|                                                      | EXHIBIT 99.3
|----------------------------------------------------- | ------------
|REPORT OF INDEPENDENT REGISTEREDCHARTERED ACCOUNTANTS |             

To the Shareholders of
Wescast Industries Inc.We have audited the consolidated balance sheets of Wescast Industries Inc. (the Company) as at January 2,
2005 and December 28, 2003 and the consolidated statements of earnings and retained
earnings and of cash flows for the fiscal years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance
with Canadian generally accepted auditing standards. Those standards require that we plan
and perform an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of
the Company as at January 2, 2005 and December 28, 2003 and the results of its operations
and its cash flows for the fiscal years then ended in accordance with Canadian generally
accepted accounting principles.

The consolidated financial statements for the fiscal year ended December 29, 2002, prior to the adjustments described in the
reconciliation to accounting principles generally accepted in the United States of America
in Note 25, were audited by other auditors who expressed an opinion without
reservation on those statements in their report dated January 27, 2003. We have audited
the adjustments to Note 25 for the fiscal year ended December 29, 2002 and in our
opinion, such adjustments, in all material respects, are appropriate and have been
properly applied.

The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly we express no such opinion.



Chartered AccountantsKitchener,
Ontario

February 11, 2005, except as to
Note 26, which is as of February 23, 2005

Comments by Auditor on
Canada-United States of America Reporting DifferenceIn the United States, reporting
standards for auditors require the addition of an explanatory paragraph following the
opinion paragraph to identify circumstances in which accounting changes affect consistency
such as the matters described in Notes 2and 25to the consolidated
financial statements. Our report to the shareholders dated February 11, 2005, except as to
Note 26, which is as of February 23, 2005, is expressed in accordance with Canadian
reporting standards which do not require reference to such circumstances in the
auditors report when the items are properly accounted for and disclosed in the
consolidated financial statements.



Chartered AccountantsKitchener,
Ontario

February 11, 2005, except as to
Note 26, which is as of February 23, 2005

(Wescast Industries Inc. 2004 Annual Report) 49

CONSOLIDATED STATEMENTS
OF EARNINGS AND RETAINED EARNINGS (in thousands of Canadian Dollars,
except per share amounts)

|Fiscal year (Note 2)                                    | 2004     | 2003 | 2002
|------------------------------------------------------- | -------- | ---- | ----
|(Note 3)                                                | (Note 3)
|                                                       
|Sales                                                   |          |      | $   
|Cost of sales                                           |          |      |     
|                                                       
|Gross profit                                            |          |      |     
|Selling, general and administration                     |          |      |     
|Stock-based compensation (Note 24)                      |          |      |     
|Research, development and design                        |          |      |     
|                                                       
|                                                        |          |      |     
|                                                       
|Other (income) expense                                  |          |     
|Interest expense                                        |          |      |     
|Investment income                                       |          |      |     
|Other (Note 15)                                         |          |      |     
|                                                       
|                                                        |          |      |     
|                                                       
|Earnings from continuing operations before income tax   |          |      |     
|Income taxes (Note 16)                                  |          |      |     
|                                                       
|Earnings from continuing operations                     |          |      |     
|Net loss from discontinued operations (Note 18)         |          |      |     
|                                                       
|Net earnings (loss)                                     |          |      |     
|                                                       
|Earnings from continuing operations per share (Note 19) |          |      |     
|Basic                                                   |          |      | $   
|                                                       
|Diluted                                                 |          |      | $   
|                                                       
|Net earnings (loss) per share (Note 19)                 |          |     
|Basic                                                   |          |      |     
|                                                       
|Diluted                                                 |          |      |     
|                                                       
|                                                       
|Retained earnings, beginning of year                    |          |      | $   
|Accounting change (Note 3)                              |          |      |     
|Net earnings (loss)                                     |          |      |     
|Dividends paid                                          |          |      |     
|Repurchase of Class A common shares (Note 12)           |          |      |     
|                                                       
|Retained earnings, end of year                          |          |      | $   
|                                                       
|                                                       

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

(Wescast Industries Inc. 2004 Annual Report) 50

CONSOLIDATED BALANCE
SHEETS (in thousands of Canadian
Dollars)

|                                                          | January 2, 2005
|--------------------------------------------------------- | ---------------
|(Note 3)                                                 
|                                                         
|Assets                                                    |                
|Current                                                   |                
|Cash and cash equivalents                                 |                
|Receivables                                               |                
|Income taxes receivable                                   |                
|Inventories (Note 6)                                      |                
|Prepaids                                                  |                
|Future income taxes (Note 16b)                            |                
|Current assets - discontinued operations (Note 18)        |                
|                                                         
|                                                          |                
|Property, plant and equipment (Note 7)                    |                
|Future income taxes (Note 16b)                            |                
|Other assets (Note 8)                                     |                
|Long-term assets - discontinued operations (Note 18)      |                
|                                                         
|                                                          |                
|                                                         
|                                                         
|Liabilities and Shareholders' Equity                      |                
|Current                                                   |                
|Payables and accruals                                     |                
|Income taxes payable                                      |                
|Current portion of long-term debt (Note 9)                |                
|Current portion of stock appreciation rights              |                
|Future income taxes (Note 16b)                            |                
|Current liabilities - discontinued operations (Note 18)   |                
|                                                         
|                                                          |                
|Long-term debt (Note 9)                                   |                
|Deferred government assistance (Note 10)                  |                
|Long-term stock appreciation rights                       |                
|Future income taxes (Note 16b)                            |                
|Employee benefits (Note 11)                               |                
|Long-term liabilities - discontinued operations (Note 18) |                
|                                                         
|                                                          |                
|                                                         
|Shareholders' Equity                                      |                
|Capital stock (Note 12)                                   |                
|Retained earnings                                         |                
|Share purchase loans (Note 13)                            |                
|Cumulative translation adjustment                         |                
|                                                         
|                                                          |                
|                                                         
|                                                          |                
|                                                         

Approved by the Board:

|                                     |                   |                                               
|------------------------------------ | ----------------- | ----------------------------------------------
|                                     |                   | Commitments and contingencies (Note 14)       
|Edward G. Frackowiak,                | J. Emilien Bolduc | The accompanying notes are an integral part of
|Chairman and Chief Executive Officer | Director          | these consolidated financial statements.      

(Wescast Industries Inc. 2004 Annual Report) 51

---



CONSOLIDATED STATEMENTS
OF CASH FLOWS(in thousands of Canadian
Dollars)

|2004                                                      
|----------------------------------------------------------
|(Note 3)                                                  
|                                                          
|Cash derived from (applied to)                            
|Operating                                                 
|Earnings from continuing operations                       
|Depreciation and amortization                             
|Future income taxes                                       
|Gain on disposal of short-term investments                
|Loss on disposal of equipment                             
|Deferred government assistance                            
|Stock-based compensation, net of payments                 
|Employee benefits, net of payments                        
|                                                          
|                                                          
|Change in non-cash operating working capital (Note 20)    
|                                                          
|                                                          
|Discontinued operations                                   
|                                                          
|                                                          
|                                                          
|Investing                                                 
|Purchase of property, plant and equipment and other assets
|Purchase of investments                                   
|Purchase of subsidiary, net of cash acquired (Note 4)     
|Redemption of investments                                 
|Proceeds on disposal of equipment                         
|Discontinued operations                                   
|                                                          
|                                                          
|                                                          
|Financing                                                 
|Issue of long-term debt                                   
|Repayment of long-term debt                               
|Payment of credit facility fees                           
|Payments under capital lease obligations                  
|Issuance of common shares                                 
|Employee share purchase loan repayments                   
|Repurchase of common shares                               
|Dividends paid                                            
|Discontinued operations                                   
|                                                          
|                                                          
|                                                          
|Net increase (decrease) in cash and cash equivalents      
|Cash and cash equivalents                                 
|Beginning of year                                         
|                                                          
|End of year                                               
|                                                          

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

(Wescast Industries Inc. 2004 Annual Report) 52

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands of Canadian dollars,
except per share amounts and where otherwise noted)

# 1. Nature of operations

The major operations of Wescast
Industries Inc. are the design and manufacture of cast iron parts for the automotive
industry.

# 2. Significant
accounting policies

Basis of presentationThe consolidated financial statements
have been prepared in Canadian dollars following Canadian generally accepted accounting
principles. These financial statements are also in conformity, in all material respects,
with financial statements prepared in accordance with accounting principles generally
accepted in the United States of America, except as described in Note 25.

Fiscal yearThe fiscal year of the Company
consists of a 52 or 53-week period ending on the Sunday closest to December 31. The fiscal
year for the consolidated financial statements presented for 2004 is the 53-week period
ended January 2, 2005. For the consolidated financial statements presented for 2003 and
2002 the fiscal years are the 52-week periods ended December 28, 2003, and December 29,
2002, respectively.

The results of certain subsidiaries
which have different year ends from the Company have been included in the financial
statements for the 12 months ended December 31.

