |   |
|                                                                                                       |   |        | ** **  |       |   |     |   |
| Earnings per Class A Subordinate Voting or  Class B Share *(note 3)*                                       |   |        | ** **  |       |   |     |   |
| Basic                                                                                                      |   | **$**       | **1.26**    | ** ** | $      | 0.97     |   | $ | 0.37 |   |
| Diluted                                                                                                    |   | **$**       | **1.18**    | ** ** | $      | 0.95     |   | $ | 0.37 |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding *(in millions) (note 3)*      |   |        | ** **  |       |   |     |   |
| Basic                                                                                                      |   | **48.6**    | ** **  | 48.2       |   | 47.9     |   |
| Diluted                                                                                                    |   | **63.5**    | ** **  | 63.6       |   | 47.9     |   |
|                                                                                                       |   |        | ** **  |       |   |     |   |
| Pro forma earnings per Class A Subordinate Voting  or Class B Share *(note 4)*                        |   |        | ** **  |       |   |     |   |
| Basic                                                                                                      |   |        | ** **  |       |   | $        | 0.91   |   |
| Diluted                                                                                                    |   |        | ** **  |       |   | $        | 0.90   |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding *(in millions) (note 4)*      |   |        | ** **  |       |   |     |   |
| Basic                                                                                                      |   |        | ** **  |       |   | 44.9     |   |
| Diluted                                                                                                    |   |        | ** **  |       |   | 59.8     |   |

* *

*The accompanying notes are an integral part of theseconsolidated financial statements.*

 

9

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**Consolidated Statements of Cash Flows**

 

 
| **Years ended  December 31****(U.S. dollars in millions)**              |   | **2003**   |       | **2002**   |   | **2001** |   |
|-------------------------------------------------------------------------|--------|------------|------------|------------|--------|----------|--------|
|                                                                    |   |       | ** ** |       |   |     |   |
| Cash provided from (used for):                                          |   |       | ** ** |       |   |     |   |
|                                                                    |   |       |       |       |   |     |   |
| **Operating Activities**                                                |   |       | ** ** |       |   |     |   |
| Net income                                                              |   | **$**      | **62.3**   | ** ** | $      | 48.6     |   | $ | 39.9 |   |
| Items not involving current cash flows *(note 19)*                      |   | **150.0**  | ** ** | 155.5      |   | 101.2    |   |
|                                                                    |   | **212.3**  |       | 204.1      |   | 141.1    |   |
| Change in non-cash working capital *(note 19)*                          |   | **(59.0**  | **)**      | 111.4      |   | 25.9     |   |
|                                                                    |   | **153.3**  |       | 315.5      |   | 167.0    |   |
| **Investment Activities**                                               |   |       | ** ** |       |   |     |   |
| Capital asset additions                                                 |   | **(129.6** | **)**      | (136.8     | )      | (87.6    | )      |
| Increase in investments and other assets                                |   | **(11.6**  | **)**      | (3.1       | )      | (5.0     | )      |
| Proceeds from disposition of capital assets  and other                  |   | **1.2**    | ** ** | 4.8        |   | 2.6      |   |
|                                                                    |   | **(140.0** | **)**      | (135.1     | )      | (90.0    | )      |
| **Financing Activities**                                                |   |       | ** ** |       |   |     |   |
| (Decrease) increase in bank indebtedness                                |   | **(26.1**  | **)**      | 0.6        |   | 34.5     |   |
| Repayments of long-term debt and other  long-term liabilities           |   | **(10.9**  | **)**      | (4.6       | )      | (8.1     | )      |
| Net distribution to Magna *(note 21)*                                   |   | **—** | ** ** | —     |   | (144.4   | )      |
| Dividends on Class A Subordinate Voting and  Class B Shares *(note 14)* |   | **(17.3**  | **)**      | (9.7       | )      | (2.0     | )      |
| Dividends on Convertible Series Preferred  Shares *(notes 13, 14)*      |   | **(11.1**  | **)**      | (8.4       | )      | (1.9     | )      |
| Issue of Class A Subordinate Voting Shares,  net *(note  14)*           |   | **10.2**   | ** ** | 0.1        |   | 71.7     |   |
|                                                                    |   | **(55.2**  | **)**      | (22.0      | )      | (50.2    | )      |
| Effect of exchange rate changes on cash and  cash equivalents           |   | **17.3**   | ** ** | 5.8        |   | (1.3     | )      |
| Net (decrease) increase in cash and cash  equivalents during the year   |   | **(24.6**  | **)**      | 164.2      |   | 25.5     |   |
| Cash and cash equivalents, beginning of year                            |   | **241.3**  | ** ** | 77.1       |   | 51.6     |   |
| Cash and cash equivalents, end of year                                  |   | **$**      | **216.7**  | ** ** | $      | 241.3    |   | $ | 77.1 |   |

 

*The accompanying notes are an integral part of these consolidatedfinancial statements.*

 

10

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**Notes to Consolidated FinancialStatements**

* *

*(All amounts in U.S. dollars unless otherwise noted and alltabular amounts in millions, except per share figures and number of shares.)*

 

 

**1.Significant Accounting Policies**

 

Thesignificant accounting policies followed by the Company are set out under“Significant Accounting Policies” preceding these consolidated financialstatements.

 

**2.Accounting Changes**

** **

**STOCK-BASED COMPENSATION**

 

Inaccordance with the Canadian Institute of Chartered Accountants (“CICA”)amended Handbook Section 3870 “Stock-Based Compensation and Other Stock-BasedPayments” (“CICA 3870”), effective January 1, 2003, the Company prospectivelyadopted without restatement of any comparable period the fair value method forrecognizing compensation expense for fixed price stock options. As a result,for the year ended December 31, 2003, the Company recognized compensationexpense of $0.6 million. For awards granted prior to January 1, 2003, theCompany continues to use the intrinsic value method.

** **

**GOODWILL**

 

InAugust 2001, the Canadian Institute of Chartered Accountants issued HandbookSection 3062 “Goodwill and Other Intangible Assets” (“CICA 3062”). CICA 3062requires the application of the non-amortization and impairment rules forexisting goodwill and intangible assets, which meet the criteria for indefinitelife beginning with fiscal years starting after December 15, 2001. In allcases, the standard must be adopted at the beginning of a fiscal year.Effective January 1, 2002, the Company adopted these new recommendationsprospectively without restatement of any comparable period (see Note 9).

** **

**IMPAIRMENT OF LONG-LIVED ASSETS**

 

InJanuary 2003, the CICA issued Handbook Section 3063 “Impairment of Long-LivedAssets” (“CICA 3063”). CICA 3063 requires an impairment loss to be recognizedwhen the carrying amount of an asset to be held and used exceeds the sum of theundiscounted cash flows expected from its use and eventual disposition. Animpairment loss is measured as the amount by which the asset’s carrying amountexceeds its fair value. As permitted by CICA 3063, discounted cash flows areused to determine fair value. Previously, Canadian GAAP required that assetimpairment be measured as the amount by which the asset’s carrying valueexceeded the undiscounted future cash flow from the use of the asset. In allcases, the standard must be adopted for fiscal years beginning April 1, 2003.The Company has elected to adopt these new recommendations early, effectiveJanuary 1, 2002, prospectively without restatement of any prior period (seeNote 9).

 

**3. EarningsPer Share and Retained Earnings for the Years Ended December 31, 2003, 2002 and2001.**

 

Asdescribed under “Principles of Consolidation in Significant AccountingPolicies”, earnings per share and retained earnings for the year ended December31, 2001 include net income for the five month period subsequent to July 31,2001.

 

11

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Thefollowing table summarizes the calculation of earnings per share for the yearsended December 31, 2003, 2002 and for the five month period ended December 31,2001:

 
| **Years ended  December 31**                                                                   |   | **2003** |     | **2002** |   | **2001** |   |
|------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                                                                                           |   |     |     |     |   |     |   |
| **Basic earnings per Class A  Subordinate Voting or Class B Share:**                           |   |     |     |     |   |     |   |
| Net income attributable to Class A  Subordinate Voting and Class B Shares                      |   | **$**    | **61.2** |     | $      | 46.7     |   | $ | 17.9 |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding during the period |   | **48.6** |     | 48.2     |   | 47.9     |   |
| Basic earnings per Class A Subordinate  Voting or Class B Share                                |   | **$**    | **1.26** |     | $      | 0.97     |   | $ | 0.37 |   |
|                                                                                           |   |     |     |     |   |     |   |
| **Diluted earnings per Class  A Subordinate Voting or Class B Share:**                         |   |     |     |     |   |     |   |
| Net income attributable to Class A  Subordinate Voting and Class B Shares                      |   | **$**    | **61.2** |     | $      | 46.7     |   | $ | 17.9 |   |
| Adjustments (net of related tax effects):                                                      |   |     |     |     |   |     |   |
| Amortization of discount on Convertible  Series Preferred Shares                               |   | **12.4** |     | 11.6     |   | —   |   |
| Financing charge on Convertible Series  Preferred Shares                                       |   | **1.1**  |     | 1.9      |   | —   |   |
|                                                                                           |   | **$**    | **74.7** |     | $      | 60.2     |   | $ | 17.9 |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding during the period |   | **48.6** |     | 48.2     |   | 47.9     |   |
| Convertible Series Preferred Shares                                                            |   | **14.8** |     | 14.9     |   | —   |   |
| Stock options                                                                                  |   | **0.1**  |     | 0.5      |   | —   |   |
|                                                                                           |   | **63.5** |     | 63.6     |   | 47.9     |   |
| Diluted earnings per Class A Subordinate  Voting or Class B Share                              |   | **$**    | **1.18** |     | $      | 0.95     |   | $ | 0.37 |   |

 

AtDecember 31, 2001, the Company had outstanding 2,525,000 incentive stockoptions and 2,250,000 Convertible Series Preferred Shares, which wereanti-dilutive and, therefore, not included in the December 31, 2001 earningsper share calculation above.

 

**4. ProForma Earnings Per Share**

 

Thefollowing pro forma adjustments have been made to arrive at pro forma earningsper share for the year ended December 31, 2001:

 

•        Adjustments to reflect the Company’s newcapital structure at August 1, 2001;

•        Adjustments that give effect to the payment ofrevised affiliation fees and social commitment fees pursuant to the affiliationand social commitment agreements;

•        The Company’s President and Chief ExecutiveOfficer’s cash compensation arrangements; and

•        The tax effect of the foregoing adjustments,where applicable, using an assumed income tax rate of approximately 40%.

 

Basicand diluted pro forma earnings per Class A Subordinate Voting or Class B Shareare based on the public offering of 5,476,191 Class A Subordinate Voting Sharescompleted in August 2001 and on the assumption that 42,751,938 Class B Sharesand 2,250,000 Convertible Series Preferred Shares were issued and outstandingfor the entire period presented.

 

12

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Thefollowing table summarizes the calculation of pro forma earnings per share:

 
| **Year ended  December 31**                                                                  |   | **2001** |   |
|----------------------------------------------------------------------------------------------|--------|----------|--------|
|                                                                                         |   |     |   |
| **Pro forma basic earnings  per Class A Subordinate Voting or Class B Share:**               |   |     |   |
| Net income attributable to Class A  Subordinate Voting and Class B Shares                    |   | $        | 39.0   |   |
| Pro forma adjustments (net of related tax  effects):                                         |   |     |   |
| Amortization of discount on Convertible  Series Preferred Shares                             |   | (6.1     | )      |
| Interest on debt due to Magna                                                                |   | 9.5      |   |
| Net adjustment to affiliation fees and other  corporate charges                              |   | (0.6     | )      |
| Financing charge on Convertible Series  Preferred Shares                                     |   | (0.8     | )      |
| Pro forma net income attributable to Class A  Subordinate Voting and Class B Shares          |   | $        | 41.0   |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding during the year |   | 44.9     |   |
| Pro forma basic earnings per Class A  Subordinate Voting or Class B Share                    |   | $        | 0.91   |   |
|                                                                                         |   |     |   |
| **Pro forma diluted earnings  per Class A Subordinate Voting or Class B Share:**             |   |     |   |
| Pro forma net income attributable to Class A  Subordinate Voting and Class B Shares          |   | $        | 41.0   |   |
| Pro forma adjustments (net of related tax  effects):                                         |   |     |   |
| Amortization of discount on Convertible  Series Preferred Shares                             |   | 10.9     |   |
| Financing charge on Convertible Series  Preferred Shares                                     |   | 1.7      |   |
|                                                                                         |   | $        | 53.6   |   |
| Average number of Class A Subordinate Voting  and Class B Shares outstanding during the year |   | 44.9     |   |
| Convertible Series Preferred Shares                                                          |   | 14.9     |   |
| Stock options                                                                                |   | —   |   |
|                                                                                         |   | 59.8     |   |
| Pro forma diluted earnings per Class A  Subordinate Voting or Class B Share                  |   | $        | 0.90   |   |

 

**5.Restructuring Provisions**

 

AtDecember 31, 2003, the Company had a remaining provision of $0.5 million forseverance and termination costs for the termination of four remainingemployees. During fiscal 2001, the Company recorded a restructuring charge for$2.7 million relating to the downsizing of one of the Company’sunder-performing divisions. During fiscal 2002, the Company recorded a further$2.8 million restructuring charge relating to the downsizing of the sameunder-performing division. During the years ended December 31, 2003, 2002 and2001, the Company utilized severance and termination accruals of $2.6 million,$1.6 million and $0.8 million, respectively.

 

AtDecember 31, 2002, the Company had a remaining provision for severance andtermination accruals of $1.1 million for the termination of 72 employees aspart of the relocation of production programs from one facility to another.During the years ended December 31, 2003, 2002, and 2001, the Company utilizedseverance and termination accruals of $1.1 million, $0.9 million, and $0.6million, respectively. Such amounts were included in the purchase priceallocation of previous business acquisitions.

 

**6. EquityInvestments**

 

TheCompany entered into an operating agreement on August 1, 2002 with Rush GroupL.L.C. (“Rush”) and Dakkota Integrated Systems, L.L.C. (“DIS”), whereby theCompany and Rush each have a membership interest in DIS. The Company’s interestin DIS is 45%. DIS is accounted for on an equity basis. DIS is responsible forproviding sequencing, logistics management and assembly services previouslyprovided directly by the Company with respect to interior products, modules andrelated components to OEMs for several OEM programs under which the Company ismanufacturing and supplying the interior products.

 

13

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**7.Inventories**

 

Inventoriesconsist of:

 
| **December 31**            |   | **2003**  |      | **2002** |   |
|----------------------------|--------|-----------|-----------|----------|--------|
|                       |   |      |      |     |   |
| Raw materials and supplies |   | **$**     | **99.3**  |     | $      | 74.6 |   |
| Work-in-process            |   | **31.7**  |      | 23.5     |   |
| Finished goods             |   | **41.7**  |      | 25.6     |   |
| Tooling and engineering    |   | **132.2** |      | 138.0    |   |
|                       |   | **$**     | **304.9** |     | $      | 261.7 |   |

 

Toolingand engineering inventory represents cost incurred on separately priced toolingand engineering services contracts in excess of unbilled amounts included inaccounts receivable as a result of the application of percentage of completionaccounting on certain of the Company’s tooling and engineering servicecontracts. Unbilled amounts included in accounts receivable at December 31,2003 totalled $46.8 million (December 31, 2002 – $18.3 million).

 

**8. CapitalAssets**

 

Capitalassets consist of:

 
| **December 31**                     |   | **2003**   |        | **2002**   |   |
|-------------------------------------|--------|------------|-------------|------------|--------|
|                                |   |       | ** **  |       |   |
| **Cost**                            |   |       | ** **  |       |   |
| Land                                |   | **$**      | **10.6**    | ** ** | $      | 9.0 |   |
| Buildings                           |   | **47.4**   | ** **  | 44.9       |   |
| Leasehold improvements              |   | **35.6**   | ** **  | 24.5       |   |
| Machinery and equipment             |   | **946.9**  | ** **  | 755.4      |   |
| Assets under capital leases *(i)*   |   | **27.6**   | ** **  | 25.7       |   |
| Construction in progress *(ii)*     |   | **33.4**   | ** **  | 45.3       |   |
|                                |   | **$**      | **1,101.5** |       | $      | 904.8 |   |
| **Less: accumulated  depreciation** |   |       | ** **  |       |   |
| Buildings                           |   | **(12.6**  | **)**       | (10.9      | )      |
| Leasehold improvements              |   | **(17.3**  | **)**       | (11.6      | )      |
| Machinery and equipment             |   | **(500.6** | **)**       | (396.7     | )      |
| Assets under capital leases *(i)*   |   | **(9.8**   | **)**       | (7.5       | )      |
|                                |   | **$**      | **561.2**   |       | $      | 478.1 |   |

 

----

*(i)**              **Assets under capital leases relate to the leasing ofland and buildings by the Company from a related party, MI Developments Inc.(“MID”). These lease agreements were entered into during the year endedDecember 31, 1998 (see Note 11(f)).*

*(ii)**          **Construction in process includes expenditures incurred todate, including deposits, for machinery and equipment, assembly lines andfacility upgrades and expansions which are still in progress or are not yet inservice as at the balance sheet date. Accordingly, depreciation on these assetswill commence when the assets are put into use.*

*(iii)**      **No interest was capitalized to capital assets during theperiods presented.*

*(iv)**        **Capital assets at December 31, 2002 include a net reductionin the cost and accumulated depreciation of $20.1 million due to an impairmentcharge relating to one reporting unit in the Company’s Interiors Europereporting segment (see Note 9).*

 

**9. Goodwilland Long-Lived Assets**

 

Inaccordance with Handbook Section 3062 “Goodwill and Other Intangible Assets”(“CICA 3062”), the Company completed its annual goodwill impairment analysis inthe fourth quarter of 2003, after the annual business plan process had beencompleted. The result of this analysis indicated no impairment of goodwill for2003.

 

14

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Infiscal 2002, as part of the initial application of CICA 3062, the Companyrecorded a goodwill writedown of $35.7 million, net of a nil tax recovery, ofwhich $27.6 million, $5.6 million and $2.5 million related to reporting unitsin the Interiors Europe, Closures, and Interiors North America reportingsegments. The total writedown of $35.7 million was charged against January 1,2002 opening retained earnings.

 

TheCompany completed its annual goodwill impairment analysis in the fourth quarterof 2002, after the annual business plan process had been completed. As a resultof this analysis, the Company determined that goodwill of $3.5 million relatingto one reporting unit in its Interiors Europe reporting segment was impairedunder the new rules. This impairment loss was recorded in operating income as acharge against earnings in 2002. There was no tax recovery recorded on thischarge to earnings.

 

Inaccordance with CICA 3062, the Company no longer records amortization expensefor goodwill. On an adjusted basis, the Company’s net income for the year endedDecember 31, 2001 would have been as follows if it had been appliedretroactively:

 
| **Year ended  December 31**         |   | **2001** |   |
|-------------------------------------|--------|----------|--------|
|                                |   |     |   |
| Net income as reported              |   | $        | 39.9   |   |
| Goodwill amortization, net of taxes |   | 7.2      |   |
| Adjusted net income                 |   | $        | 47.1   |   |

 

Inconjunction with the review of goodwill, the Company also assessed therecoverability of its long-lived assets in the same reporting unit in itsInteriors Europe reporting segment, following the accounting recommendations inHandbook Section 3063 “Impairment of Long-Lived Assets” (“CICA 3063”). As aresult of this review, the Company reduced the carrying value of machinery andequipment, leasehold improvements and buildings by $17.6 million, $1.4 millionand $1.1 million, respectively. As required by CICA 3063, the $20.1 millionwritedown of long-lived assets was recorded in operating income as a chargeagainst earnings in 2002. Net tax assets of $1.5 million associated with theseoperations were charged to income tax expense in 2002.

 

**10. IncomeTaxes**

 

(a)The provision for income taxes differs from the expense that would be obtainedby applying Canadian statutory rates as a result of the following:

 
| **Years ended  December 31**                                     |   | **2003** |       | **2002**   |   | **2001** |   |
|------------------------------------------------------------------|--------|----------|------------|------------|--------|----------|--------|
|                                                             |   |     | ** ** |       |   |     |   |
| Canadian statutory income tax expense                            |   | **$**    | **45.0**   | ** ** | $      | 43.3     |   | $ | 33.5 |   |
| Manufacturing and processing profits  deduction                  |   | **(1.8** | **)**      | (4.1       | )      | (5.6     | )      |
| Foreign rate differentials                                       |   | **(2.9** | **)**      | (5.4       | )      | (2.6     | )      |
| Losses not benefited                                             |   | **11.4** | ** ** | 19.5       |   | 4.9      |   |
| Amortization of discount on Convertible  Series Preferred Shares |   | **4.1**  | ** ** | 3.8        |   | 2.0      |   |
| Other                                                            |   | **4.5**  | ** ** | 7.4        |   | 8.5      |   |
| Income tax expense                                               |   | **$**    | **60.3**   | ** ** | $      | 64.5     |   | $ | 40.7 |   |

 

15

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(b)The details of the income tax provision are as follows:

 
| **Years ended  December 31** |   | **2003** |     | **2002** |   | **2001** |   |
|------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                         |   |     |     |     |   |     |   |
| **Current provision:**       |   |     |     |     |   |     |   |
| Canadian federal taxes       |   | **$**    | **15.9** |     | $      | 18.4     |   | $ | 17.5 |   |
| Provincial taxes             |   | **6.5**  |     | 9.1      |   | 9.3      |   |
| Foreign taxes                |   | **16.1** |     | 9.8      |   | 5.1      |   |
|                         |   | **38.5** |     | 37.3     |   | 31.9     |   |
| **Future provision:**        |   |     |     |     |   |     |   |
| Canadian federal taxes       |   | **1.1**  |     | 0.7      |   | 0.9      |   |
| Provincial taxes             |   | **0.5**  |     | 0.3      |   | 0.5      |   |
| Foreign taxes                |   | **20.2** |     | 26.2     |   | 7.4      |   |
|                         |   | **21.8** |     | 27.2     |   | 8.8      |   |
|                         |   | **$**    | **60.3** |     | $      | 64.5     |   | $ | 40.7 |   |

 

(c)Future income taxes have been provided on temporary differences, which consistof the following:

 
| **Years ended  December 31**                                              |   | **2003** |     | **2002** |   | **2001** |   |
|---------------------------------------------------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                                                                      |   |     |     |     |   |     |   |
| Net tax losses utilized                                                   |   | **$**    | **14.2** |     | $      | 33.5     |   | $ | 3.6 |   |
| Capital assets tax depreciation greater than  book depreciation           |   | **5.9**  |     | 3.5      |   | 1.5      |   |
| Other assets tax depreciation greater than  (less than) book depreciation |   | **1.7**  |     | (9.8     | )      | 3.7      |   |
|                                                                      |   | **$**    | **21.8** |     | $      | 27.2     |   | $ | 8.8 |   |

 

(d)Future tax assets and liabilities consist of the following temporarydifferences:

 
| **December 31**                              |   | **2003**  |       | **2002**   |   |
|----------------------------------------------|--------|-----------|------------|------------|--------|
|                                         |   |      | ** ** |       |   |
| Benefit of tax loss carryforwards            |   | **$**     | **89.7**   | ** ** | $      | 86.8 |   |
| Capital assets                               |   | **(28.3** | **)**      | (24.3      | )      |
| Other assets                                 |   | **21.2**  | ** ** | 20.7       |   |
|                                         |   | **82.6**  |       | 83.2       |   |
| Valuation allowance                          |   | **(56.0** | **)**      | (45.7      | )      |
| Future tax assets, net                       |   | **$**     | **26.6**   | ** ** | $      | 37.5 |   |
|                                         |   |      | ** ** |       |   |
| Represented on the balance sheet as follows: |   |      | ** ** |       |   |
| Future tax assets                            |   | **$**     | **72.5**   | ** ** | $      | 75.5 |   |
| Future tax liabilities                       |   | **(45.9** | **)**      | (38.0      | )      |
|                                         |   | **$**     | **26.6**   |       | $      | 37.5 |   |

 

(e)Income taxes paid in cash in the year ended December 31, 2003 were $24.8million (in the years ended December 31, 2002 and 2001 – $37.0 million and$48.0 million, respectively).

 

(f)Canadian income before income taxes and minority interest was $52.3 million forthe year ended December 31, 2003, (for the years ended December 31, 2002 and2001, – $74.5 million and $70.5 million, respectively). The correspondingamounts for foreign operations were $70.5 million for the year ended December31, 2003 (for the year ended December 31, 2002, $38.0 million and for the yearended December 31, 2001, $9.7 million).

 

(g) AtDecember 31, 2003, the Company had income tax loss carryforwards ofapproximately $142.7 million that relate to certain foreign subsidiaries, thetax benefits of which have not been recognized in the consolidated financialstatements. Of the total losses, $119.0 million expire between 2004 and 2018and the remainder have no expiry date.

 

16

----

 

(h)At December 31, 2003, $192.0 million of undistributed earnings of foreignsubsidiaries and jointly controlled entities may be subject to tax if remittedto Canada. No provision has been made for such taxes as these earnings areconsidered to be reinvested for the foreseeable future.

 

**11. Debtand Commitments**

 

(a)The Company’s long-term debt, which is substantially unsecured, consists of thefollowing:

 
| **December 31**                                                                                                  |   | **2003** |     | **2002** |   |
|------------------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                                                             |   |     |     |     |   |
| Loans from governments with a weighted  average interest rate of approximately 3% denominated primarily in euros |   | **$**    | **8.0**  |     | $      | 6.5 |   |
| Bank term debt at a weighted average  interest rate of approximately 4% denominated primarily in euros           |   | **5.6**  |     | 6.3      |   |
| Obligations under capital leases at an  implicit rate of 7.6% *(i)*                                              |   | **23.6** |     | 23.2     |   |
| Other                                                                                                            |   | **0.2**  |     | —   |   |
|                                                                                                             |   | **37.4** |     | 36.0     |   |
| Less due within one year                                                                                         |   | **4.4**  |     | 4.2      |   |
|                                                                                                             |   | **$**    | **33.0** |     | $      | 31.8 |   |

 

----

*(i)**              **Obligations under capital leases relate to the leasingof land and buildings by the Company from a related party, MI Developments Inc.(“MID”). These agreements were entered into during the year ended December 31,1998 (see Note 11(f)).*

 

(b)At December 31, 2003, future principal repayments on long-term debt (excludingobligations under capital leases) are estimated to be as follows:

 
| 2004       |   | $      | 3.2    |   |
|------------|--------|--------|--------|--------|
| 2005       |   | 3.2    |   |
| 2006       |   | 2.7    |   |
| 2007       |   | 2.8    |   |
| 2008       |   | 1.9    |   |
| Thereafter |   | — |   |
|       |   | $      | 13.8   |   |

 

(c)On September 27, 2001, the Company established a $385.0 million three-yearunsecured revolving term credit facility with customary commercial terms,bearing interest at variable rates not exceeding the prime rate of interest.The credit facility contains negative and affirmative financial and operatingcovenants and events of default customary for credit facilities of this nature,including the requirements that the Company maintain certain financial ratiosand restrictions on its ability to incur or guarantee additional indebtednessor to dispose of assets as well as the right of the lenders to declare alloutstanding indebtedness to be immediately due and payable upon the occurrenceof an event of default. The credit facility expires on September 27, 2004.

 

AtDecember 31, 2003, the Company had operating lines of credit amounting to $84.6million and term lines of credit amounting to $422.4 million. At December 31,2003, the Company had unused and available operating lines of credit and termlines of credit of $69.7 million and $353.3 million.

 

17

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(d)Interest (income) expense includes:

 
| **Years ended  December 31**                       |   | **2003**   |       | **2002**   |       | **2001** |   |
|----------------------------------------------------|--------|------------|------------|------------|------------|----------|--------|
|                                               |   |       | ** ** |       |       |     |   |
| **Interest expense:**                              |   |       | ** ** |       |       |     |   |
| Current                                            |   | **$**      | **5.2**    | ** ** | $          | 4.8      |   | $ | 0.9 |   |
| Long-term                                          |   | **0.6**    | ** ** | 0.5        |       | 0.6      |   |
| Intercompany to Magna and other related  parties   |   | **1.5**    | ** ** | 2.1        |       | 40.6     |   |
|                                               |   | **7.3**    |       | 7.4        | ** ** | 42.1     |   |
|                                               |   |       |       |       |       |     |   |
| **Interest income:**                               |   |       | ** ** |       |       |     |   |
| Current                                            |   | **(5.7**   | **)**      | (8.9       | )          | (3.0     | )      |
| Intercompany from Magna and other related  parties |   | **—** | ** ** | —     |       | (22.9    | )      |
| Interest expense (income), net                     |   | **$**      | **1.6**    | ** ** | $          | (1.5     | )      | $ | 16.2 |   |

 

Interestpaid in cash for the year ended December 31, 2003 was $7.1 million (for theyears ended December 31, 2002 and 2001 – $6.8 million and $3.7 million,respectively).

 

(e)At December 31, 2003, the Company had commitments under operating leasesrequiring annual rental payments to third parties and to Magna and otherrelated parties as follows:

 
|       |   | **Third  parties** |   | **Magna and  other  related parties** |   |
|------------|--------|--------------------|--------|---------------------------------------|--------|
|       |   |               |   |                                  |   |
| 2004       |   | $                  | 37.8   |                                  | $      | 12.5 |   |
| 2005       |   | 32.5               |   | 12.4                                  |   |
| 2006       |   | 28.8               |   | 12.4                                  |   |
| 2007       |   | 27.7               |   | 12.0                                  |   |
| 2008       |   | 22.6               |   | 10.9                                  |   |
| Thereafter |   | 41.1               |   | 48.1                                  |   |
|       |   | $                  | 190.5  |                                  | $      | 108.3 |   |

 

Forthe year ended December 31, 2003, operating lease expense amounted to $46.9million (for the years ended December 31, 2002 and 2001 – $35.1 million and$24.4 million, respectively).

 

(f)At December 31, 2003, the Company had commitments under capital leasesrequiring annual rental payments to a related party, MID, as follows:

 
| 2004                                                   |   | $      | 3.5    |   |
|--------------------------------------------------------|--------|--------|--------|--------|
| 2005                                                   |   | 3.5    |   |
| 2006                                                   |   | 3.5    |   |
| 2007                                                   |   | 3.5    |   |
| 2008                                                   |   | 3.6    |   |
| Thereafter                                             |   | 18.2   |   |
|                                                   |   | 35.8   |   |
|                                                   |   |   |   |
| Less interest and other charges                        |   | 12.2   |   |
| Obligations under capital leases                       |   | 23.6   |   |
| Less current portion                                   |   | 1.2    |   |
| Long-term portion of obligations under  capital leases |   | $      | 22.4   |   |

 

18

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(g)During the year, the Company entered into an operating lease agreement forvehicle parts tooling. The lease facility provides for the funding of thetooling costs in tranches prior to December 31, 2003 with a commitment to fundup to approximately $39 million of lease payments which are being paid monthlyover the lease term expiring in August 2008. The lease commenced when alltooling costs were funded which was prior to December 31, 2003.

 

**12.Employee Benefit Plans**

 

TheCompany’s Corporate Constitution requires that 10% of its qualifying pre-taxprofit before profit sharing (defined in its Corporate Constitution) for anyfiscal period be allocated to an Employee Equity and Profit ParticipationProgram (“EEPPP”) consisting of the Company’s deferred profit sharing plans andcash disbursements to eligible employees of the Company. Eligible Canadian,United States, United Kingdom, and European employees participate in the EEPPP.The Corporate Constitution also allows for the required contributions to bemade to certain defined benefit pension plans in addition to the Company’sdeferred profit sharing plan and cash distributions to eligible employees. AllU.S. and Canadian employees that participate in the deferred profit sharingplans were, and all new employees are, given the option of receiving a reducedpercentage entitlement under the deferred profit sharing plan plus a definedbenefit pension or continuing to receive their previous percentage entitlement.The defined benefit pension is payable to retirees at age 65 or older and isbased on years of service and compensation levels. Participants may take earlyretirement after age 55 and receive a reduced pension package. In 2001, theCompany participated in the Magna EEPPP program on similar terms.

 

Inaddition, a limited number of companies in the United Kingdom and Europesponsor defined benefit pension and similar arrangements for their employees.Pursuant to labour laws and national labour agreements in certain Europeancountries, the Company is obliged to provide lump sum termination payments toemployees on retirement or involuntary termination and long service paymentscontingent upon persons reaching a pre-defined number of years of service.

 

Allpension plans and similar arrangements are funded to the minimum legal fundingrequirements. In certain circumstances there is no legal requirement to fundthis obligation until such time as they are actually incurred, and as a result,these arrangements are unfunded.

 

Thecost of pension benefits earned by employees is actuarially determined usingthe projected benefit method pro rated on service and management’s bestestimate of expected plan investment performance, salary escalation andretirement ages of employees.