Principles of
consolidationThe consolidated financial statements
include the accounts of Wescast Industries Inc. and its subsidiaries (the
Company). The Company accounts for its jointly controlled entity, United
Machining Inc. (49%), using the proportionate consolidation method. The Company acquired
the remaining interest in Weslin Industries Inc. on August 31, 2004 (see Note 4).
Prior to the acquisition, this entity was jointly held and the Companys 50% interest
in this entity was accounted for using the proportionate consolidation method. All
significant inter-company balances and transactions have been eliminated. All amounts
disclosed in the notes to the consolidated financial statements related to the
Companys jointly controlled entities are the Companys proportionate share.

Revenue recognitionRevenue is recognized when the price
is fixed or determinable, collectability is reasonably assured and products are delivered
to customers. Tooling and prototype revenue is recognized when the customer has received,
tested and accepted the tooling or prototype.

Cash and cash equivalentsCash and cash equivalents includes
cash and investments that have a maturity of three months or less from the date of
acquisition.

InventoriesRaw materials and supplies are valued
at the lower of cost or replacement cost. Tooling and finished goods are valued at the
lower of cost or net realizable value. Cost includes material, labour and manufacturing
overhead. Cost is determined on a first-in, first-out basis.

Property, plant and
equipmentCapital assets are recorded at
historical cost. Depreciation is provided to write off the cost, less estimated salvage
value, of property and equipment over their estimated useful lives. Buildings and
improvements are depreciated on a declining-balance basis at 3% to 10% per year, or on a
straight-line basis over their respective lives. Machinery, equipment and vehicles are
depreciated on a diminishing-balance basis at 10% to 50%, a straight-line basis up to 15
years, or on a unit-of-production basis calculated on the estimated volume over the life
of the product. All maintenance and repair costs are expensed as incurred.

(Wescast Industries Inc. 2004 Annual Report) 53

# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands of Canadian dollars,
except per share amounts and where otherwise noted)

Amortization of other
long-term assetsLicenses are being amortized on the
straight-line method over their estimated lives of 10 years. Bond issue costs and other
financing fees are amortized over the term of the related financing.

Asset impairmentThe Company accounts for the
impairment and disposal of long-lived assets in accordance with CICA Handbook Section
3063, Impairment of Long-Lived Assets. When events or circumstances
warrant a review, the Company evaluates the carrying value of long-lived and intangible
assets for potential impairment. The carrying value of such assets are considered impaired
when the anticipated net recoverable amount of the asset, represented by the anticipated
undiscounted cash flows directly attributable to the asset, is less than its carrying
value. In that event, the carrying value of the asset is adjusted to fair market value and
a loss recorded.

Pre-production costsCosts incurred during the
pre-production or start-up phases associated with new facilities and new businesses are
expensed as incurred. In previous years these costs were deferred until commercial
production levels were attained and subsequently amortized over a period not to exceed
five years. The impact of the change is described in Note 3.

Research, development
and designResearch and development costs, net
of government assistance, are expensed in the period incurred unless criteria for deferral
under Canadian generally accepted accounting principles are met. To date, all research and
development costs have been charged to operations as incurred.

Income taxes The Company provides for income taxes
using the liability method of tax allocation. Under this method, future income tax assets
and liabilities are determined based on deductible or taxable temporary differences
between financial statement values and tax values of assets and liabilities using enacted
income tax rates expected to be in effect for the year in which the differences are
expected to reverse.

The Company establishes a valuation
allowance against future income tax assets, if based on available information, it is more
likely than not that one or all of the future income tax assets will not be realized.

Investment tax credits relating to
capital asset purchases and research and development expenditures are accounted for as a
reduction of the cost of such assets and expenses, respectively. Investment tax credits
are recorded when there is reasonable assurance they will be realized.

Employee benefit
plansThe Company accrues its obligations
under employee benefit plans and the related costs, net of plan assets as follows:

  The cost of pensions and other
retirement benefits earned by employees is actuarially determined using the
projected-benefit method prorated on service and managements best estimate of
expected plan investment performance for funded plans, salary escalation, retirement ages
of employees and expected health care costs.

  For the purpose of calculating
the expected return on plan assets, those assets are valued at fair value.

  Past service costs from plan
amendments are amortized on a straight-line basis over the average remaining service
period of employees active at the date of amendment.

  The excess of the net
actuarial gain (loss) over 10% of the greater of the benefit obligation or the fair value
of plan assets is amortized over the average remaining service period of active employees.

(Wescast Industries Inc. 2004 Annual Report) 54

---



Stock-based compensation
plansThe Companys stock-based
compensation plans are described in Note 24. Prior to 2002, no compensation expense
was recognized with respect to the employee share purchase plan or the stock option plan.
Any consideration paid upon exercise of options and issue of shares is credited to share
capital.

The expenses recognized with respect
to the deferred stock unit plan and the restricted share unit plan are reported as
components of employee and director compensation and included in cost of sales and
selling, general and administration expenses.

In 2002, the Companys stock
option plan was amended to authorize the grant of tandem stock appreciation rights. The
annual increase or decrease in the intrinsic value of the stock options is included as
stock-based compensation in the statements of earnings. For options that have not fully
vested, the change in intrinsic value is amortized over the remaining vesting period. The
corresponding liability is reported on the balance sheet.

In 2002, the Company adopted the fair
value recognition provisions of CICA Handbook Section, 3870 Stock-Based
Compensation and Other Stock-Based Payments (CICA 3870) in
accounting for stock-based awards (see Note 24).

Translation of foreign
currenciesTransactions and balances denominated
in currencies other than Canadian dollars are translated on the following basis. Current
assets and current liabilities are translated at the year-end rate of exchange. Revenue
and expenses are translated at monthly average rates of exchange. Fixed assets and
depreciation are translated at rates prevailing when the related assets are acquired.
Gains and losses are included in earnings.

For self-sustaining subsidiaries, all
of the assets and liabilities are translated at the year-end rate of exchange. Revenues
and expenses are translated at the average rate of exchange for the year. Gains and losses
are recorded as an adjustment to shareholders equity.

For integrated subsidiaries, monetary
assets and liabilities are translated at the year-end rate of exchange. Fixed assets and
depreciation are translated at rates prevailing when the related assets are acquired.
Revenue and expenses are translated at monthly average rates of exchange. Translation
gains and losses are included in earnings.

Derivative financial
instrumentsThe Companys use of derivative
instruments is intended to manage the risk of foreign currency fluctuations and the cost
volatility of electricity and natural gas. The Company does not hold or issue derivative
instruments for trading purposes. Accordingly, the Company accounts for exchange gains and
losses on forward exchange contracts at the time of occurrence of the hedged transaction.

Gains and losses on forward exchange
contracts cancelled prior to maturity are deferred and recognized at the time the
originally hedged transactions occur.

As described in Note 3b, the
Company has adopted CICA Accounting Guideline 13 Hedging Relationships in
accounting for its hedging activities.

Use of estimatesIn preparing the Companys
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements, and reported
revenues and expenses during the reporting period. Actual results could differ from those
estimates.

(Wescast Industries Inc. 2004 Annual Report) 55

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands of Canadian dollars,
except per share amounts and where otherwise noted)

# 3. Accounting Changes

|a) |  | During the fourth quarter of 2004, the Company amended its accounting policy in
               respect of pre-production costs incurred during the start-up phase associated
               with the launch of a new facility or new business. Under the new accounting
               these costs are expensed as incurred. The Companys previous accounting was
               to defer these costs until commercial production levels had been attained.
               Subsequently these costs were amortized over a period not to exceed five years.
               The Company believes the new accounting better aligns with how it will manage
               and monitor future launch activities.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | This change in accounting has been applied retroactively with restatement of prior periods. The
retroactive changes to the Companys consolidated balance sheet and statements of
earnings and retained earnings for the 2003 and 2002 fiscal years are as follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Changes in the consolidated balance sheet:

|                                       
|---------------------------------------
|                                       
|Decrease in other assets               
|Decrease in future income tax liability
|Decrease in retained earnings          

Changes
in the consolidated statements of earnings and retained earnings:

|                                                       
|-------------------------------------------------------
|                                                       
|Increase in revenues                                   
|Increase (decrease) in cost of sales                   
|Increase in income tax expense                         
|Increase (decrease) in net earnings                    
|Increase (decrease) in net earnings per share - basic  
|Increase (decrease) in net earnings per share - diluted

| |  | As a result of this accounting change, net earnings for the fiscal year ended January 2, 2005
were $3,258 ($0.22 diluted net earnings per share) higher than would have been reported
under the previous accounting.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|b) |  | In December 2001, the Accounting Standards Board of the CICA issued Accounting
               Guideline 13, Hedging Relationships (AcG-13),
               which applies to fiscal years beginning on or after July 1, 2003. AcG-13
               establishes specific criteria for derivatives to qualify for hedge accounting.
               Hedge accounting is a method for recognizing the gains, losses, revenues and
               expenses associated with the separate components in a hedging relationship, such
               that those gains, losses, revenues and expenses associated with the separate
               components are recognized in income in the same period when they would otherwise
               be recognized in different periods.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A derivative will qualify as a hedge if the hedging relationship is designated and formally
documented at inception. AcG-13 requires the documentation to identify the particular risk
management objective and strategy for undertaking the hedge transaction, along with the
specific asset, liability or cash flow being hedged, as well as how effectiveness is being
assessed. The derivative must be highly effective in offsetting either changes in the fair
value of on-balance sheet items or changes in the amount of future cash flows both at
inception and over the life of the hedge for hedge accounting to continue. Hedge
accounting is discontinued if a hedging relationship becomes ineffective; however, the
hedge accounting applied to a hedging relationship in prior periods is not reversed. The
adoption of AcG-13 has had an insignificant impact on our results of operations and
financial position.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Wescast Industries Inc. 2004 Annual Report) 56