 

Theweighted average of significant actuarial assumptions adopted in measuring theCompany’s projected pension benefit obligations are as follows:

 
|                          |   | **2003** |       | **2002** |   | **2001** |   |
|-------------------------------|--------|----------|------------|----------|--------|----------|--------|
|                          |   |     | ** ** |     |   |     |   |
| Discount rate                 |   | **5.45** | **%**      | 5.65     | %      | 5.90     | %      |
| Rate of compensation increase |   | **3.65** | **%**      | 3.60     | %      | 3.80     | %      |

 

The weighted average of significant actuarial assumptionsused in measuring the Company’s net periodic pension benefit costs are asfollows:

 
|                           |   | **2003** |       | **2002** |   | **2001** |   |
|--------------------------------|--------|----------|------------|----------|--------|----------|--------|
|                           |   |     | ** ** |     |   |     |   |
| Discount rate                  |   | **5.65** | **%**      | 5.90     | %      | 5.90     | %      |
| Rate of compensation increase  |   | **3.60** | **%**      | 3.80     | %      | 3.80     | %      |
| Expected return on plan assets |   | **7.25** | **%**      | 7.50     | %      | 7.50     | %      |

 

19

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Informationabout the Company’s defined benefit pension plans is as follows:

 
| **Years ended December 31**                                    |   | **2003**  |       | **2002**   |   | **2001** |   |
|----------------------------------------------------------------|--------|-----------|------------|------------|--------|----------|--------|
|                                                           |   |      | ** ** |       |   |     |   |
| **Benefit obligations:**                                       |   |      | ** ** |       |   |     |   |
| Beginning  of year                                             |   | **$**     | **61.4**   | ** ** | $      | 48.5     |   | $ | 51.7 |   |
| Current  service and interest cost                             |   | **9.9**   | ** ** | 7.7        |   | 6.7      |   |
| Actuarial  losses (gains) and changes in actuarial assumptions |   | **8.0**   | ** ** | 2.1        |   | (2.6     | )      |
| Benefits  paid                                                 |   | **(5.0**  | **)**      | (2.0       | )      | (2.3     | )      |
| Currency  translation                                          |   | **9.9**   | ** ** | 5.1        |   | (5.0     | )      |
| End  of year                                                   |   | **$**     | **84.2**   | ** ** | $      | 61.4     |   | $ | 48.5 |   |
|                                                           |   |      |       |       |   |     |   |   |   |   |
| **Plan assets at fair value:**                                 |   |      | ** ** |       |   |     |   |
| Beginning  of year                                             |   | **$**     | **28.4**   | ** ** | $      | 28.5     |   | $ | 34.3 |   |
| Return  on plan assets                                         |   | **5.1**   | ** ** | (5.2       | )      | (3.4     | )      |
| Employer  contributions                                        |   | **8.0**   | ** ** | 4.6        |   | 2.7      |   |
| Benefits  paid                                                 |   | **(5.0**  | **)**      | (2.0       | )      | (2.3     | )      |
| Currency  translation                                          |   | **3.9**   | ** ** | 2.5        |   | (2.8     | )      |
| End  of year                                                   |   | **$**     | **40.4**   | ** ** | $      | 28.4     |   | $ | 28.5 |   |
| Unfunded  amount                                               |   | **$**     | **43.8**   | ** ** | $      | 33.0     |   | $ | 20.0 |   |
| Unrecognized  actuarial (losses) gains                         |   | **(18.3** | **)**      | (12.6      | )      | (3.1     | )      |
| Net  amount recognized in the consolidated balance sheets      |   | **$**     | **25.5**   | ** ** | $      | 20.4     |   | $ | 16.9 |   |
|                                                           |   |      |       |       |   |     |   |   |   |   |
| **Net periodic benefit cost:**                                 |   |      | ** ** |       |   |     |   |
| Current  service and interest costs                            |   | **$**     | **9.9**    | ** ** | $      | 7.7      |   | $ | 6.7 |   |
| Expected  return on plan assets                                |   | **(2.1**  | **)**      | (2.2       | )      | (2.4     | )      |
| Actuarial  losses                                              |   | **0.5**   | ** ** | —     |   | —   |   |
|                                                           |   | **$**     | **8.3**    |       | $      | 5.5      |   | $ | 4.3 |   |

 

Duringthe year ended December 31, 2003, the Company incurred $2.7 million (for theyears ended December 31, 2002 and 2001 – $1.7 million and $1.8 million,respectively) of defined contribution plan expense.

 

NorthAmerican retirees aged 60 or older with ten or more years of service areeligible for benefits under the post retirement medical benefit plans. Inaddition, existing retirees as at August 1, 2000 that meet the above criteriaare also eligible for benefits. Benefits are capped based on years of service.The cost of retirement medical benefits earned by employees is actuariallydetermined using the projected benefit method pro rated on service andestimates of retirement ages of employees and expected health care costs.

 

Inaddition, an eligible group of inactive employees are entitled to health carebenefits under a pre-existing post retirement medical benefit plan. Thebenefits under this program are actuarially determined based on expected futurebenefit costs over the remaining life expectancy of the group of eligibleemployees.

 

Theweighted average of significant actuarial assumptions used in measuring theCompany’s projected post retirement medical benefit obligations are as follows:

 
|          |   | **2003** |       | **2002** |   | **2001** |   |
|---------------|--------|----------|------------|----------|--------|----------|--------|
|          |   |     | ** ** |     |   |     |   |
| Discount rate |   | **6.00** | **%**      | 6.75     | %      | 7.50     | %      |

 

The weighted average of actuarial assumptions used inmeasuring the Company’s net periodic post retirement medical benefit costs areas follows:

 
|          |   | **2003** |       | **2002** |   | **2001** |   |
|---------------|--------|----------|------------|----------|--------|----------|--------|
|          |   |     | ** ** |     |   |     |   |
| Discount rate |   | **6.75** | **%**      | 7.50     | %      | 7.50     | %      |

 

20

----

 

Informationabout the Company’s post retirement medical benefit plans is as follows:

 
| **Years ended December 31**                                    |   | **2003** |       | **2002**   |   | **2001** |   |
|----------------------------------------------------------------|--------|----------|------------|------------|--------|----------|--------|
|                                                           |   |     | ** ** |       |   |     |   |
| **Benefit obligations:**                                       |   |     | ** ** |       |   |     |   |
| Beginning  of year                                             |   | **$**    | **8.2**    | ** ** | $      | 7.8      |   | $ | 8.5 |   |
| Current  service and interest cost                             |   | **1.7**  | ** ** | 0.8        |   | 0.8      |   |
| Actuarial  losses (gains) and changes in actuarial assumptions |   | **8.8**  | ** ** | 0.6        |   | (0.5     | )      |
| Benefits  paid                                                 |   | **(0.8** | **)**      | (0.9       | )      | (0.7     | )      |
| Currency  translation                                          |   | **0.8**  | ** ** | (0.1       | )      | (0.3     | )      |
| End  of year                                                   |   | **$**    | **18.7**   | ** ** | $      | 8.2      |   | $ | 7.8 |   |
|                                                           |   |     |       |       |   |     |   |   |   |   |
| **Plan assets at fair value:**                                 |   |     | ** ** |       |   |     |   |
| Beginning  of year                                             |   | **$**    | **—** | ** ** | $      | —   |   | $ | — |   |
| Employer  contributions                                        |   | **0.8**  | ** ** | 0.9        |   | 0.7      |   |
| Benefits  paid                                                 |   | **(0.8** | **)**      | (0.9       | )      | (0.7     | )      |
| End  of year                                                   |   | **$**    | **—** | ** ** | $      | —   |   | $ | — |   |
| Unfunded  amount                                               |   | **$**    | **18.7**   | ** ** | $      | 8.2      |   | $ | 7.8 |   |
| Unrecognized  past service obligation                          |   | **(3.9** | **)**      | (3.6       | )      | (3.8     | )      |
| Unrecognized  actuarial (losses) gains                         |   | **(7.7** | **)**      | 0.6        |   | 1.2      |   |
| Net  amount recognized in the consolidated balance sheets      |   | **$**    | **7.1**    | ** ** | $      | 5.2      |   | $ | 5.2 |   |
|                                                           |   |     |       |       |   |     |   |   |   |   |
| **Net periodic benefit cost:**                                 |   |     | ** ** |       |   |     |   |
| Current  service and interest costs                            |   | **$**    | **1.7**    | ** ** | $      | 0.8      |   | $ | 0.8 |   |
| Past  service costs                                            |   | **0.2**  | ** ** | 0.2        |   | 0.2      |   |
| Actuarial  losses                                              |   | **0.5**  | ** ** | —     |   | —   |   |
|                                                           |   | **$**    | **2.4**    |       | $      | 1.0      |   | $ | 1.0 |   |

 

**13.Convertible Series Preferred Shares**

 

TheCompany has issued the following Convertible Series Preferred Shares:

 
|                       |   | **Number of  Shares** |   |
|----------------------------|--------|-----------------------|--------|
|                       |   |                  |   |
| Preferred Shares, Series 1 |   | 1,085,500             |   |
| Preferred Shares, Series 2 |   | 1,125,000             |   |

 

TheConvertible Series Preferred Shares have the following attributes:

•        Carrying value of $100 per share;

•        Fixed preferential non-cumulative cashdividend of $5.00 per share per annum payable on a quarterly basis;

•        Retractable at their carrying value, togetherwith all declared and unpaid dividends, by the holders thereof on or afterDecember 31, 2003 in the case of the Preferred Shares, Series 1; and afterDecember 31, 2004 in the case of the Preferred Shares, Series 2;

•        Redeemable at their carrying value, togetherwith all declared and unpaid dividends, and subject to purchase forcancellation by the Company commencing December 31, 2005; and

•        Convertible into Class A Subordinate VotingShares at the option of the holder at a price of $15.09 per share.

 

21

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TheConvertible Preferred Shares, Series 1 with 1,125,000 shares and Series 2 with1,125,000 shares, were issued to Magna in August 2001 in satisfaction of $225.0million of the Company’s indebtedness to Magna. On August 25, 2003, Magnaexercised its right to convert 39,500 Series 1 Convertible Preferred Sharesinto Class A Subordinate Shares of the Company. The Company’s Series PreferredShares are convertible by Magna at a fixed conversion price of U.S. $15.09 perClass A Subordinate Voting Share and accordingly, Magna received 261,762 ClassA Subordinate Voting Shares of the Company.

 

Theportion of the Convertible Series Preferred Shares classified as debt is asfollows:

 
|                                                                            |   | **Series 1** |       | **Series 2** |   | **Total** |   |
|---------------------------------------------------------------------------------|--------|--------------|------------|--------------|--------|-----------|--------|
|                                                                            |   |         | ** ** |         |   |      |   |
| Issued on August 9, 2001                                                        |   | $            | 97.7       | ** **   | $      | 92.1      |   | $ | 189.8 |   |
| Amortization of discount                                                        |   | 2.4          | ** ** | 2.4          |   | 4.8       |   |
| Balance, December 31, 2001                                                      |   | $            | 100.1      | ** **   | $      | 94.5      |   | $ | 194.6 |   |
| Amortization of discount                                                        |   | 6.0          | ** ** | 5.6          |   | 11.6      |   |
| Balance, December 31, 2002                                                      |   | $            | 106.1      | ** **   | $      | 100.1     |   | $ | 206.2 |   |
| Conversion of Series 1 Preferred Shares into Class A Subordinate  Voting Shares |   | (3.9         | )          | —       |   | (3.9      | )      |
| Amortization of discount                                                        |   | 6.4          | ** ** | 6.0          |   | 12.4      |   |
| Balance, December 31, 2003                                                      |   | $            | 108.6      | ** **   | $      | 106.1     |   | $ | 214.7 |   |

 

Theliability amount for Series 1 Convertible Preferred Shares is presented as acurrent liability. The Series 1 Convertible Preferred Shares are retractable byMagna at their carrying value of $108.6 million, together with all declared andunpaid dividends, on or after December 31, 2003. These shares are alsoconvertible by Magna into the Company’s Class A Subordinate Voting Shares at afixed conversion price of U.S. $15.09 per Class A Subordinate Voting Share.

 

Theliability amount for Series 2 Convertible Preferred Shares is presented as along-term liability, as they may not be retracted by Magna until after December31, 2004. These shares are also convertible by Magna into the Company’s Class ASubordinate Voting Shares at a fixed conversion price of U.S. $15.09 per classA Subordinate Voting Share.

 

TheSeries 1 and 2 Convertible Preferred Shares are redeemable by the Companycommencing December 31, 2005.

 

Theportion of the Convertible Series Preferred Shares included in shareholder’sequity is as follows:

 
|                                                           |   | **2003** |     | **2002** |   |
|----------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                           |   |     |     |     |   |
| Warrant portion (relating to conversion feature)               |   | **$**    | **6.6**  |     | $      | 6.7 |   |
| Dividend stream portion (relating to non-cumulative dividends) |   | **5.2**  |     | 15.3     |   |
|                                                           |   | **$**    | **11.8** |     | $      | 22.0 |   |

 

**14. CapitalStock**

 

**PREFERRED SHARES, CLASS A SUBORDINATE VOTING SHARES AND CLASSB SHARES**

 

TheCompany’s authorized capital stock includes unlimited preferred shares issuablein series. None of these shares are currently issued or outstanding.

 

ClassA Subordinate Voting Shares without par value (unlimited amount authorized) areentitled to one vote per share at all meetings of shareholders and shallparticipate equally as to cash dividends with each Class B Share.

 

ClassB Shares without par value (unlimited amount authorized) are entitled to 20votes per share at all meetings of shareholders, shall participate equally asto cash dividends with each Class A Subordinate Voting Share and may beconverted at any time into fully-paid Class A Subordinate Voting Shares on aone-for-one basis.

 

Inthe event that either the Class A Subordinate Voting Shares or the Class BShares are subdivided or consolidated, the other class shall be similarlychanged to preserve the relative position of each class.

 

22

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OutstandingClass A Subordinate Voting Shares and Class B Shares included in shareholders’equity as at December 31, 2003, 2002 and 2001 are as follows:

 
|                                                                                                                                     |   | **Class A  Subordinate Voting Shares** |   | **Class B  Shares** |   |
|------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|--------|---------------------|--------|
|                                                                                                                                     |   | **Number of  Shares**                  |   | **Stated  Value**   |   | **Number of  Shares** |   | **Stated  Value** |   |
|                                                                                                                                     |   |                                   |   |                |   |   |   |   |   |
| Issuance  of Class A Subordinate Voting Shares on initial public offering *(i)*                                                          |   | 5,476,191                              |   | $                   | 71.7   |   | — |   | — |   |
| Issuance  of Class B Shares on the reorganization of the Company on August 7, 2001 (convertible  into Class A Subordinate Voting Shares) |   | —                                 |   | —              |   | 42,751,938 |   | $ | 495.8 |   |
| Balance,  December 31, 2001                                                                                                              |   | 5,476,191                              |   | $                   | 71.7   |   | 42,751,938 |   | $ | 495.8 |   |
| Issuance  of Class A Subordinate Voting Shares on exercise of stock options                                                              |   | 5,000                                  |   | 0.1                 |   | — |   | — |   |
| Balance,  December 31, 2002                                                                                                              |   | 5,481,191                              |   | $                   | 71.8   |   | 42,751,938 |   | $ | 495.8 |   |
| Issuance  of Class A Subordinate Voting Shares on exercise of stock options                                                              |   | 7,200                                  |   | 0.1                 |   | — |   | — |   |
| Conversion  of Series 1 Convertible Series Preferred Shares into Class A Subordinate  Voting Shares *(ii)*                               |   | 261,762                                |   | 4.1                 |   | — |   | — |   |
| Issuance  of Class A Subordinate Voting Shares to fund Employee Equity and Profit  Participation Program *(iii)*                         |   | 681,108                                |   | 10.1                |   | — |   | — |   |
| Balance,  December 31, 2003                                                                                                              |   | 6,431,261                              |   | $                   | 86.1   |   | 42,751,938 |   | $ | 495.8 |   |

 

----

*(i)**              **On July 31, 2001, the Company filed a final prospectuswith the securities regulatory authorities in Canada and the United States fora public offering of Class A Subordinate Voting Shares. The offering wascompleted in August 2001. The details of the proceeds from the public offeringof Class A Subordinate Voting Shares are as follows:*

* *
| Total  proceeds on 5,476,191 shares |   | $    | 74.8 |   |
|-------------------------------------|--------|------|------|--------|
| Expenses of the issue, net of taxes |   | (3.1 | )    |
| Net proceeds                        |   | $    | 71.7 |   |

 

----

*(ii)**          **On August 25, 2003, Magna exercised its right to convert39,500 Series 1 Convertible Preferred Shares into Class A Subordinate VotingShares of the Company. The Company’s Convertible Series Preferred Shares areconvertible by Magna at a fixed conversion price of U.S. $15.09 per Class ASubordinate Voting Share and accordingly, Magna received 261,762 Class ASubordinate Voting Shares of the Company.*

* *

*(iii)**      **The stated value of Class A Subordinate Voting Sharesincreased by $10.1 million during the year ending December 31, 2003,representing 681,108 shares issued to fund the Company’s Employee Equity andProfit Participation Program.*

** **

**INCENTIVE STOCK OPTIONS**

 

Underthe 2001 Incentive Stock Option Plan adopted by the Company on August 9, 2001,the Company may grant options to purchase Class A Subordinate Voting Shares toemployees, officers, directors or consultants of the Company. The remainingnumber of shares reserved to be issued for options is 5,987,800. The number ofthe unoptioned shares at December 31, 2003 is 2,428,500.