---



|c) |  | The Company adopted the fair value recognition provisions of CICA Handbook
               Section, 3870 Stock-Based Compensation and Other Stock-Based
               Payments (CICA 3870) in accounting for stock-based
               awards, effective December 29, 2003, without restatement of prior periods as the
               impact was immaterial. The fair value recognition provisions of CICA 3870 were
               applicable only to the Companys share purchase plan described in Note
               23. The impact of this accounting change was a decrease in earnings of $48
               for the year ended January 2, 2005.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 4. Business acquisition

On August 31, 2004, the Company
purchased the remaining 50% of the outstanding voting common shares of Weslin Industries
Inc., (Weslin) for a purchase price, including acquisition costs of $54.2
million. Weslin, a European company, was established in 1999 for the design, sale and
manufacture of exhaust manifolds, turbo charger housings and integrated turbo manifolds
for the European light vehicle market. The results of Weslins operations have been
included in the consolidated financial statements since the date of acquisition. The
investment had previously been accounted for using the proportionate consolidation method.

The Company recently changed the name
of this operation from Weslin Hungary Rt. to Wescast Hungary Rt.

The total consideration paid in
connection with the acquisition amounted to $52.7 million (net of cash acquired of $1.5
million).

The following table summarizes the
estimated fair value of the assets acquired and liabilities assumed at the date of
acquisition:

|                                               |         
|---------------------------------------------- | --------
|                                              
|Receivables                                    | $  2,749
|Inventory                                      | 5,352   
|Prepaid expenses                               | 161     
|Property, plant and equipment                  | 50,124  
|                                              
|Total assets acquired                          | 58,386  
|                                              
|Current liabilities                            | 4,511   
|Long-term debt                                 | 1,139   
|                                              
|Total liabilities assumed                      | 5,650   
|                                              
|Total consideration paid, net of cash acquired | $52,736 
|                                              

If this acquisition had occurred on
December 28, 2003, the unaudited pro forma sales for the Company for fiscal 2004 would
have been $425,130 and the net loss and diluted net loss per share would have been $30,091
and $2.37 respectively.

(Wescast Industries Inc. 2004 Annual Report) 57

---



# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (in thousands of Canadian dollars,
except per share amounts and where otherwise noted)

5.Interest in jointly controlled entities

The following is the Companys
          proportionate share of the major components of its jointly controlled entities
          (before eliminations). The statements of earnings and statements of cash flows
          include the Companys proportionate share of Weslin Industries Inc. to the
          date of acquisition August 31, 2004 (see Note 4).

|                                    
|------------------------------------
|                                    
|Balance sheets                      
|Current assets                      
|Long-term assets                    
|Current liabilities                 
|Long-term liabilities               
|Equity                              
|Statements of earnings              
|Sales                               
|Cost of sales and expenses          
|Net loss                            
|Statements of cash flows            
|Cash derived from (applied to)      
|Cash flows from operating activities
|Cash flows from financing activities
|Cash flows from investing activities

6. Inventories

|                           | January 2, 2005 | December 28, 2003
|-------------------------- | --------------- | -----------------
|                          
|Finished goods             |                 |                  
|Castings                   |                 | $  8,735         
|Tooling                    |                 | 6,375            
|Raw materials and supplies |                 | 23,470           
|                          
|                           |                 | $38,580          
|                          

(Wescast Industries Inc. 2004 Annual Report) 58

---



7.Property, plant and equipment

|                                  | January 2, 2005
|--------------------------------- | ---------------
|                                 
|Cost                              |                
|Land                              |                
|Buildings and improvements        |                
|Machinery, equipment and vehicles |                
|                                 
|                                  |                
|                                 
|Accumulated depreciation          |                
|Buildings and improvements        |                
|Machinery, equipment and vehicles |                
|                                 
|                                  |                
|                                 
|Net book value                    |                
|Land                              |                
|Buildings and improvements        |                
|Machinery, equipment and vehicles |                
|                                 
|                                  |                
|                                 

| | At January 2, 2005 assets under capital lease amounted to $1,900 (2003  $2,331) less
accumulated depreciation of $1,006 (2003  $986).
| | ---------------------------------------------------------------------------------------------------------------------------------------

# 8. Other assets

|                               | January 2, 2005
|------------------------------ | ---------------
|                              
|Deferred credit facility fees  |                
|Deferred foreign exchange loss |                
|Deferred bond issuance costs   |                
|Licence                        |                
|                              
|                               |                
|                              

# 9. Long-term debt

|                                        | January 2, 2005
|--------------------------------------- | ---------------
|                                       
|a)Revolving term facility               |                
|b)Capital lease obligations             |                
|c)Limited obligation revenue bonds      |                
|d) Revolving bank note                  |                
|e) Variable-rate installment note       |                
|f)Fixed-rate installment note           |                
|                                       
|Total                                   |                
|Less: Current portion of long-term debt |                
|                                       
|                                        |                
|                                       

(Wescast Industries Inc. 2004 Annual Report) 59

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

a)  
          Revolving term facilityDuring the year, the Company revised its banking
          facilities. The credit agreement provides for a committed revolving credit
          facility in the amount of $125.0 million through December, 2007. The facility,
          which is unsecured, is guaranteed by the Company and one material subsidiary. As
          of January 2, 2005, $93.9 million was available under the facility.

The credit agreement requires the
Company to maintain certain financial ratios and imposes limitations on specified
activities. The Company was in compliance with these covenants at January 2, 2005.
Borrowings under the credit agreement are available as selected by the Company by way of:
i) Prime Loans, ii) U.S. Base Rate Loans, iii) LIBOR Loans, iv) Bankers Acceptances,
and v) Letter of Credit or Letter of Guarantee, plus applicable interest rate margin. The
interest rate spreads are determined by the Companys performance against specified
ratios.

b)  
          Capital lease obligationsThe obligations under capital leases are payable
          in monthly installments with interest at rates from 3.0% to 8.0%, maturing at
          various dates to the year 2007, and secured by vehicles and equipment. The
          carrying value of the vehicles and equipment was approximately $894 at January
          2, 2005. In 2004, no new vehicles and equipment were acquired through capital
          lease obligations (2003  $304; 2002  $1,687).

c)  
          Limited obligation revenue bondsThe limited obligation revenue bonds are
          payable in annual installments of principal of US$490 with a variable interest
          rate, which at January 2, 2005 was 2.15% (1.45% at December 28, 2003), and
          mature in the year 2010. As security, United Machining Inc., the Companys
          49%-owned joint venture, has provided a first charge over its receivables,
          inventory, machinery and equipment, which had an approximate carrying value of
          US$4,107 at January 2, 2005. Also, the Company has provided a US$4,000 guarantee
          of the bonds, and any of the Companys inter-company loans with United
          Machining Inc. are subordinate to the bonds.

d)   Revolving bank noteThe
          revolving bank note is payable on demand, bears interest at US prime less 0.5%,
          and security is provided by a charge on the assets of United Machining Inc. The
          Company has provided a full guarantee of the amount outstanding.

e)  Variable-rate installment noteThe variable rate installment note is payable
          in monthly installments commencing in 2003, bears interest at US prime less 1.0%
          and matures in 2006. Security is provided by a charge on the assets of United
          Machining Inc. The Company has provided a full guarantee of the amount
          outstanding.

f)  
          Fixed-rate installment noteThe fixed rate installment note is payable in
          monthly installments commencing in 2004, bears interest at the fixed rate of
          3.85% and matures in 2009. Security is provided by a charge on the assets of
          United Machining Inc. The Company has provided a full guarantee of the amount
          outstanding.

Long-term debt repayments over the
next five years are as follows:

|                     |  | Long-term debt |  | Capital leases |  | Total    | 
|-------------------- |  | -------------- |  | -------------- |  | -------- | 
|                    
|2005                 |  | $  1,656       |  | $435           |  | $  2,091 | 
|2006                 |  | 641            |  | 269            |  | 910      | 
|2007                 |  | 26,866         |  | 33             |  | 26,899   | 
|2008                 |  | 625            |  | --             |  | 625      | 
|2009                 |  | 38             |  | --             |  | 38       | 
|                    
|Total                |  | $29,826        |  | $737           |  | $30,563  | 
|Less current portion |  |                |  |                |  | 2,091    | 
|                    
|                     |  |                |  |                |  | $28,472  | 
|                    

(Wescast Industries Inc. 2004 Annual Report) 60

---



# g) Revenue bonds

The Company anticipates that in 2005
it will repay Revenue bonds of $30,687 associated with discontinued operations. As a
result, they have been included with current liabilities of discontinued operations (see
Note 18). In prior periods these bonds have been reflected as a component of
long-term debt.