 

TheCanadian dollar options under Tranche 1, 2, 3, 5, 6 and 7 vest 1/5 on the grantdate and 1/5 on each subsequent July 31 thereafter, Tranche 4 vest 1/5 on thegrant date and 1/5 on each subsequent December 31 thereafter. The U.S. dollaroptions under Tranche 1 vest 1/5 on the grant date and 1/5 on each subsequentJuly 31 thereafter, with the exception of 750,000 options that vest 1/3 on thegrant date and 1/4 of the balance on each subsequent August 8 thereafter.Tranche 2, 5 and 6 vest 1/5 on the grant date and 1/5 on each subsequent July31 thereafter, Tranche 3 and 4 vest 1/5 on grant date and 1/5 on eachsubsequent December 31 thereafter. All options allow the holder to purchaseClass A Subordinate Voting Shares at a price equal to the market price on thetrading day immediately prior to date of grant of options.

 

23

----

 

Thefollowing is a continuity schedule of options outstanding:

** **

**CANADIAN DOLLAR OPTIONS**

 
|                             |   | **Number** |   | **Weighted  average  exercise price** |   | **Options  exercisable** |      |
|----------------------------------|--------|------------|--------|---------------------------------------|--------|--------------------------|-----------|
|                             |   |       |   |                                  |   |                     |      |
| Granted                          |   | 1,400,000  |   | Cdn.$                                 | 21.00  |                     |      |   |
| Vested                           |   |       |   |                                  |   |                     | 280,000   |   |
| Outstanding at December 31, 2001 |   | 1,400,000  |   | Cdn.$                                 | 21.00  |                     | 280,000   |   |
| Granted                          |   | 375,000    |   | Cdn.$                                 | 25.99  |                     |      |   |
| Exercised                        |   | (5,000     | )      | Cdn.$                                 | 21.00  |                     | (5,000    | ) |
| Cancelled                        |   | (50,000    | )      | Cdn.$                                 | 26.85  |                     | (20,000   | ) |
| Vested                           |   |       |   |                                  |   |                     | 386,000   |   |
| Outstanding at December 31, 2002 |   | 1,720,000  |   | Cdn.$                                 | 21.92  |                     | 641,000   |   |
|                             |   |       |   |                                  |   |                     |      |   |
| Granted                          |   | 296,000    |   | Cdn.$                                 | 22.55  |                     |      |   |
| Exercised                        |   | (3,700     | )      | Cdn.$                                 | 21.00  |                     | (3,700    | ) |
| Cancelled                        |   | (10,000    | )      | Cdn.$                                 | 21.00  |                     | (4,000    | ) |
| Vested                           |   |       |   |                                  |   |                     | 398,200   |   |
| Outstanding at December 31, 2003 |   | 2,002,300  |   | Cdn.$                                 | 22.02  |                     | 1,031,500 |   |

 

**U.S. DOLLAR OPTIONS**

 
|                             |   | **Number** |   | **Weighted  average  exercise price** |   | **Options  exercisable** |    |
|----------------------------------|--------|------------|--------|---------------------------------------|--------|--------------------------|---------|
|                             |   |       |   |                                  |   |                     |    |
| Granted                          |   | 1,125,000  |   | U.S.$                                 | 13.72  |                     |    |   |
| Vested                           |   |       |   |                                  |   |                     | 325,000 |   |
| Outstanding at December 31, 2001 |   | 1,125,000  |   | U.S.$                                 | 13.72  |                     | 325,000 |   |
| Granted                          |   | 335,000    |   | U.S.$                                 | 16.55  |                     |    |   |
| Expired                          |   | (4,000     | )      | U.S.$                                 | 13.72  |                     | (4,000  | ) |
| Cancelled                        |   | (21,000    | )      | U.S.$                                 | 13.72  |                     | (7,200  | ) |
| Vested                           |   |       |   |                                  |   |                     | 273,200 |   |
| Outstanding at December 31, 2002 |   | 1,435,000  |   | U.S.$                                 | 14.38  |                     | 587,000 |   |
|                             |   |       |   |                                  |   |                     |    |   |
| Granted                          |   | 175,500    |   | U.S.$                                 | 17.27  |                     |    |   |
| Exercised                        |   | (3,500     | )      | U.S.$                                 | 13.72  |                     | (3,500  | ) |
| Cancelled                        |   | (50,000    | )      | U.S.$                                 | 15.33  |                     | (14,000 | ) |
| Vested                           |   |       |   |                                  |   |                     | 287,100 |   |
| Outstanding at December 31, 2003 |   | 1,557,000  |   | U.S.$                                 | 14.68  |                     | 856,600 |   |

 

24

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AtDecember 31, 2003, the outstanding options consist of the following:

 

**CANADIAN DOLLAR OPTIONS OUTSTANDING**

 
|                                        |   | **Exercise  price** |   | **Number** |      | **Remaining  contractual  life (years)** |   | **Options  exercisable** |    |
|---------------------------------------------|--------|---------------------|--------|------------|-----------|------------------------------------------|--------|--------------------------|---------|
|                                        |   |                |   |       |      |                                     |   |                     |    |
| Tranche 1                                   |   | $                   | 21.00  |       | 1,371,300 |                                     | 7.6    |                     | 827,300 |   |
| Tranche 2                                   |   | $                   | 21.00  |       | 10,000    |                                     | 7.6    |                     | 6,000   |   |
| Tranche 3                                   |   | $                   | 23.56  |       | 40,000    |                                     | 8.1    |                     | 24,000  |   |
| Tranche 4                                   |   | $                   | 29.40  |       | 5,000     |                                     | 8.5    |                     | 3,000   |   |
| Tranche 5                                   |   | $                   | 26.85  |       | 245,000   |                                     | 8.6    |                     | 98,000  |   |
| Tranche 6                                   |   | $                   | 21.00  |       | 35,000    |                                     | 8.9    |                     | 14,000  |   |
| Tranche 7                                   |   | $                   | 22.55  |       | 296,000   |                                     | 7.0    |                     | 59,200  |   |
|                                        |   |                |   | 2,002,300  |      |                                     |   | 1,031,500                |    |
| Weighted Average Exercise Price             |   | $                   | 22.02  |       |      |                                     |   |                     |    |   |
| Weighted Average Remaining Contractual Life |   |                |   |       |      | 7.7                                      |   |                     |    |

 

**U.S. DOLLAR OPTIONS OUTSTANDING**

 
|                                        |   | **Exercise  price** |   | **Number** |      | **Remaining  contractual  life (years)** |   | **Options  exercisable** |    |
|---------------------------------------------|--------|---------------------|--------|------------|-----------|------------------------------------------|--------|--------------------------|---------|
|                                        |   |                |   |       |      |                                     |   |                     |    |
| Tranche 1                                   |   | $                   | 13.72  |       | 1,056,500 |                                     | 7.6    |                     | 682,500 |   |
| Tranche 2                                   |   | $                   | 13.72  |       | 20,000    |                                     | 7.6    |                     | 12,000  |   |
| Tranche 3                                   |   | $                   | 18.34  |       | 20,000    |                                     | 8.2    |                     | 12,000  |   |
| Tranche 4                                   |   | $                   | 18.78  |       | 5,000     |                                     | 8.4    |                     | 3,000   |   |
| Tranche 5                                   |   | $                   | 16.40  |       | 280,000   |                                     | 8.6    |                     | 112,000 |   |
| Tranche 6                                   |   | $                   | 17.27  |       | 175,500   |                                     | 7.0    |                     | 35,100  |   |
|                                        |   |                |   | 1,557,000  |      |                                     |   | 856,600                  |    |
| Weighted Average Exercise Price             |   | $                   | 14.68  |       |      |                                     |   |                     |    |   |
| Weighted Average Remaining Contractual Life |   |                |   |       |      | 7.7                                      |   |                     |    |

 

**MAXIMUM NUMBER OF SHARES**

 

Thefollowing table presents the maximum number of Class A Subordinate Voting andClass B Shares that would be outstanding if all of the outstanding options andConvertible Series Preferred Shares issued and outstanding as at December 31,2003 were exercised or converted:

 
|                                                                  |   | **Number of  Shares** |   |
|-----------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                  |   |                  |   |
| Class A Subordinate Voting Shares outstanding as at December 31, 2003 |   | 6,431,261             |   |
| Class B Shares outstanding as at December 31, 2003                    |   | 42,751,938            |   |
| Options to purchase Class A Subordinate Voting Shares                 |   | 3,559,300             |   |
| Convertible Series Preferred Shares, convertible at $15.09 per share  |   | 14,648,775            |   |
|                                                                  |   | 67,391,274            |   |

 

25

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**DIVIDENDS**

 

Dividendsdeclared and paid on outstanding Class A Subordinate Voting and Class B Shareswere as follows:

 
|                                                                 |   | **Per Class  A  Subordinate Voting  and Class B Share** |   | **Total** |   |
|----------------------------------------------------------------------|--------|---------------------------------------------------------|--------|-----------|--------|
|                                                                 |   |                                                    |   |      |   |
| Dividends declared and paid in respect of the:                       |   |                                                    |   |      |   |
| Three month period ended September 30, 2001                          |   | $                                                       | 0.04   |      | $      | 2.0 |   |
| Charged to retained earnings during the year ended December 31, 2001 |   |                                                    |   | $         | 2.0    |   |
|                                                                 |   |                                                    |   |      |   |
| Three month period ended December 31, 2001                           |   | $                                                       | 0.05   |      | $      | 2.4 |   |
| Three month period ended March 31, 2002                              |   | $                                                       | 0.05   |      | $      | 2.4 |   |
| Three month period ended June 30, 2002                               |   | $                                                       | 0.05   |      | $      | 2.4 |   |
| Three month period ended September 30, 2002                          |   | $                                                       | 0.05   |      | $      | 2.5 |   |
| Charged to retained earnings during the year ended December 31, 2002 |   |                                                    |   | $         | 9.7    |   |
|                                                                 |   |                                                    |   |      |   |
| Three month period ended December 31, 2002                           |   | $                                                       | 0.05   |      | $      | 2.4 |   |
| Three month period ended March 31, 2003                              |   | $                                                       | 0.10   |      | $      | 5.0 |   |
| Three month period ended June 30, 2003                               |   | $                                                       | 0.10   |      | $      | 5.0 |   |
| Three month period ended September 30, 2003                          |   | $                                                       | 0.10   |      | $      | 4.9 |   |
| Charged to retained earnings during the year ended December 31, 2003 |   |                                                    |   | $         | 17.3   |   |

 

Dividendsdeclared on outstanding Series 1 and Series 2 Convertible Preferred Sharesaggregated to $11.2 million for the year ended December 31, 2003 (for the yearsended December 31, 2002 and 2001 – $11.3 million and $1.9 million,respectively). Dividends paid on outstanding Series 1 and Series 2 ConvertiblePreferred Shares aggregated to $11.1 million for the year ended December 31,2003 (for the years ended December 31, 2002 and 2001 – $8.4 million and $1.9million, respectively).

 

**15.Stock-Based Compensation**

 

Priorto 2003, the Company did not recognize compensation expense for its outstandingfixed price stock options. Effective January 1, 2003, the Company adopted thefair value recognition provisions of CICA 3870 for all stock options grantedafter January 1, 2003. The fair value of stock options is estimated at the dateof grant using the Black-Scholes option pricing model with the followingweighted average assumptions:

 
| Risk free  interest rate     |   | 3.25% - 4.09% |   |
|------------------------------|--------|---------------|--------|
| Expected dividend yield      |   | 2.34%         |   |
| Expected volatility          |   | 39%           |   |
| Expected time until exercise |   | 5 years       |   |

 

Forthe year ended December 31, 2003, the compensation expense recognized inselling, general and administration expense and credited to contributed surplusrelated to the Company’s outstanding fixed price stock options amounted toapproximately $0.6 million.

 

Thefollowing is a continuity schedule of contributed surplus:

 
|                                             |   | **2003**   |       |
|--------------------------------------------------|--------|------------|------------|
|                                             |   |       |       |
| Balance, beginning of year                       |   | **$**      | **—** |   |
| Stock option compensation expense                |   | **0.6**    |       |
| Credited to share capital on exercise of options |   | **—** |       |
| Balance, end of year                             |   | **$**      | **0.6**    |   |

 

Theweighted average fair value of options granted during the year ended December31, 2003 was $5.52 per option.

 

26

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If thefair value recognition provisions would have been adopted effective January 1,2002 for all stock options granted during 2002, the Company’s pro forma netincome attributable to Class A Subordinate Voting and Class B Shares and proforma basic and diluted earnings per Class A Subordinate Voting or Class BShare would have been as follows:

 
| **Years ended December 31**                                                         |   | **2003** |     | **2002** |   |
|-------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|
|                                                                                |   |     |     |     |   |
| Pro forma net income  attributable to Class A Subordinate Voting and Class B Shares |   | **$**    | **60.5** |     | $      | 45.8 |   |
| Pro forma earnings per  Class A Subordinate Voting or Class B Share                 |   |     |     |     |   |
| Basic                                                                               |   | **$**    | **1.25** |     | $      | 0.95 |   |
| Diluted                                                                             |   | **$**    | **1.17** |     | $      | 0.93 |   |

 

The fairvalue of stock options granted during 2002 were estimated at the date of grantusing the Black-Scholes option pricing model with the following weightedaverage assumptions:

 
| Risk free  interest rate      |   | 3.96% – 5.27% |   |
|-------------------------------|--------|--------------------|--------|
| Expected dividend yield       |   | 1.20%              |   |
| Expected volatility           |   | 26% – 37%     |   |
| Expected time until  exercise |   | 5 years            |   |

 

Theweighted average fair value of options granted during the year ended December31, 2002 was $5.63 per option.

 

**16. Financial Instruments**

 

**FOREIGN EXCHANGE RISK**

 

TheCompany operates globally, which gives rise to risk that its earnings and cashflows may be adversely impacted by fluctuations in foreign exchange. TheCompany uses foreign exchange contracts to manage foreign exchange risk fromits underlying customer contracts. In particular, the Company uses foreignexchange forward contracts for the sole purpose of hedging certain of theCompany’s future committed U.S. dollar, euro and British pound outflows andinflows. Gains and losses on these hedging instruments are recognized in thesame period as, and as part of, the hedged transaction. The Company does notenter into foreign exchange contracts for speculative purposes.

 

TheCompany had outstanding foreign exchange forward contracts representingcommitments to buy and (sell) foreign currencies in exchange for Canadiandollars as follows:

 
| **December  31, 2003** |   | **U.S.  dollar  amount** |   | **Weighted  average** |   | **Euro  amount** |   | **Weighted  average** |   |
|------------------------|--------|--------------------------|--------|-----------------------|--------|------------------|--------|-----------------------|--------|
|                   |   |                     |   |                  |   |             |   |                  |   |
| 2004                   |   | $                        | 182.2  |                  | 1.4587 |             | 7.7    |                  | 1.4333 |   |
| 2004                   |   | (47.7                    | )      | 1.6265                |   | —           |   | —                |   |
| 2005                   |   | 113.8                    |   | 1.3831                |   | 2.9              |   | 1.4435                |   |
| 2005                   |   | (85.6                    | )      | 1.4717                |   | —           |   | —                |   |
| 2006                   |   | 82.4                     |   | 1.3827                |   | —           |   | —                |   |
| 2006                   |   | (16.1                    | )      | 1.3862                |   | —           |   | —                |   |
| 2007                   |   | 49.0                     |   | 1.3618                |   | —           |   | —                |   |
| 2008                   |   | 15.0                     |   | 1.3699                |   | —           |   | —                |   |
|                   |   | $                        | 293.0  |                  |   |             | 10.6   |                  |   |   |

 

AtDecember 31, 2003, the Company had other outstanding foreign exchange contractsto buy and sell various foreign currencies in exchange for either euros, U.S.dollars or British pounds. The total amount of such contracts were to selleuros 23.3 million, and sell British pounds 12.8 million, and buy U.S. dollars40.9 million against various currencies.

 

27

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Based onforward exchange rates as at December 31, 2003 for contracts with similarremaining terms to maturity, the unrecognized net losses relating to theCompany’s significant foreign exchange forward contracts are approximately$12.2 million. If the Company’s forward exchange contracts ceased to beeffective as hedges, for example if projected net foreign cash inflows declinedsignificantly, previously unrecognized gains or losses pertaining to theportion of the hedging transactions in excess of projected foreign denominatedcash flows would be recognized in income at the time this condition wasidentified.

 

**FAIR VALUE**

 

TheCompany has determined the estimated fair values of its financial instrumentsbased on appropriate valuation methodologies, however considerable judgement isrequired to develop these estimates. Accordingly, these estimated fair valuesare not necessarily indicative of the amounts the Company could realize in acurrent market exchange. The estimated fair value amounts can be materiallyaffected by the use of different assumptions or methodologies. The methods andassumptions used to estimate the fair value of financial instruments aredescribed below.

 

*Cash and cash equivalents, accounts receivable, bankindebtedness, accounts payable and accrued liabilities*Due to the short period to maturity ofthe instruments, the carrying values as presented in the consolidated balancesheets are reasonable estimates of fair value.

 

*Long-term debt*The fair value of the Company’s long-term debt(including debt portion of the Convertible Series Preferred Shares), based oncurrent rates for debt with similar terms and maturities, is not materiallydifferent from its carrying value.

 

**CREDIT RISK**

 

TheCompany’s financial assets that are exposed to credit risk consist primarily ofcash and cash equivalents, accounts receivable and forward exchange contractswith positive values.

 

Cash andcash equivalents which consist of short-term investments, including commercialpaper, are only invested in governments and corporations with an investmentgrade credit rating. Credit risk is further reduced by limiting the amount thatis invested in any one government or corporation.

 

TheCompany, in the normal course of business, is exposed to credit risk from itscustomers, substantially all of which are in the automotive industry. Theseaccounts receivable are subject to normal industry credit risks.

 

TheCompany is also exposed to credit risk from the potential default by any of itscounterparties on foreign exchange forward contracts. The Company mitigatesthis credit risk by dealing with counterparties that are major financialinstitutions and which the Company anticipates will satisfy their obligationsunder the contracts.

 

**INTEREST RATE RISK**

 

Where thematurities of monetary assets and liabilities are short term, the Company isnot exposed to interest rate risk. In the case of monetary liabilities andoperating lease commitments with longer-term maturities, the Company may enterinto swap arrangements to manage this risk.

 

28

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The followingtable summarizes the Company’s interest rate risk as at December 31, 2003:

 
|                                                             |   | **Floating  rate** |   | **Fixed  rate** |   | **Non-interest  bearing** |   | **Total** |   |
|------------------------------------------------------------------|--------|--------------------|--------|-----------------|--------|---------------------------|--------|-----------|--------|
|                                                             |   |               |   |            |   |                      |   |      |   |
| Financial Assets:                                                |   |               |   |            |   |                      |   |      |   |
| Cash and cash  equivalents                                       |   | $                  | 216.7  |            | $      | —                    |   | $         | — |   | $ | 216.7 |   |
| Accounts receivable                                              |   | —             |   | —          |   | 810.7                     |   | 810.7     |   |
| Financial Liabilities:                                           |   |               |   |            |   |                      |   |      |   |
| Bank indebtedness                                                |   | (29.7              | )      | —          |   | —                    |   | (29.7     | )      |
| Accounts payable and  all other accrued liabilities and payables |   | —             |   | —          |   | (1,010.0                  | )      | (1,010.0  | )      |
| Long-term debt due  within one year                              |   | —             |   | (4.4            | )      | —                    |   | (4.4      | )      |
| Long-term debt                                                   |   | —             |   | (33.0           | )      | —                    |   | (33.0     | )      |
| Convertible Series  Preferred Shares                             |   | —             |   | (214.7          | )      | —                    |   | (214.7    | )      |
| Other long-term  liabilities                                     |   | (32.6              | )      | —          |   | —                    |   | (32.6     | )      |
|                                                             |   | $                  | 154.4  |            | $      | (252.1                    | )      | $         | (199.3 | ) | $ | (297.0 | ) |
| Average fixed rate of  long-term debt                            |   |               |   | 5.0             | %      |                      |   |      |   |

 

TheCompany has entered into interest rate swap contracts to manage interest raterisk on certain of its operating leases. These contracts swap floating interestrate payments to fixed interest rate payments or vice versa. Outstanding swapcontracts have remaining terms equal to maturity of the operating leases thatthey are matched against.

 

Thefollowing table provides a summary of interest rate swap contracts and theiraggregated weighted average rates at December 31:

 
|                            |   | **2003** |     | **2002**   |   |
|---------------------------------|--------|----------|----------|------------|--------|
|                            |   |     |     |       |   |
| Interest rate swap:             |   |     |     |       |   |
| Notional amount                 |   | **$**    | **39.7** | ** ** | $      | — |   |
| Average fixed rate paid         |   | **4.02** | **%**    | —     |   |
| Average floating rate  received |   | **2.77** | **%**    | —     |   |
|                                 |        |          |          |            |        |  |  |

 

**ELECTRICITY SWAPS**

 

TheCompany uses electricity swap contracts to manage the cash flow risk for aportion of its forecast electricity purchases in Ontario over the period toApril 2005. Swaps outstanding at December 31, 2003 have an annual notionalenergy volume of 50,700 megawatt hours (“MWh”) under which it pays a weightedaverage fixed price of $54.53 per MWh and receives a floating average price perMWh based on the hourly Ontario energy price. The net settlements under theelectricity swap contracts are recognized in the same period as, and as partof, the hedged transaction. The Company does not enter into electricity swapcontracts for speculative purposes.

 

TheCompany estimates the fair value of these electricity contracts as at December31, 2003 is $0.2 million, representing a financial benefit to the Company. In2002, the Ontario government passed legislation, which fixes the electricityprice for low volume and designated customers. Although the Company is notdirectly affected by the legislation, this has disrupted the forward market forOntario electricity contracts and significantly reduced liquidity. The Companyhas estimated fair value based on available broker quotes but given the currentilliquidity of the market, the fair value is subject to significant measurementuncertainty.

 

29

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**17. Currency Translation Adjustment**

 

Unrealizedtranslation adjustments, which arise on the translation to U.S. dollars ofassets and liabilities of the Company’s operations with a functional currencyother than the U.S. dollar, resulted in an unrealized currency translation gainof $78.1 million for the year ended December 31, 2003 (December 31, 2002 –$42.1 million). The unrealized gains resulted primarily from the strengtheningof the euro, British pound and Canadian dollar against the U.S. dollar.

 

TheCompany has designated the debt portion of the Convertible Series PreferredShares (note 13) as a hedge of its net investment in its operations in theUnited States. Gains and losses from this hedge are not included in the incomestatement, but are shown in the currency translation adjustment account. Forthe year ended December 31, 2003, the Company recorded a foreign exchange gainof $41.2 million (December 31, 2002 – $3.4 million) in the currency translationaccount related to such shares.

 

**18. Interests in Jointly ControlledEntities**

 

Thefollowing is the Company’s proportionate share of the major components of thefinancial statements of the jointly controlled entities in which the Companyhas an interest (before eliminations):

 

**BALANCE SHEETS**

 
| **December 31**       |   | **2003** |     | **2002** |   |
|-----------------------|--------|----------|----------|----------|--------|
|                  |   |     |     |     |   |
| Current assets        |   | **$**    | **70.3** |     | $      | 63.5 |   |
| Long-term assets      |   | **$**    | **42.6** |     | $      | 43.1 |   |
| Current liabilities   |   | **$**    | **51.1** |     | $      | 48.9 |   |
| Long-term liabilities |   | **$**    | **28.2** |     | $      | 30.8 |   |

 

**STATEMENTS OF INCOME**

 
| **Years ended December 31**                     |   | **2003**  |      | **2002** |   | **2001** |   |
|-------------------------------------------------|--------|-----------|-----------|----------|--------|----------|--------|
|                                            |   |      |      |     |   |     |   |
| Sales                                           |   | **$**     | **291.8** |     | $      | 180.3    |   | $ | 134.6 |   |
| Costs of goods sold,  expenses and income taxes |   | **284.1** |      | 176.1    |   | 133.4    |   |
| Net income                                      |   | **$**     | **7.7**   |     | $      | 4.2      |   | $ | 1.2 |   |

 

**STATEMENTS OF CASH FLOWS**

 
| **Years ended December 31**         |   | **2003** |     | **2002** |   | **2001** |   |
|-------------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                                |   |     |     |     |   |     |   |
| **Cash  provided from (used for):** |   |     |     |     |   |     |   |
| Operating activities                |   | **$**    | **12.3** |     | $      | 16.9     |   | $ | 23.0 |   |
| Investment activities               |   | **$**    | **(4.2** | **)**    | $      | (6.3     | )      | $ | (6.5 | ) |
| Financing activities                |   | **$**    | **(7.2** | **)**    | $      | (7.7     | )      | $ | 3.2 |   |

 

AtDecember 31, 2003, the Company’s share of equity in jointly controlled entitiesincludes undistributed earnings of $17.9 million (December 31, 2002 – $21.1million).

 

30

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**19. Details of Cash from OperatingActivities**

 

**ITEMS NOT INVOLVING CURRENT CASH FLOWS**

 
| **Years ended December 31**                                      |   | **2003**   |      | **2002** |   | **2001** |   |
|------------------------------------------------------------------|--------|------------|-----------|----------|--------|----------|--------|
|                                                             |   |       |      |     |   |     |   |
| Depreciation and  amortization                                   |   | **$**      | **99.5**  |     | $      | 88.5     |   | $ | 88.0 |   |
| Future income taxes                                              |   | **21.8**   |      | 27.2     |   | 8.8      |   |
| Pension and post  retirement medical benefit obligations         |   | **10.7**   |      | 6.5      |   | 5.3      |   |
| Loss (gain) on  disposals of capital assets                      |   | **3.3**    |      | 2.1      |   | (1.1     | )      |
| Other charges                                                    |   | **—** |      | 23.6     |   | —   |   |
| Amortization of  discount on Convertible Series Preferred Shares |   | **12.4**   |      | 11.6     |   | 4.8      |   |
| Other                                                            |   | **2.3**    |      | (4.0     | )      | (4.6     | )      |
|                                                             |   | **$**      | **150.0** |     | $      | 155.5    |   | $ | 101.2 |   |

 

**CHANGES IN NON-CASH WORKING CAPITAL**

 
| **Years ended December 31**               |   | **2003**  |       | **2002** |   | **2001** |   |
|-------------------------------------------|--------|-----------|------------|----------|--------|----------|--------|
|                                      |   |      |       |     |   |     |   |
| Accounts receivable                       |   | **$**     | **(148.2** | **)**    | $      | 31.9     |   | $ | (108.1 | ) |
| Inventories                               |   | **(7.2**  | **)**      | (4.0     | )      | (22.7    | )      |
| Prepaid expenses and  other               |   | **(5.1**  | **)**      | (2.6     | )      | 14.1     |   |
| Accounts payable and  accrued liabilities |   | **101.5** |       | 86.1     |   | 142.6    |   |
|                                      |   | **$**     | **(59.0**  | **)**    | $      | 111.4    |   | $ | 25.9 |   |

 

**20. Segmented Information**

 

(a) TheCompany designs, manufactures and supplies automotive interior and closurecomponents, modules and systems primarily for OEM customers on a Tier One basisand manufactures and supplies interior and closure components on a Tier Twobasis to other Tier One suppliers. At December 31, 2003, the Company hadoperations in 14 countries including 71 manufacturing facilities and 17 productdevelopment and engineering facilities.

 

TheCompany is organized by two product groups: Interior Systems and ClosureSystems. Each group includes the following products and services:

 

*Interior Systems*The Interior Systems group includes the engineering,development and production of complete seat systems, seat tracks, seat frames,integrated child safety seats and their seating components, cockpit modules,instrument panels, consoles, glove boxes, door modules, door trim panels,package trays, overhead systems, sun visors, acoustics, automotive carpets,interior panels and other interior garnish trim and components. This group alsoprovides expertise and services for its OEM customers including assembly andsequencing and full vehicle process engineering.

 

*Closure Systems*The Closure Systems group develops, produces andassembles a multitude of closure, latching and power driven door systems.Products include wiper systems, electrical motors, complete door systems, powerliftgates and power sliding doors, window regulators and electronic latchingsystems.

 

EffectiveJanuary 1, 2003, the Company’s Closure operations underwent an organizationalstructure change, effectively changing management’s reporting and assessment ofoperating results for resource allocation decisions and performance assessmentto be on a global basis. Consistent with these changes in the Company’sbusiness operations, the Closure segment beginning January 1, 2003 is reportedon a global basis. All comparative period amounts have been restated to conformto the current presentation.

 

31

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| **Year ended December 31, 2003**                |   | **Total  sales** |        | **Depreciation  and  amortization** |       | **Operating  income** |       | **Capital  asset  additions** |       | **Capital  assets,  net** |        |
|-------------------------------------------------|--------|------------------|-------------|-------------------------------------|------------|-----------------------|------------|-------------------------------|------------|---------------------------|-------------|
|                                            |   |             |        |                                |       |                  |       |                          |       |                      |        |
| **Interior  Systems**                           |   |             |        |                                |       |                  |       |                          |       |                      |        |
| North America                                   |   | **$**            | **2,088.5** | ** **                          | **$**      | **42.8**              | ** ** | **$**                         | **87.5**   | ** **                | **$**       | **68.0** | ** ** | **$** | **258.1** | ** ** |
| Europe                                          |   | **1,572.2**      | ** **  | **32.8**                            | ** ** | **5.0**               | ** ** | **32.2**                      | ** ** | **185.3**                 | ** **  |
| **Closure  Systems**                            |   | **998.6**        | ** **  | **23.8**                            | ** ** | **43.8**              | ** ** | **29.0**                      | ** ** | **117.1**                 | ** **  |
| Corporate, other and  intersegment eliminations |   | **(4.7**         | **)**       | **0.1**                             | ** ** | **0.1**               | ** ** | **0.4**                       | ** ** | **0.7**                   | ** **  |
| Total reportable  segments                      |   | **$**            | **4,654.6** | ** **                          | **$**      | **99.5**              | ** ** | **$**                         | **136.4**  | ** **                | **$**       | **129.6** | ** ** | **561.2** | ** ** |
| Current assets                                  |   |             | ** **  |                                | ** ** |                  | ** ** |                          | ** ** | **1,370.2**               | ** **  |
| Goodwill, future tax  and other assets          |   |             | ** **  |                                | ** ** |                  | ** ** |                          | ** ** | **210.7**                 | ** **  |
| Total assets                                    |   |             | ** **  |                                | ** ** |                  | ** ** |                          | ** ** | **$**                     | **2,142.1** | ** ** |

 
| **Year ended December 31, 2002**                |   | **Total  sales** |    | **Depreciation  and  amortization** |   | **Operating  income (loss)(i)** |   | **Capital  asset  additions** |   | **Capital  assets,  net** |    |
|-------------------------------------------------|--------|------------------|---------|-------------------------------------|--------|---------------------------------|--------|-------------------------------|--------|---------------------------|---------|
|                                            |   |             |    |                                |   |                            |   |                          |   |                      |    |
| **Interior  Systems**                           |   |             |    |                                |   |                            |   |                          |   |                      |    |
| North America                                   |   | $                | 1,774.4 |                                | $      | 36.9                            |   | $                             | 108.4  |                      | $       | 65.5 |   | $ | 222.2 |   |
| Europe                                          |   | 1,278.3          |    | 31.3                                |   | (23.3                           | )      | 41.2                          |   | 161.1                     |    |
| **Closure  Systems**                            |   | 818.2            |    | 20.2                                |   | 34.4                            |   | 29.8                          |   | 94.4                      |    |
| Corporate, other and  intersegment eliminations |   | (9.3             | )       | 0.1                                 |   | 2.2                             |   | 0.3                           |   | 0.4                       |    |
| Total reportable  segments                      |   | $                | 3,861.6 |                                | $      | 88.5                            |   | $                             | 121.7  |                      | $       | 136.8 |   | 478.1 |   |
| Current assets                                  |   |             |    |                                |   |                            |   |                          |   | 1,116.2                   |    |
| Goodwill, future tax  and other assets          |   |             |    |                                |   |                            |   |                          |   | 187.5                     |    |
| Total assets                                    |   |             |    |                                |   |                            |   |                          |   | $                         | 1,781.8 |   |