# 10. Deferred government
assistance

A foreign subsidiary of the Company
has received government assistance in respect to the purchase of machinery and equipment.
These amounts are deferred and amortized over the life of the related asset. The amount of
amortization included in income for the year was $139 (2003  $57) (2002- $17).

# 11. Employee benefits

The Company has a number of defined
benefit and defined contribution plans providing pension and other retirement benefits to
most of its employees.

# Defined contribution
plans

The Companys defined
contribution plans expense is recorded in cost of sales, selling, general and
administration and research, development and design within the statement of earnings. The
total expense for the Companys defined contribution plans is as follows:

|                                 |  |        | 
|-------------------------------- |  | ------ | 
|                                 |  | 2004   | 
|                                
|Plans providing pension benefits |  | $5,716 | 

# Defined benefit plans

The Company measures its accrued
benefit obligations and the fair value of plan assets for accounting purposes as at
November 30 of each year. Information about the Companys defined benefit plans, in
aggregate, is as follows.

|                                                      | Pension Benefit Plans | Other Benefit Plans |   |           
|----------------------------------------------------- | --------------------- | ------------------- | - | ----------
|                                                      |                       | 2004                |   | 2003      
|                                                     
|Accrued benefit obligation                            |                      
|Balance at beginning of year                          |                       | $ 19,211            |   | $ 17,349  
|Current service cost                                  |                       | 1,025               |   | 925       
|Interest cost                                         |                       | 1,294               |   | 1,174     
|Benefits paid                                         |                       | (730                | ) | (665      
|Plan initiation                                       |                       | 32                  |   | 830       
|Actuarial losses (gain)                               |                       | 2,069               |   | (402      
|                                                     
|Balance at end of year                                |                       | $ 22,901            |   | $ 19,211  
|                                                     
|Plan assets                                           |                      
|Fair value at beginning of year                       |                       | $      688          |   | $      689
|Actual return on plan assets                          |                       | 69                  |   | 63        
|Benefits paid                                         |                       | (64                 | ) | (64       
|                                                     
|Fair value at end of year                             |                       | $      693          |   | $      688
|                                                     
|Funded status                                         |                      
|Plan deficit                                          |                       | ($22,208            | ) | ($18,523  
|Unamortized net actuarial (gain) loss                 |                       | 1,522               |   | (699      
|Unamortized past service costs                        |                       | 8,125               |   | 8,773     
|Unamortized transitional obligation                   |                       | (311                | ) | (339      
|                                                     
|Accrued benefit liability                             |                       | (12,872             | ) | (10,788   
|Valuation allowance                                   |                       | (42                 | ) | (27       
|                                                     
|Accrued benefit liability, net of valuation allowance |                       | ($12,914            | ) | ($10,815  
|                                                     

(Wescast Industries Inc. 2004 Annual Report) 61

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

|                              |  |      
|----------------------------- |  | -----
|Plan assets by asset category |  | 2004 
|                             
|Short-term investments        |  | 2.5  
|Equity Securities             |  | 35.7 
|Debt Securities               |  | 61.8 
|                             
|                              |  | 100.0

Only one of the Companys
pension plans is funded. Included in the accrued benefit obligation at year-end are the
following amounts in respect of plans that are not funded:

|                           |  |        
|-------------------------- |  | -------
|                           |  | 2004   
|                          
|Accrued benefit obligation |  | $22,251

The significant actuarial assumptions
adopted in measuring the Companys accrued benefit obligations are as follows
(weighted-average assumptions as of January 2):

|                                                 |  |       |  |     
|------------------------------------------------ |  | ----- |  | ----
|                                                 |  | 2004  |  | 2003
|                                                
|Discount Rate                                    |  | 5.75% |  | 6.5%
|Expected long-term rate of return on plan assets |  | 6.%5  |  | 6.5%
|Rate of compensation increase                    |  | 3.0%  |  | 5.0%

For measurement purposes, annual
inflation rates of 9.5% and 14% were assumed for major medical and prescription drug costs
respectively for 2004 (10% and 15%  2003). It is assumed that these rates will
gradually decline to a rate of 5% in 2013. The effect of a 1% variance in the assumed
health care trend rates would be approximately $120 on the annual health care benefit cost
and $960 on the accrued benefit obligation for other benefit plans. The average remaining
service period of the active employees covered by the pension benefit plans and other
benefit plans is 16 years and 15 years respectively.

The Companys net benefit plan
expense, which is recorded in cost of sales and selling, general and administration
expenses, is as follows:

|                                                          
|----------------------------------------------------------
|2003                                                      
|                                                          
|Current service cost                                      
|Interest cost                                             
|Expected return on plan assets                            
|Amortization of past service costs                        
|Amortization of net actuarial (gain) loss                 
|Amortization of transitional obligation                   
|Valuation allowance provided against accrued benefit asset
|                                                          
|Net benefit plan expense                                  
|                                                          

(Wescast Industries Inc. 2004 Annual Report) 62

---



# 12. Capital stockAuthorized:

Unlimited      Preference shares, no par value
Unlimited      Class A subordinate, voting shares, no par value ("Class A shares")
9,000,000      Class B common shares, no par value ("Class B shares")

|                        |                                   | January 2, 2005
|----------------------- | --------------------------------- | ---------------
|                       
|Issued and outstanding:
|5,730,268               | Class A shares (2003 - 5,721,662) | $97,947        
|7,376,607               | Class B shares (2003 - 7,376,607) | 12,427         
|                       
|                        |                                   | $  110,374     
|                       

The following transactions occurred
with respect to the Companys Class A shares during 2004 and 2003:

|                                          | 2004        
|----------------------------------------- | ------------
|Number                                    | Stated Value
|                                         
|Shares outstanding, beginning of year     |             
|Issued under employee share purchase plan |             
|Repurchased for cancellation              |             
|                                         
|Shares outstanding, end of year           |             
|                                         

During the 2004 fiscal year, the
Company repurchased for cancellation 5,000 of its Class A shares with an assigned value of
$85 for $167. The excess of the cost over the stated value of the acquired shares
amounting to $82 was charged to retained earnings.

# 13. Share purchase loans

The director and employee share
purchase plan loans are non-interest bearing, repayable over 10 years and secured by the
underlying shares. The total market value of the underlying shares was $1,092 at January
2, 2005 (2003  $1,743).

(Wescast Industries Inc. 2004 Annual Report) 63

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

# 14. Commitments and
contingencies

|(a) |  | Through its jointly controlled entity, United Machining Inc., the Company is
               committed to annual rental payments on buildings, machinery and equipment. The
               Company has provided a US$5,000 guarantee to support the machinery and equipment
               lease arrangements of United Machining Inc.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | The Company has committed an additional $2.9 million to acquire capital assets
          in 2005.
|--- |  | -------------------------------------------------------------------------------------------------

|(c) |  | The Company is committed to future minimum annual lease payments under various
          operating leases as follows:
|--- |  | ---------------------------------------------------------------------------------------------------------------------

|     | 
|---- | 
|2005 | 
|2006 | 
|2007 | 
|2008 | 
|2009 | 
|    
|     | 
|    

|(d) |  | The Company has in place standby letters of credit payable to the following
          beneficiaries:
|--- |  | ----------------------------------------------------------------------------------------------------

|                                         | 
|---------------------------------------- | 
|Independent Electricity Systems Operator | 
|Ontario Ministry of the Environment      | 
|Corporation of the City of Brantford     | 

|(e) |  | In the normal course of operations the Company may be subject to litigation and
               claims from customers, suppliers and former employees. Management believes that
               adequate provisions have been recorded in the accounts where required. Although
               it is not possible to estimate the extent of potential costs, if any, management
               believes that the ultimate resolution of such contingencies would not have a
               materially adverse effect on the financial position of the Company.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) |  | The Company is the guarantor of revenue bonds totaling $30,687 (2003 
               $35,281) associated with its Cordele, Georgia operation described in Note
               18. It is anticipated that the Company will repay these amounts in 2005 upon
               the sale or wind-up of the business.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 15. Other (income)
expense

|                                  | 2004
|--------------------------------- | ----
|                                 
|Foreign exchange translation loss |     
|Interest and miscellaneous        |     
|Insurance claim proceeds          |     
|Loss on disposal of equipment     |     
|                                 
|                                  |     
|                                 