 

*(i) Interior Systems Europe includes $23.6 million of othercharges (see Note 9).*

 
| **Year ended December 31, 2001**                |   | **Total  sales** |    | **Depreciation  and  amortization** |   | **Operating  income (loss)** |   | **Capital  asset  additions** |   | **Capital  assets,  net** |    |
|-------------------------------------------------|--------|------------------|---------|-------------------------------------|--------|------------------------------|--------|-------------------------------|--------|---------------------------|---------|
|                                            |   |             |    |                                |   |                         |   |                          |   |                      |    |
| **Interior  Systems**                           |   |             |    |                                |   |                         |   |                          |   |                      |    |
| North America                                   |   | $                | 1,561.0 |                                | $      | 35.2                         |   | $                             | 78.4   |                      | $       | 34.4 |   | $ | 199.2 |   |
| Europe                                          |   | 974.0            |    | 31.6                                |   | (7.2                         | )      | 29.9                          |   | 146.5                     |    |
| **Closure  Systems**                            |   | 736.2            |    | 19.8                                |   | 35.0                         |   | 23.2                          |   | 78.1                      |    |
| Corporate, other and  intersegment eliminations |   | (3.1             | )       | 1.4                                 |   | (4.6                         | )      | 0.1                           |   | 0.2                       |    |
| Total reportable  segments                      |   | $                | 3,268.1 |                                | $      | 88.0                         |   | $                             | 101.6  |                      | $       | 87.6 |   | 424.0 |   |
| Current assets                                  |   |             |    |                                |   |                         |   |                          |   | 915.9                     |    |
| Goodwill, future tax  and other assets          |   |             |    |                                |   |                         |   |                          |   | 239.5                     |    |
| Total assets                                    |   |             |    |                                |   |                         |   |                          |   | $                         | 1,579.4 |   |

 

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(b) Thefollowing tables show certain information with respect to geographicsegmentations:

 
| **Year ended December 31, 2003** |   | **Canada** |        | **United  States and  Other** |   | **Continental  Europe** |       | **United  Kingdom** |        | **Total**  |   |
|----------------------------------|--------|------------|-------------|-------------------------------|--------|-------------------------|------------|---------------------|-------------|------------|--------|
|                             |   |       |        |                          |   |                    |       |                |        |       |   |
| Sales                            |   | **$**      | **1,553.0** | ** **                    | **$**  | **1,340.7**             | ** ** | **$**               | **1,079.9** | ** ** | **$**  | **681.0** | ** ** | **$** | **4,654.6** | ** ** |
| Capital assets, net              |   | **$**      | **153.5**   | ** **                    | **$**  | **164.9**               | ** ** | **$**               | **188.6**   | ** ** | **$**  | **54.2** | ** ** | **$** | **561.2** | ** ** |
| Goodwill, net                    |   | **$**      | **38.2**    | ** **                    | **$**  | **22.5**                | ** ** | **$**               | **33.9**    | ** ** | **$**  | **21.8** | ** ** | **$** | **116.4** | ** ** |

 
| **Year ended December 31, 2002** |   | **Canada** |    | **United  States and  Other** |   | **Continental  Europe** |   | **United  Kingdom** |   | **Total** |   |
|----------------------------------|--------|------------|---------|-------------------------------|--------|-------------------------|--------|---------------------|--------|-----------|--------|
|                             |   |       |    |                          |   |                    |   |                |   |      |   |
| Sales                            |   | $          | 1,171.0 |                          | $      | 1,256.2                 |   | $                   | 914.4  |      | $      | 520.0 |   | $ | 3,861.6 |   |
| Capital assets, net              |   | $          | 83.2    |                          | $      | 181.4                   |   | $                   | 161.7  |      | $      | 51.8 |   | $ | 478.1 |   |
| Goodwill, net                    |   | $          | 31.1    |                          | $      | 22.5                    |   | $                   | 27.7   |      | $      | 19.4 |   | $ | 100.7 |   |

 
| **Year ended December 31, 2001** |   | **Canada** |    | **United  States and  Other** |   | **Continental  Europe** |   | **United  Kingdom** |   | **Total** |   |
|----------------------------------|--------|------------|---------|-------------------------------|--------|-------------------------|--------|---------------------|--------|-----------|--------|
|                             |   |       |    |                          |   |                    |   |                |   |      |   |
| Sales                            |   | $          | 1,138.0 |                          | $      | 1,034.6                 |   | $                   | 759.5  |      | $      | 336.0 |   | $ | 3,268.1 |   |
| Capital assets, net              |   | $          | 62.2    |                          | $      | 171.4                   |   | $                   | 137.4  |      | $      | 53.0 |   | $ | 424.0 |   |
| Goodwill, net                    |   | $          | 29.7    |                          | $      | 24.7                    |   | $                   | 33.5   |      | $      | 44.6 |   | $ | 132.5 |   |

 

(c) Forthe year ended December 31, 2003, sales to the three largest customers amountto 27%, 23% and 16% (for the year ended December 31, 2002 – 30%, 19% and 19%;for the year ended December 31, 2001 – 36%, 20% and 15%) of total sales, respectively.

 

**21. Transactions with Related Parties**

 
| **Years ended December 31**                                      |   | **2003** |     | **2002** |   | **2001** |   |
|------------------------------------------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                                                             |   |     |     |     |   |     |   |
| **Charges  by Magna and other related parties**                  |   |     |     |     |   |     |   |
| Interest expense, net                                            |   | **$**    | **1.5**  |     | $      | 2.1      |   | $ | 17.7 |   |
| Amortization of  discount on Convertible Series Preferred Shares |   | **$**    | **12.4** |     | $      | 11.6     |   | $ | 4.8 |   |
| Financing charge on  Convertible Series Preferred Shares         |   | **$**    | **1.1**  |     | $      | 1.9      |   | $ | 0.9 |   |
| Management and  administrative services                          |   | **$**    | **3.6**  |     | $      | 1.9      |   | $ | 4.7 |   |
| Affiliation and social  fees                                     |   | **$**    | **62.6** |     | $      | 55.3     |   | $ | 48.8 |   |
| Rent                                                             |   | **$**    | **12.5** | $        | 10.8   |     | $      | 6.1 |   |
| Depreciation of assets  under capital lease                      |   | **$**    | **1.6**  |     | $      | 1.8      | $      | 1.7 |   |
| Sales of materials to  Magna and other related parties           |   | **$**    | **14.5** |     | $      | 13.9     |   | $ | 13.7 |   |
| Purchases of materials  from Magna and other related parties     |   | **$**    | **21.8** |     | $      | 22.8     |   | $ | 28.6 |   |

 

OnDecember 19, 2003, the Company entered into a purchase and sale agreement withMagna, whereby the Company agreed to acquire the capital assets for a new lineof business for $2.1 million. In consideration of the Company purchasing thebusiness and incurring costs in connection with the relocation of the acquiredassets and revalidating the business, Magna agreed to pay to the Company $7.4million for these incremental costs.

 

AtDecember 31, 2003, the Company’s accounts receivable include accountsreceivable from Magna controlled entities of $17.1 million (December 31, 2002 –$11.7 million) and accounts payable include accounts payable to Magnacontrolled entities of $44.9 million (December 31, 2002 – $49.3 million).

 

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Magnaprovides certain management and administrative services to the Company,including legal, environmental, immigration, administrative, tax, internalaudit, treasury, information systems and employee relations services, in returnfor a specific amount negotiated between the Company and Magna. CommencingJanuary 1, 2002, the Company began reporting amounts paid to Magna formanagement and administrative services in selling, general and administrativeexpenses (“SG&A”). Affiliation and social fees continue to be shownseparately in the consolidated statements of income. All comparative periodamounts have been reclassified to conform with the current period presentation.

 

During2001, the Company entered into new or amended existing affiliation agreementswith Magna that were effective January 1, 2001. The affiliation agreementsprovide for the payment by the Company to Magna of an affiliation fee. Theaffiliation agreements:

 

•        provide the Company with the right to identifyitself as part of the Magna group of companies by granting the Company anon-exclusive, worldwide licence to use trademarks which identify Magna and itsgoods, services and activities in order to identify the Company and its goods,services and activities as being affiliated with Magna;

 

•        provide the Company with access to Magna’s coreoperating principles and to new policies and programs adopted by Magna fromtime to time;

 

•        provide the Company with access to Magna’s seniormanagement and make available to the Company details of any new managementtechniques and incentive programs as well as marketing materials to the extentthey are made available generally to Magna’s other affiliates; and

 

•        grant the Company a sole and exclusive worldwidelicence (except as described in the next sentence) to use the Intier trade nameand certain other trademarks. The Company may not sublicense such trade nameand trademarks other than to its subsidiaries.

 

Pursuantto the Company’s affiliation agreements with Magna, the affiliation feespayable by the Company to Magna in respect of each fiscal year will be anaggregate amount equal to:

 

•        1.5% of the first $3 billion of consolidated net salesfor that year;

 

•        1.0% of the next $3 billion of consolidated net salesfor that year; and

 

•        0.75% of consolidated net sales exceeding $6 billion.

 

Salesfrom acquired businesses will not be subject to a fee until January 1 of theyear following the date of acquisition, and will be subject to a fee equal to50% of the fee with respect to the acquired business’ sales in the calendaryear following the date of the acquisition, and to the full fee in the secondcalendar year following the date of the acquisition and thereafter.

 

Theaffiliation fee included in “Affiliation fees and social fees” was $60.8million for the year ended December 31, 2003 (for the years ended December 31,2002 and 2001 – $53.6 million and $47.6 million, respectively).

 

TheCompany’s Corporate Constitution provides that a maximum of 2% of its pre-taxprofits in each fiscal year shall be allocated to the promotion of socialobjectives. Of this maximum, the social commitment agreement the Companyentered into with Magna during the year ended December 31, 2001, effectiveJanuary 1, 2001, requires the Company to contribute 1.5% of its pre-tax profitsin each fiscal year to social and charitable programs coordinated by Magna orother charitable or non-profit organizations on behalf of Magna and itsaffiliates, including Intier.

 

Thesocial commitment fee included in “Affiliation fees and social fees” was $1.8million for the year ended December 31, 2003 (for the years ended December 31,2002 and 2001 – $1.7 million and $1.2 million, respectively).

 

Pursuantto the Company’s Corporate Constitution, 10% of the Company’s employee pre-taxprofit before profit sharing of participating divisions for any fiscal year isrequired to be allocated to the Intier EEPPP. During 2002, the Company’s Boardof Directors approved the establishment of the Intier EEPPP. The Company’s eligibleemployees in Canada, the United States, the United Kingdom and Austriaparticipate in the Intier EEPPP. Prior to fiscal 2002, the Company’s employeesparticipated in the Magna EEPPP. The Company’s portion of the costs associatedwith the Magna EEPPP for the years ended December 31, 2001 was $28.0 million.

 

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Variousland and buildings used in the Company’s operations are leased from MIDevelopments Inc. under operating and capital lease agreements (see Note 11).

 

Transactionswith Magna and other related parties are effected on normal commercial terms.

 

**22. Contingencies**

 

(a) InNovember 1997, Magna and two of its subsidiaries were sued by KS Centoco Ltd.,an Ontario-based steering wheel manufacturer in which Magna has a 23% equityinterest, and by Centoco Holdings Limited, the owner of the remaining 77%equity interest in KS Centoco Ltd. On March 5, 1999, the plaintiffs weregranted leave to make substantial amendments to the original statement of claimin order to add several new defendants and claim additional remedies. Theamended statement of claim now includes the Company’s Advanced Car TechnologySystems joint venture (“ACTS”) as a named defendant to the lawsuit and alleges,among other things:

 

•        breach of fiduciary duty by Magna and two of itssubsidiaries including ACTS;

 

•        breach by Magna of its binding letter of intent withKS Centoco Ltd.; including its covenant not to have any interest, directly orindirectly, in any entity that carries on the air bag business in NorthAmerica, other than through MST Automotive Inc., a company to be 77% owned byMagna and 23% owned by Centoco Holdings Limited;

 

•        the plaintiff’s exclusive entitlement to certainairbag technologies in North America pursuant to an exclusive licenceagreement, together with an accounting of all revenues and profits resultingfrom the alleged use by Magna, TRW Inc. (“TRW”), ACTS and other unrelated thirdparty automotive supplier defendants of such technology in North America;

 

•        a conspiracy by Magna, TRW, and ACTS to deprive KSCentoco Ltd. of the benefits of such airbag technology in North America and tocause Centoco Holdings Limited to sell to TRW its interest in KS Centoco Ltd.in conjunction with Magna’s sale to TRW of its interest in MST Automotive GmbHand TEMIC Bayern-Chemie Airbag GmbH. The plaintiffs are seeking, among otherthings, damages of approximately Cdn. $3.5 billion.

 

Magna andACTS have filed an amended statement of defence and counterclaim and intend tovigorously defend this case. At this time, despite the early stages of thislegal proceeding and the difficulty in predicting a final outcome, the Companybelieves that the ultimate resolution of these claims against ACTS will nothave a material adverse effect on the Company’s consolidated financialposition. In addition, Magna has agreed to indemnify ACTS for any damages,liabilities, or expenses incurred in connection with this claim.

 

(b) OnAugust 16, 2002, the Company was served with a complaint issued in the UnitedStates District Court, District of Massachusetts by Stoneridge Control Devices,Inc. which was a supplier of adjunct actuators to the Company. After months ofunsuccessful pricing negotiations, the Company advised Stoneridge that it wouldnot be extending its long-term agreement which expired on July 31, 2002, andthat such adjunct actuators would thereafter be manufactured by the Company. Inthis action Stoneridge is alleging that the Company:

 

•        breached certain agreements with Stoneridge whichobliged the Company to purchase all of its adjunct actuator requirements fromStoneridge for the life of certain customer programs;

 

•        made certain misrepresentations to Stoneridge that itwas not developing and producing adjunct actuators itself and that it intendedto purchase Stoneridge’s adjunct actuator for the life of the programs;

 

•        unlawfully used Stoneridge’s trade secrets andproprietary information; and

 

•        violated Massachusetts General Laws c93A, theMassachusetts unfair business practices legislation.

 

Stoneridge’sInitial Disclosure dated November 17, 2003, claims that Stoneridge’s damagesare over $25 million. The Company disputes the allegations contained in thecomplaint and does not believe it has any liability for these claims, althoughthe Company cannot provide any assurance that this will be the case.

 

(c) OnFebruary 28, 2003, the Company was served, in conjunction with SiemensAutomotive Corp., a.k.a. Siemens VDO Automotive Corp., with a complaint issuedin the Macomb County Circuit Court of the State of Michigan by General MotorsCorporation (“GM”). The GM complaint alleges that the Company and Siemens arein breach of certain express and implied warranties to GM and as a result GM isseeking reimbursement for costs and expenses incurred as a result of itsreplacement of

 

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tens ofthousands of rear door electric motors in respect of its model 2000 full-sizesport utility vehicles and trucks, including the Tahoe, Surburban, GMC Silveradoand Chevrolet Avalanche. The rear door electric motors (which the Company wasdirected to use by GM) are manufactured by Siemens and form part of a powerrear window regulator supplied by the Company to GM for those vehicles.Although the damages in the complaint are unspecific, GM has previously claimedthat the warranty and future recall costs could be up to $42 million. Based onits investigations to date, the Company does not believe that it has anyliability for this claim and that any liability it may become subject to, if itis established that the rear door motor is defective, will be recoverable fromSiemens, although the Company cannot provide any assurance that this will bethe case.

 

(d) TheCompany is also at risk for warranty, product liability and recall costs.Product liability provisions are established based on the Company’s bestestimate of the amounts necessary to settle existing claims on product defectissues. Recall costs are costs incurred when the Company and/or the customer decide,either voluntarily or involuntarily, to recall a product due to a known orsuspected performance issue. Costs typically include the cost of the productbeing replaced, customer cost of the recall and labour to remove and replacethe defective part. When a decision to recall a product has been made or isprobable as the Company is fully or partially responsible for the defectiveproduct, the Company’s estimated cost of the recall is recorded as a charge tonet earnings in that period. In making this estimate, judgement is required asto the number of units that may be returned as a result of the recall, thetotal cost of the recall campaign, the ultimate negotiated sharing of the costbetween the Company and the customer and, in some cases, the extent to which asupplier to the Company will share the recall cost. Due to the nature of thecosts, the Company makes its best estimate of the expected future costs,however, the ultimate amount of such costs could be materially different. Giventhe nature of the Company’s products, to date, the Company has not experiencedsignificant warranty including product liability and recall costs. However, theCompany continues to experience increased customer pressure to assume greaterwarranty responsibility. Currently, the Company only accounts for existing orprobable claims, however, a significant increase in warranty responsibilitycould require the Company to consider accounting for possible future claims.

 

(e) Inthe ordinary course of business activities, the Company may in addition to theclaims referred to above, be contingently liable for other litigation andpotential claims with customers, suppliers and former employees and forpotential environmental issues. Management believes that adequate provisionsare recorded in the accounts where required and when estimable. Although it isnot possible to estimate the extent of potential costs and losses, if any,management believes, but can provide no assurance, that the ultimate resolutionof such contingencies would not have a material adverse effect on the financialposition of the Company.

 

(f) TheCompany has guarantees to third parties that include future rent, utilitycosts, workers compensation claims under development, commitments linked tomaintaining specific employment, customs duties and obligations linked toperformance of specific vehicle programs. The amount of these guarantees arenot individually or in aggregate significant.

 

(g) TheCompany has entered into an agreement with Magna under which it has the optionto purchase, and Magna has the right to require it to purchase, Magna’s 32%equity interest in Camaco L.L.C. for a purchase price of one dollar.

 

(h) TheCompany has a number of arrangements in Canada, the United States, the UnitedKingdom and Europe which provide pension and post retirement benefits to itsretired and current employees. Pension arrangements include statutory pensionplans as well as similar arrangements, which provide pension benefits asrequired by statute. The Company has obligations under its defined benefitpension plans and other statutory plans. Unfunded unrecognized net actuarialgains and losses are amortized and charged to earnings over the averageremaining service period of active employees. All pension plans and similar arrangementsare funded to the minimum legal funding requirement. In certain plans, there isno legal requirement to fund the obligation until such time as they areactually incurred and as a result these arrangements are unfunded. In the eventthat any of these plans are terminated or wound up, an immediate payment ofunfunded amounts may be required and these amounts could materially exceed thecurrent unfunded position.

 

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**23. United States Generally AcceptedAccounting Principles**

 

Theconsolidated financial statements are prepared using Canadian generallyaccepted accounting principles which conform with United States generallyaccepted accounting principles except for the following:

 

(a) TheCompany has certain interests in jointly controlled entities that have beenproportionately consolidated in these consolidated financial statements. UnderU.S. GAAP, these interests would be accounted for by the equity method. Netincome, earnings per share, and shareholders’ equity under U.S. GAAP are notimpacted by the proportionate consolidation of these interests in jointlycontrolled entities.

 

(b) UnderU.S. GAAP, the Company would not have accounted for the Convertible SeriesPreferred Shares as part equity and part debt as required under Canadian GAAP.Under U.S. GAAP, the Convertible Series Preferred Shares would be shown attheir face value outside of shareholders’ equity and the entire non-cumulativedividend would be deducted from net income attributable to Class A SubordinateVoting and Class B Shares.

 

(c) InDecember 1999, the United States Securities and Exchange Commission issuedStaff Accounting Bulletin No. 101 (“SAB 101”), Revenue Recognition in FinancialStatements. Effective January 1, 2000, the Company changed its method ofaccounting under U.S. GAAP for in-house engineering service and toolingcontracts provided in conjunction with subsequent assembly or productionactivities which are regarded as a single arrangement. Previously, the Companyhad recognized revenue from these engineering services and tooling contracts ona percentage of completion basis. Under the new accounting method adoptedeffective January 1, 2000, for U.S. GAAP purposes, the Company recognizesrevenue and related costs of sales for these activities over the estimated lifeof the assembly or production arrangement. The cumulative adjustment to netincome as of January 1, 2000 was not significant.

 

For theyear ended December 31, 2003, revenues and expenses under U.S. GAAP are lowerby $0.8 million (for the years ended December 31, 2002 and 2001 – $3.3 millionand $8.7 million, respectively) and $1.0 million (for the years ended December31,2002 and 2001 – $3.4 million and $8.3 million, respectively), as a result ofthis difference between Canadian and U.S. GAAP. The net revenue reduction forthe year ended December 31, 2003 includes $0.0 million (for the years endedDecember 31, 2002 and 2001 – $3.8 million and $6.8 million, respectively) inrevenue that was included in the cumulative effect adjustment as of January 1,2000.

 

(d) TheCompany continues to measure compensation cost related to awards of stockoptions using the intrinsic value-based method of accounting for options issuedprior to January 1, 2003 as prescribed by APB Opinion No. 25, “Accounting forStock Issued to Employees” as permitted by Statement of Financial AccountingStandards Board No. 123 “Accounting for Stock-Based Compensation” (“Statement123”). In addition, under EITF 96-18, when stock options are issued tonon-employees other than directors acting in their capacity as a director, theCompany must record compensation expense in accordance with Statement 123.Options issued to directors for services provided outside of their role as adirector are recorded as compensation expense by the Company. Under CanadianGAAP options issued to directors after December 31, 2001 for services outsideof their roles as directors are recorded as compensation expense. For the yearended December 31, 2003 and 2002, the Company did not issue stock options tonon-employees. For the year ended December 31, 2001, the Company issued stockoptions to non-employees in return for services rendered. The total amount ofthis compensation expense for 2003 was $0.8 million (2002 – $0.8 million, 2001– $0.4 million).

 

(e) TheCompany uses foreign exchange forward contracts to manage foreign exchange riskfrom its underlying customer contracts. In particular, the Company uses foreignexchange forward contracts for the sole purpose of hedging certain of itsfuture committed U.S. dollar, euro and British pound outflows and inflows.Under Canadian GAAP, gains and losses on these contracts are accounted for as acomponent of the related hedged transaction.

 

EffectiveJanuary 1, 2001, the Company adopted Statement of Financial AccountingStandards Board No. 133 (“Statement 133”), “Accounting for DerivativeInstruments and Hedging Activities”, as amended, which establishes accountingand reporting standards for derivative instruments, including certainderivative instruments embedded in other contracts, and for hedging activities.Statement 133 requires a company to recognize all of its derivative instrumentsas either assets or liabilities in the balance sheet at fair value. Theaccounting for changes in the fair value (i.e. gains or losses) of a derivativeinstrument depends on whether it has been designated and qualifies as part of ahedging relationship. Statement 133 establishes certain criteria to be met inorder to designate a derivative instrument as a hedge and to deem a hedge aseffective.

 

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For theyear ended December 31, 2001 the Company’s derivative portfolio was noteligible for hedge accounting despite the fact that management considered itsportfolio to be an effective foreign currency risk management tool and aneconomic hedge of its future committed U.S. dollar, euro and British poundoutflows and inflows. Accordingly, the Company recorded a charge to net incomeof $16.1 million in the year ended December 31, 2001 for purposes ofreconciling to U.S. GAAP. For periods to and including December 31, 2000, thisamount would have been deferred and recorded as a component of the relatedhedge transaction under U.S. GAAP. In addition, the Company recorded acumulative adjustment to other comprehensive income of $8.2 million as ofJanuary 1, 2001 upon adoption of Statement 133.

 

EffectiveJanuary 1, 2002, the Company implemented a new treasury management system thatcomplies with the documentation requirements for hedge accounting underStatement 133. Gains and losses as a result of changes in fair value of hedgesare now recorded in other comprehensive income. For the year ended December 31,2003, the Company recorded a gain in other comprehensive income of $2.0 million(December 31, 2002 – a gain of $9.9 million). In addition, gains or losses onhedge contracts that matured during the year that were previously recognized inother comprehensive income are recognized in net income. The Company recorded again of $0.6 million for the year ended December 31, 2003 in net income forlosses on contracts that matured during 2003 that were previously recognized inother comprehensive income (December 31, 2002 – a loss of $4.2 million).

 

(f) Asdescribed in note 16, the Company uses electricity swap contracts to manage thecash flow risk from its electricity purchase contracts in Ontario, Canada.Under both Canadian GAAP and U.S. GAAP, these swap contracts are accounted forusing hedge accounting and the net swap settlements are recognized in the sameperiod as, and as part of, the hedged transaction. For U.S. GAAP purposes only,the Company reflects the fair value of the swap contract on the balance sheetwith an offsetting adjustment to other comprehensive income.

 

(g) UnderUS GAAP, the 2002 goodwill write-off as a result of the Company’s initialreview for impairment as described in note 9 is reported as a cumulativecatch-up adjustment for a change in accounting policy.

 

(h)During 2001, the Financial Accounting Standards Board (“FASB”) issued Statementof Financial Accounting Standards No. 143, “Accounting for AssetRetirement Obligations” (“FAS 143”). FAS 143 requires that legal obligationsarising from the retirement of tangible long-lived assets, includingobligations identified by a company upon acquisition and construction andduring the operating life of a long-lived asset, be recorded and amortized overthe assets’ useful life using a systematic and rational allocation method. FAS143 is effective for the Company’s 2003 fiscal year end.

 

Theadoption of this standard on January 1, 2003 resulted in the cumulative effectof an accounting change of $3.2 million being recognized as a cumulativecatch-up adjustment for a change in accounting policy, a charge to 2003 netincome attributable to Class A Subordinate Voting and Class B Shares of $0.9million, and at December 31, 2003, the recognition of a liability of $10.0million, the recognition of an other asset of $4.8 million, and the recognitionof a future tax asset of $1.1 million.

 

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(i) Thefollowing table presents net income and comprehensive income under U.S. GAAP:

 
| **Years ended December 31**                                                                                                      |   | **2003**   |      | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|----------|--------|----------|--------|
|                                                                                                                             |   |       |      |     |   |     |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under Canadian GAAP                                    |   | **$**      | **61.2**  |     | $      | 46.7     |   | $ | 39.0 |   |
| Adjustments (net of  related tax effects):                                                                                       |   |       |      |     |   |     |   |
| Amortization of  discount on Convertible Series Preferred Shares                                                                 |   | **12.4**   |      | 11.6     |   | 4.8      |   |
| Return of capital on  Convertible Series Preferred Shares                                                                        |   | **(10.0**  | **)**     | (9.4     | )      | (3.8     | )      |
| In-house tooling and  engineering                                                                                                |   | **0.2**    |      | 0.1      |   | (0.4     | )      |
| Derivative instruments                                                                                                           |   | **0.6**    |      | (4.2     | )      | (16.1    | )      |
| Non-employee stock  option compensation expense                                                                                  |   | **(0.8**   | **)**     | (0.8     | )      | (0.4     | )      |
| Asset retirement  obligations                                                                                                    |   | **(0.9**   | **)**     | —   |   | —   |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP before  cumulative catch-up adjustment |   | **$**      | **62.7**  |     | $      | 44.0     |   | $ | 23.1 |   |
| Cumulative adjustment  for change in accounting policy related to asset retirement obligations                                   |   | **(3.2**   | **)**     | —   |   | —   |   |
| Cumulative adjustment  for change in accounting policy related to goodwill                                                       |   | **—** |      | (35.7    | )      | —   |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP after  cumulative catch-up adjustment  |   | **$**      | **59.5**  |     | $      | 8.3      |   | $ | 23.1 |   |
| Other comprehensive  income (net of related tax effects):                                                                        |   |       |      |     |   |     |   |
| Derivative instruments                                                                                                           |   | **2.0**    |      | 9.9      |   | —   |   |
| Electricity swap  contracts                                                                                                      |   | **(0.2**   | **)**     | 0.3      |   | —   |   |
| Cumulative adjustment  at January 1, 2001 for the change in derivative instrument accounting                                     |   | **—** |      | —   |   | (8.2     | )      |
| Adjustment for  derivative instruments, matured during the period, included in the cumulative  adjustment at January 1, 2001     |   | **(0.6**   | **)**     | 4.2      |   | 4.4      |   |
| Unrealized foreign  exchange gains (losses) on translation of self-sustaining foreign entities                                   |   | **78.1**   |      | 42.1     |   | (13.4    | )      |
| Comprehensive income  under U.S. GAAP                                                                                            |   | **$**      | **138.8** |     | $      | 64.8     |   | $ | 5.9 |   |

 

39

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(j) Asdescribed under Principles of Consolidation in Significant Accounting Policies,earnings per share and retained earnings for the year ended December 31, 2001include net income for the five month period subsequent to July 31, 2001.

 

Thefollowing table presents net income, comprehensive income and basic earningsper share information under U.S. GAAP for the year ended December 31, 2003,2002 and for the five month period ended December 31, 2001:

 
|                                                                                                                             |   | **2003**   |      | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|----------|--------|----------|--------|
|                                                                                                                             |   |       |      |     |   |     |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under Canadian GAAP                                    |   | **$**      | **61.2**  |     | $      | 46.7     |   | $ | 17.9 |   |
| Adjustments (net of  related tax effects):                                                                                       |   |       |      |     |   |     |   |
| Amortization of  discount on Convertible Series Preferred Shares                                                                 |   | **12.4**   |      | 11.6     |   | 4.8      |   |
| Return of capital on  Convertible Series Preferred Shares                                                                        |   | **(10.0**  | **)**     | (9.4     | )      | (3.8     | )      |
| In-house tooling and  engineering                                                                                                |   | **0.2**    |      | 0.1      |   | (0.3     | )      |
| Derivative instruments                                                                                                           |   | **0.6**    |      | (4.2     | )      | —   |   |
| Non-employee stock  option compensation expense                                                                                  |   | **(0.8**   | **)**     | (0.8     | )      | (0.4     | )      |
| Asset retirement  obligations                                                                                                    |   | **(0.9**   | **)**     | —   |   | —   |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP before  cumulative catch-up adjustment |   | **$**      | **62.7**  |     | $      | 44.0     |   | $ | 18.2 |   |
| Cumulative adjustment  for change in accounting policy related to asset retirement obligations                                   |   | **(3.2**   | **)**     | —   |   | —   |   |
| Cumulative adjustment  for change in accounting policy related to goodwill                                                       |   | **—** |      | (35.7    | )      | —   |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP after  cumulative catch-up adjustment  |   | **$**      | **59.5**  |     | $      | 8.3      |   | $ | 18.2 |   |
| Other comprehensive  income (net of related tax effects):                                                                        |   |       |      |     |   |     |   |
| Derivative instruments                                                                                                           |   | **2.0**    |      | 9.9      |   | —   |   |
| Electricity swap  contracts                                                                                                      |   | **(0.2**   | **)**     | 0.3      |   | —   |   |
| Adjustment for  derivative instruments, matured during the period, included in the cumulative  adjustment at January 1, 2001     |   | **(0.6**   | **)**     | 4.2      |   | —   |   |
| Unrealized foreign  exchange losses on translation of self-sustaining foreign entities                                           |   | **78.1**   |      | 42.1     |   | (4.9     | )      |
| Comprehensive income  under U.S. GAAP                                                                                            |   | **$**      | **138.8** |     | $      | 64.8     |   | $ | 13.3 |   |
| Basic earnings per  Class A Subordinate Voting or Class B Share:                                                                 |   |       |      |     |   |     |   |
| Before cumulative  catch-up adjustment                                                                                           |   | **$**      | **1.29**  |     | $      | 0.91     |   | $ | 0.38 |   |
| Cumulative adjustment                                                                                                            |   | **$**      | **(0.07** | **)**    | $      | (0.74    | )      | $ | — |   |
| After cumulative  catch-up adjustment                                                                                            |   | **$**      | **1.22**  |     | $      | 0.17     |   | $ | 0.38 |   |
| Average number of Class  A Subordinate Voting and Class B Shares outstanding during the period                                   |   | **48.6**   |      | 48.2     |   | 47.9     |   |

 