(Wescast Industries Inc. 2004 Annual Report) 64

---



# 16. Income taxes

|(a) |  | The following table reconciles the statutory federal and provincial income taxes
               to the effective income tax on earnings from continuing operations before taxes.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | 2004
|-------------------------------------------------------------- | ----
|                                                              
|Income taxes at Canadian combined statutory rates              |     
|Manufacturing and processing deduction                         |     
|Tax effect of non-deductible expenses                          |     
|Difference between Canadian and foreign tax rates              |     
|Unrecognized losses of jointly controlled entities             |     
|Unrecognized losses of foreign subsidiaries                    |     
|Tax effect of cost sharing arrangement with foreign subsidiary |     
|Rate changes on future income taxes                            |     
|Investment tax credits not subject to provincial income tax    |     
|Other                                                          |     
|                                                              
|Effective income tax                                           |     
|                                                              
|The income tax provision consists of:                          |     
|Current income taxes                                           |     
|Future income taxes                                            |     
|                                                              
|                                                               |     
|                                                              

|(b) |  | The future income taxes assets and liabilities consist of the following:
|--- |  | ------------------------------------------------------------------------

|                                                                                       |                 |                  
|-------------------------------------------------------------------------------------- | --------------- | -----------------
|                                                                                       | January 2, 2005 | December 28, 2003
|                                                                                      
|Current future income tax assets                                                       |                 |                  
|Stock appreciation rights                                                              | $294            | $1,383           
|Other non-deductible accruals                                                          | 883             | 660              
|                                                                                      
|                                                                                       | $1,177          | $2,043           
|                                                                                      
|Long-term future income tax assets                                                     |                 |                  
|Tax value of assets in excess of accounting value of assets of discontinued operations | $14,077         | $-               
|Loss carryforwards                                                                     | 18,252          | 10,648           
|Tax goodwill in excess of accounting goodwill                                          | 11,114          | 13,020           
|Accrued costs of discontinued operations                                               | 1,848           | 1,892            
|Accrued pension costs                                                                  | 5,136           | 4,156            
|                                                                                      
|                                                                                       | $50,427         | $29,716          
|                                                                                      
|Current future income tax liabilities                                                  |                 |                  
|Investment tax credit                                                                  | $96             | $118             
|                                                                                      
|Long-term future income tax liabilities                                                |                 |                  
|Tax depreciation in excess of accounting depreciation                                  | $20,319         | $21,717          
|                                                                                      

(Wescast Industries Inc. 2004 Annual Report) 65

---



# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

|(c) |  | At January 2, 2005, the Company has non-capital income tax loss carryforwards of
               $52,790 which relate primarily to a foreign subsidiary. These losses expire
               between 2019 and 2024. At January 2, 2005, the Company has capital income tax
               loss carryforwards of $700, which have no expiry date. Management has determined
               that it is more likely than not that the tax benefits of these loss
               carryforwards will be realized in the future.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | At January 2, 2005, the Company has non-capital income tax loss carryforwards of
               $82,055 which relate to a foreign subsidiary. These losses have an indefinite
               carryforward period. In addition, the accounting basis of the assets of this
               subsidiary exceeds the tax basis of the assets by $20,466. No recognition has
               been given to the net benefit of the loss carryforwards as management has
               determined that it is more likely than not that the tax benefits of the loss
               carryforwards will be realized in the future.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 17. Investment tax
credits

During the year the Company recorded
investment tax credits of $1,376 (2003  $3,315; 2002  $1,289). Of this amount,
$1,163 (2003  $2,883; 2002 $1,289) is included in net earnings (loss) for the
year as a reduction of cost of sales and research, development and design expenses. For
the years 2004 and 2003, the balance of the investment tax credit related to capital
assets and reduced the carrying value of the related assets.

# 18. Discontinued
operations

On July 19, 2004 the Company
announced its decision to exit the chassis business conducted at its Cordele, Georgia
(Cordele) operation. The announcement reflects the Companys decision
to focus its resources on the development and execution of its global powertrain strategy
with emphasis on its successful core competency of designing, casting and machining
powertrain components.

With the assistance of outside
advisors the Company has been marketing this business for sale as a going concern. As of
February 11, 2005 the Company has not been able to secure a buyer for the business. The
carrying value of the chassis business has been adjusted to reflect the estimate of its
net realizable value. The value assumes the business will not be sold as a going concern
and will be wound down in an orderly manner during 2005. The Company will coordinate with
existing customers to ensure a continuity of supply while production requirements are
transferred to other suppliers. It is estimated that all production activities will be
concluded at the operation by the end of the second quarter of 2005. The Company will be
pursuing buyers for the manufacturing assets and property subsequent to completion of
production.

In 2001, the Company approved a plan
to shut down its stainless steel manifold business. All costs associated with the
shut-down were reflected in the Companys 2001 fiscal year. The shut-down was
complete as of June 30, 2002. The Company is currently pursuing buyers for the remainder
of the manufacturing assets; the carrying value of these assets reflects the estimate of
their net realizable value.

The results from discontinued
operations have been reported separately within these financial statements. Prior year
comparative amounts have also been reclassified.

Summarized financial information for
the discontinued operations are as follows:

|                                                 | 2004
|------------------------------------------------ | ----
|                                                
|Sales                                            |     
|                                                
|Operating losses                                 |     
|Goodwill impairment                              |     
|Write-down of net assets                         |     
|Recognition of cumulative translation adjustment |     
|                                                
|Discontinued operations before income taxes      |     
|Future income taxes                              |     
|                                                
|Net loss from discontinued operations            |     
|                                                

(Wescast Industries Inc. 2004 Annual Report) 66

---



Net assets (liabilities) of
discontinued operations:

|                                                    | January 2, 2005
|--------------------------------------------------- | ---------------
|                                                   
|Current assets                                      |                
|Property, plant and equipment                       |                
|Bond issue costs                                    |                
|                                                   
|Total assets                                        |                
|Current liabilities                                 |                
|Long-term debt                                      |                
|                                                   
|Net assets (liabilities) of discontinued operations |                
|                                                   

The current liabilities include
revenue bonds of $30,687 which are repayable in annual installments of US$1,500 with a
variable interest rate, which was 2.08% at January 2, 2005 and mature in the year 2022.
The assets of Cordele have been pledged as security for these bonds. It is anticipated
these bonds will be repaid by the Company upon sale or wind-up of the business, and as
such have been reflected in current liabilities.

In 2003, the Company performed its
annual impairment test of the goodwill that was acquired in conjunction with the chassis
business. The impairment analysis indicated that the full carrying value of the goodwill
was impaired. As a result, a total non-cash charge of $41,485, or $27,380 after tax, was
recognized during fiscal 2003.

Future income tax assets recorded on
the results of discontinued operations have been excluded from the net assets of
discontinued operations since the Company will be the beneficiary of the future reduction
in income taxes.

# 19. Earnings per share

Basic earnings from continuing
operations per share and basic net earnings per share are based on the weighted average
common shares outstanding. Weighted average common shares used in the computation of basic
earnings from continuing operations per share and basic net earnings per share were
13,069,819, 13,047,889 and 13,067,996 in 2004, 2003 and 2002, respectively. The shares
used in the computation of diluted earnings from continuing operations per share and
diluted net earnings per share were 13,139,236, 13,166,536 and 13,284,042 in 2004, 2003
and 2002, respectively.

The impact of discontinued operations
on net earnings resulted in a reduction to basic and diluted net earnings (loss) per share
of $4.71 and $4.69 respectively in fiscal 2004 (2003  $3.49 and $3.49; 2002 
$0.35 and $0.35).

During 2002 the stock option plan was
amended to authorize the grant of tandem stock appreciation rights in connection with
options granted under the plan, at or after the time of grant of such options. The annual
increase or decrease in the intrinsic value of the stock option is included as stock-based
compensation in the statement of earnings. Stock options granted under the plan are only
regarded in the calculation of diluted earnings per share when their impact on the
stock-based compensation included in earnings has resulted in an anti-dilutive effect.

(Wescast Industries Inc. 2004 Annual Report) 67

---



# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

20. Consolidated statements of cash flows

The following is additional
          information to the statements of cash flows.

Change
in non-cash operating working capital:

|                                   
|-----------------------------------
|                                   
|Receivables                        
|Inventories                        
|Prepaids                           
|Payables and accruals              
|Income taxes receivable/payable    
|                                   
|                                   
|                                   
|Supplemental cash flow disclosures:
|Cash paid for interest             
|                                   
|Cash paid for income taxes         
|                                   

# 21. Related-party
transactions

The Company paid freight of $4,376 in
2004 (2003  $4,896; 2002  $5,061) to a related company, 30% of whose shares
are owned by a Class B shareholder of the Company. The charges incurred were reflective of
market rates. Payables and accruals include $343 (2003  $779; 2002  $504),
which is owed to this company.

# 22. Segment information

# (a) Operating segments

The Company operates in the
automotive industry in two geographic segments, North America and Europe. The
Companys manufacturing facilities, where appropriate, are geographically situated to
align with the physical location of its customer base. The Company evaluates segment
performance based on earnings or loss before income taxes.

There were no inter-segment sales
during 2004, 2003 and 2002.

All corporate costs that are not
directly allocated to the European operation have been allocated to the North American
segment.

|                                                           | Fiscal year ended January 2, 2005
|---------------------------------------------------------- | ---------------------------------
|
|                                                          
|Sales to external customers                                |                                  
|Earnings (loss) from continuing operations                 |                                  
|Investment income                                          |                                  
|Interest expense                                           |                                  
|Depreciation and amortization                              |                                  
|Income taxes                                               |                                  
|Purchase of property, plant and equipment and other assets |                                  

(Wescast Industries Inc. 2004 Annual Report) 68

|                                                          
|----------------------------------------------------------
|North America                                             
|                                                          
|Sales to external customers                               
|Earnings (loss) from continuing operations                
|Investment income                                         
|Interest expense                                          
|Depreciation and amortization                             
|Income taxes                                              
|Purchase of property, plant and equipment and other assets

|                                                
|------------------------------------------------
|                                                
|                                                
|Sales to external customers                     
|Earnings (loss) from continuing operations      
|Investment income                               
|Interest expense                                
|Depreciation and amortization                   
|Income taxes                                    
|Purchase of property, equipment and other assets

For the 2004 fiscal year, sales to
the Companys three largest customers amounted to 48%, 29% and 11% of total sales
(2003  46%, 28%, and 10%; 2002  46%, 33% and 16%).

|                              |  | Fiscal year ended January 2, 2005 | 
|----------------------------- |  | --------------------------------- | 
|
|
|                             
|Total assets                  |  |                                   | 
|Property, plant and equipment |  |                                   | 

|                              |        |           
|----------------------------- | ------ | ----------
|Discontinued                 
|North America                 | Europe | Operations
|                             
|Total assets                  |        |           
|Property, plant and equipment |        |           

(Wescast Industries Inc. 2004 Annual Report) 69

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

Foreign exchange contractsThe Company uses foreign currency
forward contracts to manage well-defined foreign exchange risks. These forward contracts
are designated and documented as cash flow hedges. The Company does not enter into
speculative hedge contracts. A decision support system is employed and hedges are put in
place when technical signals indicate it is appropriate to do so. As such, there may be
times when the Company has left a foreign currency exposure unhedged. At January 2, 2005
no foreign currency forward contracts were in place.

Other derivative
instrumentsTo manage the electricity cost
volatility that may arise since the Ontario, Canada, electricity market was deregulated in
May 2002, the Company entered into fixed-price forward contracts to purchase electricity.
The current contracts expire December 31, 2005 and April 30, 2006. There are approximately
126,379 megawatt-hours (MWhr) at a weighted average price of $65.33 per MWhr remaining.
The estimated fair market value of these contracts as at January 2, 2005 was $(129). These
contracts have been accounted for as executory contracts; any gain or loss resulting from
the contracts will be recognized in the statement of earnings upon contract settlement.

The Company has also entered into
financial swap contracts to manage a portion of its electricity cost volatility. These
contracts expire December 31, 2005. There are approximately 6,477 MWhr at a weighted
average price of $69.45 per MWhr remaining. The estimated fair market value of these
contracts as at January 2, 2005 was $(23). These contracts have been accounted for on a
marked-to-market basis.

The Company does not enter into
electricity contracts for speculative purposes. The Company has estimated fair market
value based on available indicative pricing. Given the current lack of liquidity in the
market and other influencing factors, the fair market value is subject to significant
measurement uncertainty.

To manage natural gas cost
volatility, the Company enters into fixed-price forward contracts to purchase natural gas.
The current contracts expire September 1, 2005 and November 1, 2005. There are
approximately 227,446 gigajoules (GJ) at a weighted average price of $7.59 per GJ
remaining. The estimated fair market value of these contracts as at January 2, 2005 was
$(302). These contracts have been accounted for as executory contracts; any gain or loss
resulting from the contracts will be recognized in the statement of earnings upon contract
settlement.

The Company does not enter into
natural gas contracts for speculative purposes. The Company has estimated fair market
value based on available indicative pricing.

Fair value of other
financial instrumentsThe methods and assumptions used to
estimate the fair value of financial instruments are described below:

Cash and cash
equivalents, receivables, and payables and accrualsDue to the short-term period to
maturity of the instruments, the carrying values as presented in the consolidated balance
sheets are reasonable estimates of fair value.

Long-term debtThe fair values of the Companys
long-term debt, based on current rates for debt with similar terms and maturities, are not
materially different from their carrying value.

Credit riskThe Companys financial assets
that are exposed to credit risk consist primarily of cash and cash equivalents, short-term
investments, accounts receivable, director and employee share purchase plan loans, foreign
exchange forward contracts, and electricity and natural gas contracts.

(Wescast Industries Inc. 2004 Annual Report) 70

---



The majority of the Companys
receivables are from the Big 3 North American auto manufacturers. Exposure to any
particular customer is significant, but the Company does not believe that any material
credit risk exists.

The Company also has receivables from
Tier 1 suppliers, some of which may represent a credit risk. The Company believes that
this exposure has been adequately reflected in these financial statements. Any potential
future risk will be mitigated by customer credit assessments, credit insurance purchased
on selected customer accounts and strict adherence to negotiated terms and conditions on
sale, including cash on delivery.

The director and employee share
purchase plan loans are secured by the underlying shares.

The Company is also exposed to credit
risk from the potential default by any of its counterparties on its foreign exchange
forward contracts and electricity and natural gas contracts. The Company mitigates this
credit risk by dealing with counterparties who are major financial institutions and/or are
included on an authorized list of counterparties maintained by the Company.

Interest rate riskThe Companys exposure to
interest rate risk relates to its variable interest rate financing. At January 2, 2005,
the increase or decrease in annual interest costs on the variable interest rate financing
amounts to $603 for each 1% absolute change in interest rates.

24. Stock-based compensation plans

Employee Share Purchase
PlanUnder the Employee Share Purchase
Plan, the Company is authorized to issue up to 500,000 Class A common shares to employees
with not less than three months service and to directors. Under the terms of the plan,
employees may acquire shares annually up to an amount not exceeding 10% of their annual
compensation. Shares are acquired under the plan at a price equal to 85% of the market
value of such shares. Under the plan, the Company issued 13,606 shares in 2004 and 14,551
shares in 2003. The aggregate amount of shares issued under the plan was 180,467 at
January 2, 2005 and 166,861 at December 28, 2003.

In 2004, the Company adopted the fair
value recognition provisions of CICA Handbook section, 3870 with respect to stock-based
compensation (see Note 3). The difference between the fair value of the shares
issued under this plan and the issue price to the employee is recorded as compensation
expense.

Deferred Stock Unit PlanThe Company offers a Deferred Stock
Unit (DSU) plan for members of the Board of Directors. Under the DSU plan,
each director must receive the annual board retainer in the form of DSUs. Also, each
director may elect to receive all or a portion of the other board compensation in the form
of DSUs. Each DSU reflects the notional value of the Class A common shares of the Company.
The issue price of the DSU is equal to the weighted average share price of the
Companys Class A common shares as traded on the Toronto Stock Exchange during the
five-day period prior to the last day of the quarter in which the DSU is issued. The DSU
account of each director is marked to market each quarter and includes the value of
dividends, if any, as if reinvested. Directors are not permitted to convert DSUs into cash
until retirement from the Board. The value of the DSU when converted to cash will be equal
to the weighted average share price of the Class A common shares of the Company as traded
on the Toronto Stock Exchange during the five-day period prior to payment. The value of
the outstanding liability related to the DSUs as at January 2, 2005, was $1,097 (2003
 $1,039).

Restricted Share UnitsDuring the fourth quarter of 2003,
the Company established a new Restricted Share Unit (RSU) plan. Under the
plan the Company has granted RSUs to certain employees, which entitles the employee to
receive a cash payment for each RSU granted in an amount equal to the weighted average
closing price of the Companys Class A common shares as traded on the Toronto Stock
Exchange during the five-day period prior to the third anniversary date on which the RSU
was granted.

(Wescast Industries Inc. 2004 Annual Report) 71

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

The RSUs vest on and the cash value
is paid on the third anniversary date of being granted. The related compensation expense
is recognized over this period. The value of RSUs outstanding is marked to market each
quarter and includes the value of dividends, if any, as if reinvested. At January 2, 2005
there were 75,308 RSUs outstanding (2003  34,622).

The compensation expense reported for
the 2004 fiscal year in respect of the RSU plan was $343 (2003  $37; 2002 
nil).

Stock Option PlanThe Company has a stock option plan,
which grants options to employees up to an aggregate of 1.5 million Class A common shares.
The options, which have a term not exceeding 10 years when issued, vest immediately for
directors and over five years for all others at a rate of one-third for each year over
three years commencing on the third anniversary. The exercise price of each option equals
the market price of the Companys stock on the date of grant.