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Thefollowing table presents diluted earnings per share information under U.S. GAAPfor the year ended December 31, 2003, 2002 and for the five month period endedDecember 31, 2001:

 
|                                                                                                                                                           |   | **2003**   |      | **2002** |   | **2001** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|-----------|----------|--------|----------|--------|
|                                                                                                                                                           |   |       |      |     |   |     |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP before  cumulative catch-up adjustment                               |   | **$**      | **62.7**  |     | $      | 44.0     |   | $ | 18.2 |   |
| Adjustments (net of related  tax effect):                                                                                                                      |   |       |      |     |   |     |   |
| Return of capital and  financing charge on Convertible Series Preferred Shares                                                                                 |   | **11.1**   |      | 11.3     |   | 4.7      |   |
|                                                                                                                                                           |   | **$**      | **73.8**  |     | $      | 55.3     |   | $ | 22.9 |   |
| Cumulative adjustment  for change in accounting policy related to asset retirement obligations                                                                 |   | **(3.2**   | **)**     | —   |   | —   |   |
| Cumulative adjustment  for change in accounting related to goodwill                                                                                            |   | **—** |      | (35.7    | )      | —   |   |
| Net income attributable  to Class A Subordinate Voting and Class B Shares under U.S. GAAP after  cumulative catch-up adjustment for diluted earnings per share |   | **$**      | **70.6**  |     | $      | 19.6     |   | $ | 22.9 |   |
| Diluted earnings per  Class A Subordinate Voting or Class B Share:                                                                                             |   |       |      |     |   |     |   |
| Before cumulative  catch-up adjustment                                                                                                                         |   | **$**      | **1.16**  |     | $      | 0.87     |   | $ | 0.36 |   |
| Cumulative adjustment                                                                                                                                          |   | **$**      | **(0.05** | **)**    | $      | (0.56    | )      | $ | — |   |
| After cumulative catch-up  adjustment                                                                                                                          |   | **$**      | **1.11**  |     | $      | 0.31     |   | $ | 0.36 |   |
| Average number of Class  A Subordinate Voting and Class B Shares outstanding during the period                                                                 |   | **48.6**   |      | 48.2     |   | 47.9     |   |
| Convertible Series  Preferred Shares                                                                                                                           |   | **14.8**   |      | 14.9     |   | 14.9     |   |
| Stock options                                                                                                                                                  |   | **0.1**    |      | 0.5      |   | —   |   |
|                                                                                                                                                           |   | **63.5**   |      | 63.6     |   | 62.8     |   |

 

(k) Thefollowing table indicates the significant items in the consolidated balancesheets that would have been affected had the consolidated financial statementsbeen prepared under U.S. GAAP:

 
| **December 31, 2003**                |   | **Canadian  GAAP** |      | **Asset  Retirement  Obligation** |       | **Electricity  swap** |       | **Derivative  instruments** |       | **In-house  tooling and  engineering** |       | **Convertible  Series  Preferred  Shares** |       | **U.S.  GAAP** |   |
|--------------------------------------|--------|--------------------|-----------|-----------------------------------|------------|-----------------------|------------|-----------------------------|------------|----------------------------------------|------------|--------------------------------------------|------------|----------------|--------|
|                                 |   |               |      |                              |       |                  |       |                        |       |                                   |       |                                       |       |           |   |
| Other assets                         |   | **$**              | **21.8**  | ** **                        | **4.8**    | ** **            | **—** | ** **                  | **—** | ** **                             | **—** | ** **                                 | **—** | ** **     | **$**  | **26.6** | ** ** |
| Future tax assets                    |   | **$**              | **72.5**  | ** **                        | **1.1**    | ** **            | **(0.1**   | **)**                       | **4.3**    | ** **                             | **0.5**    | ** **                                 | **—** | ** **     | **$**  | **78.3** | ** ** |
| Other accrued  liabilities           |   | **$**              | **101.8** | ** **                        | **10.0**   | ** **            | **(0.2**   | **)**                       | **12.2**   | ** **                             | **1.5**    | ** **                                 | **—** | ** **     | **$**  | **125.3** | ** ** |
| Convertible Series  Preferred Shares |   | **$**              | **214.7** | ** **                        | **—** | ** **            | **—** | ** **                  | **—** | ** **                             | **—** | ** **                                 | **6.4**    | ** **     | **$**  | **221.1** | ** ** |
| Shareholders’ Equity            |   | **$**              | **770.7** | ** **                        | **(4.1**   | **)**                 | **0.1**    | ** **                  | **(7.9**   | **)**                                  | **(1.0**   | **)**                                      | **(6.4**   | **)**          | **$**  | **751.4** | ** ** |
|                                      |        |                    |           |                                   |            |                       |            |                             |            |                                        |            |                                            |            |                |        |  |  |  |

 

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| **December 31, 2002**                |   | **Canadian  GAAP** |   | **Electricity  swap** |   | **Derivative  instruments** |   | **In-house  tooling and  engineering** |   | **Convertible  Series  Preferred  Shares** |   | **U.S.  GAAP** |   |
|--------------------------------------|--------|--------------------|--------|-----------------------|--------|-----------------------------|--------|----------------------------------------|--------|--------------------------------------------|--------|----------------|--------|
|                                 |   |               |   |                  |   |                        |   |                                   |   |                                       |   |           |   |
| Future  tax assets                   |   | $                  | 75.5   |                  | (0.2   | )                           | 5.4    |                                   | 0.6    |                                       | — |           | $      | 81.3 |   |
| Other accrued  liabilities           |   | $                  | 50.2   |                  | (0.5   | )                           | 15.3   |                                   | 1.8    |                                       | — |           | $      | 66.8 |   |
| Convertible Series  Preferred Shares |   | $                  | 206.2  |                  | — |                        | — |                                   | — |                                       | 18.8   |           | $      | 225.0 |   |
| Shareholders’ Equity            |   | $                  | 644.0  |                  | 0.3    |                        | (9.9   | )                                      | (1.2   | )                                          | (18.8  | )              | $      | 614.4 |   |

 

(l) Inaccordance with the Canadian Institute of Chartered Accountants (“CICA”)amended Handbook Section 3870 “Stock-Based Compensation and Other Stock-BasedPayments” (“CICA 3870”), effective January 1, 2003, the Company prospectivelyadopted without restatement of any comparable period the fair value method forrecognizing compensation expense for fixed price stock options. For awardsgranted prior to January 1, 2003, the Company continues to use the intrinsic valuemethod. Therefore, the Company does not recognize compensation expense for itsoutstanding fixed price stock options issued prior to January 1, 2003. UnderU.S. GAAP, the Company is required to disclose compensation expense assumingcompensation expense for the stock option plan had been determined based uponthe fair market value at the grant date, consistent with the methodologyprescribed under Statement 123. The compensation expense being disclosedincludes all options granted to employees up to December 31, 2002.

 

On a proforma basis, under Statement 123, the Company’s pro forma net incomeattributable to Class A Subordinate Voting and Class B Shares, and pro formabasic and diluted earnings per Class A Subordinate Voting or Class B Sharewould have been as follows:

 
|                                                                                                                                      |   | **2003** |     | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|----------|----------|--------|----------|--------|
|                                                                                                                                      |   |     |     |     |   |     |   |
| Pro forma net income  attributable to Class A Subordinate Voting and Class B Shares under U.S. GAAP  after cumulative catch-up adjustment |   | **$**    | **55.1** |     | $      | 4.6      |   | $ | 17.5 |   |
| Pro forma earnings per  Class A Subordinate Voting or Class B Share                                                                       |   |     |     |     |   |     |   |
| Basic                                                                                                                                     |   | **$**    | **1.13** |     | $      | 0.10     |   | $ | 0.37 |   |
| Diluted                                                                                                                                   |   | **$**    | **1.04** |     | $      | 0.10     |   | $ | 0.35 |   |

 

The fairvalue of the stock options were estimated at the date of grant using theBlack-Scholes options pricing model with the following weighted averageassumptions:

 
| Risk  free interest rate      |   | 3.96% – 5.27% |   |
|-------------------------------|--------|--------------------|--------|
| Expected dividend yield       |   | 1.20%              |   |
| Expected volatility           |   | 26 – 37%      |   |
| Expected time until  exercise |   | 5 years            |   |

 

Thismodel requires the input of a number of assumptions, including dividend yields,expected stock price volatility, expected time until exercise and risk freeinterest rates. Although the assumptions used reflect management’s bestestimates, they involve inherent uncertainties based on market conditionsgenerally outside of the control of the Company. If other assumptions are used,stock-based compensation expense could be significantly impacted.

 

Theweighted average fair value of options granted during the year ended December31, 2002 and 2001 were $5.63 and $4.18 per option.

 

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(m) InDecember of 2003, the Financial Accounting Standards Board made revisions toStatement 132, “Employers’ Disclosures about Pensions and Other Post RetirementBenefits (“FAS132R”). The revision carries forward all disclosures previouslyrequired by FAS132 which are included in Note 12 to the consolidated financialstatements and adds disclosure of the measurement date used for the majority ofthe plans, the accumulated benefit obligation and information about the planassets and cash flows. The additional disclosures are effective for fiscalyears ending after December 15, 2003, however, an exemption was provided fornon-North American plans. The additional disclosures for non-North American plansas well as information in respect of expected benefit payments will be requiredfor fiscal years ending after June 15, 2004.

 

In NorthAmerica, the Company has defined benefit plans and post retirement benefitplans.

 

TheCompany uses a measurement date of September 30 for the majority of its NorthAmerican pension and other post retirement benefit plans.

 

**BENEFIT OBLIGATIONS**

 

Theprojected benefit obligation for the Company’s North American defined benefitpension plans at December 31, 2003 and 2002 was $6.5 million and $2.5 million,respectively. The accumulated benefit obligation for these plans at December31, 2003 and 2002 was $4.0 million and $1.6 million, respectively.

 

TheCompany has a post retirement medical benefit plan for a specific group of formeremployees. The Company has assumed a 10% annual rate of increase in costs forcovered health care benefit for 2004. The rate is assumed to decrease byapproximately 4% over the next 6 years and remain at that level thereafter.Assumed health care cost trend rates can have a significant effect on theamounts reported for health care plans. However, the effect of a one-percentagepoint increase or decrease in health care trend rates would not have asignificant impact on the Company’s earnings.

 

For the remainderof the Company’s post retirement benefit plans, the amount of future postretirement benefit is based on a defined dollar amount and is not dependent onthe expected future costs of medical equipment, supplies or procedures.

 

**PLAN ASSETS**

 

The fairvalue of the plan assets for the North American defined benefit plans atDecember 31, 2003 and 2002 was $4.7 million and $2.3 million, respectively.

 

The assetallocation for the Company’s North American pension plans at the end of 2003and 2002, and the target allocation for 2004, by asset category are as follows:

 
|                       |   | **Target  Allocation** |   | **Percentage  of Plan Assets  at December 31** |    |
|----------------------------|--------|------------------------|--------|------------------------------------------------|---------|
|                       |   | **2004**               |   | **2003**                                       |    | **2002** |   |
| Equity Securities          |   | 50 – 75           | %      | 59                                             | %       | 41 | % |
| Fixed Income Securities    |   | 5 – 45            | %      | 29                                             | %       | 23 | % |
| Cash and Cash  Equivalents |   | 0 – 40            | %      | 12                                             | %       | 36 | % |
|                       |   |                   |   | 100                                            | %  | 100 | % |

 

TheCompany follows a balanced investment strategy which matches asset risks andreturns with the maturity and demographics of the plan members.

 

43

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**EXPECTED CASH FLOWS**

 

Expectedcash flows for the Company’s North American defined benefit and post retirementbenefit plans are as follows:

 
|                       |   | **Defined  Benefit Plans** |   | **Post  Retirement  Benefit Plans** |   |
|----------------------------|--------|----------------------------|--------|-------------------------------------|--------|
| Employer Contributions     |   |                       |   |                                |   |
| 2004 (expected)            |   | $                          | 2.3    |                                | $      | — |   |
| Expected Benefit  Payments |   |                       |   |                                |   |
| 2004                       |   | $                          | 0.1    |                                | $      | 0.8 |   |
| 2005                       |   | $                          | 0.1    |                                | $      | 0.8 |   |
| 2006                       |   | $                          | 0.2    |                                | $      | 0.9 |   |
| 2007                       |   | $                          | 0.1    |                                | $      | 1.0 |   |
| 2008                       |   | $                          | 0.2    |                                | $      | 1.0 |   |
| 2009 – 2013           |   | $                          | 3.5    |                                | $      | 6.3 |   |

 

**NET PERIODIC BENEFIT COST**

 

The netperiodic benefit cost for the North American defined benefit pension plans andpost retirement benefit plans at December 31, 2003, 2002 and 2001 was $4.6million, $2.6 million and $1.7 million, respectively.

 

Theexpected rate of return on plan assets was determined by considering ourcurrent investment mix and the historic performance of these investmentcategories and expected future performance of these investment categories.

 

Theeffect of a one-percentage-point increase or decrease in the assumed healthcare trend rates on the service and interest cost of a particular NorthAmerican post retirement benefit plan would not have a significant impact onthe Company’s earnings.

 

(n) UnderStaff Accounting Bulletin No. 74, the Company is required to disclose certaininformation related to new accounting standards which have not yet been adopteddue to delayed effective dates.

 

**CANADIAN GAAP STANDARDS:**

 

In 2003,the CICA issued Emerging Issues Committee Abstract No. 142, “RevenueArrangements with Multiple Deliverables” (“EIC-142”), which provides guidanceon accounting by a vendor for arrangements involving multiple deliverables. Itspecifically addresses how a vendor determines whether an arrangement involvingmultiple deliverables contains more than one unit of accounting and alsoaddresses how consideration should be measured and allocated to the separateunits of accounting in the arrangement. The guidance in EIC-142 is applicablefor revenue arrangements with multiple deliverables entered into by the Companyon or after January 1, 2004. Although the Company is currently reviewingEIC-142, the impact of this Abstract, if any, on the Company’s consolidatedfinancial statements has not been determined.

 

In 2003,the CICA issued Handbook Section 3110, “Asset Retirement Obligations”, whichestablishes standards for the recognition, measurement and disclosure of assetretirement obligations and the related asset retirement costs. This new Sectionis effective for the Company’s 2004 fiscal year and harmonizes Canadianrequirements with existing U.S. GAAP. The adoption of this Section on January1, 2004 is expected to result in the cumulative effect of an accounting changeof $4.1 million being recognized as a charge to opening retained earnings, therecognition of a liability of $10.0 million, the recognition of an other assetof $4.8 million and the recognition of a future tax asset of $1.1 million.

 

In 2003,the CICA issued Accounting Guideline AcG-15, “Consolidation of VariableInterest Entities” to provide guidance for applying the principles in HandbookSection 1590, “Subsidiaries”, to certain entities. Although the CICA iscontemplating amendments to the Guideline, it is expected to be effective forthe Company’s 2005 fiscal year. Although the Company is currently reviewing AcG-15,the impact of the Guideline, if any, on the Company’s consolidated financialstatements has not been determined.

 

44

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In 2003,the CICA finalized amendments to Accounting Guideline AcG-13, “Hedging Relationships”,that clarified certain of the requirements in AcG-13 and provided additionalapplication guidance. AcG-13 is applicable for the Company’s 2004 fiscal year.The Company does not expect the adoption of this Guideline to have a materialimpact on its consolidated financial statements.

 

**U.S. GAAP STANDARDS**

 

In 2003,the FASB finalized Emerging Issues Task Force Abstract No. 00-21 (“EITF00-21”), “Revenue Arrangements with Multiple Deliverables”. The guidance inthis Abstract is consistent with the guidance in EIC-142, which was recentlyissued by CICA. The guidance in EITF 00-21 is applicable for revenuearrangements with multiple deliverables that the Company enters into on orafter January 1, 2004.

 

In 2003,the FASB amended Interpretation No. 46, “Consolidation of Variable InterestEntities” (“FIN 46R”). FIN 46R requires that a variable interest entity (“VIE”)be consolidated by a company if that company is subject to a majority of therisk of loss from the VIE’s activities and/or is entitled to receive a majorityof the VIE’s residual returns. For the Company, the requirements of FIN 46Rapply in 2003 for all VIEs created after January 31, 2003. For VIEs createdbefore January 31, 2003, the requirements of FIN 46 apply as of December 31,2004 for a VIE that does not meet the definition of a special-purpose entity(“SPE”) and as of January 1, 2004 for VIE that is an SPE.

 

Althoughthe Company is currently reviewing EITF 00-21 and FIN 46R, the impact, if any,of these pronouncements on the Company’s consolidated financial statements hasnot been determined.

 

**24. Subsequent Events**

 

Subsequentto December 31, 2003, the Company sold one of its manufacturing facilitiesreported in the European Interior Systems segment. The impact to the Companywill be a charge to operating income and net income of approximately $4 millionand $6 million, respectively.

 

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