During 2002, the stock option plan
was amended to authorize the grant of tandem stock appreciation rights (a
SAR or SARs) in connection with options granted under the
plan, at or after the time of grant of such options. Under the amended plan, participants
have the choice of exercising stock options or receiving a cash amount equal to the excess
of the market price of the shares covered by the options over the exercise price of the
related options. The impact of the amendment to the plan, recognized in 2002, was a
one-time non-cash charge to earnings of $14,905, reported as stock-based compensation
expense, for options issued in prior periods. As a result of the decline in the share
market price subsequent to the amendment of the plan, total stock-based compensation
expense was $5,277 for 2002. A summary of the status of the Companys stock option
plan as of the fiscal year-ends of 2004, 2003 and 2002 and changes during each fiscal year
is presented below.

|                                  |                |      |  
|--------------------------------- | -------------- | ---- | -
|(000)                             | Exercise Price |     
|                                  |                | 2004 |  
|                                 
|Outstanding, beginning of year    |                | 931  |  
|Granted                           |                | 22   |  
|Exercised - shares                |                | --   |  
|cash                              |                | (111 | )
|Cancelled                         |                | (171 | )
|                                  |               
|Outstanding, end of year          |                | 671  |  
|                                  |               
|Options exercisable at year-ended |                | 528  |  
|                                  |               

The following information applies to
options outstanding at January 2, 2005:

|           |             |                  |                     |               |                    
|---------- | ----------- | ---------------- | ------------------- | ------------- | -------------------
|           |             |                  | Options Outstanding |               | Options Exercisable
|           |             | Weighted         | Weighted            |               | Weighted           
|Range of   |             | Average          | Average             | Number        | Average            
|Exercise   | Number      | Remaining        | Exercise            | Exercisable   | Exercise           
|Prices     | Outstanding | Contractual Life | Price               | at 01/02/2005 | Price              
|          
|$13 to $24 | 7,000       | 1.2 years        | $15                 | 7,000         | $15                
|$25 to $36 | 208,415     | 4.3 years        | $33                 | 178,500       | $33                
|$37 to $48 | 455,733     | 5.6 years        | $42                 | 342,733       | $42                
|           | 671,148     |                  | $39                 | 528,233       | $39                

(Wescast Industries Inc. 2004 Annual Report) 72

---



25.Reconciliation to accounting
          principles generally accepted in the United States
          of America

The consolidated financial statements are prepared in accordance
          with Canadian generally accepted accounting principles (Canadian
          GAAP) which differ in certain respects from accounting principles
          generally accepted in the United States of America (US GAAP).
          The following reconciliation identifies the material differences on the
          Companys consolidated statements of earnings and retained earnings and
          consolidated balance sheets. The information below does not contain all
          disclosures required by US GAAP.

Subsequent to the issuance of the
Companys financial statements for the year ended December 29, 2002, the US GAAP
reconciliation for 2002 was restated to correct the accounting for the following material
items: fixed-price forward contracts for energy commodities; foreign exchange forward
contracts and minimum pension liabilities. The impact on net earnings of all restatements,
including the pension valuation allowance described in Note 25 (a) (iii), was an
increase in earnings of $1,576 in 2002 and the impact on basic net earnings per share was
an increase of $0.12 in 2002.

# Fixed-price forward
contracts for energy commodities

The US GAAP reconciliation for 2002
was restated to account for mark to market adjustments for the Companys fixed-price
forward contracts to purchase electricity and natural gas. Such contracts are considered
derivatives under US GAAP and are recorded on the balance sheet at fair value, unless
certain criteria are met. The impact of the restatement associated with the energy
contracts, net of taxes, is an increase in net earnings in 2002 of $1,135.

# Foreign exchange forward
contracts

The US GAAP reconciliation for 2002
was restated to treat the foreign exchange forward contracts as non-hedging derivatives.
The impact of this restatement, net of taxes, on net earnings for 2002 was an increase to
earnings of $495.

# Minimum pension
liabilities

The US GAAP balance sheet
reconciliation for 2002 has been restated to recognize minimum pension liabilities
associated with the Companys defined benefit plans (see Note 11). Under US
GAAP, an additional minimum pension liability is recorded to the extent that a plans
accumulated benefit obligation exceeds the plans assets at fair value. An intangible
asset is recorded at an amount that is equal to the additional minimum liability recorded,
to the extent of unrecognized prior service cost and unrecognized transition obligation.
This restatement resulted in the recognition of a minimum pension liability of $4,615 and
a corresponding intangible asset of the same amount as at December 29, 2002.

(Wescast Industries Inc. 2004 Annual Report) 73

---



# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

(a) Statements of earnings and retained earnings (vi)

|                                                               |  |              |  
|-------------------------------------------------------------- |  | ------------ | -
|                                                               |  | 2004         |  
|                                                               |  |              |  
|                                                              
|Earnings from continuing operations according to Canadian GAAP |  | $   34,848   |  
|                                                              
|Depreciation effect of interest capitalization (i)             |  | --           |  
|Mark to market adjustments (ii)                                |  |              |  
|- foreign exchange derivatives                                 |  | (68          | )
|- energy derivatives                                           |  | --           |  
|Pension valuation allowance (iii)                              |  | 16           |  
|Decrease (increase) in income tax expense (iv)                 |  | (25          | )
|                                                              
|                                                               |  | (77          | )
|                                                              
|Earnings from continuing operations according to US GAAP       |  | 34,771       |  
|                                                              
|Loss from discontinued operations according to                 |  |              |  
|Canadian GAAP and US GAAP                                      |  | (61,554      | )
|                                                              
|Net earnings according to US GAAP                              |  | (26,783      | )
|Retained earnings, beginning of year                           |  | 318,792      |  
|Dividends                                                      |  | (6,290       | )
|Excess of cost over assigned value of Class A                  |  |              |  
|common shares purchased and cancelled                          |  | (82          | )
|                                                              
|Retained earnings, end of year                                 |  | $ 285,637    |  
|                                                              
|Earnings from continuing operations per share (Note 19)        |  |              |  
|Basic                                                          |  | $       2.66 |  
|                                                              
|Diluted                                                        |  | $       2.57 |  
|                                                              
|Net earnings (loss) per share (Note 19)                        |  |              |  
|Basic                                                          |  | ($ 2.05      | )
|                                                              
|Diluted                                                        |  | ($ 2.11      | )
|                                                              

Under United States generally accepted accounting principles, the weighted average common shares outstanding for basic
earnings per share and diluted earnings per share are the same as under Canadian GAAP.

|                                                  |  |          |  
|------------------------------------------------- |  | -------- | -
|                                                  |  | 2004     |  
|                                                  |  |          |  
|                                                 
|Net earnings according to US GAAP                 |  | ($26,783 | )
|Other comprehensive income (loss): (v)            |  |          |  
|Deferred foreign exchange                         |  | (13      | )
|Net FAS 133 transition adjustment, net of tax (ii |  | --       |  
|Foreign currency translation adjustment           |  | (83      | )
|                                                 
|Comprehensive income (loss) according to US GAAP  |  | ($26,879 | )
|                                                 

|(i) |  | Under Canadian GAAP, the Company does not capitalize interest. US GAAP requires
               interest incurred as part of the costs of constructing assets to be capitalized.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Wescast Industries Inc. 2004 Annual Report) 74

---



|(ii) |  | Effective January 1, 2001, the Company adopted FASB Statement
               (FAS) No. 133, Accounting for Derivative Instruments and
               Hedging Activities, and related amendments for the accounting for
               derivative instruments and hedging activities. FAS 133 requires that all
               derivative instruments be recorded as assets or liabilities on the balance sheet
               at fair value. Changes in the fair value of derivatives are recorded in each
               period in earnings or other comprehensive income, depending on whether a
               derivative is designated as part of a hedge transaction, and the type of hedge
               transaction. Foreign exchange forward contracts are designated as cash flow
               hedges for Canadian GAAP and gains and losses resulting from these arrangements
               are recognized in earnings at the time of occurrence of the hedged transaction.
               Except for certain hedging activities the Company met the criteria for hedge
               accounting, thus no mark to market adjustments were required in 2004. Prior to
               2004, under US GAAP, the Company did not meet the criteria for hedge accounting
               and therefore outstanding forward exchange contracts have been marked to market
               through earnings. In addition, prior to 2004 under US GAAP, the Companys
               fixed price forward contracts for the purchase of electricity and natural gas
               were considered derivatives and were marked to market through earnings. Mark to
               market adjustments for derivatives that do not meet the requirements for hedge
               accounting under FAS 133 would be classified with other income for US GAAP.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iii) |  | Canadian GAAP requires recognition of a pension valuation allowance for any
               excess of the accrued benefit asset over the expected future benefit. Changes in
               the pension valuation allowance are recognized in earnings. US GAAP does not
               specifically address pension valuation allowances.
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | Income tax effect of items in (i), (ii) and (iii).
|---- |  | --------------------------------------------------

|(v) |  | US GAAP requires the disclosure, as other comprehensive income, of changes in
               equity during the period from transactions and other events from non-owner
               sources. Canadian GAAP does not require similar disclosure.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(vi) |  | Under US GAAP presentation, investment tax credits (see Note 17) are
               recorded as a reduction of income tax expense. Under Canadian GAAP presentation,
               the investment tax credits are reflected as a reduction of cost of sales,
               research and design expenses or capital equipment, as appropriate.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# (b) Balance sheets

|                                                       |  |           | 
|------------------------------------------------------ |  | --------- | 
|                                                       |  |           | 
|                                                       |  | Canadian  | 
|                                                       |  | GAAP      | 
|                                                      
|Current assets (i)                                     |  | $120,240  | 
|Property and equipment (i)                             |  | 364,690   | 
|Future income taxes (i) and (ii)                       |  | 50,427    | 
|Other long-term assets (i) and (v)                     |  | 595       | 
|Discontinued operations                                |  | 18,740    | 
|                                                      
|                                                       |  | $554,692  | 
|                                                      
|Current liabilities (i)                                |  | $  46,452 | 
|Long-term debt and employee benefits (i), (v) and (vi) |  | 45,864    | 
|Future income taxes (i), (ii) and (iv)                 |  | 20,319    | 
|Discontinued operations                                |  | 36,460    | 
|Shareholders' equity (iii), (iv) and (vi)              |  | 405,597   | 
|                                                      
|                                                       |  | $554,692  | 
|                                                      

(Wescast Industries Inc. 2004 Annual Report) 75

---



# 

NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

|                                                       |  |           | 
|------------------------------------------------------ |  | --------- | 
|                                                       |  |           | 
|                                                       |  | Canadian  | 
|                                                       |  | GAAP      | 
|                                                      
|Current assets (i)                                     |  | $125,333  | 
|Property and equipment (i)                             |  | 317,461   | 
|Future income taxes (i) and (ii)                       |  | 29,716    | 
|Discontinued operations                                |  | 78,725    | 
|Other long-term assets (i) and (v)                     |  | 74        | 
|                                                      
|                                                       |  | $551,309  | 
|                                                      
|Current liabilities (i)                                |  | $  44,872 | 
|Long-term debt and employee benefits (i), (v) and (vi) |  | 16,014    | 
|Future income taxes (i), (ii) and (iv)                 |  | 21,717    | 
|Discontinued operations                                |  | 40,757    | 
|Shareholders' equity (iii), (iv) and (vi)              |  | 427,949   | 
|                                                      
|                                                       |  | $551,309  | 
|                                                      

|(i) |  | Under Canadian GAAP, the Companys interest in its jointly controlled
               entities has been accounted for using the proportionate consolidation method.
               Under US GAAP, these interests must be accounted for using the equity method.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) |  | This adjustment reflects the cumulative income tax effects of the adjustments
               outlined in Note 25 (a).
|---- |  | ---------------------------------------------------------------------------------------------------------------------

|(iii) |  | The shareholders equity adjustment reflects the aggregate and cumulative
               effect of the adjustments outlined in Note 25 (a).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|(iv) |  | This adjustment reflects the effect of the cumulative result of other
               comprehensive income, net of income tax.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|(v) |  | Under US GAAP, an additional minimum pension liability is recorded to the extent
               that a plans accumulated benefit obligation over the plans assets at
               fair value exceeds the liability related to the plan. An intangible asset is
               recorded at an amount that is equal to the additional minimum liability
               recorded, to the extent of unrecognized prior service costs. An additional
               minimum pension liability amount of $5,239 (2003  $5,390) has been
               recorded in the intangible asset and long-term debt and employee benefit
               accounts respectively. Under Canadian GAAP, there is no accounting for
               additional minimum pension liabilities.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(vi) |  | This adjustment reflects the elimination of the pension valuation allowance
               recorded for Canadian GAAP as described in Note 25 (a) iii.
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

# (c) Stock-based
compensation plans

| | The Company accounts for its stock-based compensation plans disclosed in Note 24 under
APB Opinion 25 and related interpretations.
| | ----------------------------------------------------------------------------------------------------------------------------------

| | The employee share purchase plan offers shares of the Company at 85% of the market value.
Prior to 2004, no compensation cost was recorded for the share purchase discount
associated with this plan.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The stock option plan was converted from a fixed plan to a variable plan in 2002 as a result
of the granting to employees the choice of receiving cash or shares on the exercise of
their options. The exercise price of each option equals the market price of the
Companys stock on the date of the grant. Prior to 2002 no compensation cost was
recorded for this plan. Since 2002, the effect of changes in the intrinsic value of the
stock options is recorded in the statements of earnings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Had compensation costs for the employee share purchase plan and the stock options plan been
determined based on the fair value of the options and shares as of their grant dates
consistent with the method of Statement of Financial Accounting Standards 123,
Accounting for Stock-Based Compensation(SFAS 123), as amended by SFAS
148, Accounting for Stock-Based Compensation  Transition and
Disclosure, the Companys net earnings and earnings per common share would
have been reduced to the pro forma amounts indicated below. The effects of applying SFAS
123,
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Wescast Industries Inc. 2004 Annual Report) 76

---



| | as amended, are not likely to be representative of the effects on reported net earnings for
future years because options vest over several years and additional awards may be made
each year and employee share purchases are voluntary. There is no pro forma effect of the
stock option plan in 2004, 2003 and 2002.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 |  |           |  
|------------------------------------------------ |  | --------- | -
|                                                 |  | 2004      |  
|                                                
|Net earnings (loss) - as reported                |  | ($ 26,783 | )
|Stock-based compensation - reported, net of tax  |  | (981      | )
|Stock-based compensation - pro forma, net of tax |  | 981       |  
|                                                
|Net earnings (loss) - pro forma                  |  | ($ 26,783 | )
|                                                
|Basic earnings (loss) per share                  | 
|As reported                                      |  | ($ 2.05   | )
|Pro forma                                        |  | ($ 2.05   | )
|Diluted earnings (loss) per share                | 
|As reported                                      |  | ($ 2.11   | )
|Pro forma                                        |  | ($ 2.11   | )

# (d) Recent accounting
pronouncements

| | In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities
(FIN 46). FIN 46 requires that the assets, liabilities and results of the
activity of variable interest entities be consolidated into the financial statements of
the entity that is the primary beneficiary. FIN 46 provides the framework for determining
whether a variable interest entity should be consolidated. This interpretation was
effective immediately for variable interest entities created after January 31, 2003. For
variable interest entities created before February 1, 2003, FIN 46(R), issued in December
2003, amended the guidance in FIN 46 as well as the transition guidance. Based on the
Companys interpretation of the revised transition guidance, the Company was required
to adopt the guidance in FIN 46(R) for the year beginning December 29, 2003. The adoption
of FIN 46(R) did not have a material impact on the consolidated financial statements
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. SFAS No. 149 amended and clarified financial
accounting and reporting for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities under SFAS No. 133.
SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The
adoption of SFAS No. 149 did not have a material impact on the consolidated financial
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
established standards for classification of certain financial instruments that have
characteristics of both liabilities and equity but have been presented entirely as equity
or between the liabilities and equity section of the statement of financial position. SFAS
No. 150 is generally effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS No. 150 did not have a material impact on the
consolidated financial statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the FASB issued the revised Statement of Financial Accounting Standards
(FAS) No. 123, Share-Based Payment (FAS
123R), which addresses the accounting for share-based payment transactions in
which the Company obtains employee services in exchange for (a) equity instruments of the
Company or (b) liabilities that are based on the fair value of the Companys equity
instruments or that may be settled by the issuance of such equity instruments. This
statement eliminates the ability to account for employee share-based payment transactions
using APB Opinion No. 25 and requires instead that such transactions be accounted for
using the grant-date fair value based method. This statement will be effective as of the
beginning of the first interim or annual reporting period that begins after June 15, 2005
(July 1, 2005 for the Company). Early adoption of FAS 123R is encouraged. This Statement
applies to all awards granted or modified after the statements effective date. In
addition, compensation cost for the unvested portion of previously granted awards that
remain outstanding on the statements effective date shall be recognized on or after
the effective date, as the
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(Wescast Industries Inc. 2004 Annual Report) 77

---



NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS(in thousands
of Canadian dollars, except per share amounts and where otherwise noted)

| | related services are rendered, based on the awards grant-date fair value as previously
calculated for the pro-forma disclosure under FAS 123. Management is in the process of
evaluating the impact of FAS 123R on the consolidated financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In November 2004, the FASB issued FAS No. 151, Inventory Costsan Amendment of
ARB 43, Chapter 4 (FAS 151). This statement amends the guidance in
ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted material.
This statement requires that those items be recognized as current-period charges. In
addition, this statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production facilities. This
statement will be effective for inventory costs incurred during fiscal years beginning
after June 15, 2005 (January 1, 2006 for the Company). Earlier application of FAS 151 is
permitted. The provisions of this statement shall be applied prospectively. The Company
does not expect this statement to have a material effect on the Companys financial
statements or its results of operations.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In December 2004, the FASB issued FAS No. 153, Exchanges of Non-Monetary AssetsAn
Amendment of APB Opinion No. 29 (FAS 153). FAS 153 amends APB
Opinion No. 29, Accounting for Non-Monetary Transactions (Opinion 29). The
amendments made by FAS 153 are based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the exception for non-monetary exchanges of similar productive assets
and replace it with a general exception for exchanges of non-monetary assets that do not
have commercial substance. The provisions in FAS 153 are effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005 (July 1, 2005 for the
Company). Early application of the FAS 153 is permitted. The provisions of this Statement
shall be applied prospectively. The Company does not expect the adoption of FAS 153 to
have a material effect on the Companys financial statements or its results of
operations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 26. Subsequent event

On February 23, 2005, the Company
announced that its Board of Directors had approved a foundry optimization plan for its
North American operations which will significantly lower operating costs and increase
foundry utilization. As a result the Company will close its Brantford, Ontario foundry
operation. The plants production requirements will be transferred to the
Companys other facilities. The transfer of production, and closure process, is
expected to be completed during the 2005 fiscal year. The net costs associated with the
closure cannot be reasonably determined at this time and have not been accounted for in
these consolidated financial statements.

# 27. Comparative figures

Certain of the comparative figures
have been reclassified to conform with the current years presentation.

(Wescast Industries Inc. 2004 Annual Report) 78